Why read this.
Running out of money. Co-founder relationship breakdowns. The competition. Not having the right team culture. Not solving a real problem. A crap product.
These are all common reasons for startup failure.
However, in many ecosystems around the world including here in the United Kingdom, one reason reigns supreme as the number one reason. Backed up by years of research from ecosystem players to government studies.
In part 3 of this series of Accelerating Startups, you’ll learn three critical things about how to think about your market when building and growing a startup, that we explore when working with startups in accelerators around the world.
The problem with how we understand markets.
A better way to think about your market and how it works.
How to apply this thinking to building a startup.
This is aimed at idea-stage and seed-stage startups. And corporate teams, and startup communities supporting them.
The problem with how we understand markets.
What is a market?
I ask this question when I do talks at startup events and business schools. And the common answers to it are usually very interesting.
Especially from economics and MBAs students, who you might expect would have a better understanding of markets:
"The number of people you can sell your product to.”
”The number of people that want to buy your product.”
”A place where commercial transactions take place.”
”Is it where supply meets demand?”
The list goes on.
And these answers are all technically true and part of what makes a market. Simply Google: What is a market? And you'll find lots of results that provide definitions mostly agreeing with these answers.
What about the competition? This too is again part of what makes up a market. But we’ll look at competition specifically in part 7 of this series.
However, and this is a personal observation — many of these textbook definitions present a number of problems to understanding what a market is when building a startup and selling a product.
Many textbook definitions of a market present a number of problems to truly understanding what a market is when building a startup, and selling a product.
The first problem is when you look at research about why startup companies fail, the common reasons overwhelmingly point to a lack of understanding the market entrepreneurs and their startups are choosing to enter into.
And when you dig a little deeper into this research it highlights specific reasons like “Products having no market need.”, or “Unforeseen shifts in the market.”
As mentioned at the start, there are many reasons for startups failing. A lack of access to capital, talent acquisition and retention, being crushed early by the competition, or the founders simply falling out.
But a lack of understanding of the market founders are developing a product for, is often cited as one of the most common reasons. And none of these textbook definitions helps that understanding or better decision making.
The second problem is, and again, this is a personal opinion - none of these definitions tells you as an entrepreneur or innovator, exactly what you need to look for or understand about your market when selling a new product.
In 10+ years of experience developing, running and advising multiple tech hubs and startup programmes with global companies around the world, I get to meet a lot of founders and programme managers. And when we talk about markets, I feel there's still a lot to be understood.
A better way to think about your market and how it works.
So let’s explore a definition of a market that I believe will be a little more helpful. And also explore why it's better to think about markets in this way.
It's a definition I in particular use in all our tech hubs, and startup programmes, and their sessions with each of our tech companies to get them thinking about the markets they are building products for.
Here it is:
The amount of money is spent, on a type of thing, in a part of the world, over a period of time, and how.
Read it one more time.
Think of a market as having 5 parts.
Therefore, think of your market as being made up of these 5 parts:
1. An amount of money spent: A total amount in pounds, dollars, etc.
2. A type of thing: the category of a product like travel, tea, or footwear.
3. A part of the world: UK, Europe, the US, Africa, or even a city, or globally.
4. A period of time: one year is the most commonly used unit for markets.
5. And how: the common ways people spend money on the type of thing.
A market: money, things, places, time, and actions.
Firstly, for there to be a market for something people have to spend money on that thing.
There's a global travel market because we spend money flying to New York, Paris, and Japan. From London, Berlin, and Dubai.
There's a UK tea market because we buy all the different kinds of English, Earl Grey, and peppermint teas here in the United Kingdom.
There are US and European footwear markets because of Americans and Europeans buying Nike, Addidas, and Puma footwear in those parts of the world.
Markets are fundamentally created by what we buy and spend money on. And that collective spend equals up to a particular amount of money (in parts of the world) that we then call the market size.
The more we spend on a type of thing over a period of time, the more that market grows. The less we spend on a type of thing the more that particular market contracts and the smaller that market size becomes.
For example, here in the United Kingdom, in 2017, the market for events was around £41 billion.
