Pick the Right Market If You Want to Scale Your Start-up

I talked with a founder/investor and another investor today, independently, about scaling start-ups. Finding product–market fit is the first hurdle. After that, scaling your solution can be difficult. We discussed various ways to go about it, with markets dominating both conversations.

Markets play an outsize role in a start-up’s ability to scale. I should know. When I was a founder, my team and I realized we were in a big market. At the time, it was $30+ billion. We figured that was more than big enough for us to build a huge company. One percent of $30+ billion would be $300+ million in revenue. We figured that getting 1% market share was more than reasonable. What we didn’t spend enough time on was understanding the trajectory of the market. It was a decades-old market that was flat, meaning it wasn’t growing. We eventually realized we had to steal customers from established competitors. (That didn’t go over well. We upset many people.) We scaled the company to $10+ million. (So much for $300+ million.) There were several reasons for that, and market was a big one. Stealing customers is difficult if your solution isn’t 10X better than the competition (ours wasn’t).

My big takeaway from that experience was that market size matters, but the trajectory of the market matters too. A fast-growing market can be a great opportunity for founders, even if it’s small now. If you find product–market fit, the market’s growth can pull the start-up along, making it easier to find customers and scale the company.