What makes a good market map?

Introduction

So what is a market map, why are market maps important, and how can they help us to make decisions about the startup we want to build? A market map is an updated and accurate illustration of the different companies that are currently within an industry space. It is really important for startup founders to actively produce market maps in order to understand how their own startup will fit within that industry, whether it will succeed, and how it will succeed.

So why are market maps important?

Market maps enable founders to identify early trends, decipher quantity over quality of startups, find the missing gaps, better understand value for customers, understand that monopoly winners take all while with competition you lose, and keep their enemies close. The results, after asking yourself these questions, can change the way you approach a solution and a startup or even whether to start one to begin with.

Identify early trends

Producing market maps lets founders see every other company in that certain industry, and you can assess how many companies are providing the same service or different services. For example, the abundance of GenAI startups shows a clear trend in the direction of AI within media and entertainment. The fact that there are fewer avatars and agents shows that the world is more interested in image and video generation rather than having avatars. This enables founders to see whether their idea aligns with current market trends or whether they do not.

If they do align with early trends: It could be that they are in a valuable space but will be met with a lot of competition ahead of them (we will discuss monopoly vs competition further down).

If they do not align with early trends: It could be that it is not a valuable space but has less competition; a standout company would therefore succeed much more easily than competing against tens of other companies.

Deciphering Quantity over Quality

By having a map of all the other startups that potentially compete against you in areas of funding, user acquisition, and team hires, you can begin to figure out which companies are actually valuable and which companies are following a trend. Data such as how much a company has raised and from whom is also most often indicative of whether a company has quality or not.

My intuition is that currently we are in an AI bubble where there will only be a few select companies that succeed. I would argue that there is no point in starting an AI startup now, as one would only be met with behemoths such as OpenAI. Market maps allow founders to recognize potential bubbles and decide accordingly with their own startup as to how best to approach that specific space.

Finding missing gaps

Another benefit of producing market maps is that it enables founders to see potential gaps in the market. Take drones and EVTOLs: DJI drones are cheap and easy to produce but have low load, while Apache helicopters have high load but are expensive and difficult to produce at the same extent as DJI drones. There is a huge gap, therefore, for drone companies to fill to create a vehicle that is cheap and easy to produce like a DJI drone but has a higher load closer to that of an Apache helicopter.

These sorts of insights are found through knowing the market and knowing the companies there already. The best companies are those that have a contrarian idea, companies with no competition, and have the highest potential to achieve monopoly power.

Better understanding value for customers

By producing market maps, founders can gain an insight into how much a particular service is charged to a user. This can range from absolutely nothing to several hundreds of dollars per year in subscription. It enables founders to get an idea as to how much a startup in a certain space provides value to customers. This can then enable founders to see whether a startup is valuable enough. The most successful founders would need to provide a 10x better service in order to defeat their competition. Market maps are a good way for founders to calculate whether they have this 10x potential.

Understanding monopoly vs competition

This is perhaps the most important aspect of this question: a company will only succeed if it has a claim to a monopoly position in an industry. Market maps are a great way for founders to realize that their startup idea would not be able to compete against the great powers that are within the industry already. Companies such as OpenAI are currently uncontested and have the best access to capital and talent, with Mistral AI coming in a close second. A founder who conducts their research on the market would realize this and therefore not start a company that is in direct competition with these giants.

Conversely, as mentioned above, market maps are a perfect way to identify a gap within a market and search for monopoly opportunities within that gap.

Keeping your enemies close

Market maps, at the end of the day, provide a fantastic opportunity for founders to keep track of the other companies within their space: how much they have raised, who they have hired, etc. This sort of information gives you a good indication of what you need to do in order to stay ahead and whether you have to take certain measures in order to maintain your position. This could be, for example, raising capital or outright acquiring the competition if you are able to.

What does a good market map look like?

It is important to have a good market map in order to reap the benefits stated above in this essay. Most points above will be lost if the market map is incomplete (does not include each company), does not have key information such as founder, amount raised, from whom, etc., and is not currently bucketed; then the exercise will be a waste of time. It is therefore important to have each section of a market map.

Including each company in your market map

By including each company in your market map, you have the most accurate view of the market. This places you in a powerful position to make good and informed decisions. Using websites such as Tracxn, Dealroom, and Crunchbase is a good way of understanding roughly how many companies are in a certain market. These websites are also very helpful in providing the various different startups and their key information.

Key information and bucketing

The market map is valuable to the founder; it’s not for other people but for the person about to launch their idea. It is important to have all the information you can have on founders and the amount raised, as it will enable you to see the potential fundraising that you could achieve with the right idea. By then bucketing these ideas, one can better identify the gaps in the market by spotting the high and low concentration spaces of company formation within a market.

Conclusion

Market maps are therefore very important. They enable founders to go in with intel, in the same way that a special ops team would not go into a danger zone without it, nor should a founder start a company without having a good market map, enabling them to make the correct decisions as a high-functioning CEO.