A big enough market

Size it bottom-up

The market sets the ceiling on what great execution can reach. For example, the best fisherman in the world still can’t catch more fish than the lake holds.

And also, “big market” doesn’t mean a big TAM slide.

The question is deeper:

If you execute extremely well, can this become a very large company without changing markets completely?

For a venture-scale company, the minimum bar is a credible $1B+ TAM with a realistic path toward $100M+ in annual revenue.

Don’t trust big claims like “the restaurant industry is worth hundreds of billions.”

Count it yourself, customer by customer: number of customers × what each one pays per year

Take the restaurant example:

• Everyone who could buy (TAM): 500,000 independent restaurants × $2,000/year = $1B. Looks great.
• Everyone you can actually reach (SAM): your app only works in French, so you can only sell in France. 50,000 restaurants × $2,000/year = $100M.
• What you can realistically win: even if half of them buy, which never happens, that’s a $50M business. Too small.

The $1B goes on the pitch deck. The $100M is the real size of your lake.

A small lake can still be worth fishing if it is filling up fast, flows into a much bigger one, or holds more fish than everyone thinks. If you make that bet, write down why you believe it.

Oh, and replace the lake with the market. I’m talking about market growth of course.

The market must grow

Look for a market where the underlying need is becoming more important. That can come from new technology, new regulation, demographic shifts, new behaviors, or people willing to pay more for any reason.

But you should be able to answer this question and justify it:

Why is this problem going to become more important over the next 5 to 10 years?

Answering this question will help you and make raising funds from investors easier, as they will ask you this.

And remember what path you chose. A stagnant market requires stealing customers. A growing market creates new ones.

Never depend on one platform

If the business depends on a single platform, or the market carries too much regulatory uncertainty, don’t go.

Thank me later. For one of my startups, a single clause in a platform’s terms of service was enough to kill our company.