The only 2 ways to build a $100 million business

By boris, September 19, 2012

With tens of thousands of new start-ups being created every year, the potential of a company to truly scale and become a large, stand-alone business is more crucial than ever before. A great product is always the foundation but a clear distribution strategy becomes essential to cut through the noise.  So most early-stage VCs have started to evaluate investment opportunities with an imaginary benchmark in mind: can this company become a $100 million opportunity?

Generally speaking, there are two ways (and only two ways) to scale a business to hit that $100 million threshold:

  • Your business has a high Life Time Value (LTV) per user, giving you the freedom to spend a significant amount of money in customer acquisition. High LTV can usually be found in transactional or subscription businesses.
  • Your business has a high viral co-efficient (or perhaps even a network effect) that lets you amass users cheaply without worrying too much about the monetization per user or spending money on paid acquisition.


Route One: High LTV per user

The exact definition of a “high” user LTV depends on the specific vertical, so it’s typically better to analyze the ratio between Customer Acquisition Costs (CAC) and the Life Time Value of the customer. In my experience, having an LTV that’s three to four times greater than CAC makes a business (and potential investment) interesting.

The biggest driver for high LTV is repeat purchase behavior (in an e-commerce business) respectively a low churn rate (in a SaaS company). Companies that score highest in this criteria are typically:  E-commerce businesses that fulfill regular needs and offer a differentiated experience or SaaS businesses that help businesses or individuals manage core activities.

As a VC, the biggest challenge in evaluating LTV models is that metrics can dramatically change at scale. For example, Customer Acquisition Costs often increase once the more efficient marketing channels are maxed out and the company needs to find new users through less efficient means. In addition, churn tends to rise as a company grows. Early users of a product are often strong advocates and company ambassadors, while those users acquired through paid marketing channels down the road show far less loyalty.

Route Two: The Viral Effect

The other way to scale a business is through a strong viral and/or network effects that lets businesses grow to tens of even hundreds of millions of users. With this model, user acquisition is generally close to free, and monetization per user is often low (advertising-based or freemium businesses).

Many businesses built in the early days of the Facebook platform (like Zynga) benefitted from a huge viral co-efficient and scaled very rapidly. (As we all know, this is no longer the case as Facebook has essentially removed most of the free viral channels and businesses must now pay for most of their user acquisition via Facebook.)

Even more interesting are businesses that create network effects like marketplaces or social networks. Not only do they acquire lots of users for free due to viral effects but also create important barriers to entry and lock-in effects as the network grows over time.

Startup Purgatory: No Man’s Land

Unfortunately, many consumer internet startups find themselves stuck in the middle of these two strategies: they have a low monetization per user and limited viral effects. That unfortunate combination makes it rather difficult to reach the $100M mark.

As the consumer Internet space becomes more and more crowded, every startup founder needs to be thinking about these two ways to scale a business. Too often I have seen entrepreneurs believe that customers will automatically flock to their cool new service, completely underestimating how tough it is to cut through the noise and build an audience.

To build a standalone company and capture the attention of investors, you need a viable way to scale your business. The earlier you figure this out the better, since it may require you to build your product differently. While the $100 million mark may seem far away in those early days, it’s important to begin thinking about paths to reach this threshold from the start.


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  • Insightful post Boris. I’ve been thinking about calculating LTV, do you have any rules of thumb, particularly for SaaS?

    For e.g. If you charge $100/month, I feel like the naive (and optimistic) way to do it, would be to calculate the Present Value of a perpetuity of $100/month. If so, I’m not sure what discount rate to use.

    But clearly we should be accounting for churn and the fact that most customers probably won’t be around for an infinite amount of months. In the early days, it’s hard to know what those numbers might be. Again, do you have any rules of thumb? Thanks!

  • Black Cloud

    Not exactly. Take real estate for example. One decent lot in NYC bought a hundred years ago could sell today for over a 100M easily. We can think of it as a business, such as a parking lot in midtown. There are few of those.

  • There you go Paul,

  • Corndig

    I hardly think buying property and waiting 100 years or NYC parking lots qualify as startup businesses…

  • In other words, either sell something of actual value, a product, something that people will keep using, or be facebook / google / twitter / instagram and make the user be the product.

  • LTV is a Saas business can be calculated by ARPU / churn – so if you have $100 ARPU and 2% churn your LTV is $5000. Great SaaS business have churn rates between 1-2%.

