Looking for the Right Place to Wage a Long War

The goal of my new blog, The Long Frame, is to bring to light a less prevalent model for building tech companies, which uses a ‘slow burn’ approach. This path guns for execution over a longer window of time but with significantly less capital while still shooting for substantial size. Think companies like Bloomberg, SAS or Epic over companies like Google, Uber or Facebook.

You might say that these companies were started in a different era with distinctly different market conditions. If you are looking for more modern day examples of a slower build model working, there are plenty out there — Qualtrics, Medallia, Jamf or MailChimp. We at Kipsu are following the same approach… instead of 7 years to scale, we think of something more like 15 to 20 years but with the same large market opportunity of greater than $100M in revenues.

Before getting in to the tactics of how we’ve executed on building a Long Frame company — to come in later posts — I thought it might be useful to start by dissecting the characteristics of a Long Frame market opportunity. What makes an attractive problem to solve for founders intent on a slower burn approach and what about those markets makes it ideal for doing so?

Here’s what we looked for at Kipsu:

1 — Find a problem that requires ‘extra sauce.’ For many Silicon Valley companies, once they get their offering dialed in, they light a fuse and in a short period of time transition from product/market fit to scaling the company. A Long Frame company, on the other hand, might need a lot more hand holding to help customers be successful with their offering. That may come in the form of piloting, training, integration and customization. In our case, it has been about developing and implementing a series of strategies to help our customers get high amounts of activity that fit within the regulatory constraints governing our business. For Kipsu, high activity equals high value to our customers and no amount of extra capital would have solved for the learning curve that we needed to go through to get our activity levels to a sustainably high level. You’ll know you have the ‘extra sauce’ dialed in when your churn is less than 10% per year, and, ideally, less than 6%.

2 — Identify markets with the right social dynamics. As Geoff Moore brilliantly details in Crossing the Chasm, market scaling is dependent upon customers getting comfortable with your offering because someone else told them how much they love it. The truth is that most of us are conservative buyers and don’t line up at the Apple store to be first in in line the night before a new product debuts. Long Frame companies embrace this by looking for markets where the socialization of their offering won’t happen overnight. This limits the ability for others — such as well funded upstarts, larger companies deciding to compete or potential customers that are considering building it themselves — to have an edge by spending their more significant resources.

3 — Drop the business school definition of what defines a good market. Look for problems that you can solve for one industry and then adapt to another /or/ problems that create an opportunity to get into an account base with a modest initial offering with the potential to expand with product line extensions. In business school, they train you to look for opportunities that are $100M+ in revenue potential. I am suggesting you do the opposite. Look for white spaces that are initially small but the problem you are solving is fundamental and universal and can be adapted to other markets over time. This keeps a lot of others out of the business as they look for larger initial opportunities that a VC would be willing to invest behind. We knew this from the outset at Kipsu and our small group of outside investors, who are comprised of private investors and VCs investing out of their personal accounts, liked the thesis — “fundamental problem, longer build time, expansion into a series of $30M to $70M revenue market opportunities, which when combined will make a big company.” This is a more execution intensive approach and it’s important to be clear that is what you are betting on.

4 — View and treat your customers as your build partners. We’ve never tried to maximize how much revenue we could generate off of a single account. Instead, we’ve offered them a reasonable price and focused our energies on engaging them in the process of building our solution. We’re a for profit business but have always treated Kipsu like it is more of a collective. Instead of calling our accounts “customers” we call them “customer partners” and we mean it. We don’t have a sales team; we have a customer partnership team. Every feature in the system has been built in partnership with a customer partner. Conversely, when customer partners pushed for deep discounts, we’ve pushed back. We’re honest and we tell them, “Listen, every dollar you pay Kipsu goes into us building a better solution and a better company to support you, we don’t plan to generate profit for a long time to come, and every dollar you pay us for the foreseeable future comes back to you in some form.”

5 — Be the first in market. It’s difficult to build a Long Frame business if you are #2 or behind in the market. When you are late to the party in a market that requires Extra Sauce, you are at a learning deficit on day one. The folks that have been in the market have a huge leg up from having been there and already learned a lot of the hard lessons you need to. To catch up, you likely need to raise capital from institutional sources, which adds time pressure to perform and added burden to start showing scale before another round of financing, which further compounds the situation since you need to be in learning mode to figure out #1.

6 — Finally, look for a good proxy in the market you are serving. Are there other technology companies fixing adjacent problems in your market that have had success with a slow burn approach? For us, we looked at Medallia, a unicorn in our broader Customer Experience Management space, and thought they shared many similar characteristics and had executed on a comparable path. In Medallia’s case, they built for nine years before raising growth stage capital from an outside investor and they have had a dominate position in their category in the same market, hospitality, which we have focused Kipsu. We thought that was a good indicator for how fast you could grow a company with a similar customer engagement model in our initial sector.

One of our biggest accomplishments in the first few years of Kipsu was doing so with limited outside capital. If you can pull it off, you too will be able to define your own path.

Christopher Smith is a Co-Founder and the CEO of Kipsu, which helps hoteliers, retailers and other high touch service providers build amazing relationships with their customers using text messaging and other digital conversation channels. Chris is also a Co-Founder and the Co-Chair of Minnesota Comeback, an education reform network tackling the opportunity gap in Minneapolis. You can reach him at chris@kipsu.com.