10X Markets
I wrote about 10X Founders last time and I wanted to explore what makes a market opportunity exciting to me.
At GSV, we talk about People, Product, Potential, Predictability as our four investment tenants. Having a great team and product is necessary but not sufficient. The best teams have to build great products that find the right market fit. As Warren Buffett says:
“When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
When a 10X Team finds a 10X Market is when the magic happens.
Transformative Potential
We love entrepreneurs and companies on a mission to transform an industry.
My favorite word in that sentence is “transform”. To be truly transformative, I think you have to think differently. The image below is illuminating on this point. Many new ideas are controversial or contrarian. I believe the status quo is actually pretty good. We as a civilization try to optimize our lives with the best technology and products that are available at the time.
When a totally new idea comes up, i.e. when a founder has an insight, that insight either seems culturally trivial or technologically impossible. It’s only trivial until we start using it and it’s only “impossible” until someone builds it.
We work hard fundamentally because we believe that ideas and technology can change the world and that we can play a part in that.
The ideas that change us culturally and technologically are not obvious at first. Every transformative company had its own set of doubts and issues — looks trivial, looks impossible.
Culturally transformative companies— Twitter, Airbnb, Starbucks, Kickstarter, Snapchat, AngelList, etc.
Technologically transformative companies — SpaceX, iRobot, Dropbox, Google, D-Wave, Oculus VR, Jawbone, etc.
Size Doesn’t Matter. Growth Does.
Established companies compete in established markets and grow by taking away market share from other companies.
Growth companies compete in emerging markets and grow alongside the growth of a market. A rising tide lifts all boats. Blogging wasn’t a market until WordPress and Tumblr came along. Social media wasn’t a market until Facebook came along. Micro-blogging wasn’t a market until Twitter came along. Electric transportation wasn’t a market until Tesla came along. Solar financing wasn’t a market until SolarCity came along.
While these companies didn’t create their markets from scratch, they were building a valuable product at the right time when those markets were developing rapidly as well.
Addressable versus Wishful Thinking
My least favorite slide in almost any presentation is the slide that has a high level or top-down, multi-billion dollar market opportunity.
Yes, I do believe the market is or can be that big, but no I don’t think any one company can address all of it, at least initially.
I’m a fan of a bottom-up analysis to think about how a company can serve a limited market really well before expanding to other adjacent opportunities. I think this is a honest exercise for all companies and investors to go through to understand exactly what opportunities they are addressing.
To summarize:
10X Markets are Addressable, Growing and Transformative.
This post is inspired by my mentor Michael (@michaelmoe) and my friend Blair (@blairsilverberg).
If you found value in this article, it would mean a lot to me if you hit the recommend button.
I would love to hear from you @gsvpioneers.
