The 1% market size fallacy

November 17, 2009

The Cranky PM has an insightful take on the usual ‘conservative’ take on marketing sizing.

In the beginning of a new market’s life, sure, there are lots and lots of competitors.  Enough that many players might achieve 1% of the market.  That’s what markets look like when they are immature and stupid. But soon enough, the market’s childhood is over and you have an adolescent market on your hands.

And in an adolescent market, a 1% position is completely unsustainable.  Because as that market starts sprouting the accouterments of puberty — the appearance of chest hair, voluptuous hips, or the first contrarian articles in the press (a la “this technology is not quite the shizz that was promised”)  – the number of players shrinks big-time, as the small-time players — the ONE PERCENT players — all die or get acquired.  And voila!  You end up with about 5 players.  And you better believe they all have more than one percent of the market.

And then, our frisky little teenager of a market grows up more and becomes a fuddy-duddy adult, with only 2 or 3 players — the smallest of which will almost certainly have at least a 15% market share.  And that is likely that way it will stay until the market is wheeled off in a casket, or at least put into an assisted living facility.

Without a execution plan which does not get you 15-20% market share, you are better off not being in business. To really dominate you need 50%+ market share. One of the reason this fallacy comes up is that most entrepreneurs are unable to distinguish between population and addressable market. Except in the case of utility markets like electricity or telecoms, there is no way that the addressable market is close to the population or even a significant portion of population. Even if you are making a consumer play it is better to segment via number of households or income or some such parameter which tells you what is the addressable market you are looking at. Then go and dominate that market segment.


A Tale of Two Acquisitions

September 24, 2009

In the last week there have been in the new two acquisitions in the Tech space which are pretty close to home for me. The first was 170 million acquisition of Mint by Intuit. My initial thoughts of starting a Personal Finance SaaS company for Asia was inspired  by looking at Mint and reading this article in WSJ. We are now taking MyMoneyManage into a much broader direction, focusing on not just consumers but on a broader SME market which seems more lucrative for Asia.

The other acquisition was smaller one by IBM of Redpill Solutions but probably more significant to me because I worked at Redpill for one and a half years when the Analytics business was starting off. They were crazy days of literally running around trying to convince clients of the value of tapping into the data that they have sitting around.

Congrats to the Redpill team on pulling this off!

Both acquisitions are on the face of it similar, established companies taking over smaller innovative companies which are focused on providing a different level of service to their customers,  both are also about doing more with the data of their customers. How will these two acquisitions pan out is something only future will make clear. But I would like to believe that Redpill will have a greater impact on the future with their customer focus. Mint will get absorbed into Quicken and become just a pretty front-end service while Redpill has the opportunity to really change the world with the reach and openings that IBM can give them.

Will be following with interest on how these acquisitions play out.

Customer Acquisition in SaaS

September 12, 2009

Dhamesh Shah has a great bunch of insights on running a SaaS startup. One aspect that he does not really cover in great detail is how do we acquire new customers. It’s great if you are a Guy Kawasaki or have been funded by Y Combinator where you automatically get a reasonable launchpad and can expect some link-love from established presence in the community. But what about where you are launching something which is bootstrapped and you need to acquire customers. Here are some of the ways that you can acquire customers.

  • Make sure that you have your keywords set-up correctly, read Google Webmaster’s guide for SEO. It’s a great resource that gives good information and even if you are engaging an external SEO expert, it is well worth your time to understand how Search Engines view your site.
  • Build a presence on the web by writing and submitting press releases, blog posts related to your topic as well as participating in discussion forums or on blogs to raise the profile of your product.
  • One effective way that I have found regarding raising the profile of the product as well as getting initial customers is to create a survey and send it out to the demographic you are targeting. It’s a good low cost way of getting feedback. I have used Survey Monkey for this and it was very effective in the Customer Development Process.
  • If possible run a contest with some kind of free giveaway, popular things to give away are Electronic Goods, complementary services related to the software or even something simple like a T-shirt works if it is well designed and unique.
  • Use Google AdWords to drive traffic and acquire customers, an investment of as small as USD 5 per day can generate enough traffic for you to start getting a sense of how the product is being accepted and allow you to move to the next phase of tweaking the product.
  • Make sure there is a referral bonus for getting new customers, for your existing ones. Member-Get-Member or Viral marketing is one of the most powerful mechanisms of growing your customer base. Make sure you make it easy for existing customers to invite their peers. See Seth Godin’s talk on Viral Marketing.
  • Finally make sure that you provide a Free Trail Period

These are just some of the more cost-effective mechanisms of acquiring new customers and I hope you will benefit from utilising these and growing your business.

Is craigslist a mess?

August 26, 2009

A not-too-flattering story on Craigslist in Wired excoriates the site as well as it’s founder Carig Newmark. Pointing out that their design remains primitive and they do not have new fangled social media or the site doesn’t look fancy. At the heart of it though the complain simply comes down to that they are not monetising their property to the fullest extent.

But their seems to be no consideration that some businesses may just be happy to provide a single service to their customers in the way they think best. Isn’t it better that a real person reads and replies to the customer’s emails rather than in the case of Google which even for one of their biggest products Gmail has no real customer service.

There is no shame in being cautious in what you offer, a slow and steady pace may not always be a bad thing. The whole tone of the article is just plain weird.

Droughts and Entrepreneurship

June 27, 2009

A very interesting post by J. David Foster on Aguanomics on how Droughts in India affect entrepreneurship. The analysis is mostly anecdotal.

One caveat is that it does gloss over the caste system which also inhibits entrepreurship in India as well as some patterns of land ownership under the Zamindari system in North India vis a vis absentee landlords in Bengal under the British which inhibited capital formation and investment.

The other outlier which is not explained by this analysis is Punjab which has entrepreneurship as well as big agriculture.

Overall an interesting idea but there are missing pieces and the casuality between droughts and entrepreurship is not as clear-cut as it appears.

HT (Infectious Greed)

Sentence of the day

June 17, 2009

“I don’t mean this in a negative way, but Y Combinator is more like a cult than a venture capital fund. And Paul is the cult leader.” – Fred Wilson on Paul Graham‘s Y Combinator

Rage Against the Dying of the Light

March 2, 2009

Joel Spolsky’s latest article in Inc. talks about keeping on  fiddling the dials of your start-up till you get it right.

That reminded me of an essay by Paul Graham of how he can predict which start-ups that they invest in will die.

For us the main indication of impending doom is when we don’t hear from you. When we haven’t heard from, or about, a startup for a couple months, that’s a bad sign. If we send them an email asking what’s up, and they don’t reply, that’s a really bad sign. So far that is a 100% accurate predictor of death.

Whereas if a startup regularly does new deals and releases and either sends us mail or shows up at YC events, they’re probably going to live.

So for those folks who are experiencing a near-death experience, we can learn something from this man

and in the immortal words of Dylan Thomas

Do not go gentle into that night

rage, rage against the dying of the light