Q. Which is the better path to take, as a push or a pull startup?
A. In a recent conversation with a Canadian venture fund about bootstrapping one’s startup, I was asked whether I preferred a ‘push’ or ‘pull’ model when vetting or building new businesses. Although I had heard of these terms before, this was the first time I actually considered my own partiality for a particular genre of business model. Let’s begin with some definitions; a ‘push’ model relates to an entrepreneur who launches their startup because they believe that they can develop a product or service that combines market appeal with a competitive advantage over competition, as such it is eventually pushed to the customer via sales. Alternatively, the ‘pull’ model is based on some certain knowledge that a customer, whether current or potential, is interested in buying a particular widget, and the entrepreneur develops it with that specific buyer in mind, and essentially the product is ’pulled to market’ by the customer.
The advantages of the pull model are fairly obvious, because as soon as the development or beta phase is complete, sales by the client who pulled it are inevitable and forthcoming. However the drawback of this style is that the initial interested puller may be the only client that needs such a product/service or is willing to pay for it. Conversely, by developing a business using the push model, the startup has the opportunity to sell their widget to as wide of a market as they wish, and products can be produced with extensive potential applications. Although the push startup may not have a concrete buyer in place prior to launch, as in the case of the pull model, the push-type startup does not encounter the same risks associated with exclusively having only one client.
My revelation in contemplating my own predilection for one model over the other got me thinking about which is most optimal given differing environments. The aforementioned VC tended to fund businesses in the telecommunications sector, and the reason for this was because the fund was backed by a leading phone company. Their methodology was simple; ask their current clients what they were in need of, or what was lacking in the market, and then invest in businesses which produce on that exact need. This allowed the fund to enjoy a tangible payback period which could be easily predicted, as they had the benefit of knowing precise future cash flows and margins before even investing in the pulled product or company. Imagine that you could invest a certain amount in a business today and know with certainty (often backed my quasi-binding letters of interest to purchase) to who and how much of those products would be sold next month...not a bad way to invest.
The flip side of this is the push method, and what I now understand to be my own modus operandi, whereby the product comes first and the customer base is then filled subsequent to going to market. This model allows an entrepreneur to build a product or service in almost any sector, assuming a certain propensity to operate in an industry where the founder has some experience, and sell to a variety of customers. The snag here is that from an investment perspective there is a higher risk associated with backing or launching a business that doesn’t secure customers in advance of its launch.
While a pull method uses supply as the initial impetus for growth, and a push strategy uses demand as its catalyst, in contemplating your own strategies for launch consider not only your own risk tolerance, competitive strengths or experiences, but also deliberate whether you have the network to create a pull model and build your startup around a particular need from a particular customer. If you are like me when I got my start, chances are your network is still in its preliminary stages and as such you may want to consider buying or developing a product or service that fills a void which is felt by a multitude of customers, not just one, through a push model.