Founder of Tracxn Labs shares his Theory on Markets for Startups.
Abhishek Goyal, who is the founder of Tracxn Labs a data analytics firm that provides financial information on start-ups. Read below on what he teaches at SV.CO
A THEORY ON MARKETS FOR STARTUPS
by Abhishek Goyal, Founder and CEO, Tracxn Labs
(The following essay is from an address by Abhishek to the Batch 3 students at SV.CO on January 29th, 2017)
Great to talk to all you guys at Startup Village; I’m very fascinated by what you are doing now. It’s pretty cool that you have a chance to do something on your own while still in college, that’s great for early stage of learning and leadership skills for when you start a real job, and start dealing with a lot of people and a lot of complex things in life.
I run a startup called Tracxn where we essentially help a lot of investors and Fortune 500 companies to track innovation globally, and they use these for partnerships, M&As and so on. So in some ways we sit in the centre of the startup world, and the startup ecosystem is a passion for us.
I happened to visit Startup Village in Kochi a couple of years ago, and it was incredible what Sanjay and his team were doing there. So when he spoke about an opportunity to talk about markets, I was happy to share some of my thoughts with you, because as a founder one of the key things I have learnt is that markets are critical to your startup journey.
MARKET: THE DEFINING PARAMETER
If you sum up all the variables in the success of a startup, I would say your market defines 80%, and everything else, including your personal luck and the effort you put in, form the small remainder.
The market essentially decides how your company is going to perform. When you set out to create a startup it is one area you need to spend a lot of time thinking and researching about; finding answers to questions such as: What is your market? How good is it?
If you get that part wrong, you could end up wasting two to five years of your startup journey.
What matters in a Market?
Within a market you should broadly look at three things: Size, Efficiency and Founder Connect.
First, what is the SIZE of your market?
You can start by looking at the overarching or the broad market. Infosys for example is a pretty large company that trails the IT expenditure market, which is globally is four trillion dollar market.
If you compare that to, let’s say, the Indian e-commerce market, which is about 300 billion, the market is over 10 times bigger and that has resulted in the creation of large companies like Infosys, TCS and Wipro.
The IT market includes hardware, software, services, everything; you could actually be a fraction of that market and underlying market would still be very large.
Same is the case with Uber and Ola. Their transportation market essentially includes everyone who travels from home to office to airport; every commuter belongs there and the market is huge.
Large companies are created when you operate in a large market. Your benchmarks for size should be in that magnitude. If you pick a couple-of-billion-dollars market, it is going to be relatively harder to build a company there. Size does matter.
A lot of first-time founders, and this was true even in my case, think when starting off that if a business can generate Rs 10–20 lakhs a month it will be enough. But that is not how you should look at it; mid-size businesses are significantly harder to build than large businesses from all perspectives: raising money, hiring talent and so on. It is easier to raise money when you operate in large markets and everybody likes to work in a company that has a big impact.
Are there small, but rewarding markets? Certainly yes and there are successful businesses there, but they are good for personal or very small business teams. Gaming is a good example. There are people who have made 10 games and got incredibly rich, but they have not created large corporations.
When we talk about startups, we broadly mean companies that can build, grow and become sizeable businesses over time. If they don’t grow to scale, they typically get converted to small and medium businesses that may have good cash flows, but are not startups in the conventional sense.
A second important factor is EFFICIENCY.
Take the example of auto industry. Globally it has produced a market cap north of a trillion dollars and there are multiple 10 billion dollar companies in that market.
The next company will be created when there is a new efficiency available; and that happens when there is:
a) A shift in consumer behavior
b) When there is new technology available.
Tesla did not build what Mercedes or BMW or Toyota were building; they set off when green energy became critical. A shift happened and new technology was made available; self-driving cars have become cool because AI has reached a point where it is possible to develop that solution.
A behavior can be a similar trigger. Fifteen years ago no one had mobile phones to use in their daily lives, today everyone has one. Think about how that has changed banking. Banks spend a lot of money on regular banking operations, so “mobile-first” becomes a very interesting approach for them.
