Why Pipelines Trump Customers: Rethinking Value Creation in Startups
It’s often said that “every startup needs customers.” That’s true. Without someone paying for your product or service, you don’t have a business. But this oft-repeated mantra misses the mark entirely when it comes to understanding value creation—the kind of value venture capitalists care about.
Owning a pipeline, controlling the infrastructure through which value flows, is vastly more valuable than owning data, which in turn is more valuable than owning a community, which is more valuable than simply having an audience. And yes, having an audience is ultimately more important than just having a few customers.
Let me explain and share why the hierarchy of value exists as it does.
The Ultimate Asset: Owning a Pipeline
A pipeline is the infrastructure that enables access—to data, audiences, or customers. Think of it as the roads that let people get to businesses, the internet browser that connects users to websites, or the smartphone that’s the gateway to apps. The entities that own these pipelines wield incredible power because they control the terms of access for everyone else.
Consider Apple’s iOS and Google’s Android. These operating systems are pipelines to the mobile internet. By controlling these platforms, Apple and Google dictate what apps thrive (or fail), while also collecting a treasure trove of data on every user interaction. Their value isn’t in selling phones or operating systems alone; it’s in owning the infrastructure that other businesses rely on to reach their customers.
Another example: Netflix. At first glance, it seems Netflix is just another streaming service, but it’s far more. Netflix is a pipeline to global entertainment. By owning its platform, it controls not only what content gets seen but also gathers unmatched data on viewer preferences, allowing it to influence and even dictate the types of shows and movies being made.
For startups, if you can create or own a pipeline—be it a proprietary technology, a distribution channel, or even a physical network—you hold the keys to extraordinary leverage. Your competitors, customers, and partners must go through you to reach the value you control.
The Power of Data Ownership
Data enables faster, better decision-making, making it indispensable for businesses that want to scale intelligently. If and once you control a pipeline, you’re in a position to collect and own data but you can still collect data from the market, analytics, and research; this is why owning a pipeline is more valuable than the data itself; data is more accessible to everyone and of great value regardless of who owns the pipeline.
Startups often undervalue data ownership. Many rely on third-party analytics tools or scrape insights from social media, but this is a poor substitute for owning the data outright. Take Tesla as an example. The company isn’t just an automaker; it’s a data powerhouse. Every Tesla vehicle collects vast amounts of data on driving habits, road conditions, and battery performance. This data isn’t just useful for improving Tesla’s own products; it’s a strategic asset in the development of autonomous driving technologies and energy solutions.
Governments understand this principle deeply. The U.S. government invests billions annually in intelligence agencies like the CIA and in polling, research, and data collection because owning information allows them to act with foresight. Similarly, startups that own their market data—from customer behavior to competitive insights—are better positioned to navigate challenges and seize opportunities.
You might not be the Google Play Store (a pipeline) but if you’re a game developer who isn’t leveraging the data you have and can get, you can’t optimize your game, can you?
Community: YOUR audience
The shift in investor priorities over the past decade underscores the value of community. Serial entrepreneur and investor Andrew Chen considers in his book, The Cold Start Problem, the importance of network effects and how communities can drive growth and engagement. While he may not have used this exact phrasing, the idea resonates with his broader insights on community building and retention. Investors now look for evidence that startups have not just reached people but built a loyal, interactive base of users.
Both an owned source of data and retention of customers, building a community means developing a direct, ongoing relationship with your audience. This might take the form of an email newsletter, an installed app, or a dedicated social media group. For example, Peloton doesn’t just sell exercise bikes; it’s cultivated a community of fitness enthusiasts through its subscription platform and live classes. This community not only generates recurring revenue but also provides invaluable feedback and advocacy.
Many founders conflate “audience” with “community,” but they’re not the same so while hoping you can see why data is more valuable than community itself, we need to explain the difference between your community and your audience because you should have an audience but what you want, more valuable than that, is community. An audience is a group you can reach and influence, but a community is a group that you own and that actively engages with your brand. Think of an audience as viewers of a TV commercial versus a community as members of a fan club.
Audiences, Beyond Community
If community is so much more valuable than an audience, why care about audiences at all? Because an audience is the precursor to community. It’s the broader group you reach through ads, partnerships, or social media—even if you don’t yet own the relationship.
Think about Spotify. Before launching its podcasting platform, Spotify had an enormous audience of music listeners. That audience provided the insights Spotify needed to make a calculated leap into podcasting, where it now builds communities around exclusive content. Without that audience as a starting point, Spotify would have been flying blind.
Customers: The Misleading Foundation
Finally, let’s clarify what we mean by “customer.” Customers are the individuals or businesses that pay for your product or service. While critical to your business’s survival, they’re not necessarily the source of its value.
Having some customers proves you’ve solved a problem and can sell your solution; but you shouldn’t *need* to prove that because a halfway decent marketer can do that – if an investor or advisor is saying to you that you need customer validation, it’s because they don’t believe you can accomplish what you’re hoping to accomplish. And still, if you stop there with only customers or customer validation, you’ll plateau. Competitors will swoop in with better pipelines, richer data, or stronger communities and leave you in the dust. This is why VCs don’t just look at your customer numbers; they assess your ability to scale, differentiate, and create value beyond direct transactions.
The Hierarchy of Value
To recap:
- Pipelines – Control access, influence, and data flow, creating exponential value.
- Data – Enables smarter decisions and strategic leverage.
- Community – Owned relationships that drive retention and advocacy.
- Audience – Broad reach that seeds future growth opportunities.
- Customers – Proof of concept but insufficient for long-term value.
The idea that startups should “focus on customers” is incomplete advice. Customers are critical for viability, but they don’t, in and of themselves, actually create lasting value. Instead, focus on building audiences, communities, and owning data. And if you can, aim to control a pipeline.
Consider venture capital’s perspective. Investors fund startups not because they have customers, but because they see the potential for scale and value creation in these higher-order assets. Community retention, data intelligence, and pipeline control are what transform a promising startup into a market leader.
As a founder, your job isn’t just to sell; it’s to build. Build the infrastructure, relationships, and insights that make your business indispensable. In the end, pipelines, not customers, define the future of innovation and value creation.
Peter Thiel’s “proprietary technology” principle perfectly captures this hierarchy.
Owning the pipeline creates asymmetric leverage beyond transactional customer relationships.
The most powerful businesses don’t just sell products—they control the infrastructure that enables value creation and capture.
Transformative companies architect ecosystems where data, community, and distribution converge, turning traditional sales models inside out.
Mark Donnigan yes! Reminds me too of the YKK story and how they have an empire merely making zippers… And owning everything related to that.
Love this Thiel observation, “Madness is rare in individuals—but in groups, parties, nations, and ages it is the rule.”
It all depends. Sometimes a customer is a pipeline in itself
Stan Podolski I can see that, but give us an example you have in mind, so we can consider it
Insightful!