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E9: Henry Ward on Navigating the Startup Idea Maze and Building to Scale
"1 to 1000" | Scaling Startups with CEOs
Analyzing Market Cap, TAM, and ACV for Startup Ideas
Determining the potential market cap for startup ideas involves considering factors like reaching new customer sets and market size. The total addressable market (TAM) and average contract value (ACV) of a product are crucial in evaluating its potential growth. A low ACV typically indicates a limited business size, unless the startup can effectively target and serve a large volume of small to medium-sized businesses (SMBs). To achieve a higher market cap, startups targeting the venture sector need to increase their ACV or expand beyond that sector due to the limited number of potential customers. Selling to a large number of US small businesses with a lower ACV is feasible due to the sheer volume of the customer base. Moving into higher-end deals or outside the venture sector can create opportunities for increasing ACV and expanding the potential market cap. This is exemplified by a startup's cap table business with a relatively low ACV, characterized by high-velocity SMB sales, compared to their fund administration business which is transitioning to higher-value deals, with the potential for substantial earnings from a single deal.
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