This reads like a variation on the "many successful products started off looking like toys" post I've seen repeatedly over the years. The problem with this theme is extrapolating that all toy markets/products will grow into sustaining ecosystems.
You can and should consider toy "beachheads" into larger and growing markets, but the idea of targeting a small/limited market is flawed IMO.
The examples presented are successful in what where HUGE markets with limiting factors. No one debated the size of the retail book business when Amazon started, the challenge was how to pay for things over the internet. Ebay provided market-making for individuals to sell stuff - anyone remember classified ads and the buy & sell? That was big business for newspapers.
I feel like there's a lot of selection bias and revisionist history in this post.
"the idea of targeting a small/limited market is flawed IMO."
Why? If the market is not 'interesting', the less likely it is to enter the killzone of the large incumbents. Getting a large share of small market is still real business. A relatively small market does not mean the market could not sustain a business or two...
Almost a decade ago, I had a web project for kids. One day a VC invited me to a meeting. I drove up Sand Hill Rd., showed a txt file with notes on a screen, and talked with the VC for about 30 minutes.
At the end of the meeting he said it “was interesting”, but it is a “toy”. And that they do invest in such, but can’t invest in my “toy” this year cause they already invested in another one, and they only do one “toy” a year.
I find myself impressed every time I look and find that the Roblox userbase has grown by another zillion and yet nobody I know has heard of it. Filter bubbles are uncanny when you notice them.
We're in a tiny market (we're like the strava of paragliding) and are expanding into growing markets (if a person attached a gps tracker to it, we'll show it's movement and tell the story).
Long-term we are creating a new type of media. It is so difficult to get a clear concise story to an investor about the path of growth of all of these things.
Reading stuff like this by YC, helps us realize/believe we are on the right path.
Any advice on how to approach and spell out the future?
Would it been better if uber had come out and said "today we are about black cars, but tomorrow it is cabs and then the movement of any goods"? Would investor have gone for that? I think many would have said "yeah right, like you're going to take on the taxi market.
Oh, and if you want to see the future of outdoor sports, check out https://ayvri.com
> It is so difficult to get a clear concise story to an investor about the path of growth of all of these things.
1) Don't get money from VCs.
OR
2) If you do want to get money from VCs, then you need to basically "extend the truth". Do not talk about the "how are you going to get there" in your deck, just talk about what the eventual vision is and what its going to look like. Make sure to put in a bunch of buzzwords (serious).
By way of background - I learned this the hard way pitching a niche endurance sports website to VCs and got clobbered by VCs for not aiming high enough.
PS - your tech is seriously cool...big outdoor endurance junkie here, I've used/seen it before.
Communication is about 80% of the battle. We were previously working on some cool technology but having since been on the commercial side of things, I do see the lens that VCs see. Many shiny objects - explain what makes you a winner in layman terms.
It’s been helpful to get someone non-tech to vet our messaging somewhat.
Figuring out a clear story to tell is part of the challenge. We've noticed that founders who are better at doing this generally build better products and companies.
So I'd look at this as a test: can you tell your story in a way that connects?
We can, but I find people look at what we have today and make the assumption that this is all we do. When we are already in other markets that most people don't realize.
When we explain these other markets, they say "wow, you're spreading yourself thin".
So it's, yeah, we have a tiny market we focused on, these are the things that are coming up in the future, we have some growth in them now, they'll be huge later.
Your paving an unvalidated market, so there is inherentally higher risk involved.
I think what your outdoor sports ayvri is interesting, but it has a few fatal flaws IMO
- Like prezi, there's just way too many animations that it gets dizzy watching things after awhile. People still use powerpoints today for a reason. People just want the story, the meaty content
- You can get the same value of your long video from just looking at a map. That map takes a few seconds to look at.
- If you added images in the mix, it gives a better context of the bigger picture at large. Learn how storytellers use pausing to greater effect. You can interject with pictures here
- Increase plane height of which everything is viewed at, leaving it in an isometeric view mode. You need less animation transitions
- You should really check out how racing video games (cars, tour de france, etc) portray their map in the HUD
- The market segment you are targeting doesn't have a lot of money to throw around, compared to AR/VR military spending simulation training.
The "toy markets" blog is essentially saying think big, but continuously grab the lowest hanging fruit and penetrate hard
So we're building for a fairly niche industry: the space industry.
