{"id":312851,"date":"2025-11-23T04:38:23","date_gmt":"2025-11-23T04:38:23","guid":{"rendered":"https:\/\/peraltafinancing.com\/angel-investor\/be-1-in-your-market-pitching-angels\/"},"modified":"2025-11-23T04:38:23","modified_gmt":"2025-11-23T04:38:23","slug":"be-1-in-your-market-pitching-angels","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=312851","title":{"rendered":"Be #1 in Your Market \u2013 Pitching Angels"},"content":{"rendered":"
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The only path to success for a startup is to become the leader in your market<\/h2>\n
Most startup pitches I see have a similar story: the market for X is $100 billion dollars and growing at a 10% CAGR. Our new AI-powered B2B SaaS needs to capture only 0.01% of this market to become profitable.<\/p>\n
At that point, I tune out the rest of your pitch. Sorry. There\u2019s no chance of the company being successful. Companies with a 0.01% market share never are.<\/p>\n
It\u2019s well-known that the market leader is usually wildly profitable. #2 usually does okay. #3 struggles to break even. #4 and beyond are hopeless and will lose money until they\u2019re put of their misery. You need to be #1.<\/p>\n
For this reason, nearly all big companies with multiple product lines have a simple rule made famous by Jack Welsh at GE: Be #1 or #2 in the industry or close it down or sell it off.<\/p>\n
Not all CEOs are as coldblooded and ruthless as Jack, but all managers have this rule at the top of their mind when planning product strategy. And yes, Jack was wrong about a lot of things, perhaps even most things, but not this.<\/p>\n
The reason is simple. Customers buy the market leaders. They avoid the also-rans. (Even the word \u201calso-ran\u201d is instructive. It originally meant horses other than #1, #2, or #3 in a horse race. The other horses also ran but didn\u2019t win any prize money. If you\u2019re racing, don\u2019t be an also-ran.)<\/p>\n
That sounds like a tautology, but it\u2019s not. Customers buy the market leaders because:<\/p>\n
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they spend the most money on marketing to convince customers they have the best product, even when they don\u2019t.<\/li>\n
they have the most money to spend on engineering to add features customers request, even if they\u2019re useless.<\/li>\n
they have the widest distribution to get the product to the customers in the easiest way for them to buy.<\/li>\n
they have the highest volume and therefore the lowest cost of production, so they can beat you on price with discounts to knock you out of any deal.<\/li>\n
they\u2019re already embedded at the customer with other products that are difficult to displace.<\/li>\n
most importantly, corporate customers feel safer buying the market leader. If something goes wrong, you don\u2019t get blamed for a bad decision. Nobody gets fired for buying IBM\/Cisco\/Microsoft, etc.<\/li>\n<\/ul>\n
Here\u2019s what usually happens when you try to compete with the market leader: You have a feature they don\u2019t have that the customer needs. The early adopters on the innovation teams buy a few copies to play with. They love it. It solves a big problem for them. They recommend it to the managers of the operating groups.<\/p>\n
The operations folks are less enamored. They\u2019re the ones who have to get up at 3 AM if the system crashes in Germany or India. They\u2019ve been working with the account manager at the market leader for a decade. So instead of buying your product, they ask the market leader to add that functionality to their product.<\/p>\n
The market leader\u2019s functionality doesn\u2019t have to be good. It just has to be good enough. So they\u2019ll announce they\u2019re adding wonderful new AI-powered features that are remarkably similar to yours. They\u2019ll be delivered late and won\u2019t work well, but in the meantime you\u2019re locked out of customers. If they work at all, the customers will stick with them.<\/p>\n
Gotta Be Number 1<\/h3>\n
The solution is obvious: you have to be number 1. You have to dominate the market for your product.<\/p>\n
As a startup, you\u2019re not going to dominate the very large market for databases or beer. But rather than a miniscule share of the beer market, you could become the leader of a submarket such as organic beer.<\/p>\n
It\u2019s easy, though, to go to the other extreme to declare yourself a market leader. You\u2019re the number 1 selling organic blueberry-flavored wheat beer in Casper, Wyoming. Congratulations! Does anyone care? Other than my blueberry beer fanatic friend in Casper, Wyoming, no. It needs to be a real market. It has to be a market people care about.<\/p>\n
The market needs to be:<\/p>\n
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Big. Unless the market size is at least $1B, even if you dominate the market, the opportunity is not large enough for venture investment.<\/li>\n
Protectable. Being the leader in Wyoming doesn\u2019t help if the leader in Colorado can grab your territory by hiring another salesperson.<\/li>\n
Something customers care about. Is blueberry flavor instead of say lemon or raspberry something customers care about when choosing a beer? Probably not. Fruit-infused beer? Perhaps. Organic. Probably.<\/li>\n<\/ul>\n
Let\u2019s focus, then, on the market for organic beer. Worldwide, it\u2019s estimated to be an $8.5 billion dollar market, projected to reach $16B by 2023. Big enough? Yup!<\/p>\n
There\u2019s plenty of competitors now, including beer giant Anheuser-Busch with Michelob Ultra and lots of craft beers. But no clear leader in a market that\u2019s still developing. With brilliant marketing to a select audience, it\u2019s not impossible that you could grab major market share and even become the market leader.<\/p>\n
At that point, and only at that point, does InBev, Diageo, Molson Coors, or one of the other beer giants buy you at a high valuation. They\u2019re willing to pay out the big bucks not because you have a better product, or have technology they can\u2019t replicate, but because you own the organic beer market which is growing fast while regular beer is stagnating, so they need you for their growth strategy.<\/p>\n
They need you in their portfolio, they need you for their distributors. They need to be the market leader in your market segment and it\u2019s easier and cheaper to buy you than to compete.<\/p>\n
So as you build your investor pitch, tell us not how you\u2019ll take a tiny share of a huge market, but how you\u2019ll become the leader in a smaller but substantial market.<\/p>\n