👏🏼 💪🏼Huge congrats to portfolio company Kustomer on the the long awaited official closing of the acquisition by Meta/Facebook.

With that, it got me thinking about two types of founders we like to partner with @boldstart, category creators which represent the bulk of what we do and ones who reimagine existing markets like Kustomer. Here’s a quick summary of the pluses and minuses of each type and how we think about day one investing in those.

Category Creators

1. Market timing risk

2. Market size unknown - need to imagine what it can be

3. Customer education on market required

4. Less competition, usually replacing home-grown solutions

5. Easier to get initial product out the door since your startup is creating the base features required

6. When market clicks, it can scale rapidly

Reimagining Existing Markets

1. Market already exits

2. Market size known and usually huge

3. Customer education on why your specific product required

4. Tons of competition - need to differentiate, characterized by RFPs and competitive bake offs

5. Feature parity required before adding extra bells and whistles - costs 💰

Ed Sim @edsim

On day one for obvious massive TAM, you usually have dozens of competitors so standing out in crowd + getting beyond feature parity + wow factor is much harder early For new markets, nonobvious TAM, little competition but u spend time convincing folks that market will be big

May 31st 2021

7 Likes

New category creation is what we usually prefer because joining founders imagining the future is quite exciting and can result in asymmetric payoffs if viewed through the right lens.

Harry Stebbings tweeted earlier this week about some lessons he learned in overthinking market size.

Harry Stebbings @HarryStebbings

Most important & consistent lessons from making 100 investments. When I turned down due to market size being too small, I was nearly always wrong. When I thought the market size was huge, it was often segmented heavily and smaller than predicted. Back people over markets.

February 15th 2022

39 Retweets355 Likes

Of course, I agree…

Ed Sim @edsim

I ❤️ nothing more than backing founders creating new categories but one caveat is that as startups continue to scale in fast growing new markets, there is always that feeling that the TAM is never big enough until it is Founders, keep executing, it will all work out 💪🏼

May 31st 2021

5 Retweets57 Likes

But here’s the catch

Ed Sim @edsim

It’s not about the total addressable market (TAM) that a company starts with but what they exit with. U can’t sell platforms. On day 1, focus on microscopic - how u can make one user’s life 100x better with your software than without - then teams, orgs, enterprise + new products

August 20th 2020

20 Retweets134 Likes

Case in point - most folks dismissed Snyk as going after too narrow a market with scanning + fixing vulnerabilities in open source packages for Node. What it has become is an $8.6B company in 6 years and along those lines it announced acquisition #5 this week. It’s not the TAM you start with, but the TAM you exit with. It started with OSS for Node, expanded its language coverage, added containers, cloud configuration, source code, and now cloud security…all with a developer friendly approach to security.

Snyk @snyksec

📢 Exciting news — Snyk has acquired @FugueHQ! By joining forces, Fugue’s capabilities will soon extend the Snyk Developer Security Platform, enabling the industry’s first cloud security posture management (#CSPM) tool designed by and for developers. snyk.co/uejdb

February 17th 2022

15 Retweets42 Likes

Going back to Kustomer, here are some of the initial slides and reasons why we funded Brad Birnbaum and Jeremy Suriel to go after incumbents like Zendesk and Salesforce (more on our journey with Kustomer and what we saw on day 1).

While a subtle detail, the unique insight that Brad and Jeremy had was to build a data architecture where the Kustomer is the atomic unit versus the ticket. With that change, customer support reps could better understand their customer no matter where the ticket was created from email to chat to Facebook to voice. Data was no longer siloed based on how a customer communicated with the company. In addition, by starting with an integration with purchasing data, Kustomer would come out of the gate with a holistic view of the customer and wedge to further expand into customer analytics and automation (read more on The Race to Own Customer Data).

I must admit that like most startups, it wasn’t always a smooth ride. Unlike new category creation, going after existing incumbents in a huge market requires founders to build to feature parity before even having the opportunity to sell a bigger and unique vision. What we underestimated was how long it would take us to get there but once we did, the customers responded quite well. (read more here). And yes, if one can take out the incumbents the size of opportunity and outcome is well known but it requires more hand to hand combat to get there.

As always, 🙏🏼 for reading and please share with your friends and colleagues.

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