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Communicating your long term vision is one of the trickiest things founders have to do when fundraising. If the following sounds like you, "the niche my startup serves today is quite small, however, in the next five to ten years my plan is to conquer an absolutely enormous market", how your vision comes across will make or break your fundraising success.
It is 100% in your best interests to present this vision to VCs (we're obsessed with big markets) but doing it convincingly is a challenge. It’s hard enough to get them to believe in the business you’re already running. How do you get them to give you credit for products you haven’t yet launched and customer groups that you haven’t even tried to target yet?
I wrote post this to help you do that, while its sister post is about eliminating unnecessary conservatism from your market size, this article is a practical guide to convincingly talking about your long term vision. I.e. getting them to believe that your $10bn dollar market size estimate, which includes business lines you haven’t yet started, is fair. Feel free to use it cynically to inflate your numbers 🤣
When handled correctly, investors are happy to believe you can add revenue streams from new products and customer groups. VCs actually want to be told you will start at Point A and then take over the world, because VC culture consists of spending millions of hours on podcasts repeating myths about companies that did just that. As a founder your job is to take advantage of this positive bias..
There are four obvious ways to expand your market size with new revenue streams:
Any founder can say that they plan to do one or more of the above things, but for VCs to take this seriously, they need to believe that the company is likely to succeed at it.
Absent strong arguments to the contrary, investors will assume that launching a new product or expanding to new types of customers will be just as hard as starting a business from scratch. Moreover, plans for product two and vertical five will often be many years in future, making evidence you could use to persuade an investor hard to come by. The one technique I’ve seen consistently work for founders is to show that some aspect of their core business makes the next chapter much easier. To illustrate this, let's look at two scenarios.
In Scenario A we have a company that sells cars as their core business, in the future they are planning to start manufacturing and selling paper. Meanwhile in Scenario B we also have a car company but they plan to begin selling motorbikes instead.
Scenario B feels much more likely to work than A. Why? Because we can tell ourselves a story about how the car company can use features inherent in running their core business to help them as they enter the motorbike market. Examples of such advantages include manufacturer relationships, marketing knowhow, and decades of R&D pertaining to things like engines.
In the winning scenario we intuitively knew that a car company would have a set of advantages entering the motorcycle business. Our reaction to the prospect of a new motorcycle business is “makes sense, you have most of the chess pieces in place to win there”. We end with a positive bias that it will work.
However, for most founders it is often far less obvious how your first act will set you up for success in your second one. As a result, your approach should be to explicitly explain to investors how your core business gives you the leverage to turn something that should be hard, into something easy. It’s all about explaining how the hard work you are doing now will give you massive advantages when it's time to launch your proposed new revenue stream.
To illustrate what doing this well looks like, I’ve put examples of convincing market expansion narratives below - covering all four of the archetypes above. After each exchange I explain why the founder’s approach is convincing.
I’ll then conclude the article with a checklist of techniques derived from these examples that you can use to make your vision seem plausible.
All of the following examples are from the perspective of the founder of PipeCo, a fictional company that sells procurement software to small plumbing firms.
What makes this believable?
1. The founder provides evidence that customers actually want the new product
They use data to emphasise how painful the problem they plan to solve with the new product is - “leads to tens of thousands of dollars in lost revenue from project delays”. While this isn’t an argument about how their core business will give them a headstart in the new vertical, it does reassure the investor that there is actually a market need for this new product.
2. The founder shows how their current product enables them to build the next one
They point out that their first product provides them with all the data needed to make product two - “Given that our software already manages procurement processes adding predictive analytics is relatively easy as we can leverage existing data to offer actionable insights”. This eliminates a significant challenge that the company would have to face if they were building the predictive analytics product from scratch.
3. The founder explains how the current product’s success will make new product sales easier
They do this with two pieces of evidence. Firstly, they point to the unique sales channel opened up by their current software and secondly, they assert that trust from existing relationships and customer happiness with the core product will help.
What makes this believable?
1. The founder highlights how their current product can already serve larger customers
This is done by highlighting that large customers have the same needs as current ones - “large entities face identical procurement challenges''. The implication is that the product would only require minor changes for the new audience. It is easy to believe that a product shown to solve a problem for one customer group will succeed with another group facing the same issue.
2. The founder explains how the current product’s success makes the sales process with larger customers easier
Two arguments are made. Firstly the founder points out that the dynamics of the plumbing industry mean that their product gives them high trust and brand recognition with larger customers due to “[collaboration] on projects”. Secondly, they explain how success with their initial customer base unlocks a unique sales strategy - “we can see when a large firm is using our platform real time and will be able to direct our sales efforts there”. Both of these arguments allow an investor to have confidence that PipeCo will have structural advantages when they eventually start selling upmarket.
What makes this believable?
1. The founder explains how the initial product’s success enables the new product
They draw a clear link between usage of the procurement product and opportunities to advertise “our data shows that the average plumbing firm...” - the fact that this is grounded in operational data adds even more credibility. From an investors perspective, walking through this logical chain makes it much easier to see an advertising business as a natural outcome of PipeCo’s initial product working, rather than a pipedream.
2. The founder provides evidence that customers actually want the new product
If the vision is to launch a brand new product, it's insufficient to only show that you have easy access to potential customers through your core business. You need to show that these customers actually have the problem it solves. In this instance - the founder does a good job of evidencing this, using both data (“40 suppliers to each firm”), and anecdote (“suppliers are already paying for ads in different mediums”). This creates the sense that suppliers would jump at the chance to advertise to PipeCos user base.
What makes this believable?
1. The founder highlights how new users have the same needs as the old ones
Like in the example about moving upmarket, the founder positions construction and plumbing companies as facing the same “procurement challenges”. By positioning these as identical, an investor gets the sense that the tech and product side of things has already been de-risked by the core business. Therefore, extending into construction, feels like a matter of just adding a few fields to a database. It's easy to believe it will work.
2. The founder explains how their current success makes acquiring customers in the new vertical easier
By highlighting the fact that “20%” of the current customer base also operate in the upcoming vertical, the founder makes the prospect of expanding there seem less risky. Instead of starting from scratch, PipeCo positions itself as having a soft target to go after. Most VCs’ will believe that if your customers are happy with Product A they will also be happy with Product B. Thus, from their perspective, this overlap significantly improves PipeCo’s chances of successfully expanding into construction.
If we look closely at these 4 examples, we see that the founders create belief in their visions by doing two things. They either show that making the new product will be easy or they show that selling it will be easy. The techniques they use to do this are repeated across the various examples so I've distilled them below. This way you can apply the relevant ones to your startup and get VCs to believe in your world domination plans.
How to show that making the new product will be easy
How to show that selling the new product / to new people will be easy
Getting VCs to believe in your vision is all about showing them how your current reality will make your target reality easy to achieve. Hopefully this post has given you some practical tools to help you do just that. If you've found it helpful - please do share it.
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