What Does It Mean For A Startup To "Focus"?

questioning a common saying

Happy Sunday and welcome to Investing in AI. I’m Rob May, CEO of Nova. We teach machines to understand brands and used that to build BrandGuard. I also host the AI Innovators Podcast, and am an active angel investor. If you have an interesting AI startup, please reach out. I’ve done over 100 AI deals and been the very first check into 15+ deals over the past few years.

Today’s post is less about AI and more about startups in general. It was inspired by a conversation I had with a startup I’m invested in, where I ended up saying “I know some investors will tell you to focus more but, I don’t think you should at this point.” I realized that was uncommon advice and so I decided to really dig in and take a deeper look at startups and “focus.”

On top of that I was looking at my first batch of 40 angel investments from 2015 - 2018. Of those companies, 12 are worth over $100M, at an average entry point of $8M (the range was $3M to $20M). Of those 12 that have done really well, 10 of them were companies VCs hated initially and part of the reason was, they seemed “unfocused.” Those founders heard things that VCs say like “this seems like a technology looking for a problem to solve” or “if you say you are serving everybody then you are serving nobody.” I hate those sayings because they are bullshit. Markets and companies are all different. Going really broad is sometimes the right approach. And many great inventions didn’t have an obvious use case in the beginning, or at least, which use case to start with wasn’t obvious.

I really prefer these big broad messy ideas because they have large market potential and they tie into major changes in thinking over time, rather than these tiny rifle shot super focused ideas that so many VCs like that often end up getting stuck in a small corner of a market.

The problem with “you need to focus” is that focus sounds like a very specific piece of advice, but it’s not because focus can be applied at many levels. Let’s say you are building a new CRM. What does it mean to “focus”? Is it focused enough to say you are building a CRM for an industry vertical, say, manufacturing? I could always focus more. What about a CRM for manufacturing companies with $20M - $200M in revenue? That’s more focused. But wait, I could make it a CRM for manufacturing companies with $20M - $50M in revenue. That’s more focused right? And what about ones that primarily have field reps and need mobile? And what about geo-targeting just the southeastern united states? So now I have a CRM for manufacturing companies with $20M - $50M in revenue with a focus on mobile use cases in the southeast. Super focused right? But is the market too small?

If you are too narrowly focused, you may have a small TAM, and you may not be getting feedback that is indicative of the broader market. If you are too broadly focused, your efforts may be diluted in ways that make you mediocre at everything and great at nothing.

The real issue focus is trying to get at is the return on marginal dollar invested in the business. How does that next dollar spent move the company forward? Focus is a matter of degree that varies per business opportunity. Some market entry points require a broader scope than others.

What I don’t like about this discussion on focus is that people throw it around without any analysis. It’s used as if narrowing in your business model is always a good thing, but that isn’t true. I’ve invested in over 100 startups at this point in my career, and a common problem is that they get stuck in something too small. I feel like a rare voice encouraging them to think bigger, in contrast to the majority of their investors telling them to focus focus focus, which they interpret to mean do something more narrow. But in my experience, people use focus to mean “I think you should be doing something a little different - in particular, you should do it my way.”

So what is the right level of focus? Here are some heuristics I use to figure that out. They aren’t perfect rules. They aren’t absolutes. Some even pull you in opposite directions. But they can work generally.

1. If you prioritized your list of things that would move the business forward, and started going from top bottom to top on what’s easiest to cut, or what you feel comfortable giving up, give up one more thing past that. If you have 7 things you really want to do, and when forced into it, you can drop 3, drop 1 more and that’s probably (but not always) a good level of focus.

2. If you are a technology looking for an application (most VCs won’t back you but a few of us really like these, so email me), don’t focus. Go broad for a while. Sign a few pilots with different types of customers. You need 12-18 months to cast a wider net to see where you get traction.

3. If you are a solution to many problems, then it depends on the shape and scope of those problems. If it’s lots of little problems (maybe something like Zapier in the early days - connecting lots of things to lots of other things) I’d go broad and just build all the use cases I could build, and ignore most definitions of “focus.” If there is one or two really valuable problems you solve, start with those but, if they are difficult to get traction (maybe customers aren’t aware of the problem, or entrenched ways of thinking are too strong) then move to the secondary ones and use those as leverage to come back to the main value prop use cases.

4. If you go 12-18 months and don’t find a focus point, try artificially focusing for 6 months. Re-do the website to target just one buyer persona or industry vertical and gear all your messaging towards that and see if it moves the needle. It’s 50/50 in my experience whether it will work.

5. If you have to pick a focus and you wonder if it should be industry vertical or not, use this test - does your buyer go to a job title conference or an industry conference? If your Director of Customer Support for a Financial company is likely to go to a Support conference over a Financial conference, vertical targeting may not work well. Try buyer persona focus instead.

6. Remember that even as you start to focus, it won’t really become clear until around $1.5M to $2M in revenue. Before that, you will sign up customers that feel a little more mixed, even if you are consistent in your messaging. That’s ok. Don’t turn them away in the name of focus if your value from engaging them is more than the distraction factor.

7. Keep in mind that a startup is an organization searching for a profitable business model. You should be experimental until you find that business model. Then you should focus on exploiting it. Conventional wisdom that comes from most business leaders doesn’t apply to the “searching for a business model” phase, only the execution phase, so take it with a grain of salt.

Ultimately, what you are trying to do here is make educated guesses about the tradeoffs you have to make to build your startup. Do you think you close more deals by adding one more feature that caters to your existing target customer profile, or by adding some features that expand your TAM by catering to a new type of buyer? If it’s the latter, but your investors tell you expanding like this “not focusing” then they are wrong.

Finding the right level of focus in a business is hard. AI technology is likely to make it easier than ever to do more with less, meaning existing ideas of what is appropriately “focused” might be shifting. You can serve bigger companies earlier than you used to be able to. You can go international sooner. You can launch a second product sooner in your company’s life cycle. Maybe these things are unfocusing. Or maybe they are right for your business.

All I’m saying here is don’t take this common advice “you should focus” at face value. Make investors do the intellectual legwork to understand your business and help you find the right level of focus that is appropriate for what you are trying to do. Don’t let them get away with simple aphorisms that aren’t easily analyzed. That’s intellectually lazy and won’t lead to good outcomes.

Thanks for reading. And by all means if you have related points to make, or disagree, please let me know. I’m always open to other points of view.