The Silver Lining of Investing in Mature Markets

Go to Market (GTM) strategies generally include a comprehensive analysis of the market and competition. The typical approach is to avoid competing with the dominant players in the market unless there’s still enough room for all to play and make money. Launching into any industry that’s essentially over-crowded (i.e. cell service in America) poses considerable risk; especially trying to overcome established brands that essentially already have a long-term lease on the consumer’s mind for that segment. This risk is applicable even despite whether or not the lease is still deserved – and although it’s wonderful for companies like Chevrolet and Nike, it’s an unfortunate death knell for many startups.

Consequently, many investors (Angels, VC’s) consider this a risk and disqualify the venture for funding. The thought is that it’s a lot easier to throw capital into building “walls” and “moats” around a market that essentially has only one pioneer; rather than expending resources to invade a territory that’s dominated by several large empires with scary high walls, crazy deep moats (and not just with alligators, but hippos too), and enough food supplies to last for decades to wait out their attackers.

For those familiar with the Slave Wars in Rome, and how they ended (not well for Spartacus and the slaves despite numerous victories), the reluctance to fund ventures in crowded markets is understandable.

However, such as anything in life, to adhere to this logic from an investor standpoint can prove short-sighted, and consequently, costly, as well. This is because there’s a silver lining with investing in mature markets.

There are two major benefits to investing in a startup in a mature market, despite the risk.

First, the customer base is proven. It is very possible that the risk of launching in a cutting edge, 0% market, is more dangerous and costly than launching into a mature, 100% market. This is because extremely innovative products tend to stir resistance. For example, imagine how much resistance there would have been if in the 1930’s the world’s population received mailers soliciting flights to the moon, as opposed to now. Probably not the same results, cierto? With mature markets, that conditioning has already taken place. A great analogy for this scenario is navigating a boat to an open spot at an occupied dock as opposed to trying to park a boat at a dock while it’s being built, hoping to find a tie-off point.

Second, mature markets can sometimes provide a stellar opportunity because the dominant players have grown complacent, lazy, and even worse, arrogant. This generally translates to lower quality, less innovation, and lousy customer service. As several companies have proven, a company selling absolutely nothing new can destroy the competition by simply offering stellar customer service, this second benefit of a mature market deserves considerable respect. Competing in a mature market also can provide the advantage of “catalysts”, where some kind of crisis occurs (i.e. major auto manufacturer recalls) which creates a prime point of entry and differentiation for the startup. Although one should never wish any kind of tragedy to occur, there is nothing unethical about providing an authentic solution to a problem during moments of truth, as long as the intentions are pure. This opportunistic approach has been used by politicians since the beginning of time, and it simply works. Why? Because you’re much more likely to buy a fire extinguisher that costs twice the price when you have a fire in your kitchen.