Business schools and MBA programs will help you calculate market size. This post will not. Instead it will do the opposite. It will deconstruct market size into what really matters. Knowledge is power. Use it.
Many founders go after billion dollar markets. Or so they say. They think they must. Everyone knows that is what investors want. So founders adapt their calculations and definition to make up the billion dollar figure. They create a slide with a world map. They put big numbers on Europe and the US. Maybe even Asia and Africa too. And founders are right. That is what investors want.
But founders shouldn’t care. In fact, they should completely forget about the market. I am about to tell you why.
The problem is this: The founders start believing in the existence of the billion dollar market. They have repeated it so many times to nodding investors that their brain starts to accept it as fact. And it feels good. Like believing in paradise. Who wouldn’t like a reality where success is guaranteed? I’ve been there myself. Many times. Now, I see it in other founders coming to us at Accelerace Invest. Lately, I have decided to tell them the truth about market size.
Market size is a useless concept for founders
The term: the market, is only meaningful for analysts. The size of the market is simply the aggregate number of people who transact products or services within a defined category. It is completely irrelevant for founders because the definition is retrospective. The size of the market is calculated by the number of people who have already performed the transactions.
Startups are not part of that market. They are built to bring change to the market. A start up can expand a market, win a market or create a new market. Those are future acts that will change the market. No one can foresee the change it will create. It is the future. The future is fundamentally unpredictable. There are just too many variables.
Serving people is what matters
Founders must forget about “the market”. They must think about people. Why? Because the market is made up by people. The market is just people. Recognizing them as people makes all the difference.
A market is something that the startup should conquer, win or dominate. But people are someone the startup must serve.
To serve people is to make them better off. Not in the founders mind or even objectively. But subjectively in the mind of the person who is served.
The first personal computers only felt valuable to a few people. To those who knew how to connect hardware components to the computer and write their own software. Not to any others. So the “market” was only those people.
When computers got software such as Excel and PowerPoint, they also became valuable to business professionals. When computers got advanced graphics, they became relevant to gamers and designers. When computers became portable, they became relevant to offsite technicians and travelers.
Conclusion: founders should focus on servicing people
The market will develop with the product
With each new feature, new people find the product valuable. Thus, the market grows with the product. No one can foresee the ultimate size of the market, because it grows with every new feature or service.
Founders must investigate: who are the people that will find the current version of my product valuable? Most likely, that numbers is quite small. Most definitely a lot smaller than the billion dollar market slide said. But that doesn’t matter. The product will evolve.
Then the founders need to ask: If we add these new features or services, who else will benefit from our product? The process repeats and the market grows. How much will it grow? How big will it become? Why care. Founders have already taken the irreversible step to try and grow the market when they launched the startup. There is no stopping. Just serve more and more people and the market will develop in the process.
Conclusion: Markets grow when more people are served
• Founders should focus on servicing people
• The market will grow and more people are served
One thought on “Why founders shouldn’t care about market size”
Fully agree that “market size” has a context where it is applicable, and too often gets misused. However, even when a founder conscientiously knows that this question is not applicable, then refusing to answer or providing a value lower than a billion becomes an instant turn down.
So we all play this game and answer “1 billion” along with “we’ll make 1 million in 12 months”. My good old software professor always repeated: “You don’t know what you don’t know”.
Kind of wish that we could talk honestly, maybe we are not approaching the right type of VC.