Software is becoming a commodity. The better the underlying models get, the less your “software moat” is worth.
Extrapolate the trendline and you get to the question of what moat still stays. The answer you will usually get is distribution.
What people mean when they say “distribution” is how much proprietary data you gather from your target group, on top of which you can then create trendlines of the market, reposition yourself and bench the market against it better than other people, seeing first.
That alpha is only worth as much as other people don’t have that insight on a timely basis.
So, if we spin this further, the question is: what do we optimize for? What is the real asset that we are building? What has worth?
Software is becoming a tool and your distribution is becoming the asset.
Up until now, you were optimizing to have the best software. Now a company is nothing more than a telescope into the market, so we should optimize for that.
The Meat
How do you optimize to get the biggest market share?
A) You don’t monetize your asset (target group), because that will slow growth. It’s hard to wrap your head around that thesis, so let me compare it with something else. When you are looking to expand the reach of e.g. your social media postings, would you make every person that wants to see your posting pay for it? NO. You would make sure as many people as possible spread your message, your account, whatever. That does not lower the value of the message. It just does not stop your spread
B) We are not an NGO, so how do you make money then? You monetize the person that will buy your distribution.
Companies optimizing for growth will stop buying companies for their software. They will buy them for distribution, or for a gateway that allows them to have distribution in a target group that no one else can reach.
You can monetize the buyer. Make them prepay so they can buy you exclusively. Make them fund your growth because they are structurally unable to make free tools themselves. There are so many ways to extract value here, even licensing them anonymized daily data. Many ways, be creative.
C) There are only 19 ways to do distribution, so know them all by heart and match them. The Bullseye method from Traction by Gabriel Weinberg and Justin Mares is the one and only bible of growth. Many people are creative in GTM, but on the wrong level.
Level one: What industry are you in and who are you selling to?
Based on that alone you will be able to match your company to the right GTM strategy. E.g. Fintech selling to banks: small target group, trust, make events or dinners and one-on-ones. Dev tool selling to devs with low ACV: optimize for reach, social media / networks / SEO & GEO.
That is the baseline, and there is nothing you should be creative about here. Don’t be the dev tool with a 20 EUR subscription that starts doing dinners. Don’t be the 150k+ ACV company optimizing for reach through low-hanging fruits. Know your lane and stay in it.
Level two: This is where you can get creative.
If you’re optimizing for low ACV reach, you can start building communities, you can do large hackathons, etc. High ACV with a small target group? Think of people who would profit from the same target group and make them sponsor. This is the creativity play.
Rewrite the Rules
Forget everything you have been told about the software world, because AI has rewritten every rule. You no longer have this exponential curve everyone is talking about, because you can’t outpace the models. You should no longer lock in and build for the first months, because that worth is zero.
Stop thinking that monetizing a target group is a must, because it is not. You are not an EBIT machine, so you don’t want to be valued as one. Especially if you’re playing the VC game, be aware if you want to optimize for being the most valued asset or if you’re building yourself a cash cow. It matters, because you start optimizing for different things.
The thing about a startup is that the likelihood of you being successful is small. That also means you have to be risk-taking and double down on your decisions. The riskiest path is not the one that is convinced of a bet and doubles down, but the one that is undecided and optimized for everything. If you take risks, go big. The thing that could kill you is not you being too bold, it’s being mediocre.
The greatest minds will forget everything they knew and rewrite the rules. I’m so here for it.