Max here. Today, I want to talk about a different lens through which to view the concept of “understanding your market.” But before that, some follow-up on Mike’s comments from earlier this week.
I was talking to a VC last night who gave a great example of the traction vs. progress dichotomy. He told the story of a company in the jewelry space who had raised a small angel round. The founder spent that capital getting a website up and running, and generating revenue via a few initial sales.
The VC thought the founder would have been much better off spending all the money working with an agency to develop a great brand, even if that meant not launching or generating any revenue before needing to raise again. Her business was going to succeed or fail based on the strength of the brand. Anyone can put up a Shopify site and sell a few pieces of jewelry, so a few sales didn’t really do anything to de-risk the business. Proving she could build a compelling brand would have been a much more material indicator of progress.
Okay: now on to understanding your market.
When I was 24 and starting my first company, Castle, my cofounders and I worked really hard to understand our market (rental property management) before diving in. We did tons of customer research, read many boring market reports, and even poured through housing data from the U.S. census.
And in that regard, we nailed it. Although our company didn’t make it, we identified what would become a hot area before pretty much anyone else. I’m still proud that we were the first full-service property management tech startup, a category that has now become somewhat crowded and has engendered a lot of VC interest.
But it turns out that analyzing your market from an economic standpoint is only one component of fully understanding your market. There’s a second question you should ask yourself when you start: what will operating in this market for 5+ years do to me emotionally?
We were excited about the real estate world because the corner of that world we knew best was the Detroit DIY rehabber community, which was full of kind, well-intentioned landlords doing awesome work. But that turned out to be completely unrepresentative of the real estate world as a whole, which (generalization coming) is full of assholes, scumbags, scammy operators, and even outright fraud.
Spending four years knee-deep in that market really wore us down. And while that wasn’t the main reason Castle failed, it was certainly a contributing factor.
I’m starting to think about my next company, and as I explore markets, I’m making sure I picture who I’ll be and what I’ll feel like after being immersed in the market for half a decade. I recommend you do the same.