Sizing the mountain

(upbeat music) - So we talked about the right mountain being one that's big, but also one that we can uniquely climb. And one of the key parts of understanding that is to be able to size, to get a sense of how big of a problem this is for the world. What's the size of our mountain? Now, you may have an instinct, you may have personal experience with a challenge, you may have talked to a lot of folks that have a particular problem, but there are actually some frameworks we can use to get a little bit more specific. You're going to look at the current market size. How much are people currently spending on this challenge? You're going to look at the growth rate. Sometimes there are challenges that are getting bigger and bigger for the world and others that are getting smaller and smaller. And you also want to understand the latent demand in a market. The idea behind latent demand is that there are certain challenges that people feel in markets that haven't been solved yet. So, if you look at what people currently spend, you're not actually seeing the full picture of what's possible. Let me give you an example. There have been rumors, which I think are pretty cool, that Apple may enter the luxury car market. Now, I looked it up. The luxury car market is over 200 billion dollars a year in terms of auto sales. Now if you're Apple and you look at that, that's exciting. But you're also probably imagining that there are new problems that we can solve. Autonomous driving. Maybe making the cab experience more entertainment oriented. Perhaps they can design and style the car in a way that it would increase your willingness to pay. And so, when Apple looks at the luxury car market, they don't look at it for what it is, they look at it for what it could be. And the reason they do that is that that's exactly what they did with mobile phones. At the time that the iPhone launched, people were spending much less on their mobile devices. And yet Apple solved new problems. They allowed you to browse the internet. They allowed you to play media. They brought a camera into the device. And because of all of those innovations that they did to solve latent demand, they made the market much, much bigger. And this is actually what startups think about. When they're going into pitch venture capitalists, they're typically not just talking about markets as they exist, they're talking about solving new problems to grow markets over time. So, when you think about solving a a problem and sizing a market, think about the current market size, think about the growth rate, whether things are getting bigger or smaller, and think about the latent demand. Can you grow the market to make it larger? The question is, how do we climb to the top? And that's based on an idea called the basis of competition.