Linear #014: vSaaS Market Sizing, Company Building Frameworks, The Story Of Vine

One Vertical SaaS breakdown. One 'How To'. One Biz Story. In Your Inbox Once A Week.

It all comes down to market size when building a vertical software business.

It will quite literally MAKE or BREAK your business.

How to size your market opportunity:

It is so important understand the size of the opportunity BEFORE you go all in on a business or raise any amount of $$.

There are 5 characteristics that I check for to understand the market.

From there I can calculate how big of a business I can build.

Let's dive in👇

#1. Logos

How many companies are in this market can I service? Pull legitimate data sources, the US census is a great one to start with.

Example: Trade Schools: ~5K logos

#2. Revenue & Profit

You need to understand the health of the businesses you are serving and how big of a market it truly is.

Example: Trade Schools = ~$150B of total annual revenue. Typical profit margin is 15% or ~$22.5B

#3. Number Of Customers Served By Logos:

Next, you need to understand how many customers the businesses in your vertical serve.

Example: Trade Schools: ~5M people annually

#4. Average Transaction Size:

Each market is incredibly different and the cost of their products can vary widely, but it’s important to understand the average transaction size.

Example: Trade Schools: Average Tuition is ~$30K

#5. Software Expenditure:

How much do customers spend today on software? You can typically find this as a percentage of revenue or profit.

Example:

Trade Schools: ~3% of revenues or ~$4.5B per year

Now that you have the data it’s time to calculate the total market size.

You need to have an assumption of business model at this point.

Example: SaaS: $20/user/month, Payments: 1% per transaction

In the examples above I can roughly estimate the TOTAL market opportunity for trade schools to be:

SaaS Opp: $240 per year X 5M students = $1.2B, FinTech Opp: 1% X $150B = $1.5B

Total Market Opportunity = $2.7B

I often run these basic calculations for companies trying to raise $$ and they come back with $50M-$200M market sizes.

That is FINE but you have to factor in two really important questions:

1. How big of a company do I want to build?

2. Do I want to raise venture capital?

VC’s are TYPICALLY looking for companies that can achieve $100M in ARR as fast as possible. That means if you want to raise capital you have to go after a market that can support that.

There is nothing wrong with going after a small market and OWNING it. But know what you’re getting into. Don’t raise money if you’re attacking a really niche industry. If you’re an entrepreneur, it does you no justice to inflate the market opportunity. It will only come back to bite you later on.

Do the work up front and make sure you’re going after something that everyone who gets involved is aligned with.

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One ‘How To’:

17 Company Building Frameworks

Luke Sophinos @lukesophinos

I knew nothing 10 years ago when I dropped out to build a startup. $30M later, we've built a market leading SaaS company. 🧵 17 life-changing frameworks I learned the hard way so you don't have to:

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One Biz Story:

The Story of Vine

Luke Sophinos @lukesophinos

Jack Dorsey is the co-founder of Twitter and Square, two wildly successful businesses. He's an iconic entrepreneur BUT he could have owned ANOTHER app worth $50B+ if he had not made this mistake 👇

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