Trillions, schmillions.
“Nothing matters more than the market.”
As a founder, you’ve probably read that dozens of times in VC posts or heard it when speaking to investors.
It’s such a deep rooted dogma that when you have the opportunity to present your market in a pitch or a deck, it’s tempting to boil it down to some twelve or, hey, why not, thirteen figure amount.
Often though, that ends up being a wasted opportunity to present some real secret about the market that you have discovered.
In the earliest days, that secret is what matters most. It’s what allows you to move fast while also making your approach look unthreatening to incumbents and competitors.
Say you’re building a SaaS for boutique hotels to manage staff shifts & payroll - you’re not bringing anything new to the table by saying “hospitality is a 6 trillion dollar industry”. Yes, hospitality is a big industry, but it’s also not really your market (at least, not yet).
There are many hypotheses to validate before you get anywhere near your “Addressable Market”.
Be hyper-focused on those, with your deck & story reflecting that. Here are examples of what investors might want to know:
What is it about boutique hotels that is specific enough that general payroll SaaS doesn’t really do the job?
Why won’t they buy the same software as the big chains?
How much more are they willing to pay to get tools that are specific to their needs? Have you tried changing your price?
Does their pain make the sales cycle much shorter?
The market size is an opportunity to discuss your milestones and your vision.
That’s why the bottom-up approach works much better. Start with what you currently charge and who you currently serve (e.g. 25 hotels paying $1000/month each). Explain how many new customers are needed to reach the next milestone (e.g. $100k in monthly recurring revenue). With your product as the core unit, you can then extrapolate to how big the market would be if you add new verticals (e.g. restaurants), geographies or revenue streams.
How fast the market’s growing matters just as much.
Within 5 years, a $50B market shrinking by 8% per year will be smaller than a $10B market growing by 40% per year. Of course, markets growing that fast aren’t all that common, so you need a good reason why that growth is there and why it’s there to stay.
So really sit down and think about the details.
The purpose of a market exercise is to illustrate what your company could become and showcase your strategic thinking. Both of those things matter a whole lot more than some giant number that’s hard to grasp, impossible to verify, and of no importance to your actual startup.
The Family’s next startup batch will happen remotely, starting in January! If you’re an entrepreneur willing to grow your startup in the best conditions, apply here. Get ready for an intense 6-week program: getting smart advice, accessing top operators and fundraising with the best investors.