What's 🔥 in Enterprise IT/VC #233
TAM matters but nail your product first and own it - most investors underestimate the size and growth of new markets
Ed Sim | Apr 17 |
What's 🔥 in Enterprise IT/VC #233TAM matters but nail your product first and own it - most investors underestimate the size and growth of new markets
So why do some enterprise companies seem to raise significant 💰💰💰 again and again in a matter of months while others don’t? Yes, founders and team matters along with product and early momentum. However as each round goes by and the price continues to go 📈, it comes down to TAM or total addressable market. How big is the market you are going after and if you win that with a superior product, what is the ultimate opportunity. Let’s look at Crowdstrike which initially went after the competitive endpoint security market first, a massive market in and of itself, and now since going public has added new products and expanded its TAM by 4x since its IPO. It’s no surprise that Crowdstrike is worth over $48 Billion today. That being said, Crowdstrike went after an existing market that was already huge with a 10x better product. How should founders and investors think of new emerging market opportunities and how does TAM matter then? In the chase for mega round funding (not a goal that should be pursued), I often see founders trying to expand their product line too quickly without owning and dominating their initial market first. This creates incredible stress on the organization from product to sales (learning how to sell, the motion, bundling), to the executive team. So a huge TAM is wonderful but time your product expansion carefully. Like Scale AI which just raised at a $7.3 billion valuation this week. From their blog:
What Scale got right is the insertion point into a data science/engineer’s workflow - you can’t create and run models without annotating and having clean, labeled data. With that insertion point at the earliest point of ML, they built a huge and loyal user base and only now, 5 years later, are expanding to cover the whole ML development lifecycle expanding its product line and its TAM by an order of magnitude. It’s no surprise that the company more than doubled its valuation since its Series D raise in 4 months ago. So founders the moral of the story is TAM matters, but nail your first product first before expanding too quickly. As always, 🙏🏼 for reading and please share with your friends and colleagues! Scaling Startups
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