1 00:00:01,000 --> 00:00:04,000 - So the size of the opportunity 2 00:00:04,000 --> 00:00:07,060 is really important to focus on especially early. 3 00:00:07,060 --> 00:00:10,090 There's a line that a lot of venture capitalists 4 00:00:10,090 --> 00:00:12,050 use when they talk about a market, 5 00:00:12,050 --> 00:00:15,000 and they say, what's your total available market size? 6 00:00:15,000 --> 00:00:18,040 How big is the market that you're going after? 7 00:00:18,040 --> 00:00:21,080 That's a useful phrase to try to categorize 8 00:00:21,080 --> 00:00:23,090 the scale of the market you're going after. 9 00:00:23,090 --> 00:00:26,000 If the universe of people who could buy your product 10 00:00:26,000 --> 00:00:29,020 is seven people, and your product costs $10, 11 00:00:29,020 --> 00:00:32,000 that's probably not a business worth going after. 12 00:00:32,000 --> 00:00:35,010 If there's millions of people who could buy your product 13 00:00:35,010 --> 00:00:38,090 for $10, that's probably worth going after. 14 00:00:38,090 --> 00:00:41,090 There's an interesting nuance to this notion of size, 15 00:00:41,090 --> 00:00:47,080 is that it's very easy to size a market extremely large. 16 00:00:47,080 --> 00:00:50,020 Every person on the planet, seven billion people 17 00:00:50,020 --> 00:00:51,090 are customers for my product. 18 00:00:51,090 --> 00:00:53,020 That's not really useful 19 00:00:53,020 --> 00:00:55,060 in the context of sizing the market 20 00:00:55,060 --> 00:00:57,010 because what you're really looking for 21 00:00:57,010 --> 00:00:59,020 is with your first product 22 00:00:59,020 --> 00:01:02,000 or the first iteration of your product, 23 00:01:02,000 --> 00:01:05,030 who is that initial market going to be? 24 00:01:05,030 --> 00:01:08,010 And who is going to buy that initial product? 25 00:01:08,010 --> 00:01:10,040 Defining that first layer of size 26 00:01:10,040 --> 00:01:12,080 is really useful because you can then target it, 27 00:01:12,080 --> 00:01:15,020 if it's geographically constrained, 28 00:01:15,020 --> 00:01:17,050 in other words, it's in a particular city, 29 00:01:17,050 --> 00:01:20,040 or if it's a type of business, a small business, 30 00:01:20,040 --> 00:01:22,010 or a category of business, 31 00:01:22,010 --> 00:01:24,020 only people that are going to care about this 32 00:01:24,020 --> 00:01:26,050 are law firms and lawyers. 33 00:01:26,050 --> 00:01:28,060 Understanding that as your starting point 34 00:01:28,060 --> 00:01:31,060 and then generalizing from there helps a lot. 35 00:01:31,060 --> 00:01:32,070 The other dimension of it 36 00:01:32,070 --> 00:01:35,060 is thinking about what existing products exist 37 00:01:35,060 --> 00:01:37,060 within that customer set. 38 00:01:37,060 --> 00:01:40,090 Are you displacing something that already exists, 39 00:01:40,090 --> 00:01:45,000 that somebody else has created with just a better product? 40 00:01:45,000 --> 00:01:46,080 Or are you fitting into an area 41 00:01:46,080 --> 00:01:49,020 where no product has existed before. 42 00:01:49,020 --> 00:01:51,010 Are you addressing a problem 43 00:01:51,010 --> 00:01:52,060 that people are feeling acutely, 44 00:01:52,060 --> 00:01:55,010 pain that the customers have today? 45 00:01:55,010 --> 00:01:57,010 Or are you addressing a problem 46 00:01:57,010 --> 00:01:59,080 that you anticipate people will have in the future, 47 00:01:59,080 --> 00:02:03,060 based on your understanding of what they're doing? 48 00:02:03,060 --> 00:02:06,060 If you're simply replacing another product, 49 00:02:06,060 --> 00:02:08,070 part of the market could be very large 50 00:02:08,070 --> 00:02:10,020 and very well-defined. 51 00:02:10,020 --> 00:02:13,040 But your product has to be at least 10 times better 52 00:02:13,040 --> 00:02:15,010 than the product you're replacing. 53 00:02:15,010 --> 00:02:16,080 The 10 times number is a little arbitrary 54 00:02:16,080 --> 00:02:18,060 but the idea is an important one. 55 00:02:18,060 --> 00:02:20,060 If you're just a little bit better 56 00:02:20,060 --> 00:02:22,020 than what you're replacing, 57 00:02:22,020 --> 00:02:25,000 it's going to be very hard to get people to replace it, 58 00:02:25,000 --> 00:02:26,070 and to change to your product. 59 00:02:26,070 --> 00:02:28,090 But if you're dramatically better, 60 00:02:28,090 --> 00:02:31,010 that's going to create an interesting opportunity. 61 00:02:31,010 --> 00:02:34,050 So in that world where you're replacing an existing product, 62 00:02:34,050 --> 00:02:37,000 it might be very easy to size the market. 