I heard a great quote from a client running events over the past 25 years which went like this:
“You tech guys come up with cool ideas and try to find a way to make it work for the market. [Putting his hands in the air and staring up at the ceiling] I start with who’s got the money and how can I take it from them!
When I first heard this from this person, I laughed because it is so true. And since I have heard this quote I have repeated this quote to clients, friends at Caffeine Spaces and at Gold Coast Capital Ventures and everywhere I network at least once a week for the past 6 months!
Finally, after six months, I am finally sitting down and writing about this quote in my blog, because it has so many implications for programmers and kid entrepreneurs I meet with who want to start a small tech internet company and want to succeed but just can’t seem to get a tech start-up right. And though it is not a hard and fast rule used in making decisions on what business to go in, determining the market potential is still the make or break point of deciding what business to go into. Most of us techies just have a cool idea, but have no clue of the potential value of the concept or project and really don’t know who is willing to pay for it or what they are willing to pay for it. Among the successful, there are those who figure this out right away and there are those are just get lucky being in the right place at the right time. The right timers are the ones to watch out for, since they think they know something and the second time around is not always the same.
A Miniscule Market Inside Of A Tiny Market
Getting together for lunch with one of the founders of JDate about 6 weeks ago, we found some common ground discussing the issue of being in a start-up with a small market, and how this just limits what you are doing and that can kill the potential for investors. It is important to choose your market wisely, and often techies don’t understand the market. They just want to start coding. For instance, the dating industry is generally speaking not the greatest sized market over all. I am referring to market size by measuring how much revenue a year markets can produce. I believe the dating industry is like a $2 billion dollar market a year globally (and though I use the word billion… it is not a good word when it comes to markets, because you never get 100% or even 10%, we are often lucky to get 2% market share). E-commerce sales is $4 trillion a year globally and that market is terrific! And if you were to create a Jewish dating site within the dating business, that will pretty much leave you with a $30 million dollar potential market size and basically 95% of that is already going to JDate, so what is your Total Addressable Market (the possible chances of a market)? It’s really crap for creating THE next Jewish dating site since you will not unseat the leader It could be a $5 million market, of which maybe you can capture 5%. That is looking like $250k a year in revenue as your max potential and with an employee and a 40% margin… Get a real job. It will pay more! Really not a place you want to go!
So, Why Do People Jump Into Crappy Markets?
This is where the tech mind overcomes the business mind! I know, I have done it several times. Techies and rational people get caught up in not the revenue size but the finesse of the project, how cool would it be to do x, y or z and either we have no marketing skills at all or we ignore the exit signs on the highway. I guess we like to hear ourselves talk in the mirror about a cool technology or like to tell people what cool problem we will solve. And yes tons of cool problems can be solved with tons of cool technical solutions, but the facts are the facts, market size is market size. I had an MBA finance professor at Farleigh Dickinson in Madison, NJ who looked around the room and asked us what industry we worked in. I was in Telco, and he said “maybe”. Some people were school teachers, he shook his head no. Stock broker, he shook his head no. As soon as somebody said they worked in the pharmaceutical business he simply said, “I don’t care if you are going to be the bottom secretary, stay in that industry and you will retire rich…” Point is, choose your market wisely. Yachts and golfing are terrific markets for instance!
A Product In Search Of A Market
This is where tech guys and gals like me start. We start with a cool thing and try to apply it to markets. Stop right there! Now, sometimes a cool invention or technology accidentally finds a market, but 90% of the time it does not. Me thinks I can take a piece of web code in this market and shove it into that market. I implore you to start over when it comes to your product, not just switch the website around or change the coding framework. I have done this as well. You have to start with the money each time you have a new product and figure out the market size, what they are willing to pay for it, what it is worth to the customer if at all, what the asset value you are creating is worth or what intangibles you are creating. You see there is also the consideration of what your asset you will be creating and what that will be worth to a buyer, but we are not talking about customers now, we are talking about competitors and buyers of software companies! Creating a tool that needs to be acquired by a Google or another company is another form of measuring the market before creating the technology. In fact asset selling, not revenue is the number one way techies make it big.
The Socratic Within ME
Now I am going to reverse directions a bit and give you the upside of being a techie and start with technology and how you can figure out a path to the market. Like a recent blog article I did on “Why I Don’t Really Know Anything” in the article How To Respond To New Ideas proves that there could be something within the techie cool thing you have been building that can be re-purposed for something real and marketable. But you have to start from scratch in terms of the final product. You simply have to match a problem you are solving with different markets, and switch the problem to a different market until you keep increasing the size of the market. Now you may have to stay in a niche. I recently met the founder of Veggidate (yes for vegetarians) and its small but that is a good niche to hide in. So, let’s start again with the dating site. So you still have not given up on the Jewish dating market. You are determined, you are a programmer and you don’t listen well. Well, let’s either introduce your product in a new and growing market (mobile) or a new avenue (events) or a new methodology (education) and re-enter the market. Because if you were able to conquer one of these three areas of markets that JDate site does not have ownership of, you would be able to get maybe a smidgen of a market, but more importantly, your company would be on the target list of successful businesses they are looking to buy along with a bunch of other people obsessed with serving a small market just because you like to… But leave your expectation for financial success at the door.
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