On the one side, you can't get through most days without an article about SpaceX, Blue Origin, Planet, Spire, etc. popping up, but on the other hand, the market is still pretty much dominated by the traditional large players.
We're already "weird" by the fact that we're ONLY building software, and no hardware. Further more, our software is not in itself a product, since we're building a marketplace of sorts. So what we're really trying to attack are the business and engineering processes.
Although we haven't been actively fundraising, I've talked to quite a few investors, and nobody seems to care, because if you're not building a satellite, a rocket, a space station, or something similar, you're not really in the game.
We're banking on the fact that commercialization of the space industry is coming, and so business and engineering processes will have to adapt.
Convincing people of this to the point where they're willing to put money on the table is proving super difficult.
The solution for us has been to not fundraise and try to minimize burn to the point where we can bootstrap for a very long time.
From this article, it seems we're in the "behavior change" category. The article only briefly touches on this, and I'd be interested to understand how to be effective in communicating that behavior change to investors, especially in cases where things like TAM are largely "? x ?".
The author graduated university 2006. Assuming this was the beginning of his careeer, then he seems to be looking back fancifully on events he wasn’t party to.
Errr... playfulness at work doesn’t really provide a connection with the sort of Toy market being proposed here. Just because there were toys literally in googles fun style of work doesn’t mean they’re children literally playing with toys.
Many people fell out of planes without parachutes and survived. Founders make the mistake of not jumping without procuring a parachute first, and it makes sense. But clearly a parachute, while helpful, is not strictly necessary.
> Many of the largest companies in the world started in markets so small they looked like toys. Over time, each of these companies grew their markets or created new ones to dominate.
A typical VC (elevator pitch or pitch deck) asks for the Total Addressable Market number, leaving no space for "in the future..."
A major challenge is that there are different tiers of investors and since most start onthe low tiers they have smaller funds (=more financing risk) and their LPs will have less patience and will want to see short term portfolio performance. The result is that VCs tend to hunt in packs and try to coat tail off larger investors who can afford to have a bolder vision because they can push their portfolio companies through even if the metrics are crap. Small markets while great in theory tend to carry too much risk for most VCs because they need to worry about the rest of the markets perception. We need to find ways to allow VCs to take more risk.
> "Amazon was for selling books online when relatively few people used the internet. Google was a search engine in a landscape crowded with search engines that weren’t themselves gigantic businesses. Ebay was for selling beanie babies."
I don't find Google, Amazon or Ebay as compelling examples of "toy markets". Google started when search engines such as lycos, ask jeeves and yahoo were already household names. The key issue is that at that point, none of them were giant companies because they hadn't figured out how to monetize their businesses. However, their market was clear and obvious as the internet already had wide adoption.
Ebay was an auction site. People have a lot of crap and want to get rid of it. The site obviously had a large potential target market to begin with.
Amazon started out with books, which is a huge and well understood market. An online bookstore could offer a far better selection than any physical bookstore. Even if Amazon were just selling books, it would be a fairly large company. If Amazon was never founded, there would have been someone else who filled the niche pretty quickly.
(Some of these early companies definitely made big bets on the popularity of the internet. Amazon was founded in 94 and Ebay in 95. Back then, the internet had less than 20 million users, so it was obviously a niche, but it was also growing very quickly (usage just about doubled each year for the next 4 years) [1]. If an investor was already bullish on the rising popularity of the internet, than the fact that companies like this would have large markets was a no brainer. It's kind of like how Coinbase, or someone similar, will obviously be huge if cryptocurrency pans out.)
The article also mentions Facebook, which again, was founded well after the internet became a big thing. MySpace was already getting pretty big traction by the time Facebook came around.
When I think of companies that started out as "toy markets", I think of Apple where their early product (the Apple I) was geared towards early-adopter consumers. But even Apple wasn't really a huge company until Jobs came back in the two thousands (in 2001, after the tech bubble collapsed, their market cap was about 200x less than it is now and far far smaller than Microsoft was at the time).
The fact is that many very successful companies don't start out in "toy markets". They start out in big markets, but they just do things better than the next guy. Amazon and Walmart didn't invent retailing, but they did (and do) run very efficient supply chains. Apple didn't invent the market for cell phones, but they made iterative improvements to what was out there until they came to dominate a huge market.
Yeah, speaking as someone who was around for AltaVista, the idea that Google was addressing a toy market doesn't ring right. CMGI paid Compaq 2.3 billion dollars for 83% of AltaVista in June, 1999. That's unicorn valuation. Lycos IPO'd at $300 million the first day, back in 1996. Intuit dropped $40 million for 20% of Excite in June, 1997. And by 1999, Lycos was aiming at a $17 billion merger.
