Jamie Rumbelow

Good markets are normally described quantitively: how big is the market? Is it growing, or is it stagnant, and at what rate? What is the TAM – the total market size for your product? What is the SAM – the amount of the TAM you can reasonably capture if everything goes well?

One lesson we learned building Tract is that there are qualitative features of markets, features of a market that make it favourable to sell into but aren’t captured by the usual market sizing metrics.

None of the considerations below are definitive, nor is this an exhaustive list. There are great companies built in difficult, low-quality markets, and plenty of good quality markets where it’s still difficult to sell. And lower market quality works as a barrier to entry, which means once you’ve cracked it, your business is (in theory) more defensible.

If you’ve got any feedback or suggestions for further reading, please email me.

Questions to consider

Willingness to buy

• How willing are customers to try new products?
• How willing are customers to try new products without existing customer references / logos?
• How willing are customers to try incomplete products, or products that only cover a subset of their use cases? Are they culturally encouraged to perform an 80/20 analysis?
• Do customers allocate budget to try new products?
• Does willingness to buy change over time? Will someone who has tried four solutions try a fifth?
• Is there evidence of software fatigue?

Accessibility

• Is your market in one accessible place? Or is it distributed in lots of places?
• Is it simple to identify the person who decides on how that budget is spent? Is it simple to pitch them?
• Are there any notable switching costs? Are incumbants locked in?
• How easy is it to integrate with the customer’s existing tech stack? How easy is it to integrate with the customer’s existing operations?

Feedback and compounding

• Do they respond to their emails quickly?
• Do they make purchasing decisions quickly?
• Do they provide high quality feedback? Do they have a propensity to offer it?
• How easily does customer feedback generalise across customers?

Does market quality matter more than market sizing?

I have come to believe that market quality often matters more than market sizing for early stage companies. This is for a few reasons.

Market sizing is, in many cases, more difficult to observe than market quality. Typical approaches to market sizing are either:

• top-down, where you take the whole market and filter it down to a specific segment or niche;
• or bottom-up, where you start with a specific customer and their spending profiles and build it up to the size of the full market.

Data on a lot of these metrics are scarce. In both cases, it can be easy to gerrymander the numbers to give yourself a bigger TAM and therefore make yourself believe it is a big enough. market. The choice of variables matter, and founders’ confirmation bias is a powerful determinant of these choices.

Market quality, on the other hand, can be observed much more readily identifying a customer profile and speaking to them. You get a sense very quickly as to whether your sales cycle will be short and sweet, or long and painful.

Secondly, market sizing is often a projection forward based on the current world. The current world is a world without your startup. This means that you are evaluating the market size on the counterfactual where your startup doesn’t exist. But many of the most impressive startups create new markets, or new demand within existing markets. By reducing the costs of taxis in developed cities, companies like Uber and Lyft induced demand in a set of customers for taxi rides. And much of that demand came from people who previously rarely, if ever, used taxis. Thus, the market value of their possible rides did not appear in the numbers one would have used to determine market size in a world without them.

Thirdly, and most importantly, a large market is important to gain conviction that this startup could reach venture-scale one day. But it is much less useful to gain conviction that this startup will be able to do so today. If your growth is bottlenecked by market quality considerations, a large TAM is chimerical: you won’t be able to access it even if it’s there.

Further Reading

• A16Z’s Framework for Finding A Design Partner
• Astera’s Early Stage Go-To-Market Handbook
• Tyler Bosmeny’s How To Sell