Which means that as a nation of Brits and anyone who travelled to the UK to attend an event during that time collectively contributed £41 billion to the UK market for events.
These events include conferences, networking events, exhibitions, trade fairs, sports events, music concerts, festivals and other kinds.
In 2018, the amount we spent — or the market grew to — £42 billion. Which meant in one year, we either collectively attended more events, or we all spent more money attending them.
Either way, we coughed up an extra £1 billion more going to see Bruno Mars in concert or attending that rather dire tech startup conference with £100 tickets.
How much we spend over a period of time, like one year, gives us a way to measure how much we spend each year, and our collective appetite for spending that money within this period of time.
Things and places.
So let's suppose we wanted to launch a new startup.
Connecting founders to technical talent via a real-world series of entrepreneurship events across the country. And building a software product that helps create new teams between attendees — addressing the common problem of finding the right talent mix for building a product.
The events are paid. And the software will be free to use.
We know that people in Britain spend money on events. £41 billion. We also know people here are interested in entrepreneurship. But what type of events are best for us to run? Conferences, trade fairs — or something else?
This is where we now have to think about our addressable market.
This means, within that total £41 billion that people spend on events, how much do people spend on the particular type of event that we want to sell?
This is now where we get into problematic issues entrepreneurs face building startups and trying to grow products in the market.
Because just because people spend a lot of money on events as a whole, doesn't mean they may collectively spend a lot on the type of events we want to run.
Or to put it another way, we’re developing a product that solves a problem. But people won’t buy the product — the solution to the problem — if we don’t sell it in a way people are used to buying it.
Because of that £41 billion spent on events:
£20 billion every year — is spent on conferences and smaller meeting style events.
£11 billion of that spend is spent on exhibitions and trade fairs.
£9 billion is spent on entertainment events like concerts.
£1 billion is spent on outdoor events.
So, knowing that we spend about 20x more on conferences and meetings than outdoor events. And 2x as much on exhibitions and trade fairs. We have a better idea of the market’s appetite for some types of events versus others.
So which addressable market should we pick?
Conferences and smaller meeting style events do appear to be the more preferable type of event over trade fairs and outdoor events.
Time and actions.
However, there is an even more fundamental question that needs to be asked. And its the question every entrepreneur and innovator should understand when building any kind of product for any market.
Everything explained above so far leads to this one question. Which is this:
What insight, belief or story do you have about why the amount of money or the way others spend it on what you’re selling will grow, or change over time — in the future?
Read it again.
What insights, beliefs, or story do you have about why the amounts of money others will spend on the thing you are creating will grow in future?
The particular type of events we should run are smaller meeting style events.
For events in the UK, smaller meeting style events not only account for being a part of the largest spend in the market. They are also the fast-growing type of events in the market.
Or to put it another way: more people are sending money — or people are spending more money, or both — on smaller types of events each year than on any other kind of event. Growing at around 12 per cent yearly.
A UK startup with a product serving the events market, and focused on the addressable market of smaller meeting style events, with a growing market segment of more than 10 per cent each year is a market opportunity for our product.
Thinking about a market in these 5 parts: money, things, places, time and actions, enables us to understand our market easier, faster and more effectively.
This is why you should think about markets in this way — it’s about market opportunities. And thinking about your market in this way enables you to see these new market opportunities.
We could do this exercise of thinking for insurance software, weight-loss apps, food-delivery products — pretty much any kind of product and any market.
The reason why Airbnb’s founders believed their product would grow is they could see people were not only travelling more — for vacations, work, studying. But people would also have a greater desire to spend their money staying in unique homes rather than standard hotels.
How did they know this desire would grow? Because more and more people were accessing the internet and websites to see these beautiful, unique homes around the world.
All people needed was someone to give them the opportunity to stay there.
That’s it. That was the insight. That is the story.
Think about it this way: what version of the future do you see?
A version you ideally have some evidence of a need for what you are creating and how much more people will likely spend to have it — over the next 3 years, 5 years, 10 years, or even more.
This is an opportunity.
This is why you should think about markets in this way. It’s about the market opportunity. And thinking about markets in this way enables you to see these new opportunities too.