When you look at a market, look for a shift or new pattern there. It is significantly easier to build a company when that happens because incumbents will need to catch up with you.
If you are starting in the auto industry by building what Toyota already does, it’s not going to help. You need to do something that others haven’t been able to do. You have to look at a significant shift or some sort of improvement in efficiency.
A third interesting parameter is FOUNDER CONNECT.
I believe that whatever you start is going to take around 10–15 years of your life. If it is a failed attempt, you’ll maybe lose two or three years; potentially more because you would have spent money and will need to go back to your jobs to replenish some of your savings.
A successful attempt will cost you between 10 and 20 years. Unless you are really passionate, or you really feel for that problem, it’s going to be a very hard journey.
You must connect with the problem; a first-hand experience of it will be really critical in keeping you going for these 10 or 15 or 20 years. The journey is so hard you may not be able to sustain it for that long unless there is a strong reason for you to solve that problem.
Having said that, getting all three parameters right — size, efficiency and founder connect — is the ideal situation; it is OK to not have all of them right away, but I think you should worry about them as you grow in your journey.
PICKING THE RIGHT IDEA
Let’s assume you have zeroed in on your idea, how do you figure out if it’s the right one for you?
For example you have decided to build a SaaS software which will help colleges connect with their alumni. Since you in are college now, a lot of you will relate to the idea that colleges are not able to connect to their alumni and that they can really leverage these connections to get the next batch jobs and a lot of other stuff besides, right?
Before you jump into it, think about whether you want to spend the next 15 years of your life on this problem.
It is OK to spend six to 12 months sitting on an idea; making sure you don’t rush into it is critical. Talk to a lot of potential customers, get as much feedback on it as you can, be open minded about it, soak it in and let it live with you for a while.
At the end of this process if you still believe that the idea is worth spending the next decade of your life on, then you can start moving on it quickly.
A question then arises on the relevance of what you build for the market. Should it be trendy now or 10 years down the road? I think your product needs to be for the current market but deep enough to absorb changes in the market down the line.
Take Salesforce for example, when they were built there was an immediate need for such a platform and they started getting customers, but the underlying market was deep enough so they have been able to carry on the business for nearly 20 years now.
THE MARKET OPPORTUNITY HACK
Once you have zeroed in on the market you want to go after, it can be reality TV or the restaurant business, and you don’t have an exact idea, here is a quick hack: focus on new shifts and new technology.
Let’s say you are passionate about reality TV shows and would like to work on a startup there. Go to the internet and put your ear to the chatter, listen to what people are talking about, follow the trends.
Think about how reality TV can change when everyone has a smartphone, or access to internet or when AI gets smarter. When you start putting these together you will come up with some very interesting ideas. Having said that, whatever you comeback with, you have to still go back, revalidate, talk to a lot of customers, and let the idea build over a few months before you start working on it.
How do you evaluate an idea within a market?
You have to look at the critical parameter. Say you have thought of a new idea in retail industry and applied the three filters of size, efficiency and connect. Efficiency would the one to worry most about in this case. If to cost you 100 rupees to do something earlier, will the new model cost less, or can you deliver more value with the same amount of money? One of them has to be true, or it will be hard to build a business in this market.
I’ll reiterate that 80% of the success of your startup is going to be about the market you go after. So be very paranoid about what you pick, spend as much time as you can even if it feels wasted, be patient and do not rush into things.
Right now you are all in college and on your first startups; so it’s OK to pick something and work on it, but if you get serious about entrepreneurship and want to really make it big on your own, you really have to start taking your market seriously.
Best of luck on your journeys!
Bio:
Abhishek Goyal is founder of Tracxn Labs a data analytics firm that provides financial information on start-ups. Tracxn’s goal is to make ‘discovery’ of companies very efficient for private market investors.
In his earlier stint, Abhishek founded cosmetic centric startup Urbantouch, which was sold to Gurgaon-based portal Fashionandyou. Before Urbantouch, he worked with Yahoo, Amazon and VC firm Accel Partners.
