Startup Advice: Ignore Market Size, Focus on This

By John Honovich, Published Aug 15, 2012, 08:00pm EDT

Startups and investors focus heavily on how big the market is - Is it $10 billion, $20 billion, $41 billion??? By contrast, both would be better ignoring market (and even segment) sizes because of 3 specific and somewhat unique barriers in the surveillance market:

  • Long Product Lifecycles / Long Sales Cycles
  • Conservative buyers
  • Fragmented channel

Indeed, even the most succesful surveillance startups show natural limits for any company. In this note, we dig into these issues and provide recommendations.

Revenue Targets

Past history shows that even given 7 years, no surveillance startup has reached more than 1% of the global market. Indeed, even companies that are widely considered to be financially successful (Arecont, Mobotix, Milestone, Genetec, etc.) reached even 0.5% of the market.

Here are rule of thumbs for surveillance startup achievable annual revenue after 7 years:

  • $20 million USD - solid success
  • $50 million USD - excellent success
  • $100 million USD - incredible success (the Facebook of surveillance)

Projections beyond these level require either a miracle or some explanation of how the company is not only revolutionizing technology but business practices in the surveillance market.

If a startup's funding levels and business plan assumes revenue levels significantly in excess of these metrics, the likelihood the company implodes is severe.

Barriers to Revenue Growth

For a deep treatment of this, see our "Recommendations for Surveillance Startups/Investors" and "Mistaking Surveillance Startup Success" reports. Below is a synopsis of the key elements.

Long Product Lifecycles

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Decisions on new products typically only come once every 7+ years so only a very small portion of the market is up for grabs in any given year.

Long Sales Cycles

Even if a company wants a startup's products and is ready to replace existing systems or expand, it can easily take 6 months to a year to secure budgeting, approvals, etc.

Conservative Buyers

Startups are always surpised how seemingly 'minor' features become dealbreakers. Even if a startup has one great new thing, if it's missing any of a dozen 'minor' things, it can cause ongoing rejections (see: TimeSight's failure).

Fragmented Channel

The channel is incredibly fragmented - both geographically and structurally.

Look at VMS software. Software is supposed to be a winner take all market but what is the market share of the 'behemoth' VMS software providers - 6% or 7%? And each country seems to have their own home grown VMS provider that is a top provider domestically but an afterthought nearly everywhere else.

Easy for Rivals to Respond

Because of the slow and fragmented nature of the market, it gives time for incumbents to respond. A startup cannot feasibly blitzkreig surveillance incumbents and flip the market in a few years. Look at a 'huge' winner like Axis whose path to market leader (and ~6% global market share) was a 15 year marathon.

The Right Expectations

For a startup, it doesn't matter how big the surveillance market is because almost no surveillance startup can reasonably generate more than $25 or $50 million in annual revenue even 7 years later. Startups and their investors would radically reduce risk and error by taking these guidelines to heart.

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