63 00:02:37,000 --> 00:02:38,090 The inverse of that is, 64 00:02:38,090 --> 00:02:41,080 if you're coming into a market with a product 65 00:02:41,080 --> 00:02:43,030 that's not currently existing 66 00:02:43,030 --> 00:02:45,050 or you're doing something that's not a direct replacement 67 00:02:45,050 --> 00:02:48,040 but is actually a shift into a new area, 68 00:02:48,040 --> 00:02:49,080 it may be harder to define 69 00:02:49,080 --> 00:02:52,020 what the actual size of the product is 70 00:02:52,020 --> 00:02:54,030 and in a lot of cases, it's even more important 71 00:02:54,030 --> 00:02:56,040 to go back to that starting point 72 00:02:56,040 --> 00:02:57,060 that we talked about earlier, 73 00:02:57,060 --> 00:02:59,030 which is really understanding the pain 74 00:02:59,030 --> 00:03:01,010 that you're solving for that customer 75 00:03:01,010 --> 00:03:03,070 because if the pain's not significant, 76 00:03:03,070 --> 00:03:05,050 then even though you're creating something new 77 00:03:05,050 --> 00:03:08,040 that nobody's seen before, it might not matter to them. 78 00:03:08,040 --> 00:03:10,010 So defining the size of the market 79 00:03:10,010 --> 00:03:12,070 is not just saying, here's the number of people 80 00:03:12,070 --> 00:03:15,040 who could use my product over a period of time, 81 00:03:15,040 --> 00:03:17,080 but instead it's figuring out sort of this landscape 82 00:03:17,080 --> 00:03:20,030 of what exists, how much better you are, 83 00:03:20,030 --> 00:03:23,010 how it's going to expand, and whether or not 84 00:03:23,010 --> 00:03:24,080 you're really addressing an acute need 85 00:03:24,080 --> 00:03:26,060 that people are feeling. 86 00:03:26,060 --> 00:03:30,060 The best entrepreneurs, when they try to figure out 87 00:03:30,060 --> 00:03:33,090 how they're going to define what the market size is 88 00:03:33,090 --> 00:03:36,070 actually go live in the market. 89 00:03:36,070 --> 00:03:38,090 I'll use an example of me as an investor. 90 00:03:38,090 --> 00:03:40,090 When I'm looking at a new company 91 00:03:40,090 --> 00:03:44,030 to potentially invest in, I use the product. 92 00:03:44,030 --> 00:03:45,090 I use their product, 93 00:03:45,090 --> 00:03:48,020 and I use all their competitor's products. 94 00:03:48,020 --> 00:03:49,090 So turn that around, as a founder, 95 00:03:49,090 --> 00:03:52,030 you know whose products you're replacing. 96 00:03:52,030 --> 00:03:54,030 You know the products and the services 97 00:03:54,030 --> 00:03:56,070 that are tangential to whatever you're doing. 98 00:03:56,070 --> 00:03:59,040 Figure out a way to use them, and deconstruct them, 99 00:03:59,040 --> 00:04:01,030 and really figure them out. 100 00:04:01,030 --> 00:04:04,050 But be aggressive about actually confronting 101 00:04:04,050 --> 00:04:05,070 and deconstructing that. 102 00:04:05,070 --> 00:04:07,080 And by the way, some of those might end up 103 00:04:07,080 --> 00:04:08,090 being good partners for you 104 00:04:08,090 --> 00:04:10,060 so don't be bashful about the idea 105 00:04:10,060 --> 00:04:13,000 that if you're adjacent to somebody 106 00:04:13,000 --> 00:04:14,070 that's potentially a competitor, 107 00:04:14,070 --> 00:04:16,050 they might be somebody that you want to talk to 108 00:04:16,050 --> 00:04:19,000 as you're exploring your own product 109 00:04:19,000 --> 00:04:20,050 and your own product development. 110 00:04:20,050 --> 00:04:23,020 So this notion of understanding the market 111 00:04:23,020 --> 00:04:24,060 is a real tactical one. 112 00:04:24,060 --> 00:04:26,050 It's not this sort of idea 113 00:04:26,050 --> 00:04:28,050 of thinking about it in this general way 114 00:04:28,050 --> 00:04:30,070 and trying to put together a PowerPoint slide or two 115 00:04:30,070 --> 00:04:33,030 to convince somebody or yourself about it. 116 00:04:33,030 --> 00:04:34,050 But it's sort of digging in 117 00:04:34,050 --> 00:04:36,060 to what people are using today 118 00:04:36,060 --> 00:04:38,090 in the market you're going after. 119 00:04:38,090 --> 00:04:41,060 The way that you explore your customer's pain 120 00:04:41,060 --> 00:04:42,080 is very self-reflective. 121 00:04:42,080 --> 00:04:44,010 They have pain because something's 122 00:04:44,010 --> 00:04:45,060 not solving their problem. 123 00:04:45,060 --> 00:04:47,090 What is it that they're using today 124 00:04:47,090 --> 00:04:51,070 to try to solve their problems that are causing them pain? 125 00:04:51,070 --> 00:04:54,060 And understand that in a very visceral sense 126 00:04:54,060 --> 00:04:57,000 as your exploration process.