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Engineering Capital is a Silicon Valley-based VC firm that invests in deeptech startups. Prior to this, Ashmeet served in various roles, one of the most notable being Product Head at VMware, where he was responsible for taking the company from zero to $30M in ARR.
going down as entrepreneurs
Going from top to bottom is a popular way of looking at market size. Any report or survey that predicts a certain budget is usually an indication of a top down market size.
But when should an entrepreneur or early stage VC use top down market sizing? Ashmeet says never.
“It is very difficult to disagree with the top down market size. They are basically surveys and elaborations of broad macro trends. And they may or may not represent the micro value proposition that a startup needs to capture in its early stages,” explains Ashmeet.
Anticipating the potential market for revolutionary products
Revolutionary products are early movers, available to capture a large share of the market. Entrepreneurs can turn such startups into valuable companies even when they do not know the number of customers or the price. They can do this based on rough estimates of these basic elements and drive them with some fundamental data and belief in what they want to do.
Despite this, Ashmit says that categorizing is a continuum.
“You start with something that starts out as an evolution. And if you do that enough, and then enough changes happen, it becomes a revolution. And it becomes a category unto itself.” She goes.”
But for beginning entrepreneurs, the focus should be on product-market fit.
“That’s religion. The most important thing an early-stage entrepreneur needs to figure out is, is the customer going to buy it? How much are they going to pay for it? And how much is it going to take to get me to that customer?” It costs? So, can I make a profit? Does this business have a positive gross margin?” Ashmeet explains.
Don’t Focus on Accuracy, Focus on Accuracy: Getting the Range Right
Learning from his experience with VMware, Ashmeet says it’s all about staying in the right direction.
Over the years, they increased the value of their software by adding new features. So, even though more people were buying it, they were also paying more for the product and its added features.
“And so, the idea here is, the direction was right, we had created a product that brought value to people and then we were able to scale it, grow it and get more value out of it,” commented Ashmeet.
The takeaway is that when you build a product and are set in the right direction, you should make ballpark estimates for things, take adequate buffers, failures and negative surprises that may arise and give yourself Gives you room to execute, build and grow.
Going Beyond Market Size
It is important to analyze things, collect data and work around them, but in the end, it is all about the hard work and execution of the entrepreneurs who turn startups into great companies.
“I’ll end with the thought that having a big market and getting the market size right is a necessary, but not a sufficient condition for success. You need many more things. At the end of the day, it’s mostly about execution. This is what defines the success of a great entrepreneur.”
You can listen to the full episode here
youtube link
time stamps
02:00 – The high cost of getting the market size wrong
10:00 – When should you use top down market sizing
15:30 – Calculating market size: precision vs accuracy
23:30 – Great products expand markets
28:30 – Creating a range is a continuation
35:00 – Disagree on market size
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