413: How Important Is Choosing a Good Market for Your Startup?

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Steli Efti: Let’s go. Hey, everybody. This is Steli Efti.

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Hiten Shah: And this is Hiten Shah.

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Steli Efti: And today on the Startup Chat, we’re going to talk about the importance of choosing the right market or a “good” market. So recently, we had a chance to catch up in person. I was in San Francisco. We grabbed some coffee. There were many hugs involved for those that are interested.

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Hiten Shah: Three. Two or three. Yeah, yeah.

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Steli Efti: Three for sure. Big bromance. We do not just pretend to like each other.

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Hiten Shah: Not pretend. Yeah, yeah, yeah. It’s not pretend.

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Steli Efti: Actually, I’m wondering honestly, Hiten, if there is another podcast duo like us that likes each other after four years as much as we do. And I’m going to make a claim that I don’t know, but I doubt it. In the startup space, I definitely doubt it.

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Hiten Shah: I like it. I like that.

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Steli Efti: One of the things I’m very proud about when it comes to this podcast is that it has increased our love and our respect for each other rather than decrease it like it does for many other people.

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Hiten Shah: That’s a very good point.

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Steli Efti: So anyways. Enough of us. But one thing that we briefly chatted about for just a minute, I think. But back in my head … And I thought, “We should share this with people.” The importance of being in a good market or bad market or in a competitive market. Is this market still a good market to be in? Is this market too-

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Hiten Shah: Can I share how that came up?

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Steli Efti: Yeah.

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Hiten Shah: I asked Steli what he thinks about what he’s doing in the CRM market, and that’s what led to the, I think, one-minute discussion. It was a quick one because he said something great. But literally, it was just a question for you. Because it popped in mind. I’m like, “Wait. I should ask Steli this. This is really interesting, and I want to know what his answer is.” And I’m glad that we’re sharing it.

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Steli Efti: Beautiful. Yeah. So you asked, “Do you think the CRM space is still a good … Do you think your market is still a good market to be in?” My response was, “I don’t think it matters that much.” I think it’s a huge space. Yes. Is it very competitive? Yes. Did a lot of the things that we did earlier, nobody else was doing, have they copied it? Has it become more competitive? Has it become more expensive to acquire customers? All these things, yes. It is a challenging space to be in. But I think if you are great, and if you build your business in a great way, you can be almost … There’s companies and markets that I don’t think are great markets that are amazing companies. I think the market matters more … The less great you are in your execution, the more it matters what market you’re in and what you’re timing is.

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Hiten Shah: Right. Absolutely.

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Steli Efti: There’s some companies that became billion-dollar businesses, although their founders and everybody in that company made a million mistakes just because their timing was one in a million lottery ticket. If they had tried to start the same business five years later with a bit more competition, it would have never worked because they were not that great at execution. So I think that for us, I don’t care. I think this is a big enough market and a good enough market that we can build an incredible business, the type of business I want to build. So anything that’s a difficulty to me, it’s always an internal one. It’s always a difficulty that is self-inflicted, so we need to get our shit together. The truth is I don’t rely on external forces to be pushing me up. I don’t rely on the market or the hype or the interest or whatever to make things happen for me. I need to make things happen for myself, and my team has to do that. But I don’t think it matters as much for us for those reasons. And I remember when I told you that, you were like, “Yeah. You’re absolutely right.” And then we keep talking about something else. But then later, I was like, “That was a nice little moment, and we should share this with people.”

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Hiten Shah: I’m going to give a-

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Steli Efti: Oh, go ahead.

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Hiten Shah: I’m going to give a thought. I think you were going to ask me about that. I call it the two Ts. And what you’re looking for is the two Ts. And the two Ts you’re looking for are basically tailwind and trends, which are kind of related.

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Steli Efti: Tell me more.

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Hiten Shah: So I agree with you about you don’t want to rely on anything. But people still need to know, “How do I know I’m in a good market or one that’s not as good? Maybe not bad, but not as good.” So I’ll give an example of an interesting one. I think virtual reality is a trend. There’s a trend. There’s a movement. And I’ll be controversial and say I don’t think there’s tailwind yet. I don’t think there’s a big movement [inaudible] that’s going to [inaudible] with me. And that’s fine. I’m not in the market. I don’t really care. But that’s a very good example. It’s like, “Is there a natural movement for this? Is there something that’s happening that causes this trend to continue and accelerate and grow?” And it’s not about market stats or anything. It’s just like, “You’re a founder. What are your feelings about this?” Or you’re making a choice of a company to join or whatever. “Is that company in a good market for me?” I’m not saying VRs a market. I’m just saying it might not be as good as people might be thinking. And you know the number one reason I know that is because I ask people who are in it, because some of my friends are in it and I’m meeting with them. And we’re not talking about VR. And I’m like, “Hey, what do you think?” And one friend told me something really interesting, and I think it’s a really good example. He’s like, “People get dizzy in this VR thing. And their stomachs hurt. And you have to put on all this equipment, and it takes 45 minutes.” And that’s a state of the art, and you have this costly thing going on. And yes, something will change. When? I don’t know. Well, if you don’t know when, the trend doesn’t matter. And there’s no tailwind. Yet. But that is a market to watch, no doubt. Yeah.

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Steli Efti: I love that. And now-

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Hiten Shah: That being said, augmented reality [inaudible]. What was that Steli?

