What are external market tailwinds, and how do you capitalize on them?

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Investors usually look at some form of team, market, and product to make investment decisions. I always believed the market is important, but over the years I have become more convinced about the importance of finding a market that is early, but poised for tremendous growth based on an external tailwind. I love the quote “most people overestimate what they can do in one year and underestimate what they can do in ten years.”

What are external market tailwinds

These are forces that help propel a market forward. Some are created by new technology that can be applied to other markets; some just happen as a result of what is going on in the world. With the rise of the internet in the late 90s, that created external tailwinds to support many online businesses that previously could not have existed prior. With the rise of smartphones in the last ten years, that created tailwinds to support many new businesses that rely on powerful phones in your pocket. Recently with COVID, that created tailwinds to support acceleration of remote work and telehealth amongst other things.

How do you prepare for the tailwinds

You can never fully predict the tailwinds or timing, but you can be prepared for them. When evaluating a market to start a business, what problems or trends do you see where people are actively trying to solve them, but the solutions are not yet good enough? Where do you see technology being applied in one market that can be applied to another market? Where do you find customers showing authentic demand and asking the right questions? Find a market you sense is poised for tremendous growth, but it may feel a little early. Determine the hurdles for why it has not happened yet, and test what it would take to overcome them.

How do you capitalize on the tailwinds

Once you’ve started preparing, now you are ready to capitalize on the tailwinds when they arrive. You may feel a little early to the market, but once the tailwinds kick in those that are ready are poised to capitalize and experience explosive growth. If you wait until the market is hot, it might be too late. By being a little early, you have already been building market expertise, a customer community, and an early team that can position you to scale quickly.

When evaluating a business idea, make sure to pick a market you believe has the characteristics to be a rising tide market and capitalize on external tailwinds. It’s always nice when market growth naturally raises your business as well, versus a market that is sinking and you are fighting just to stay afloat.