Alternative cost

As a founder planning to raise first money, your plan should be to build the most compelling story around your company and the opportunity it represents. Common knowledge and logic says the market you’re going after should have an appealing size, and your job is to communicate this properly to your potential investors.

Next step is explaining how you plan to take a significant part of said market, usually referred to as the go-to-market strategy. This is where it sometimes gets tricky. The difficult thing is being able to take your big market, break it down, and explain how you will attack it. The wrong answer to this question is “we’ll tackle the whole market at once”.

Your market consist of different segments; firm sizes, geographies and so on. While your long-term plan might be to conquer all these segments, it’s usually not a good idea to attack them in parallel. You might think they all want your product - and that could even be true. But in the early stage*, there will always be one market segment with the highest yield, or bang for the buck if you prefer that term. You might not know which one it is, and it might change - but it’s there.

I believe it’s totally fine to say “we don’t know which market segment is the best yet”, as long as that implies that you’ll test your alternatives and then commit to one segment next**.

On the contrary, I don’t believe it’s a good idea to deliberately pursue multiple segments in parallel. Assuming you have one segment with superior yield, your plan should be to allocate all resources to this segment. All funds and hours you throw after other segments have an obvious alternative cost - it could be put to better use.

If you’re pitching a plan to attack multiple segments at once, you’re basically communicating that you won’t spend the capital you’re looking to raise in the most efficient way. And that’s not something you want your potential investors to think.

*As your company scales, obviously it makes sense to go after multiple segments simultaneously.

**See my post on Hesitation cost.