When I was At the Open Market in the 1990s, our CEO distributed the recently published book “Crossing the Chasm” to the management team and told us to read it to understand why we had hit a speed bump in our update. ladder. We went from zero to $ 60 million in revenue in four years, went public to a billion dollar market cap, and then stagnated.
We found ourselves stuck in what author Geoffrey Moore called “the chasm,” a difficult transition from visionary early adopters who are willing to accept an incomplete product and mainstream customers who demand a more complete product. This framework for the commercialization of technological products has been one of the canonical fundamental concepts of product-market fit for the three decades since its first publication in 1991.
Why in recent years have optimistic and mad VCs and entrepreneurs continue to underestimate the size of the market in the tech and innovation sector?
I have reflected on why we, venture capitalists and founders, keep making the same mistake over and over again, a mistake that has become even more glaring in recent years. Despite our exuberant optimism, we continue to be wrong about the potential size of the market. The size of the markets has turned out to be much, much larger than any of us ever dreamed of. The reason? Today everyone aspires to be an early adopter. Peter Drucker’s mantra – innovate or die – has finally come true.
A glaring example in our investment portfolio is the database software company MongoDB. Thinking back to our Series A investment rating for this disruptive, open source NoSQL database startup, I was struck by how we had boldly predicted that the company had the opportunity to disrupt a sub – segment the industry and successfully take part of a market that could grow as large as $ 8 billion in annual revenue in the years to come.
Today, we realize that the company’s product attracts the vast majority of the market, which is expected to grow to $ 68 billion in 2020 and approximately $ 106 billion in 2024. The company is expected to achieve sales of 1 billion dollars next year and, with this expanded market, likely continued to grow for many years to come.
Another example is Veeva, a vertical software company initially focused on the pharmaceutical industry. When we met the company for their Series A round, they showed us the classic hockey stick slide, claiming they would hit $ 50 million in revenue in five years.
We overcame our concerns about the size of the market when we and the founders concluded that they could at least make a few hundred million dollars in revenue off the back of pharma and then expand into other verticals from there. the. Boy, were we wrong! The company filed its S-1 after this fifth year, posting sales of $ 130 million, and today the company is expected to reach $ 2 billion in sales next year, while remaining focused solely on the pharmaceutical industry.
Veeva pioneered “vertical SaaS” – software platforms that serve niche industries – which have become a popular category in recent years. Another example of vertical SaaS is Squire, a company that my partner Jesse Middleton invested in as part of a pre-seed cycle before joining Flybridge.