Market Structure Drives Strategy

At Tidemark, we are trying to open-source our thinking to help founders win; however, as investors, we can't give everything away publicly. This essay is part of a series of content written specifically for founders and operators. If that's you, you can request access to the full essay here or at the end of the preview below.

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When considering market sizes, the knee-jerk reaction is to think that bigger is better. For new founders, I’ll often see a slide in their pitch deck showing some gazillion-dollar TAM, and “all they need to do is capture 1% of that” to have a billion-dollar outcome. From there, they’ll wipe their hands of the whole market-sizing affair and get back to work.

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The wily Vertical SaaS founder, the one who knows what they are doing, understands that the market drives the strategy. Understanding merchant fragmentation and total location volume is critical because this will dictate everything from what type of capital you need to raise to your eventual expand and extend product roadmap.

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Vertical SaaS is a technology category that hosts many different business models, and which strategy is correct depends on your end market. Some markets are big, like restaurants, and some are small, like auto insurance. Size and structure matter for how you build your business and what capital providers you partner with.

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To be clear, you can build wonderful companies anywhere on the above map, but how you do so will be very different.

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The market size can be viewed as a two-by-two grid, with one axis representing the total number of available locations and the other representing ARPU.

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The important thing is that venture-scale businesses can be built in everything but the lower-left quadrant. We have invested in companies in every other group. But knowing where you are is crucial. ‍

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We are trying to open-source our thinking to help founders win; however, as investors, we can't give everything away in public. If you're an operator or founder, you can request access to the rest of this piece here or below, giving you case studies on companies that succeeded in which quadrant, how to do the math to figure out your TAM, and principles for success.

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