Yes, You Can Make Your Feature a Successful Business

Yes, You Can Make Your Feature a Successful Business

Yes, You Can Make Your Feature a Successful Business 150 150 Basis State - We Find Exits for Software Companies

“Sounds like a feature, not a product.” Anyone who has been on the VC trail a few times has probably heard these words. It’s one of the most common reasons for VCs to pass on your business.

It makes sense. Features don’t get to VC scale, and they can easily get knocked-off by large platforms. For example, Google is notorious for obliterating swaths of startups by adding free features to its suite.

The entrepreneur’s response to the feature-not-product dilemma is often to head back to the drawing board and create a bloated vision around the feature. “We’ll add X, then Y, and eventually disrupt market Z!” The problem is that this fills a VC need, but not a market need. In all likelihood, you started with a feature because the market just wants the feature.

Believe it or not, you can create a business out of a feature. It may not be built to last, or get you famous, but it can deliver a better return than a decent exit after several rounds of VC financing (i.e. after dilution & liquidation preference).

Here are some keys to a successful feature business:

Capitalize for a Modest Exit

Don’t take VC for your feature business. Just don’t. Your investors won’t be happy with your modest plan, the market won’t be happy with an artificial attempt to make it bigger, and you won’t be happy when the proceeds from your sub-scale exit go 100% to your investors. If you uncover a scalable business down the road, you can always raise capital then. VC is designed for scale, period.

Embrace Being Invisible

Whereas most businesses cringe at the thought of letting their brand sit in the background, feature businesses should seize opportunities to ride alongside larger brands. There are two reasons for this: capital efficiency and acquisition positioning. Most of the capital burn in software startups goes towards acquiring customers, so if you’re running lean, it can make sense to give up some margin and brand equity to let someone else do your selling. And, this type of partnership can build the business case for eventual acquisition.

Make Hay While the Sun Shines

Remember, your feature business could get undercut at any time by a larger platform. Make conservative long-term plans, harvest profits while you can, and if you get a good offer for the business, take it.

Your Valuation is Not a Multiple of Revenue

Your prospective acquirers will be looking at your ability to accelerate their feature roadmap, bring a new feature to their existing base of customers, or inject a new set of customers into their base. They will not be growing your current standalone business, so it doesn’t make sense for them to value your business based on revenue. As you consider valuation, consider the value that you are bringing the acquirer; it might be considerably higher or lower than typical revenue multiples.

You probably didn’t set out hoping to create a feature business. But if that’s what you have, structure it correctly for the win.