June 26, 2023
Why market size doesn't really matter
Two observations from the Loopio episode:
1. When you're working on your first startup, everything is hard. It's natural to think that the second time around will be much easier. It's not! 0 to 1 is always hard.
2. Most VCs will tell you that you need a really big addressable market. Yet many successful founders started off without worrying about market size at all. Early on, market size doesn't really matter.
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So I was talking to Jafar , the founder of Barley, and also one of the co-founders of, of Lupo . And, you know, we're doing these kind of like new, I guess, new series now with , with the second half, season two. And there's a few things I really wanted to , to dive into. Maybe just for starters, by the way, like Jafar is an amazing, amazing founder. Again, you can check the kind of the full episode to get the details of some of the Lupo story and really the beginnings of, of Barley, which is his current company, Lupo , for what it's worth, super successful company, grew through , grew to tens of millions in a a R R , raised like $200 million. So Jafar is , well, he is an amazing, amazing founder and , uh, really strong operator. So I was thinking back, right, thinking back to my days at Gym Track , my previous startup , and when I started Gym Track , I was, you know, talking like eight years ago, I was effectively first time founder. I mean, I'd done another kind of business before that. It was more, more of a small business. And, and I remember distinctly remember that when I was working on Gym Track , everything was hard, really hard. And specifically because everything was like, it was the first time I was doing every anything. So, you know, the first time hiring developers, the first time finding a lawyer, finding an accountant, like figuring out, you know, what finance was like, even literally. And I remember fighting battles on, you know, not understanding what a balance sheet was, what p and l was, and how, how they worked, and almost wanting to like reinvent finance , which was obviously a total fool's errand. But the point is everything was super hard. And so inevitably I had this, this thought that I think a lot of first time founders have, and I was talking to, to Jafar about this, which is that like when you're doing your first startup , at some point you kind of think to yourself, wow, the, the second time, like, the next time I do this, it's gonna be so much easier. And if you start like buying into that, all of a sudden you're like, well, you know what, all I really need to do with this first one is, you know , I'll take it as far as I can take it, but like, if it's not a big, if it's not a big success or like whatever, maybe I sell early just so I can, you know, go to my second one. In other words , and like the way that Jafar put it was he said, I think there's a lot of first time founders, myself, guilty of this as well, that have that mentality. It's like, let me get the first one done and then I'm gonna use the second one as like my real one. We used to talk about Lupo like that early on, and his point is, it's a fool's err, right? It's, it's a big mistake. And I'll get to why , but what he says is, if you get a lottery ticket and you win, you don't rip up the ticket and say, I'll get it next time, right? And, and, and so here's like what it comes down to, like if you look at the stats, right? Repeat founders, especially successful repeat founders are six times more likely than the first time founders to create a unicorn. So then there's something to that. So there's something to this idea that like your second one is gonna be the real one, but if you dig deeper, what you realize is we're talking about raising the odds from like 0.7% to like, you know, four point something percent or whatever.
