8) For this reason, I often feel like the advice that VCs give to B2B SaaS companies to step on the gas prematurely and spend like crazy w/ out figuring out the unit economics first is just a waste of money.

There is no value in having 100k customers if they are net negative.

9) In contrast, for cos w/ potentially strong network effects, the value grows over time -- your customers literally become worth more because of addl customers.

So in many cases you do want to pour $$$ into a co w/ network effects.

10) As you can see these are completely opposite strategies and shouldn't be confused. But many investors do.

11) Now let's talk about how money affects strategy.

As a small fund, we haven't invested in that many cos that could potentially have strong network effects. Why?

We write small checks. If a big check writer comes along and funds a competitor, our co is basically toast.

12) Network effects businesses tend to have a winner-take-all result. That works both ways. If you are a large fund and pour in $10m in a company w/ strong network effects, that capital can be a great moat.

As a small fund, we would need to closely align w/ such big funds.

13) There are exceptions to the "winner-take-all" result. Ridesharing showed that you can have 2 big winners.

But I'd argue that if you are building a ride sharing co from scratch in the US today, it would be v hard to compete w/ Uber & Lyft.

14) In contrast look at email marketing. @Mailchimp is certainly dominant. But ppl switch email service providers all the time.

There's really no first mover advantage (or network effects to retain earlier customers).

The true moat is just a great prod & customer happiness.

15) That means that someone could come up w/ a new email service provider today and can compete with @Mailchimp

And that has happened! Mailchimp was started in 2001 - almost 20 yrs ago. Along the way you've seen new players: Hubspot, Sendgrid etc. Even Substack in 2018!

16) And I'm sure there will be more entrants. You don't need a lot of cash. And incumbents can be taken on.

There's no first mover advantage.

17) As you think about building your biz, you should think about network effects and how strong / weak they are. If you are running a biz that could have strong network effects, you will have to run fast and raise a LOT of $$ otherwise you won't survive.

18) The opposite is also true. For most B2B SaaS cos (exceptions are things like Slack or other communication tools), you have more time on your side and need less money.

It also means that you won't have a great moat behind you either when you make it big.

19) This is also why you see more bootstrapped cos with big exits / unicorn status in B2B SaaS -- because you don't need a lot of capital and have more luxury of time.

20) Final thoughts:

A) Think deeply about whether your co potentially has strong network effects & whether you are well positioned to raise a lot of $$$ easily & quickly (and want to run w/ that).

2) Don't conflate strategies. It will only be a disaster.