  • bwertz

    yeah, very simplified

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  • Why no mention of TAM? A high LTV doesn’t matter in a small market, does it?

  • I feel that the problem with Route One, is that it’s a pretty big gamble to aim for. There’s a very high luck factor, even if you check all the boxes and Do Things Right™.
    The nature of Route Two is, that by it’s definition (lower quantities) they are not as well known, or used as prime examples of successful start-ups.

    No stats to back up that statement though 🙂

  • Agreed – size of the underlying market is always a big driver and pre-requisite for building a big business

  • Ron

    Would say there are 3 ways to grow a business

    1) Get more customers/users (often the toughest)
    2) Increase the transaction size of your customers/users
    3) Increase the frequency in which they complete a transaction.

  • Andrew Maguire

    I would argue that the typical early stage (Series A) VC benchmark is actually ~ can this business scale to $1B+ in value. There is no clear outside funding path for entrepreneurs today that need $3-5M for a startup with potential to grow to $100M business. If you’re an entrepreneur and that’s what you’re pitching for venture capital, you need to find a way to convince VC’s that the market / potential is minimum of 10X larger.

  • bwertz

    agree on Series A / Series B benchmark being higher – I was talking more about the seed stage and expectations of an early-stage investor

  • Andrew Maguire

    Fair enough. Good post btw, I think the core thesis is correct : )

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  • Hashim

    You’re missing the “Paid” engine of growth where a startup uses advertising to acquire users. This is the method Groupon and Saleforce used.

  • bwertz

    This is route #1 as described above

  • Disagree. Inbound marketing’s the third path. You can have relatively low CLTV but balance it with an extremely low cost of acquistion (because instead of spending money to acquire customers, you use inbound channels – SEO, social, content, community, etc).

    For example, in Moz’s early days, we had a CLTV under $400, but our CAC was only ~$50 all-in. Granted, we’ve not yet scaled to $100mm in revenue, but 2011 ended with $11.4mm in recurring subscription revenue and 2012 will be ~$20-22mm.

  • bwertz

    Great point, Rand – I would argue that only a few businesses can be built purely on inbound marketing and that they usually take longer to scale but it is a potential third way (or a variation of route #2).

  • instacanvas

    Great post Boris! I can see what attracted you to a little startup in Los Angeles 🙂 Going to forward to several teams we mentor. You present one of the clearer matrixes we’ve seen for thinking about user acquisition.

  • Fair enough 🙂 Hopefully we can help spread the message about this third path so more can use it.

  • Thanks for the nice words 🙂

  • Best analytical/calculated approach to SaaS I have seen:

  • Disagree. That was the old model of $250M+ funds, of which there are still a few around. The new dynamics of venture funds have to provide returns on $100M, or even less, exits. Of course, you always look for the additional upside, but if financed correctly (both in investment and valuation) a $100M exit should be a big winner for any fund.

  • Nick O’Neill

    So I have to disagree here. Half the Facebook app developers that acquired millions of users had no way to monetize them and sold them off but the acquirers did nothing with them. They were a write off. So assuming that having millions of people is all it takes is false. The requirement with millions of users is *maintaining millions of people*.

    I also agree with Rand Fishkin here … I’m a big advocate of inbound marketing models.

  • bwertz

    I think the more general point was that social platforms are a big driver of virality – but agree with you that many apps scaled very quickly on Facebook but either never monetized or retained their users

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  • I wonder if, like Rand says, that the virality is actually just a specific form of a decreasing customer acquisition cost over time relative to profits and revenues? You alluded to that here, and there might be other ways to get decreasing acquisition costs over time? Like, becoming the de facto standard of an industry?

    Anyways, very very nice post here. I almost never just link to a post and say “go read this” on my blog, but I just did with this one. So, thanks — my first visit here via HN, but really succinct good point here Boris.

  • Agreed that inbound marketing is a viable path to building a big, significant business. HubSpot’s not yet at $100mm either — but we’re growing and headed there.

  • Roger Duncan

    So stupid question here…I’m referring to the following statement: “As we all know, this is no longer the case as Facebook has essentially removed most of the free viral channels and businesses must now pay for most of their user acquisition via Facebook.”
    Can someone explain to what this refers? Did FB start charging for integrating with OpenGraph while I was napping?

  • exactly lol

  • got any examples of what your talking about? both you and hubspot have not reached 100MM……

  • No – but in the earlier days of the Facebook platform apps had many ways to drive virality (posting in newsfeeds, pages, etc.) which they have taken away since.

