Winning.
A path to market leadership. I look for this in every investment I make.
“It’s a big industry…there will be many players…we just need a x% slice and we will be a success.” What b.s. That a prescription to be one of the 9 in 10 early stage companies that fail and fail soon.
A great idea is the first step, but there are lots of smart people out there and their attention is often focused on the same problems at around the same time. At the dawn of search, there was Infoseek, Alta Vista, Dogpile, Excite, Lycos and others. Now google dominates. When it comes to profitability, the winner takes it all, and the runner ups are burning cash trying to catch up.
“Winning isn’t everything; it’s the only thing.” So said Vince Lombardi.*
Information and intelligence can spread like wildfire. Network effects are an accelerant. The biggest network quickly becomes the most useful and shortly the only one needed. Market share and profitability correlate. The premium to being #1 is increasing all the time.
Sure, there exceptions, like when the relevant market is just your local neighborhood, and there is a dry cleaner on every block. But the most attractive markets are national and global.
What does this mean to an early stage investor? That is a full topic for another day, but I’d rather hear “We want to be #1 and here’s how” instead of seeing an entrepreneur wave a giant red flag with “We just need our share.”
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*And UCLA’s Red Sanders…read “What it takes to be Number One” if you are interested.
