Here’s a common mistake that first-time founders make when creating the business model slide of their pre-revenue or pre-seed investor pitch deck.
It may seem unintuitive, but there is such a thing as too many revenue streams in a startup pitch. This sounds illogical on its surface—investors want your company to earn money, so more revenue streams should mean more opportunities to earn money, and you would assume that’s a good thing.
But showing too many potential future products or revenue streams will give investors the wrong impression that you don’t have a focused plan. While founders tend to think that showing multiple revenue opportunities demonstrates market potential, investors often interpret it as a lack of strategic clarity and focus.
A common Silicon Valley adage is that the key to a winning startup is to “do one thing and do it better than everyone else” (though Rippling’s compound startup model stands as a counter-proof). Investors may perceive founders as having shiny object syndrome if their pitch presents too many revenue streams, taking it as evidence that the founders are vulnerable to being distracted by new opportunities rather than grinding through difficult problems.
One inevitable truth of any business (but especially startups), is that you have limited resources. VCs will worry that startups pursuing too many revenue streams will spread themselves too thin instead of dominating one specific niche. Trying to compete in several different spaces simultaneously makes it harder to build a defensible moat or become a clear category leader.
In the eyes of an investor, each additional revenue stream actually multiplies the execution risk and complexity of managing operations, sales, and product development (ultimately increasing the probability of failure).
It’s important remember that although revenue diversification is a good thing, too many revenue streams can be a red flag. Investors want to see that you’re focused on a niche opportunity where you have a unique edge.