Our point isn’t that investors shouldn’t look at small markets, we’re big fans of small niches that become huge! Instead, question we’re asking is “can a startup make an impact in this industry?”
There are plenty of industries, like media, healthcare, and education, where it’s very difficult for startups to find success. That’s a very different thing. Just look at the music business. There’s an elephant’s graveyard of companies that have raised hundreds of millions of dollars in venture capital only to close in short order. These aren’t bad entrepreneurs, but the opportunity wasn’t theirs. It belonged to the company that owned the rights to the unique good (Music IP) that they record companies controlled.
Compare that to a company like SimpliSafe which was going after a “niche” audience with their self-installed security systems. With no capital they managed to build a 200 person company that is quickly becoming the dominant player in a multi-billion dollar industry. That’s the model we think people should follow. Start small in an industry that lacks structural impediments and grow it, slowly, into a behemoth.