The Power of Market Potential and User Motivation in Building Successful Startups

Kazuki

Hatched by Kazuki

Sep 13, 2023

4 min read

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The Power of Market Potential and User Motivation in Building Successful Startups

Introduction:

Building a successful startup requires more than just focusing on Total Addressable Market (TAM) numbers. Many of the best venture investments in their early years had relatively small TAMs or even undefined ones. Instead, startups should consider other factors such as credible adjacencies and nascent market potential. Similarly, motivating users to invite their friends to a new platform is crucial for exponential growth. By understanding the psychology behind user motivation and fostering a sense of belonging, startups can create a viral loop that propels their growth.

The Danger of Overemphasizing TAM:

While TAM is an important consideration, it should not be the sole determining factor for building a startup. The best companies are those that fundamentally change the markets in which they operate. Looking at successful startups, it becomes evident that TAM alone does not guarantee success. Instead, startups should focus on identifying credible adjacencies, where their initial product or service acts as an entry wedge into a larger opportunity. By recognizing and leveraging these adjacencies, startups can tap into untapped market potential and drive their growth.

Nascent Market Potential:

Another factor to consider is the potential of a nascent market. Successful startups often ride the wave of a new market that may be small today but has the potential to become significant in the future. Even if the market is small, startups can position themselves as pioneers and capitalize on the future growth. Therefore, entrepreneurs should not be discouraged by small current market sizes but should instead focus on the long-term potential.

Motivating Users to Invite Their Friends:

In the world of platforms, user growth is closely tied to user engagement and the ability to bring in friends and connections. However, many platforms are only useful when used with a network of friends. To motivate users to invite their friends, startups need to understand the psychology behind user motivation. Studies have shown that a sense of belonging is a crucial determinant of psychological and physical well-being. By fostering a sense of belonging, startups can tap into users' desire for relationship building, involvement, and identity building.

Creating the Magical Moment:

To ensure that new users quickly realize the value of a platform and the importance of bringing in friends, startups need to create a magical moment. This moment should showcase the benefits and unique features of the platform, making users eager to share it with their network. Additionally, platforms should focus on providing value and usefulness to users. Research has shown that users are more likely to share things that are useful, and customers want to tell others about products or services they care about. By delivering value and creating a positive user experience, startups can increase the likelihood of users inviting their friends.

The Power of Social Capital:

According to the New York Times, involvement is the third most common reason for sharing or making referrals. This highlights the importance of social capital in successful referral campaigns. By generating confidence in the social rewards of making a recommendation, startups can win over customers and encourage them to refer others. When users feel that their social standing or reputation is enhanced by sharing a platform, they become more motivated to invite their friends.

Actionable Advice:

  • 1. Look beyond TAM: Instead of solely relying on TAM numbers, consider credible adjacencies and nascent market potential. Identify opportunities to fundamentally change the market and tap into future growth.
  • 2. Foster a sense of belonging: Create a platform that fosters relationship building, involvement, and identity building. Focus on delivering value and usefulness to users, making them eager to share the platform with their network.
  • 3. Harness the power of social capital: Generate confidence in the social rewards of making a recommendation. Highlight the benefits and unique features that enhance users' social standing or reputation when they invite their friends.

Conclusion:

Building a successful startup requires a holistic approach that goes beyond focusing solely on TAM numbers. By recognizing credible adjacencies and tapping into nascent market potential, startups can position themselves for long-term success. Additionally, by understanding the psychology behind user motivation and fostering a sense of belonging, startups can create a viral loop that propels their growth. By implementing these actionable advice, startups can increase their chances of building something great and achieving exponential growth.

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