- So the size of the opportunity is really important to focus on especially early. There's a line that a lot of venture capitalists use when they talk about a market, and they say, what's your total available market size? How big is the market that you're going after? That's a useful phrase to try to categorize the scale of the market you're going after. If the universe of people who could buy your product is seven people, and your product costs $10, that's probably not a business worth going after.
If there's millions of people who could buy your product for $10, that's probably worth going after. There's an interesting nuance to this notion of size, is that it's very easy to size a market extremely large. Every person on the planet, seven billion people are customers for my product. That's not really useful in the context of sizing the market because what you're really looking for is with your first product or the first iteration of your product, who is that initial market going to be? And who is going to buy that initial product? Defining that first layer of size is really useful because you can then target it, if it's geographically constrained, in other words, it's in a particular city, or if it's a type of business, a small business, or a category of business, only people that are going to care about this are law firms and lawyers.
Understanding that as your starting point and then generalizing from there helps a lot. The other dimension of it is thinking about what existing products exist within that customer set. Are you displacing something that already exists, that somebody else has created with just a better product? Or are you fitting into an area where no product has existed before. Are you addressing a problem that people are feeling acutely, pain that the customers have today? Or are you addressing a problem that you anticipate people will have in the future, based on your understanding of what they're doing? If you're simply replacing another product, part of the market could be very large and very well-defined.
But your product has to be at least 10 times better than the product you're replacing. The 10 times number is a little arbitrary but the idea is an important one. If you're just a little bit better than what you're replacing, it's going to be very hard to get people to replace it, and to change to your product. But if you're dramatically better, that's going to create an interesting opportunity. So in that world where you're replacing an existing product, it might be very easy to size the market. The inverse of that is, if you're coming into a market with a product that's not currently existing or you're doing something that's not a direct replacement but is actually a shift into a new area, it may be harder to define what the actual size of the product is and in a lot of cases, it's even more important to go back to that starting point that we talked about earlier, which is really understanding the pain that you're solving for that customer because if the pain's not significant, then even though you're creating something new that nobody's seen before, it might not matter to them.
So defining the size of the market is not just saying, here's the number of people who could use my product over a period of time, but instead it's figuring out sort of this landscape of what exists, how much better you are, how it's going to expand, and whether or not you're really addressing an acute need that people are feeling. The best entrepreneurs, when they try to figure out how they're going to define what the market size is actually go live in the market. I'll use an example of me as an investor.
When I'm looking at a new company to potentially invest in, I use the product. I use their product, and I use all their competitor's products. So turn that around, as a founder, you know whose products you're replacing. You know the products and the services that are tangential to whatever you're doing. Figure out a way to use them, and deconstruct them, and really figure them out. But be aggressive about actually confronting and deconstructing that. And by the way, some of those might end up being good partners for you so don't be bashful about the idea that if you're adjacent to somebody that's potentially a competitor, they might be somebody that you want to talk to as you're exploring your own product and your own product development.
So this notion of understanding the market is a real tactical one. It's not this sort of idea of thinking about it in this general way and trying to put together a PowerPoint slide or two to convince somebody or yourself about it. But it's sort of digging in to what people are using today in the market you're going after. The way that you explore your customer's pain is very self-reflective. They have pain because something's not solving their problem. What is it that they're using today to try to solve their problems that are causing them pain? And understand that in a very visceral sense as your exploration process.
- Define “shiny object syndrome.”
- Identify your customer’s pain.
- Determine the scalability of a product.
- Recall the best time to initiate customer acquisition.
- Review the differences between a passionate employee and an obsessed employee.
- Recognize the benefits of domain experience when building a founding team.