Build as little as possible, as fast and cheaply as possible, while demonstrating some unique value. From the classic VC view, many of these efforts will result in a product, or even a feature, rather than a sustainable company. But that may be OK for the first stage, because the development time and expense are small enough to be funded by the founders, friends and family, or a few angels. The go-to-market is similarly light. Rather than a sales channel, the venture will buy ad words on Google, promote itself via word of mouth on blogs and via user communities, and penetrate enterprises by pricing low enough to fall within the purchasing power of a department, or even an individual. Being in early and continuous touch with its market, the venture can course correct early and often.Tim then suggests that the second stage is defined by further product development and larger scale deployment, with venture funding:
The second choice after a successful first stage launch is to light the second stage, which will require venture funding. Second stage activities will consume cash in advance of the sales to fund them, as they must occur before imitators arrive. They may include adding functionality to meet customer requests, rebuilding parts of the product for greater efficiency and defensibility, adding the necessary sales force, scalability, and system integration to be able to sell to a higher end market, such as the CXO enterprise level, or carriers. At the point of making the second stage decision, the technology risks have been greatly reduced, and a portion of market risk eliminated.He argues that this evolution model is in response to the rise of open standards, open source, offshoring, and the commoditization of hardware & software. I would argue that this model is more likely in response to the Internet - easier & less costly distribution of product. Whereas selling software ten years ago required physical store distribution and the physical publishing of diskettes, now functional software can be sold online and marketed through cheap ads.