Entering a large market is generally good. Entering a large market that you can expand is always great. I recently had lunch with an entrepreneur who is doing just that, and after reading Bill Gurney's post on evaluating Uber's market size, it's really got me thinking about how a market may expand when an innovator enters it.
I'll abstract what the entrepreneur is working on since they've kept things quiet to date, but it's fair to say that they're entering an established, large market segment. Large enough to make any entrepreneur chomp at the bit, even with naive "I only need 1% market share" thinking.
The real beauty of their business is that they'll be enabling more transactions, and therefore expanding their market, in two key ways:
- Like Intuit's TurboTax, this company will be walking users through a process that has traditionally been too complex for most to handle themselves. The market for those willing to handle it themselves will increase dramatically as a result.
- By offering financing in this context, buyers will be able to purchase inventory that was previously out of reach in these types of transactions. The existing market is mostly cash based, so most transactions are small, even with willing buyers and sellers at higher price points. Financing will unlock these bigger ticket sales.
If you don't read Bill Gurney's blog Above the Crowd, I'd encourage you to take a look at it. Grab a cup of coffee and settle in - his posts are long but always incredibly insightful. His most recent post about the size of the taxi and car-service market makes a solid argument for Uber's $17 billion valuation (though that's not the point of his post).
I've wondered out loud at Boulder Open Coffee Club whether or not Uber's valuation is plain crazy or not. The best answer I could come up with is that it's not crazy if you evaluate Uber's market not as the taxicab market but the broader same-day logistics market.
Gurney makes a killer argument that the taxi and car-service market alone is enough to support a $17 billion company. He lays out network effects and new use cases that both greatly expand the global taxi and car-service market. At the end of the post he mentions that he didn't bother arguing the point that Uber is moving into the same-day logistics market. He didn't need to.
As I've been digging into industry dynamics in the automotive space for Simpler I've started looking for ways to expand the market segment that we're interested in. We're looking at a decent one already - why not make it bigger?