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Raise Funding by Understanding Market Opportunity Customer by Customer #0049

February 02, 2024

"Approaching the market customer by customer is like counting calories. It's tedious, but suddenly, your jeans fit better, and everyone's like, 'Wow, what's your secret?'"

02/02/2024

Raise Funding by Understanding Market Opportunity Customer by Customer

Sahil S, Investor at Stedu Fund,  aims to shift entrepreneurs' focus from simply presenting inflated market size estimates to demonstrating a deep understanding of the market opportunity through a bottom-up approach in “Investors Are Looking for Market Opportunity, Not Just Size”

  • Investors’ Skepticism Towards Market Size Claims

    • Sahil explains that savvy investors often view the market size claims with skepticism, noting that these figures are usually exaggerated and not as relevant as entrepreneurs might think:

    • "When this slide appears, most investors chuckle (or weep). Not only are the numbers always exaggerated, they are also irrelevant... Investors generally don’t give any credence to the market size numbers that founders present to them."

  • Focus on Market Opportunity Over Market Size

    • The core argument of the article is a shift from market size to market opportunity, emphasizing a detailed understanding of the target market, customer acquisition, and the value proposition:

    • "Rather than claiming that you can disrupt a huge existing market, what’s more, relevant and compelling is how you answer questions such as: Who are your target customers? How will you reach them? How many can you reach? How will you convert them?"

  • Building a Bottom-Up Model

    • Sahil advocates for a bottom-up approach to understanding and presenting the market, focusing on detailed customer acquisition strategies rather than broad market share claims:

    • "Founders should build a bottom-up model that demonstrates how you will build a big, profitable business, customer by customer... Show investors how you are going to build an ever-expanding cadre of delighted customers."

  • Understanding the Customer in Detail

    • The importance of knowing the customer at a granular level is highlighted as crucial for convincing investors of the startup's potential:

    • "In fact, for the dog wearables business, it doesn’t matter if there are only 20 million dogs or 200 million dogs. What matters is how many dog owners the entrepreneur can convince, one by one, to sign up for this service."

  • Moving Beyond the Typical Market Size Slide

    • Finally, the article concludes by urging entrepreneurs to discard the typical market-size slide in favor of a more detailed, customer-focused approach:

    • "Entrepreneurs should stop pitching the typical market-size slide. Instead - They should show investors that they truly understand the market opportunity from the bottom up, customer by customer."

No One Buys from Someone Who Isn’t an Expert

Jason M. Lemkin, SaaStr Founder, emphasizes the importance of deeply understanding one's product to successfully sell in “When You Don’t Know the Product Cold, You Just Lose Deals”

  • The Consequences of Insufficient Product Knowledge:

    • Lemkin recounts a pivotal sales meeting where his lack of familiarity with key product integrations led to a lost deal: "I had to admit I had no idea what LDAP was. And that $100k deal... was lost. Poof. Gone."

  • The Imperative for Comprehensive Product Understanding:

    • He underscores the lesson learned: "My lesson learned: everyone has to know the product cold in a startup. And especially, everyone that interfaces with customers and prospects. Period. Cold."

  • The Necessity of Expertise in Sales:

    • He stresses the importance of being a product expert: "But why would a prospect take a risk on a brand new vendor … when their point of contact isn’t a subject matter and product expert? They wouldn’t. They’d push on and just buy the market leader."

  • Challenges in Hiring Sales Personnel:

    • Lemkin advises caution in hiring sales executives with limited experience in technical products: "Be wary of hiring sales execs who have only worked at a company with simpler products. I find most “b2B” sales reps are unable to sell technical products."

  • The Value of Analyzing Sales Losses:

    • Lemkin advocates for discussing sales failures: "You gotta talk about your losses — every week... Spend 50% of your time honestly talking about the deals you lost that week."

  • Sharing Successful Sales Techniques:

    • He suggests circulating successful sales calls: "Circulate the calls from your top reps to everyone. At least monthly. This always helps."

  • Assessing Sales Executives' Abilities:

    • Lemkin highlights the need for practical demonstrations of sales skills: "Make sure any sales execs you hire … can sell you your pen. You can’t skip this step. Too many do these days. Force them to a demo before they start. For their sake as well as yours."

  • The Imperative for Expertise in a Competitive Market:

    • He concludes with a note on the necessity of expertise: "There are too many vendors today. No one is going to buy from someone that isn’t an expert. They just aren’t."

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