Common wisdom in 1998 was that search was a feature and the money was all in "portals", the all-in-one gateway to the Internet. Yes, most Americans with Internet access had tried Altavista/Lycos/Infoseek...and found them wanting. My go-to Internet start page in 1998 was Yahoo, and among older people it was often AOL.com or MSN.com.
Google's first major business deal was with AOL, and they promised AOL a guaranteed amount of revenue that would've bankrupted Google had they not delivered on it. Those aren't negotiating terms you agree to when it's clear (to other people) that everyone is going to use your product.
Pretty sure it was AOL, but it might've been Netscape...which was owned by AOL at the time, so still AOL. I'd heard of it from early (single-digit employee ID) Googlers, but am struggling to find a public source.
It was basically that very early in Google's history (late 1998 or first couple months of 1999), Google signed a deal to be their sole search provider in exchange for $Xm (this was right after their $25M funding round, and the total dollar amounts involved were more than they'd taken in funding up to that point). As part of the deal, they guaranteed AOL a certain minimum amount of revenue, basically saying "You will make $Ym >>> $Xm in additional revenue from people using our search engine, and if you don't we will pay you $Ym, so signing this deal is a no-brainer." At the time, $Ym was such that it would've bankrupted the company, so this was basically Larry taking a calculated risk that they could deliver on their promises.
There is a separate story related to this deal that was told to me in Noogler orientation, as an example of "focus on the user and all else will follow." They underestimated the traffic coming from AOL/Netscape, such that when they flipped the switch, all of their servers were instantly overwhelmed. Their response was to shut off their consumer-facing webpage and only handle AOL traffic. For a while, until they could get a handle on server capacity, visitors to google.com got a "connection refused" error and they basically functioned as a whitelabeled AOL search provider. And this was critical in building trust in Google within the industry. It seems ridiculous now, with both AOL and Netscape just memories, but Google at the time was a scrappy startup running on a shoestring.
That's really interesting. I'd love to read more stories like this of early Google since most of the public info doesn't really start until much later.
One of my projects at Google was the [google in 1998] Easter egg, which actually shows a SRP from early 1999. I got the mockup because Jeff Dean happened to have some old mockups of what Ads might look like lying around on his computer. They hadn't launched at the time.
Before that, Google's revenue was largely partnerships and one-off deals. They'd offer to provide search for some large Internet property in exchange for a large lump sum, the way most business was done at the time. The auction came later - IIRC it was invented in 2000, and its inventors got one of the first Founders Awards.
The way I heard it, upper management was aware of GoTo.com and it was a major factor in the pivot into the CPC auction business model, but GoTo.com was hardly a household name. I'd never heard of them until I joined Google (many years later) and started looking into the history of my employer, and their business model was white-labeled advertising for the other major search engines & portals (Yahoo, Altavista, etc.)
Yes, they were. Collecting revenue != common wisdom holds that their business model is a good idea. I recall that even at the IPO, there was widespread surprise that Google had been profitable since 2001, as most people had assumed they must be losing money.
There are wide information disparities and a long time lag between something becoming actually true and when it enters common wisdom. Heck, I can think of a couple cryptocurrency companies that made over a billion dollars in revenue (revenue, not valuation) last year and yet a good portion of the planet still thinks crypto is a fad or pyramid scheme.
I don't recall seeing Amazon as a "Toy" market. There was no such distinction at the time. It was just one company amongst bajillions all trying to do something in the ew world of the Internet. It happpened that Amazon ended up being one of the most successful, but it was never a "Toy" and in fact the evidence really is that Amazon was well capitalized from the start - that's not a Toy strategy.
It's a bit strange when modern ideas like "Anything that succeeds cam from a Toy market" is retrofitted to look back at previous successes and shoehorn them into the paradigm.
You can and should consider toy "beachheads" into larger and growing markets, but the idea of targeting a small/limited market is flawed IMO.
The examples presented are successful in what where HUGE markets with limiting factors. No one debated the size of the retail book business when Amazon started, the challenge was how to pay for things over the internet. Ebay provided market-making for individuals to sell stuff - anyone remember classified ads and the buy & sell? That was big business for newspapers.
I feel like there's a lot of selection bias and revisionist history in this post.