Zero Billion Dollar Markets
I was talking to the VP of marketing for a Silicon Valley startup recently. He was lamenting that he believed his company was in too small a market. "We can't meet the projections we've made to the VCs. We have a few peer competitors and none of us can get enough traction. I just don't think the market is big enough."
This is a familiar theme. I call it the zero billion dollar market. That is a market whose total potential is less than $500 million, so when you round it off to the nearest billion it is zero billion dollars. In the hyped up VC funded high tech pressure cooker, a market of at least a billion dollars is critical. Without that potential, a market is unlikely to support a company with a potential market cap of over $500 million (which rounds off to a billion dollars). This is now the magic threshold for a successful IPO and VC nirvana.
Many tech startups find themselves in zero billion dollar markets, usually with a bunch of peer competitors who got into the market for the same trendy reasons. After a while, some fail, some exit the market, some are acquired by RBCs (really big companies) and some get rolled up in a consolidation wave. When the dust clears, though, the survivors are still stuck in a zero billion dollar market. The biggest still have zero billion dollar market caps.
One sure sign of a zero billion dollar market is that the major players, who all sell widgets, claim they are really not in the widget market but that widgets are just their entry point into some other, larger market. Yet years pass and they are still mainly widget companies.
Entrepreneurs, a zero billion dollar market can be great if you are a privately and closely held company. Sure, the VCs and investment bankers will sneer at you and call you (shudder) a lifestyle entrepreneur. But you can do quite well for owners, employees and customers in markets under $500 million. You can even get rich. But be sure you have owners, not investors. You can tell the latter, they have billion dollar stars in their eyes.
Copyright © 2007 Philip Bookman
Technorati: Business Strategy, Strategic Planning
This is a familiar theme. I call it the zero billion dollar market. That is a market whose total potential is less than $500 million, so when you round it off to the nearest billion it is zero billion dollars. In the hyped up VC funded high tech pressure cooker, a market of at least a billion dollars is critical. Without that potential, a market is unlikely to support a company with a potential market cap of over $500 million (which rounds off to a billion dollars). This is now the magic threshold for a successful IPO and VC nirvana.
Many tech startups find themselves in zero billion dollar markets, usually with a bunch of peer competitors who got into the market for the same trendy reasons. After a while, some fail, some exit the market, some are acquired by RBCs (really big companies) and some get rolled up in a consolidation wave. When the dust clears, though, the survivors are still stuck in a zero billion dollar market. The biggest still have zero billion dollar market caps.
One sure sign of a zero billion dollar market is that the major players, who all sell widgets, claim they are really not in the widget market but that widgets are just their entry point into some other, larger market. Yet years pass and they are still mainly widget companies.
Entrepreneurs, a zero billion dollar market can be great if you are a privately and closely held company. Sure, the VCs and investment bankers will sneer at you and call you (shudder) a lifestyle entrepreneur. But you can do quite well for owners, employees and customers in markets under $500 million. You can even get rich. But be sure you have owners, not investors. You can tell the latter, they have billion dollar stars in their eyes.
Copyright © 2007 Philip Bookman
Technorati: Business Strategy, Strategic Planning
Labels: Business Strategy, Strategic Planning
posted by Phil Bookman at 8:28 AM
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