When we look at investment opportunities, we need to consider the type of market that the potential investment is in. How much room is there for a market leader or leaders? Is it winner-takes-it-all or winner-takes-almost-all? Is there room for multiple potential winners?
Winner takes all
These markets are driven by network effects and only one company will win in the space. Examples of these winners include eBay (auctions), LinkedIn (professional networking), and YouTube (video). When these markets first emerged on the scene, there were dozens, if not hundreds, of companies vying for market share. Yet, only one dominant product survived.
Winner takes almost all
This market trend is happening across the enterprise where adoption is driven by end users, and not dictated from above by IT departments. In this case, a company or tool can emerge as a clear category leader, as word of mouth among satisfied users accelerates adoption across colleagues, departments, and companies. As a result, the tool can grab a large market share in a certain market segment or vertical. Think Mailchimp, Dropbox, Hightail or Unbounce for horizontal solutions or Clio, Jobber or Frontdesk for vertical products (disclosure some of those are portfolio companies). In particular, we see a winner takes almost all dynamic happening in vertical SaaS plays where word of mouth can quickly travel within one industry. For example, lawyers from different firms may work on the same case and spread exposure of favorite tools.
When markets are not subject to network effects (or there’s minimal network effects/word of mouth), multiple winners can emerge. Today this type of market is mainly in commerce and enterprise IT.
The bottom line
As an entrepreneur, you need to understand what kind of market you are in order to create effective growth and fundraising strategies:
- Growth strategy: Let’s say you end up being #2 in your market. While second place might be an enviable position for some, it’s essentially worthless in a winner-takes-all market. For this reason, you’ll need to be as aggressive as possible in the first few months after a category emerges to try to lock in the top spot before it’s too late. On the other hand, such an aggressive tactic doesn’t make sense in an e-commerce environment where there can be multiple winners. In this situation, you’re better off adopting a more conservative approach and ensuring you’ve reached product-market fit and nailed unit economics before accelerating.
- Fundraising strategy: You’ll need to understand your market’s dynamics to know how much money to raise and how quickly. For example, in a winner-takes-all or winner-take-almost-all market, there’s a window to aggressively fundraise while the category is still open. However, once a category leader emerges, it will be hard to attract investors.
Of course, all of this is made even more complicated by the fact that it’s not always clear what the exact category is. For example, do Lyft, Sidecar, Hailo, and Uber all belong to the same transportation category or do they each define their own category? As an entrepreneur or investor, you’ll need to analyze the market and its current players to know how much room (if any) is left.
In the past few years, a few Canadian companies have emerged as category leaders in the SaaS space and I am excited to announce a new investment in a start-up that has the potential to become one those category leaders as well. Jobber is a business management software for the field service industries that allows businesses such as landscapers, painters or contract cleaners to easily manage their business from any web browser. The product offers CRM capabilities, task and calendar management, job tracking, crew scheduling, automated quoting, invoicing and more. It reminds me very much of Clio (a recent Acton investment) offering a complete business management solution for a specific vertical.
Jobber was founded by Sam Pillar and Forrest Zeisler, two super-talented engineers from Edmonton who have been building a great product over the past year by bootstrapping the company with very little money. Co-lead in the investment is Christoph Janz from Point Nine, a co-investor in Unbounce and Clio and one of the best SaaS investor out there. Really excited to be part of the Jobber story going forward!