when I was In the Open Market in the 1990s, Our CEO recently published the book “crossing the abyss“To the executive team and asked us to read this to find out why we had hit a speed bump in our scaling. We went from zero to $60 million in revenue in four years, to a market cap of $1 billion, went public. , and then stopped.
We found ourselves in what writer Geoffrey Moore calls “the chasm,” a difficult transition from visionary early adopters willing to put up with an imperfect product and mainstream customers who demand a more complete product. This framework for marketing technology products has been one of the fundamental concepts prescribing product-market fit for over three decades since it was first published in 1991.
Why is it that in recent years, wild-eyed optimistic VCs and entrepreneurs have been shrinking the market size in the tech and innovation sector?
I am pondering why it is that we venture capitalists and founders keep making the same mistake over and over again – a mistake that has become even more apparent in recent years. Despite our extreme optimism, we keep getting the potential market size wrong. The size of the market has proved to be much bigger than any of us could have ever imagined. The Reason? Today, everyone wants to be an early adopter. Peter Drucker’s mantra – innovate or die – has finally come to pass.
A great example in our investment portfolio is the database software company MongoDB. Looking at our Series A investment memo for this disruptive open-source, NoSQL database startup, I thought we had boldly predicted that the company had an opportunity to disrupt a subdivision of the industry and could successfully take a slice of the market. that could grow as large as $8 billion in annual revenue in future years.
Today, we feel that the company’s product appeals to the vast majority of the market, which is projected to be $68 billion in 2020 and approximately $106 billion in 2024. The company is projected to hit a $1 billion revenue run rate next year and, with that expanding market, has the potential to grow for many years to come.
Another example is Veeva, a vertical software company that initially focused on the pharmaceutical industry. When we met the company for their Series A round, they showed us a classic hockey stick slide, claiming they would reach $50 million in revenue in five years.
We allayed our concerns about market size when we and the founders concluded they could at least have a few hundred million in revenue on the back of pharma and then expand from there into other vertical industries. Boy, were we wrong! The company filed its S-1 after that fifth year, showing revenue of $130 million, and today the company is projected to reach a $2 billion in revenue run rate next year, all while still remaining only in the pharma industry. are focused on.
Veeva was a pioneer in “vertical SaaS” — software platforms that serve niche industries — which have become a popular category in recent years. Another vertical SaaS example is Square, a company my partner Jesse Middleton Engel invested in as part of a pre-seed round before joining Flybridge.