For investors, a factor will almost always come first and shoulders above the rest: your TAM (total addressable market) needs to break at least $1 billion.
But besides a huge, addressable market, investors are also wanting to see that you have existing customers, even a very small number of them, who really love your product.
However, communicating the steps between your current users (wedge) and your long-term potential as a company (TAM) can be extremely difficult.
At TechCrunch Early Stage this month, we sat down with Felicis Ventures partners Viviana Faga and Niki Pezeshki to talk about scaling, product-market fit, and why it matters. is to be “10 times better” than incumbents.
Products suitable for the market
Startups must be able to demonstrate that they have users who love their product. But what does “love” really mean?
Faga and Pezeshki believe that startups need a framework to measure their initial push into a niche audience. They recommend doing a survey with your first set of users to ask how they would feel if the product ceased to exist. Anything below the 50% threshold – in other words, one in two users is upset by the product’s discontinuance – is not good enough to move on to the next step.
Even then, they warn, it’s important to focus on the niche you’re building before moving on.
Faga describes a founder she is currently working with who is building in the beauty space and they are interested in applying what they are building to the CPG market.
“We had to take a step back and say, ‘Let’s own the beauty,’ she explains. “Do it well. Let’s repeat it. Let’s scale it up. And then that gives you the right to move into the CPG space, because what happens is the CPG space can take you in a completely different direction. You can get there in the end, but own the beauty first. Do it really well. That gives you that the chart is up and consistent and gets a lot of investors really excited. “
While staying focused on your niche and working to get to the 50% threshold of users who can’t go on without your product, start paying attention to your Net Promoter Score (NPS) yours. Using that, find the group of users who are rating your product nine out of 10 and charge them. If your NPS drops to two, you’re out of product-market fit.
