When my team and I first decided to host the Angels & Entrepreneurs Summit, we spent a lot of time discussing where exactly the event should take place.
Naturally, we considered hosting the summit in an entrepreneurial “hub” city, like Los Angeles, New York, or Boston. After all, location is a key consideration in startup investing (more on that here). Why shouldn’t it be the same for such an historic event?
After plenty of deliberation, though, we decided that the summit would work best as a completely free, online event. (If you missed it, don’t worry – you can catch a rebroadcast here.)
Why? Well, it really came down to population.
If we held this once-in-a-lifetime event in Los Angeles, for example, it would be huge, sure…
But it would still be limited in size – not only because L.A. can only accommodate so many people, but also because people who couldn’t make it to California would miss out.
The whole process got me thinking: getting people to the summit isn’t all that different from startups trying to reach their customer bases.
Population is one of the biggest factors impacting startup success – and yet it’s frequently overlooked by founders and investors alike.
In my opinion, a startup’s total addressable market (TAM) is the most critical metric to keep an eye on when you’re considering making an investment.
In other words… if you build it, will they come? And in what numbers?
Even if a startup solves a universal problem, it won’t make it very far off the ground if it is restricted to a small market. Think of it this way: what if a business built self-driving cars that could only operate within one city’s limits?
A self-driving car is a huge deal… but one city just isn’t big enough to support unicorn-scale growth.
And it’s not just about how much money there is to be made. It’s also about how many people you can help. Remember that the best businesses solve a big problem for a large number of people (more on that here).
A few questions to consider: how many people are they able to reach without massively overhauling their marketing or production strategies?
Are they able to easily scale, or expand, into other cities? What about other countries?
The best startups are those that can play on the global stage – because they are able to reach a much larger population than those restricted by smaller markets.
That’s why you should always take some time to think about a startup’s target population before you invest.
Until next time,
May 13 2019