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0 pointsbko3y ago0 comments

From my experience the two biggest pitfalls to startups are lack of product market fit and execution.

Product market fit is the hardest thing you have to do. Sometimes the current products are good enough or no one really wants the product. You also have to consider whether its economical. For instance, there may be a demand for flying cars but its uneconomical to driving, so it doesn't really work as a startup.

The other problem is execution. Take the high to medium end electric car market that sprung up after Tesla proved product market fit. There are probably a dozen electric car manufacturers that don't actually manufacture electric cars for sale. That's because its actually very hard to do that. It's easy to create a pitch deck and even a prototype, but shipping cars is hard.

A start up with no product has not proven either of these. They don't have product market fit because their idea has not been tested in the market yet. And they certainly didn't execute yet.

Compare that to a company with 600k+ a year revenue. They may not have proven the economics aspect (they're probably losing money) and they may never prove it. But they have proven that someone will pay for their product and they can create and deliver a product (assuming revenue isn't pre-sales). So if you were to compare to a few guys with an idea and a company shipping real product, I would think the one shipping is a lot further along and deserves a higher valuation in general

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lumost3y ago

Here is where TAM starts to be a consideration. A company building 3D printed rocket engines can claim that the market is whatever size they want as they are not beholden to prove it for 5+ years. A company making a mobile blood tester isn't expected to have a working demonstration for 5+ years.

Compare this to a company with 600k in revenue, if they are in a competitive/small market - then this may mean a company which ultimately produces 100 million in revenue with 10-20 million in profit. Whereas the above two companies can pitch that they will eventually produce $BigNumber revenue with $HighProfit margins.

This scheme really only works when there is effectively infinite money floating around, and the opportunity cost of parking the money in a bad idea is low. I wouldn't expect a MagicLeap or Theranos to occur in any other environment.