Tailwinds
I've co-founded several businesses that have cumulative sales approaching 2 billion dollars.
I've also started several unsuccessful businesses that have lost millions.
Through these experiences, I've gained a powerful insight about the key ingredient in successful startups. Successful new ventures benefit from great market conditions.
Great markets have these fingerprints:
Large Total Addressable Market
Clear Product/Market Fit
Quickly Growing Demand
Alignment with Big Cultural Trends
Foster Creation of Many Successful Companies
Other factors are important ingredients to company building. For example, 15 years ago, I adamantly believed that a talented founding team was the most important ingredient to a successful startup.
My experience building companies has changed my perspective. The team is important but not as critical as market conditions.
Andy Rachleff, formerly of Benchmark Capital, stated it best:
“When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.
Great market conditions are like piloting a sailboat with a favorable wind. It's not impossible to build a profitable company in poor market conditions, but it takes herculean effort and commitment. It's far easier to target a favorable market.
An example of favorable market conditions:
On January 9th, 2007, Apple unveiled the first iPhone.
The market was ripe for a good smartphone solution. People were already spending billions of dollars annually on phones, maps, cameras, games, and personal computers.
Apple launched into great market conditions. But the market was so big that Google, Samsung, Huawei, and others all built successful phone businesses too.
But it doesn't end there. The development of the smartphone market reveals why strong market conditions are so favorable.
The book Blue Ocean Strategy breaks markets into two buckets, Red Oceans and Blue Oceans.
Red Oceans are defined by zero-sum existing industries with defined boundaries and high (bloody) competition. Blue Oceans are untapped new markets with less competition full of potential and opportunity.
It makes sense to pursue blue oceans, but it raises a significant question. How do you ensure you are targeting favorable market conditions while simultaneously trying to find an untapped and uncontested market?
It seems like these two things are in tension.
Let's go back to the smartphone industry in its early years. The market conditions were so good that it produced several successful smartphone manufacturers. But that, in turn, created a ton of massive new blue ocean opportunities in adjacent categories. Just a few of the many examples: Phone Accessories, Mobile Gaming, Fintech, Social Media, eCommerce, Online Dating, and Advertising.
For example, King.com built the popular mobile game Candy Crush. The company went public for 7 billion dollars in 2014! The cell phone market was so favorable that just one of its dimensions (mobile gaming) saw the creation of several multi-billion dollar companies. Overall, it led to the creation of literally trillions of dollars of wealth over the past 15 years.
Great market conditions don't guarantee success, but they tip the scales in your favor.
To drive the point home. If you decided to focus on building a company around any facet of the cell phone industry in 2007, you had a great chance of doing well eventually.
A personal example of this principle:
In 2016 I co-founded a drinkware company called Simple Modern. It seemed insane to others because we would have to compete with strong, established brands like Yeti and Hydroflask.
This year we will sell almost 9,000,000 bottles and cups!
While others saw competition, my co-founders and I saw incredible market conditions.
The drinkware market has always been huge. Everyone has to drink fluids, so, just like cell phones, the total addressable market is every person in the world.
The trend of using stainless steel vacuum insulated drinkware to keep drinks cold was relatively new. The first time I experienced a water bottle that could hold ice for over a day, it felt like magic. It was incredible. There was a clear product market fit.
Insulated drinkware exploded in popularity when we founded the company in 2016, but it was still early in its growth. I've seen some estimates that the stainless steel insulated market grew by 40% in the US last year alone.
Another attractive aspect of the reusable drinkware market was its connection to the larger cultural trend of reducing waste. 481.6 billion plastic bottles were used worldwide in a single year. That's 40 billion per month! That's clearly unsustainable and produces a tailwind for our product category for years to come.
Finally, we saw that the market had several companies with rapidly growing sales and profits. There was room for different approaches and many winners. We don't have the be #1 in market share to build a massive business in drinkware.
One final lesson I have learned:
Entrepreneurship requires persistence and attracts persistent people.
The number one danger to most entrepreneurs isn't starting something that fails.
The biggest danger is persistently grinding away at a startup in an unfavorable market.
You may be able to squeeze blood from the turnip, but you will never be able to create the same value you could in a more favorable market.
Thanks for reading! If this thread was helpful, please share it with others.
Co-founder & managing director of AoDu / Harling
2 年Great achievement!
Business Coach for Business Owners Growing Their Business.
2 年My greatest lessons learned are failures.
Startup Growth Advisor | Founder | AI Enthusiast | Venture Builder | Tech Advisor | Strategist | Mentor | Forbes BLK
2 年Love this Mike Beckham, always love reading from you.
Basketball YouTuber (6+ mill views) How Can I Help YOUR Brand With Content? | Creator Economy Enthusiast
2 年So much value in this post. It’s incredible what you’ve been able to build!