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Steli Efti: Go ahead. I think I have to stop … Let’s stop videoing. Just go ahead. Just repeat what you just said. I didn’t even say anything. My internet connection seems to be bad now.

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Hiten Shah: Oh, no worries. What I was saying is when it comes to virtual reality, I don’t think it’s necessarily a bad market. It’s one to watch. And when I think about a related market, I think about augmented reality and try to think about, “Okay. What’s going to cause that market to have tailwind?” And the trend’s already there, right? There’s all the different sort of faces and things like that and all the augmentation you can do on your face, all these apps and things like that. But I don’t really feel like there’s a strong enough tailwind yet. So you want to think about what’s going to cause that to happen. Usually the tailwind comes from demand or a platform. There was so much tailwind for Facebook apps when Facebook said, “We’re building an app platform.” And the trend was that people were on Facebook for so long, and Facebook wanted people to be on Facebook even more and wanted to become the internet, basically, for them, right? And so Facebook apps had tailwind, and there was a trend, which is Facebook saying, “Hey, people are spending time. We want them to spend more time.” That’s a trend that Facebook wanted to perpetuate. At the same time, the tailwind was the fact that they have a platform, and they make it easy for you to do a number of things and get distribution. So I think it’s really important to think through, “Is there tailwind in the market, and is it a trend? Are there trends that point to that?” And that can really help you identify whether you’re in a good market. So let’s take CRM market today. The market has some level of penetration. There’s a massive company, largest SAS company or whatever they call it. I don’t remember anymore. And it’s verticalized, and they have many different products now. But still, CRM is their bread and butter. And there’s so many people that have gotten … The trend, to me, is so many people have gotten used to wanting a CRM, wanting a way to manage their customer relationships. And that’s a trend. It’s a growing trend. Every market is going to have some demand here because of SalesForce and because of what they started in terms of putting it in the cloud. And then now we have another tailwind, which is people are going online more and more. And a lot of the real estate and all these obscure markets have lots of opportunities around needing CRM, whether it’s Close.io or verticalized CRM just for real estate or whatever. And so there’s a number of this tailwind and trends, even in literally the oldest SAS market, I believe, that’s out there, which is CRM. So yeah, of course it’s a good market. It’s huge. And not everyone uses a CRM today. Simple as that.

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Steli Efti: Yeah. You hit it on the head. Actually, 80% of companies on this planet don’t use a CRM that is in the cloud. They use either an internal solution, some spreadsheet, a whiteboard, or something that’s still kind of on-premise. We always think about SAS products having hit this peak penetration, all these businesses around the world are using SAS products. But nothing could be further from the truth. So there’s a growing trend to move to SAS for businesses. There’s a growing trend of new businesses around the world that are much more sophisticated and looking for new solutions. So we’re in a market that still has an insane amount of demand because it’s so vast. And I’ve been in a market before where … I’ve been in a situation before when you’re in a dying space. And it’s important to quantify that and to realize it, but I think that knowing if you have tailwind, knowing if you’re in a trend or not is really, really important. But also, not getting too distracted if the space that you’re in is competitive, not instantly thinking, “Oh, we have some competitors. Hence, our market is bad. Hence, we cannot build an amazing big company.” I think that that’s a very limited and limiting mindset that I would advise people to not think about. But I think that the tailwind and trend thing, I really love that you shared that. I’d never heard that before, and I’m definitely going to use this moving forward.

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Hiten Shah: Yeah. I made it up. I don’t know if it exists. I’m not taking any credit for it, but it’s the two Ts for me to determine a good market. And I’ve been thinking about this a lot, not just since we talked. But I think I asked you the question because it’s on my mind and just to kind of put a pin in it, so to speak. The market you’re in is an important, very important, thing to consider today. It might not have been in the past, but it helps you define who you’re customer is, and it helps you really figure out, “Is this what I want to be doing? Is there anything here that gives me an advantage because of the market I picked?” And that’s really what you’re looking for. You’re looking for every damn advantage you can get. And so if you think about it like this, then you can think about tailwind. Is there wind behind my back? Not in front of me. Headwind is a whole big other thing of you find a headwind, you can’t get past it, you have a bad market. If you can’t figure out how to get past it. But tailwind, that thing just pushes you naturally. And it almost makes the customer pull you into opportunities. And then trends are really important. For example just real quick, Evernote hit on the mobile trend, the fact that mobile just hit. And they hit on a tailwind, which is people wanted free products to start with before they were ready to pay for something. And that’s one of the … Those two things are what made them work in the beginning. There was a lot of tailwind, and there’s this trend that was just huge. And it was also tailwind in their case, which is the idea that now all of a sudden, people have the mobile devices, and they need stuff. And you can sync across devices. That was super key to the product they built. And it was even before some of the other products and the core offerings by Apple were able to do some of those things that they did. And that’s why the business existed. And then obviously, then it goes to what you said, which is like, “I’m not going to rely on things like that, but those things are great.” You need to execute, and this is kind of where Evernote ended up where it is because the execution was … It was in a good market, but execution was where kind of things fell apart. And now a lot of other companies are capitalizing on that.

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Steli Efti: Beautiful. Mind your two Ts. Think about your market. Think about tailwind and trends. That’s it from us for this episode. We’ll hear you very soon.

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Hiten Shah: See you.

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