Marc Andreessen, one of the founders of Netscape, posted an interesting thought a little while back on his blog that has been stewing in my mind. He said, and I'm paraphrasing, that what makes a successful business is more often the size of the market and the intensity of the need for the business, as opposed to the quality of the team or product.
If you ask entrepreneurs or VCs which of team, product, or market is most important, many will say team. This is the obvious answer, in part because in the beginning of a startup, you know a lot more about the team than you do the product, which hasn't been built yet, or the market, which hasn't been explored yet...
On the other hand, if you ask engineers, many will say product. This is a product business, startups invent products, customers buy and use the products. Apple and Google are the best companies in the industry today because they build the best products. Without the product there is no company. Just try having a great team and no product, or a great market and no product. What's wrong with you? Now let me get back to work on the product.
Personally, I'll take the third position -- I'll assert that market is the most important factor in a startup's success or failure.
Why?
In a great market -- a market with lots of real potential customers -- the market pulls product out of the startup
He goes on to talk about how a bad team with a mediocre product and a thriving market will succeed every time, whereas a great team with a mediocre or great product in a small market may fail.
It reminded me of my FNCE 101 teacher who said that 45% of a stock's performance is based on the overall market. That's almost half of a stock's performance! In a bad economy, the macro markets shrink which will adversely affect most businesses, regardless of team and product.
It's an interesting lens to look through when investing. If the Baby Boomers are getting older or the population is become more Latino, then there are new, growing markets that are going to surge even mediocre products to success. How do you get in front of those trends? Anyone want to invest in Univision with me?
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