Editor's Note: In the past, enterprise software startups often followed a clear path: first, find a small but expandable entry point, achieve tens of millions of dollars in ARR with a single-product (niche feature entry into the market); then expand the product suite around the same buyer, aiming for hundreds of millions of dollars in revenue (expanding into product suite); finally, once enough users and data have accumulated, become a new platform (rebuilding the underlying platform).
However, in the AI era, this "three-act playbook" is becoming obsolete. As software development costs rapidly decrease and the cycle from concept to implementation is significantly shortened, startups no longer need three to five years to prove a niche market and slowly expand boundaries. Companies like Cursor, Clay, Harvey, and others have approached or even surpassed $100 million in ARR in a short period of time, signaling a rewritten competitive pace in enterprise software.
The core argument of this article is that in a rapidly changing market, relying on a "safe entry point" may actually become conservative. The new generation of software companies need more than just finding a wedge; they need to have the ambition from the beginning to rearchitect the entire workflow or even replace existing platforms. The death of the so-called "three-act play" signifies a shift in software entrepreneurship from incremental expansion to a full-scale bet from the start.
Below is the original text:
In the past, building an enterprise software company had a fairly clear playbook.
Act One: The Wedge, aka the Split
Start by entering a niche area within a feature or market segment that is underserved by existing solutions. During the platform transition period, you would identify a feature within the existing platform, overachieve on it by 10x in the new paradigm, and use it as your market entry point.
This niche market must be sizable enough for the company to quickly reach tens of millions of dollars in ARR (Annual Recurring Revenue) but not so large as to immediately attract destructive competition. Statsig initially focused on product experimentation; Rippling started with an orchestration tool for employee onboarding and offboarding processes, and so on.
Most startups spend 3 to 5 years refining their initial product, building an early GTM (Go-To-Market) team, and then gradually scale to $10-50 million in ARR before moving on to Act Two.
Act II: Product Suite
The core of Act II is to launch adjacent products, enabling the company to break through $100 million in ARR. At this stage, you are no longer just building a single-point product but starting to construct a whole suite of products.
Statsig initially focused on product experimentation and later added capabilities such as feature flags, session replay, and product analytics. Rippling started with payroll and HR workflows, such as employee onboarding and offboarding processes, and then expanded to a range of HR, benefits, and recruitment-related products, providing a comprehensive solution around the same buyer.
For companies that reach this stage, it usually takes an additional 3 to 5 years of real time. When the first product reaches $50 million in ARR, the company begins cross-selling the second and third products. By the time it reaches $100 million in ARR, perhaps the other two products have reached $10 million and $1 million in ARR, respectively. It is this product suite strategy that opens up the possibility of reaching $200 million, $500 million, and even higher ARR.
Act III: Platform
The final stage is rebundling. As the company accumulates enough scale and user engagement, you eventually qualify to replace the platform on which you are built. This is also the underlying logic behind all "Systems of Engagement" attempting to commoditize their underlying "Systems of Record." In theory, this is the path for companies to expand beyond $5 billion and achieve long-lasting, highly sticky revenue.
Fast-Track this Strategy
I am concerned that this three-act approach is dead. I think the world is evolving too fast.
The three-act path implies a certain amount of calendar time, especially in the early days of a startup. Founders have limited things they can do: initially focus on finding product-market fit, then build early GTM actions, and later expand GTM. The reason why in the past companies did not start Act II until reaching $10 million to $50 million in ARR is that the company was still heavily invested in Act I.
Over the past few years, there have been a group of companies that have gone from nearly 0 to $100 million in ARR, such as Cursor, Cognition, Clay, Harvey, Sierra, Base10, Fireworks, Lovable, and others. This in itself is evidence that the world has already changed.
There is no longer time to overly refine a step-by-step strategy. As software engineering costs plummet, the time required to complete Acts I and II is approaching zero. I believe the rational approach is to plan to quickly build everything from the start.
Ambition
It has also profoundly changed the way I look at early-stage investing. In the past, I would look for a protective moat, which is an entry point that would allow a company to safely reach $10 to $50 million in ARR. Now, the so-called entry point seems too timid. I find myself more eager for entrepreneurs to jump straight into the deep end.
For example, I remember meeting Anysphere, now known as Cursor, at the seed stage. At the time, their plan seemed to be to directly replace VS Code because they believed that VS Code was too limiting for AI programming. I thought it was too crazy at the time—VS Code was extremely popular. After years of IDE fragmentation, VS Code finally prevailed. Why would a seed-stage company come in and directly replace VS Code? The more reasonable path seemed to be to first build a plugin and then gradually earn the right to replace it.
By the way, I was wrong at the time. Now, it seems that even replacing VS Code is not ambitious enough. Why stop there?
As the cost of writing software approaches zero, I find myself valuing ambition more and more, above all else. Not just any ambition, but the kind that is unreasonable and relentless.
I believe the three-act play approach is over. In a fast-changing era, relying on a specific entry point is too timid. If you really want to do it, you probably should go for the whole enchilada from the start.
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