Big markets v new markets

Founders are visionaries. At least, that’s the myth. But apart from a handful of outliers, the most successful founders go after the same big problems–they just execute better. Usually, it’s a combination of distribution and product. Investors are quick to write ideas off as already been done. Especially Silicon Valley VCs. I think great execution in a big market can’t be beat–and might not even need VC.

Some examples

There are near infinite examples; let’s start first with the Y Combinator companies I mentioned. Zenfits, Deel and Rippling all did YC. They are all HR platforms, and they are all unicorns. When I heard of Paychex I thought this category was “done”, but I didn’t ever look very hard (or at all really). Turns out big categories have endless room for good execution.

Two of the biggest historical examples are Google and Facebook. Both were far from the first of their category–search was already popular, with many public companies, and “Social networking” had been the next big thing in Silicon Valley for several years before Facebook started.

Both, however, had much better products and unique paths to market. Google had a clean, fast loading interface with no clutter or extras at a time when bandwidth was very limited. It also delivered results quickly–and those results were accurate. It was the better results that won Google the Yahoo search bar and a call out (powered by Google)–that led to a massive amount of free traffic. That traffic quickly realized Google would load faster than Yahoo, and started going to Google first. Oops.

Similarly, Facebook focused on key product features. Unlike Friendster and MySpace, Facebook was stable. It was also exclusive, limited only to students of Harvard and then rolling out to other universities. The combination of great product that met user needs demonstrably better and a clever, viral path to saturating existing networks made it stickier and grow faster than MySpace (or any other social network).

Facebook’s growth was insane. I mentioned in a past issue on venture growth that it had something like 75% of Harvard students signed up and addicted within 48 hours of launching. Then Instagram, Snap, WhatsApp, and TikTok all grew even faster! Nothing beats big markets.

The advantages to an established market

Established markets have built in demand, and in the B2B context, built in budgets. For example, every company has a budget for HR software and payroll management. If you solve some key problem in HR or payroll, people will use that budget to buy your service. Deel figured out how to employ and pay contractors globally, and as a lot of companies were expanding their global workforces, this fit nicely into an existing budget.