  • What I described above are the 2 extreme cases but even route 1 can potentially include some viral growth. Being the de facto standard / category leader in a vertical often drives an above average amount of word of mouth which drives down overall acquisition costs.

  • Rakesh

    Start up never know in early days as they are validating their business model.

  • Michael Porter

    Sad. Counterfactual, look at all 100MM businesses listed. Most are not tech and most did not follow this narrow prescription. My mind reels at the tech blindness. Please app tech and tech business.

  • Ravi

    Agree with Dharmesh and cheers 🙂

  • Super Rand – Do you have any 2011-2012 examples of great inbound marketing strategies executed by a startup/company to near perfection aka amazing results?

  • This is prevailing wisdom, but it ignores the fact that they’ve added hugely viral new channels such as Open Graph (see SocialCam and the Social Readers). Good post though.

  • Luis

    Seems logical.

  • Great article Boris. I look forward to hearing you live in Halifax Sunday 🙂

  • Facebook closed viral channels? I completely disagree with this statement. How about recent “video” channel that Viddy employed? Rick Marini once said that such companies as Zynga are very important to Facebook, as they have alot of retention, so why would Facebook block acquisition channel for such important companies? Since thay closed one channel – they will open a new one.

  • bwertz

    Agreed that there are still viral channels on Facebook (and posting to timeline is an important one) but those channels are a fraction of what they used to be 3-4 years ago.
    Boris Wertz
    w media ventures

  • organm999

    I like the comment that you either build a valuable product, or you attract a valuable product (attractive users).

    The idea that inbound marketing represents a “third way” does not ring true to me. Inbound marketing is just an underexploited channel that reduced CAC for while, but is rapidly becoming efficient as companies start to hire teams of journalists to create content. It’s still all about LTV/CAC. My company Influitive produces advocate marketing software which radically lowers CAC through referrals and other advocate activity, but I’m not going to call that a 3rd way. We are just lowering CAC and raising k (viral coefficiant), so Boris’ model still holds true in my book.

    – Mark

  • bwertz

    Great comment, Mark – love what Influitive is doing.

  • Great article and comments.

  • Absolutely yes, but what’s the point of comparing past and current abilities of viral channels? We have what we have now.
    I think that viral channels just relocated. How would you assess the Pinterest from the point of viral traffic source?

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  • Allow me to give an example on this:
    The “Forced Invite” Technique, It used to be the most viral technique for applications on facebook, but they banned it in 2008.
    And there are many techniques that used to get FB Apps high traffic and viral effect in 2007. But Since 2008: FB started to limit these actions.

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  • I’d be interested to see how many companies can break through the £100m threshold via the ‘third’ route.

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  • Mo

    HubSpot is useless…im still surprised how they even make a million.

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  • Andrew Ward

    Make sure your calculations for ARPU and Churn are based on the same time period when using this method (i.e. monthly ARPU / monthly churn, not annual ARPU / monthly churn)

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  • franca condo

    bribing customers to advocate (i.e. sell) for you is a cheesy way to introduce yourself to new people.

    not impressed by influitive.

    holding contests with points — trying to gamify advocacy.


    not the way to go

    thats multi-level-marketing to me

    users dont want to sell your companies product on their social media pages

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  • vanyortie

    The fastest and only business model to 100m in America for the common man is simple: illicit drugs. 100m of retail sales can be purchased wholesale for 15m. This requires sophisicated logistic ops, operational security over all aspects concerning the vertically integrated plan, legal a d CPA advisors in several countries think the US, Peru, and Mexico), network distribution chain consultants, and of course banking consultants to move money in and out of the US banking system through the integration, layering, and capital exit phases. A JD or MVA might work, the above will work, entails great risk, but all the components of a 100m business are there: adequate supply and great demand. Americans love drugs. If the USA is too inept to realize their anti-narcotic policies foster great criminal enterprises by creating extreme wealth potential and demand is the variable not addressed, then if you want to build a 100m dollar business in the above niche: you need 20M dollar business to build a very strong organization and all US distribution can be allocated to several betwoeks operating in various parts of the US. Viva Amerika! Phuck a dot com, just give me 3 rogue border patrol agents and counter intelligence consultants, and within 12 months, 100m is doable. Start up money is easy too: grab a top 1% of the top 1% and sell him back to his family. Also, armed outfits could intercept shippments into tbe US. Its a win-win.

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