Absolutely. That is called a “niche” and often is the intersection of a vertical market and application/problem. And even smaller is okay and sometimes an advantage in the beginning. Of course, you also need a vision and steps into larger markets. Generally, $1 billion minimum if you seek institutional capital, as they only invest in companies that can reach $100M in sales after 5–6 years.
Even if your price point is $250 that’s a $12.5M market opportunity. Which may be enough to validate your product, tune it, prove your value proposition, price point, marketing, and sales economics to raise funding and go after larger markets.
An MVP and initial market entry is best smaller, so you are not facing competition from much larger companies and can be the only solution to that problem in that niche. An ideal market size is probably $100M to $250M, but is fine as long as your offering is unique and has some barriers to entry.
Tesla’s first product, the Roadster (2008), sold only 2,400 units at around $100K each. That is a $240M market size and gross sales. However, he did not expect to build a car company on that. He then introduced the Model S (2012), a larger market. Now he has a full line of cars that address many markets, from SUVs to economy (relatively) and the truck. Not to mention reached a $1 trillion market valuation. Every start should have a small target market for market entry.
Also check out my blog where I have loads of articles on entrepreneurship, scaling and raising capital.
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Although entrepreneurs like to think their product is for everyone, and should design that way, they need to focus on small markets to enter. This reduces risk, capital needs and increases customer feedback and intimacy too.
Never try to go after huge markets on day one. VCs call this trying to “boil the ocean” and will run, not walk, from your deal.
Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.
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