Why is a big market important?

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A large market can significantly impact the potential success of a business for several reasons:

  1. Greater Growth Potential: A large market allows a business more room to scale and grow, providing opportunities to capture significant market share and increase revenue. For instance, Saam Motamedi highlights that building in large markets allows for continuous growth without hitting a ceiling, making it possible to build massive companies like CrowdStrike and Palo Alto Networks 1.

  2. Investment Appeal: Investors often seek businesses in large markets because they present higher potential returns on investment. Michael Treskow from Accel Partners mentions that the ability to build a large company is often dependent on the size of the addressable market. If the market is not sufficiently large, the company's growth will be inherently constrained 2.

  3. Navigating Competitive Pressures: Sumeet Gajri discusses how startups with a vision to dominate an initial small market can expand into larger markets over time, making market size less critical initially as long as the potential for growth exists. It's essential for companies to have clarity on tapping further opportunities beyond their initial market 3.

    Startup Market Insights

    Saam emphasizes the importance of building in large markets for exponential growth potential. He highlights the significance of founders doing references on VCs before deciding on a term sheet, stressing the value of understanding how VCs work with founders.
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    20VC: Why We Are in a Bubble & Now is Frothier Than 2021 | Why $1M ARR is a BS Milestone for Series A | Why Seed Pricing is Rational & Large Seed Rounds Have Less Risk | Why Many AI Apps Have BS Revenue & Are Not Sustainable with Saam Motamedi @ Greylock
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  4. Market Flexibility and Pivoting: Great teams can sometimes pivot to larger or more lucrative markets. Christoph Janz emphasizes the importance of combining a great team with a promising market opportunity, noting that while market size matters, an exceptional founding team can sometimes overcome limitations of a smaller market by pivoting into a better one 4.

In summary, a large market can provide a business with significant opportunities for growth, make it more attractive to investors, and offer flexibility to navigate competitive pressures effectively. It is crucial, however, to combine market potential with a strong founding team to maximize success.

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