Wholeheartedly agree that mkt sizing alone shouldn't be the sole criteria, though I personally find that having *clarity* about the scope of the potential revenue opportunity you're pursuing is vital. I think this is true both for startup investors and entrepreneurs. The mobile ecosystem (handsets, carriers, apps, etc) may be a gazillion dollars overall, but understanding exactly which part a given startup might be going after is what's ultimately relevant even if it might only be a few hundred million today. Or if you're an ad tech company, the overall mobile or web ad market might be immense but the true revenue opportunity is typically a fraction of a fraction of the overall spend.
I think understanding very adjacent markets is also key. For example today's spend on X may be small in the environment a startup is pursuing... say mobile. But behavior on "traditional" web or offline or whatever may in many cases be more telling about the trajectory of that mobile market in the future, so having a grasp on that as well as the nascent market is important.
robchogo
· 3 months ago
Yes, adjacent markets is key. Actually, one point I wanted to make was that thinking of markets is sometimes misleading altogether (especially when you are creating a new market). A better way to think about it is "jobs to be done". Usually, even in a new market, there ss an alternate way to get jobs done, so understanding those trends are important. For example, although Twitter has created a "new market", many of the "jobs" that Twitter performs aren't new. Discovering content is a job performed by search engines, newpapers, RSS feeds, etc. And all of those players are relevant in the ecosystem of Twitter's new market. Stealing from Clay Christensen on this one :)
David Reinke
· 2 months ago
Great post, Rob - good reflections for this entrepreneur. For the VC these are fundamental questions as you try to answer, "Should we invest?". For the entrepreneur, similarly, this is a critical analysis in determining "Should we raise money?".
Early on in the formation of my company, I didn't fully appreciate these issues. Our company is creating a new market and trying to solve a huge problem in our industry - I thought that was enough. However, I've since realized there are critical market questions that, while unknowable now, must be answered. First, are there real barriers to entry in our market? Second, how much value can we capture? Until we have some more insight around these questions and the ultimate size of the prize, it's probably not wise to start splitting the pie into pieces.
robchogo
· 2 months ago
Great comment David. Yes, it's almost more important for entrepreneurs because you have to live with your market on a day to day basis and try to figure out ways to deal with the good and bad. Best of luck!
All Comments
Wholeheartedly agree that mkt sizing alone shouldn't be the sole criteria, though I personally find that having *clarity* about the scope of the potential revenue opportunity you're pursuing is vital. I think this is true both for startup investors and entrepreneurs. The mobile ecosystem (handsets, carriers, apps, etc) may be a gazillion dollars overall, but understanding exactly which part a given startup might be going after is what's ultimately relevant even if it might only be a few hundred million today. Or if you're an ad tech company, the overall mobile or web ad market might be immense but the true revenue opportunity is typically a fraction of a fraction of the overall spend.
I think understanding very adjacent markets is also key. For example today's spend on X may be small in the environment a startup is pursuing... say mobile. But behavior on "traditional" web or offline or whatever may in many cases be more telling about the trajectory of that mobile market in the future, so having a grasp on that as well as the nascent market is important.
Early on in the formation of my company, I didn't fully appreciate these issues. Our company is creating a new market and trying to solve a huge problem in our industry - I thought that was enough. However, I've since realized there are critical market questions that, while unknowable now, must be answered. First, are there real barriers to entry in our market? Second, how much value can we capture? Until we have some more insight around these questions and the ultimate size of the prize, it's probably not wise to start splitting the pie into pieces.