A company that recently took advantage of this way of seeing its market, was the UK startup that launched in 2020 — called Hopin.
Hopin is a virtual events platform that allows you to organise and run live interactive online events. Anything from team meetings to a full-scale conference for thousands of people. Deliver keynote talks. Run breakout sessions. And even organise guest networking — all in one online platform.
The founder, Jonny, understood many of the problems people have around the world organising online events. And he knew he could build a product that not only solved many of these problems but was easier for people to learn and use. And was also highly scalable.
This would take advantage of the growing $1.1 trillion dollars a year global market spent attending events around the world.
2020 began like almost any other year. Jonny and his team hoped to launch Hopin later in the year. when the unthinkable happened.
A global pandemic stuck. Forcing hundreds of thousands of conferences and scheduled events that were planned around the world, trying to figure out a way to now deliver them purely online.
Jonny and his team of just 8 people had a big decision to make. Do they let this market opportunity pass them by, or do take advantage of this opportunity and launch Hopin months early?
Knowing the product wasn't fully ready — lots of bugs. And also knowing their small startup team of 8 people probably wasn't big enough to handle what might follow a premature product launch in a time of increased market demand for a highly scalable product like Hopin.
A saying I often tell entrepreneurs developing products is:
“A flawed diamond is more valuable than a perfect brick. Nothing kills an opportunity faster than the idea your product needs to be perfect before you launch it.”
- Anthony David King
This pretty much echoes the well-known quote by Reid Hoffman, co-founder of LinkedIn, when he said:
“If you're not embarrassed by the first version of your product you’ve launched too late.”
Reid Hoffman, Co-founder, LinkedIn.
So the Hopin team launched earlier than planned. And to the founder Jonny's, own admission the product was more than a little buggy.
And yet, event planners around the world immediately started beating a path to Hopin's door. Skyrocketing Hopin's revenue to almost $2 million (£1.4 million) in just 8 weeks. With a waiting list of tens of thousands more also wanting to use the product.
By November of 2020, Hopin had scaled to more than 3 million users globally. And their revenues had climbed to more than $20 million (£14 million) in annual recurring revenue.
The team quickly raised an additional $125 million (£91 million) investment to grow their team and continue building the product. Valuing Hopin just 8 months after it launched at $2.1 billion dollars (£1.5 billion)
Again. In just 8 months.
Hopin’s Founder understood the problems people have organising events. Which helped build the product that addressed a big problem.
Building a scaleable product enabled Hopin to potentially grow when the future market demand grew.
And understanding how much people spend globally and the reasons this might grow in future helped to see the market opportunity when it came.
Nobody knew the opportunity would be a global pandemic.
Again, think about your market as these 5 parts: money, things, places, time and actions — as in how people buy things. And ask yourself:
What version of the future do you see?
What will people do or buy differently in this future?
What opportunity does bring for the product you’re building?
What insights, belief, story or data backs this up?
These questions and the actions below will help you apply how to think about your market in this new way to your startup.
If you're building a product for a particular market, answer the following points that make up the alternative definition of a market used above:
Action 1: How much money is spent now on what you're aiming to sell?
Meaning: what is your market size?
Either in your own region or globally. See what amount you can find for any time during the previous one or two years. This should ideally be a concrete amount.
Action 2: How much might be spent on this in the future?
Meaning: by how much might your market grow in future?
This might be a little harder to find out but read of any recent market analysis, government or think tanks studies, and industry association articles to start.
Action 3: Why might more be spent on this over time?
Meaning: what future market context or trends do you see unfolding that work in your favour?
What do you believe in the next 2-3 years or 5-10 years, would result in more being spent on what you’re selling, or how people buy it might change, and why?
The answers to each of these question are partly what underpins some of the most successful startups, and the thinking of their founders. As we established, failing to understand these answers can make your startup journey more difficult and often leads to failure.
But once again even if you find a big problem to solve, have a great product, and you're in a growing market, there's something else that you must also create for your market that we’ll be exploring next in part 4.
And if done right can set you on the path the being a true innovator. But if not done right, could be responsible for a potentially great venture and a truly innovative product going nowhere.
That is, business models.