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It's still 95 plus percent likely to fail, even your second one. And so I , if you're on your first one and you have something kind of really pulling, you take it as far as you can. And the reason is, and this is what I was talking to, to Jafar about, is that because now he's on the second one, right? The second one really isn't that much easier. Zero to one is more art than science. Zero to one is really, really hard, and it's always going to be really, really hard. Yeah, you're gonna get better at all. The other stuff, like you're gonna get better everything that's on the periphery, right? So it's true. The second time around, you're just gonna know which lawyer to work, you're gonna know which account order , you're gonna understand finance, you're gonna know how to build a deck . You're gonna know in general, like hiring practices and firing practices, like all that stuff you are going to get better at. And yet, when it comes down to the core of it, right? What's most important when it comes to zero to one, is creating real value. And creating real value is no joke. Creating real value is extremely, extremely hard. The second, the third time, the fourth time around, it's the nature of it, right? At the end of the day, you're trying to find something that you can create meaningful ROI on. If you're selling to B2B or just meaningful value in a world that's highly competitive, where there's a lot of different players, a lot of people looking for. So anything obvious is already been done. Anything non-obvious, mostly non-obvious stuff is just bad ideas. And then in that bucket of non-obvious, you have some really good ideas and you've gotta find those. And at the right time, the right place, all these sort of things need to come together. That's why there's this kind of aspect of, of luck one way or another. So the point is like, if you've got something and it's working, don't buy into this mentality that you've learned so much. And so the second time is gonna be much easier. This could, this could be the biggest one. Again, like here's, here's another example. I possible in my head, think about Steve Jobs and Apple, right? So Steve Jobs starts Apple when he's super young. At one point he, he gets fired or whatever, and then he goes and starts next. When he started next, he was a much better founder than when he started Apple. He learned so much and he had tons of credibility, so it was much easier for him to raise. In fact, he went out and famously spent like a million dollars on a logo. I'm sure he was a much better manager by that time. And yet no matter what next was never going to be remotely close to as big as Apple was. And , and even became beyond that because Apple is just a much better kind of idea. Was it in the right place at the right time, creating real value? And, and then, you know, whatever, he came back and , and grew. But that's not the point. The point is that his second startup was just never gonna be as big as his first one. You don't know what you have right now. The grass isn't really good greener. So my point is, don't buy into that idea that your second one's gonna be much easier in any respect that, like, in the things that really matter, it won't be, give this one all you got. The second thing that I , Congo was really interesting. So, so let me, let me like kind of rewind, right? And this, this goes back to my gym Dry days, but it also goes back to just early days as a , uh, as a vc, one of the things that gets a lot of focus when you're, let , let me , lemme talk about the VC side, right? Like when , when you just start off as a vc, one of the things you , you realize is okay, you know, the, the companies that are going to really drive returns are gonna be the big ones, right? And so you need to release Big Tam, and by the way, Tam is really easy to like, dissect and, and analyze. And so you start spending a lot of time focusing on that. And you know, the shows about founders, so like from the respective of a founder, and, and this was me again, first time founder at Gym Track , so much emphasis on tam , like how can we create a billion dollar opportunity? One of the things that came out talking to , uh, to Jafar and, and honestly a lot of these other founders was just how little attention they paid to him in the early days. In fact, I , you know, Jafar was telling me how in, in the early days of Lupo , he constantly got dismissed by VCs because every VC he pitched was like, you know, the space you're focused on. In this case it's , um, the , it's RFP software. And again, you can listen to the full episode to , to kinda learn more about that. But every single BC he met was like, the space you're focused on is tiny, you know, the incumbents in this space aren't even big. So, you know , why are you wasting your time? And neither he nor as founders, I think gave much kind of thought to that they just did , didn't bother themselves with it. What they cared about was just delivering customer value, right? Like, our customers buying my stuff. Do customers love my product? Am I getting word of mouth? Am I meaningfully better than whatever else is out there? And they just kept putting one foot in front of the other. And I think there's a big lesson in that, which is like, first of all, when you're on the road from zero to one, I mean, you're trying to get to about a million or so arr. Like, I mean, every, any TAM will support that. And the second thing is I've met so many VCs, especially later on in , in like people that are like further into the game than I am who've told me some of the biggest misses ever where because of Tam or because they thought almost too much like overemphasize, I would say Tam in the early days and just didn't see the big picture. Classic example is people that passed on Airbnb, right? Almost all of them would say it was because they thought, you know, how big can this market really be in turned out , you know, it's a hundred billion dollar opportunity. The , the thing is, in the early days it's really hard to see where something can go and also impossible to predict, like how markets are gonna evolve and grow over time. What is clear and what you as a founder need to focus on maniacally, right? The only thing that really needs to matter is are you delivering clear, meaningful value to your customers? And I think as long as you're doing that, then you know, just keep putting one foot in front of the other. Yeah, of course at some point you plateau, you know, 5 million or 10 million because you've like saturated the market. Sure. But I don't know if that's gonna happen. And , and that certainly won't prevent you from getting to product market fit. So just focus on what really matters. Focus on clear roi , focus on value.
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