A Change in the tide at VC? Is quality the new quantity?

As the Co-Founder of Beatgrid, a cross-media audience measurement scale-up in the Netherlands, I’ve had the good fortune of being part of the European startup ecosystem for quite some time now.

I’ve seen the B2B startup landscape change dramatically, too. One area in particular, and of key interest to other startup founders, is how venture capital investors have shifted their evaluation of investment opportunities.

In the past, the number of users or consumers a business had in its docket was seen as (more often than not) the most important metric for determining its potential for success.

However, in today’s economic environment, with a recession looming and money drying up, ongoing war nearby, and countries still in the midst of a pandemic and myriad supply chain issues- the focus has shifted towards the quality of a company’s product over the quantity of its users.

The pandemic had a profound impact on the global economy, with tech companies being particularly affected, as the shift towards digitisation was drastically accelerated.

Startups with digital products and services have seen a surge in demand, leading to an increase in competition and making it ever more challenging for them to acquire and retain clients and/or users.

Focus on the product first

The number of B2B clients or users a company has is not a reliable indicator of its potential for success, because it does not necessarily mean that a product is well-designed or that it offers a long-term solution for real problems.

On the other hand, a business product or service that is ingeniously devised and solves a real problem for a smaller group of users is more likely to be successful in the long run, it starts with fewer, but they are high-value users that come back again and again, sometimes even helping develop the product. 

As a founder, the underlying principle that must guide your efforts is to create a product that provides real value to your end-users, if not, what are you creating? Today, business customers are savvier with technology and know when a solution fulfils a need or not.

In simple terms, a founder and their product, be it a SaaS or payment platform, an adtech offering, or even an HR toolkit, should empathize with the businesses that will be using their solution. 

We know that customer empathy is a two-way street, and the payoff will be to everyone’s benefit. If your product is consistently improving, and consistently engaging your user’s needs, the deposition makers at potential partner companies will take note.

In fact, it should be a cliche, because a better product that is scaled for its inherent quality instead of quantity, is more likely to be successful in the long run as well. The quality of a product is determined by many factors, like design, functionality, and user experience.

But at the end of the day, all of this comes back to customer empathy, as consumer journeys are a key way to visualize and understand what your biggest opportunities are as a startup. When a solution is designed with the users in mind and provides a personalized experience for them, it is more likely to be adopted, shared and discussed with others, and used regularly.

To achieve a high-quality solution, customer research and product decision-making must be combined into a repeatable and scalable process that based all decisions and priorities on a deep understanding of customer pains, wants, and needs (empathy).

Accurate customer journey mapping will be the key for you to build products that create real value and that can still scale without compromising quality, and that’s why teams that prioritize product research thrive.

User numbers – half the story 

A B2B solution with many adopters does not necessarily guarantee that the startup will be profitable in the long run. We see flash in the pan success stories all the time, sometimes there are genuinely good products that gain many users and then never develop, allowing competition to catch up, or they are merely viral sensations (yes, these happen in the corporate world too) that flutter and fall as fast as they came out of nowhere.

For this reason, the quality of the product is on its way to becoming the all-important metric for investors that indicates the true potential of a tech company for long-term success. 

Remember where you started – Solve a problem

Keep this as a mantra: A product needs to solve a real problem for its users, if it does, it is more likely to drive greater revenue and become more profitable as a result. A great example is Offeo. Offeo could see the rise in desire for User-Generated-Content happening all around us, the growth in influencer-style creation both for consumers and fun as well as it being a tool for sales, networking and marketing.

So the Singaporean-founded company set out to enable creators with over 1,000 templates for Facebook and Instagram creators in square, vertical or landscape formats – as well as more than 1,000 audio tracks to complement videos with. In five years, the search growth for Ofeo has increased by 1075%.

See an opportunity, time it well, service it well, and see success. Offeo generated $600K in revenue from approx. 3,550 customers last year.

It’s worth noting that there are other factors that venture capitalists consider when making investment decisions. These can include the size of the market opportunity, the technology, the team’s strength, or the business model’s scalability. 

Grow from a base of quality 

When start-ups are looking for exponential growth opportunities by raising investment rounds, the trick for them looking to catch the eye of an investor is to focus on providing the best product and the best user experience possible, as a customer’s lifetime value will be the main indicator of this.

Imagine creating a product so good that it lasts the test of time, other pretenders come and go but none surpass the moment of usefulness/benefit/joy/fascination that yours does (think Shazam in the world of B2C), and again, understand that providing such a high-quality product with a great user experience is crucial for our long-term success. Listen to the metronome, and the beat of the mantra. 

Investors are always on the lookout for the next big thing. They have metrics on top of metrics that they use when searching for the next company to invest in, which is why founders must focus all of their energies on scaling the quality of their product, with the user’s best interest in mind to stand out ahead of the competition. It’s in your control, unlike the other and more abstract metrics.

We all know the startup landscape has undergone significant changes in recent years, but the principle and the mantra companies need to follow has not ever changed: A product needs to be well-designed and offer a real long-term solution to its users.