Sona's Field Notes #02: The Market Size Misconception
Sona Mahendra unpacks the pervasive founder habit of prematurely abandoning promising ideas due to perceived market size limitations.
Hello Founders, Investors and Ecosystem Builders,
I'm lucky that I get to be part of founder and startup communities where I meet incredible people who are trying to launch their own ventures, and by engaging with me, are helping me do the same.
Through all the conversations about ideas and opportunities, there's a weird sentence that pops up now and again, and it goes something like this: "I wanted to build XYZ but stopped because the market wasn't big enough."
"The market isn't big enough."
That's a normal statement to hear from a venture capitalist (VC). Their job (and its associated pressures) necessitates that they ask questions like this. However, it's jarring to hear this from founders.
VC filter trap
There's a behaviour I've observed where founders vet ideas based on what they think might align with investor interests and pursue only those, even when they have potential customers in their network who clearly want a particular problem solved. Admittedly, I occasionally catch myself doing the same.
It reminds me of a great Y Combinator (YC) video that strongly encourages founders to not evaluate ideas using the "VC toolkit". As YC partner Dalton writes,
"These founders will find a great problem that they could solve, only to convince themselves it's not "venture scale." Before they've written a line of code or even talked to a single person about it, they're trying to predict market opportunities and exit strategies a decade down the road. That's just not how early stage startups work."
I think some of the reasons why founders do this are because 1) it's easier to engage with funders when you're able to speak their language and 2) if you're working on a big problem, by default, it requires solutions that can scale far and wide and so it makes sense to think about large markets.
Freedom in the early days
However, most of us who are pre-revenue or simply ideating are too early for VC conversations anyway. Not having to think about large markets in the early days actually works in your favour.
It frees you up mentally so you can spend your time learning through selling, building depth in the problem space you want to work on and getting conviction around your solution and opportunity. In addition, problems (in real life) play out in different ways. What seemed like a big problem/market might turn out to be a much smaller one. The vice versa is certainly true more often. Startups that look like billion-dollar businesses at the seed stage can easily turn out to not be so.
Problems abound
In Africa, there are clearly no problem shortages. Problems here are wide-scale and deeply-rooted. I'd even argue that there is no room for 'low-hanging fruit' solutions to address many of them. Every problem deserves our full attention in all its glorious complexity. As such, any foundational problem you choose to work on will likely evolve into a big market opportunity if you decide to pursue it for long enough.
With the ecosystem's current renewed focus on 'fundamentals' in startups, which brings a lot more rigour to the business of founding (tech) ventures, sometimes there's a slight over-correction that affects the pace at which we're launching and testing new ideas. We're simply not doing enough of this fast enough.
Traction, commercials and market size are all vital for building great businesses, but over-indexing on these at the earliest stages might hinder innovation. I sense that there are many lost opportunities which have never seen the light of day simply because a hypothetical total addressable market (TAM) wasn't big enough.
Sona Mahendra
My biggest learning this quarter is that startups are not necessarily built. Startups unfold. It's through the process of discovery, testing and failing (no matter how small or bad the ideas seem), that we ultimately acquire insights and experience that allow for highly valuable companies to exist.
It's a counterintuitive way to approach venture building, but doing this very well on a small scale at the early stage, i.e. 'going slow to go fast', builds the right kind of momentum we can leverage to build a truly innovative entrepreneurship ecosystem.
I'm curious...
If you've had experiences with prematurely discarding ideas due to market size concerns, or if you've found success by persisting with seemingly "small" problems, I'd love to hear from you. Reach me at sona@aria-africa.com.
Until next month, cheers!
Sona