"Be more efficient"

Why today's viral startup advice is half-right, half-stupid

Hi all —

B2B software is the greatest business on earth.

90%+ margins + recurring revenue = magic.

Yet. It’s hard to get these businesses off the ground, and it’s even more difficult to get them profitable. You, dear reader, already know this.

And now, as interest rates rise, we hear loads of startup influencers saying, “It’s time to be efficient! It’s time to get hardcore! It’s time for discipline!”

(Let’s ignore, for a brief moment, that these same influencers were saying WAGMI ~24 months earlier. Let’s also ignore that few of them have run a real business.)

I have two reactions when I hear this kind of talk:

1. Ok, great, let’s cut a bunch of waste and build profitable SaaS businesses!

2. How do you actually build an efficient business?

Efficiency is downstream of strategy

My realization: It’s easy to say, “let’s be efficient!” but it’s hard to know how to be efficient.

Most people think efficiency means, “we’re doing what works, at low cost, with little waste.”

But it actually means, “we’re doing what works, at low cost, with little waste, that adds up to a coherent, differentiated business.”

In the first case, efficiency is the “end” in itself. This is what private equity dingos think, and it’s why they kill every business they touch. When you’re just focused on optimizing every line on a spreadsheet, the result isn’t a coherent and differentiated business - it’s a discombobulated trainwreck of tactics that are logical in isolation, but not in total.

In the second case, efficiency is downstream of strategy. Strategy dictates which activities add up to a coherent, differentiated business. Once you know which activities are in play, then you can figure out how to get the most out of each of those activities and operate efficiently.

So, as you’re thinking about “getting efficient and hardcore” after your next board meeting, ask yourself:

1. First, am I crystal clear on who we serve, how & why we are differentiated, and what activities actually work to generate raving customers?

2. Then, how do we do that set of activities at the exclusion of all other things?

3. And finally, how do we do those activities more efficiently?