Minimum Viable Market
November 03, 2020
Making money on the internet
Let me start with a simple math. If you want to make a million dollar in your business, your business is either of below.
Charge $5,000 from 200 people Charge $2,000 from 500 people Charge $1,000 from 1,000 people Charge $200 from 5,000 people Charge $100 from 10,000 people Charge $10 from 100,000 people Charge $1 from 1,000,000 people
The extreme right is social networks like Facebook(2.7 billion users.) You need a massive amount of users to make that ecosystem work.
On the contrary, Palantir has only 125 customers that spent on average $5.6 million each in 2019.
Let’s add “Difficulty” curve(green) on the same graph. Again, forget about the competition.
Building a startup that positions either of the extremes is the hardest. You need to put a huge amount of effort, and there’s a lot of uncertainty involved. You also need to be very lucky.
Conventionally, when we think of a successful startup, we often talk about the number of users, or how popular it is.
And to reach that marginal number, you need capital in advance to drive the growth.
But these things don’t apply to everything. I often think about how Google or Facebook would build business if they start today.
Daniel Gross recently wrote a post called “The Bionic Market”. In it, he captures the shift in the dynamics of making money on the internet.
During the first dot-com bubble, the Internet had 4M people. Today it has over 2B. That’s kind of obvious. What’s less obvious is the double growth: not just in /number/, but also in /quality/. This isn’t the generation who got computers when they were 50. These are a new generation that was born online. The mode Internet user is much more likely to care about keyboard shortcuts.
Several things have changed since:
- It is technically easier to pay for things on the Internet.
- It is /emotionally/ easier to pay for things on the Internet. It’s something you do frequently.
- There are more power users on the Internet who care about high-octane fast software. Partially because there are more software developers now, and software developers are often bionic users.
- There are more people on the Internet with the ability to pay for it.
- It is easier to reach those people.
Building Facebook is still the hardest, so is building Palantir. But the building things in the middle is getting easier.
Getting 10,000 customers used to be getting 0.0025% of people on the internet. But now it means only getting 0.0005%. And not just numbers, people are more likely to pay on the internet because it is easy. Obviously COVID indirectly accelerated this but this trends are gradually formed by forerunners like Stripe, Apple, Google, and Amazon.
That middle ground is huge. To start a business that positions in the middle, you don’t need much investment. You still need some amount but not required especially if you are a developer.
I also want to point out that building a software has never been easier thanks to the recent advancement in cloud computing and serverless infrastructure like Vercel. Putting up an app where people can play around takes less than a day.
You don’t need everyone to like you.
I admire Marco Arment. He is a founder and CTO of Tumblr and Instapaper, and now he runs a popular podcast client app, Overcast.
He gave a talk at XOXO Festival in 2013. In the talk, he shared the learnings running both of the wildly successful products and its pains. And at the end of it, he announced Overcast.
At the time, not many people listen to podcasts. You can see the awkward reactions from the audience. But it is staring to become hot. And he noticed a potential like he saw it on blogging platform back in the day. Podcasters have royal and passionate fans, they have a ton of thriving independent producers and they have no platform lock-in, and very low-barrier of entry on both sides(supply and demand)
He was okay with delving into a crowded category because he thought he can add something unique and useful to it.
The competition is a discussion of its marketshare. If you have enough people to sustain your business, it doesn’t really matter what percentage of the market that is. Markets are huge. The world is a massive place. My share as a percentage didn’t really matter. All I needed to do is.. Am I still in business? Am I doing okay? Yes or no.
And choosing your product doesn’t need to be exclusive. There’s a lot of market for which people don’t need to just pick you and hate everyone else.
You don’t need everyone to like you. You don’t need everyone to like only you.
You just need a very small fraction.