One of the topics that VCs love to debate on Twitter and podcasts every few months is which element is most critical to a startup's success: product, team, or market. Most early-stage investors lean towards the team, arguing that a strong team will eventually find a great market.
Take Slack as an example. Its journey from a gaming company to a multi-billion dollar messaging platform is often cited as an example of a great team pivoting from a tough market to one they could capitalize on. However, this is mostly selection bias and overlooks the thousands of teams that never managed to pivot successfully. The truth is, startups are really really hard, but founders can increase their odds of success by betting on a great market from the start.
Here are a few reasons why market selection is so important:
If you have a great market but a mediocre team or product, you still have a chance to succeed. Twitters’ infamous fail whale era is an example of a broken product gaining insane traction. In 2013, Mark Zuckerberg famously said: “Twitter is such a mess - it’s as if they drove a clown car into a gold mine and fell in.” However, even the best team and product will struggle in a weak market. And of course, the ideal scenario is to be firing on all cylinders with a great team, product, and market. That’s where magic happens.
When you commit to a market, you're basically investing 6 to 12 months of runway into it. First, it takes a few months to ship a v1. Then, you usually take another few months to see whether you can get enough customers. By now, most teams are reluctant to pivot to a different market or customer because they don’t want to waste months of work and knowledge.
The team you hire is usually based on the market you’re focused on. This makes it harder to pivot to a new market that may require different skill sets or expertise.
Despite these challenges, the best teams are able to adapt their products or pivot to new markets when necessary. While the "move fast and break things" mantra encourages shipping quickly and often, early teams should be extremely thoughtful about the market they're entering. The consequences of this decision will reverberate through every aspect of the startup.
Unfortunately, there’s no magic formula for selecting a great market. Many of the best startups create their own markets by discovering secrets hidden in plain sight. To identify a promising market, founders usually either possess deep domain expertise or approach a space with fresh perspective.
Ultimately, choosing the right market significantly impacts your startup's trajectory, so it's worth giving this decision the time and attention it deserves instead of rushing into a v1 too early.