CAT scan: Calculating The Market for Any LegalTech Company

CAT scan: Calculating The Market for Any LegalTech Company 1920 1080 Raymond Blyd

How do you measure the market size for any venture? There is everyone’s way and there is a precise way.

How Zune?

According to Harvard Business Review, it’s notoriously difficult to measure markets especially new ones. The article describes how factors like customer passion are ignored in the calculation. For instance: Did you know that 11% of the population suffers insomnia whereas 26% wants to improve their sleep. So if you stumble upon a cure for insomnia, you better off marketing it as just “improving sleep”. Simply because it’s what more people are passionate about.

Another emotion our distorting market estimation is confirmation bias. The failure of the Microsoft Zune music player is a textbook example. Microsoft used the iPod as a confirmation for the projected growth of the portable music market. The reality was that Apple cannibalized its own iPod on purpose with the introduction of the iPhone.

The Zune was a minor mishap compared to Bill Gates biggest mistake: predicting Android and the opportunity of an open mobile platform. Google bought Android for a reported $50 million and went on to capture a $400 billion market. One stunning detail from that story was the fact that Google’s acquisition in 2005 was a defensive measure against Microsoft’s mobile operating system. The winner-take-all open mobile market came into existence only after the closed iPhone ecosystem launched in 2007.

So we should be aware that measuring a market based on existing products, is betting against change.

Fathom TAM

Let’s look at how we can calculate a product market size. Here are three approaches:

  1. Total Addressable Market (TAM);
  2. Jobs To Be Done (JTBD);
  3. Capital Allocated To (CAT).

Total Addressable Market (TAM) is calculated from the number of consumers for similar products or the revenue of those products. But here’s a dirty little secret: almost everyone copies or crowdsource a TAM number from somewhere else. Therefore, that number will be difficult to match to your product since there is no way to validate the underlying data. Worse, a TAM number may not consider evolving consumer behaviors like what happen in the Zune example.

That’s why there’s this other formula: Jobs To Be Done (JTBD). A theory derived from Clayton Christensen famous ‘job of a milkshake’, which he explains in this 4-minute video. By correctly identifying a ‘new’ need, you can deduce the number of potential customers. There is a more detailed look at this method here: Market Sizing with Jobs-to-be-Done.

The beauty of this approach is the ability to envision the change. The JTBD method for market sizing helps reveal new consumer behaviors and expose our biases towards the past. So in the case of Android, the job was to enable handset manufacturers to compete independently with the iPhone. However, JTBD would not have predicted that the size of this opportunity would be $400 Billion since the iPhone hadn’t yet changed the mobile landscape.

Numbers versus Nonsense

How do we get closer to a more precise estimate of an evolving market? By looking at venture capital. A capitalist invests their money in the opportunity to double, triple or even have a 10 times return. They are continuously looking for markets where that might happen. Once they invest in a market, we then get a total amount of capital for that market.

To test this theory, let’s stay in the legal industry and pick intellectual property law (IP law). Traditionally IP Law focus was on protecting data we generate for a commercial purpose. Data we generate and want to keep private doesn’t have such an established set of legal rules for protection. A few tech monopolies like Google and Facebook became extremely profitable because the law didn’t offer much protection on private data.

As the saying goes: we became the product.

IPTech is the use of technology in support of the enforcement of IP law and the monetization of data. We identified IPTech as one of the most lucrative segments in LegalTech. IPTech can also be deployed in defense of your brand, reputation, and privacy. We discuss ways ventures used Blockchain or Biometrics to offer these protections. In that sense, we identify IPtech as RiskTech. Now we discovered that IPTech as RiskTech is way, way bigger. How big? Over three times the size of its counterpart in LegalTech.

Legalpioneer tracked $5.84 billion of capital allocated to 473 IPTech companies. Then we noticed that $1.52 billion of venture capital was allocated in an area were just 50 RiskTech companies operate. The difference becomes apparent when we calculate and sort on the average value per area. One company that employs IPTech as RiskTech is valued at $30 million per company. One LegalTech company in the IPLaw space average value is about $10 million. To see this visualized, just follow the dotted line in the graph below.

IPTech as RiskTech

It’s insomnia versus a sweet snooze

CAT scan

The above example shows how a check on Capital Allocated To (CAT) a market segment or company has the potential to uncover the real needs of consumers. The nature of private companies enables them to pivot and mirror consumers movement in near real-time. A CAT scan sheds light on where investors are taking on new bets and exactly how much is on the table.

The best way to instantly reveal new behaviors is when running continuous CAT scans across areas. That’s why we set up the Ambition dashboard to check major movements in real-time. We also discovered an interesting byproduct of CAT scans called “green pastures”. By running more granular topics and categories, scans will also reveal the areas where little or no funding is registered. Better yet, CAT scan also reveal when these green pastures are suddenly flooded with funding like in the Contract space.

We performed about 18 custom CAT scans for boot camps, startups and corporations around the world and I would like to show my gratitude to all. The insights we shared were invaluable.

So are you wondering what unique ventures are attempting to crack new markets? Where are the ‘green pastures’ in the Contract Management space or is it saturated? And is Security the new black? If one of these questions intrigues you or you have a different question, reach out to us. We have 2 scan slots still open for August so pick a topic or a company and together we’ll explore the future.

CannaBiz: aRe wE hiGh yEt?

CannaBiz: aRe wE hiGh yEt? 1920 774 Raymond Blyd

How can a strictly regulated industry become the fastest growing and among the most lucrative? Hold this bud while I explain..

For those of you who have never indulged in some weed and are curious about the experience? Stop reading now and Watch Bob Ross (R.I.P) for about an hour. Once you’re totally relaxed, you can return to reading this post.

So, founders got curious.

Standard advice to any founder was to never build products in regulated markets…That attitude is about to change…The most exciting billion dollar companies in the last 10 years have been launched in heavily regulated markets.

Steve Blank and Bradley Tusk

I lifted this wisdom from Steve Blank and Bradley Tusk. We see this theory of investing in regulated markets play out in the Legal Industry as well.

[ Fun fact: I found 224 synonyms for Ganja. ]

Now, investors and corporations are interested.

According to CB Insights, a total of $2.2 Billion was invested in marijuana in 2018 alone. Maybe because the market size is everyone over the age of 16 with anxieties. Since we are living in an increasingly uncertain age, there is little doubt that smoking herb will be a hit. Before the recreational use of Cannabinoids was only legal in a few circumstances around the world. Now acceptance is growing and the largest economy on our planet just legalized Kusk. So it is safe to assume that demand will outstrip supply very soon.

[ Fun fact: In Switzerland, you can get a little THC in any supermarket or tobacco store. ]

Why should the Legal Industry care?

We recently processed 10.000 of the fastest growing companies worldwide ranked on LinkedIn employee growth and Indeed job listings. Within this list, we identified the companies impacting the legal industry (1009) and noticed a small number (44) are distributors of Hemp. Here’s the insight: there were no Law Firms or Legal Tech companies within the top 20 fastest growing companies. However, we did encounter two handling the Purple Haze respectively Canopy Growth – #5 and Medmen – #14 .

To provide some context: the first LegalTech companies we found ranked in spot #771, #912, #1305 on the list of 10.000. Rejoice! All three were so-called, “A.I.” infused ventures within the LegalTech space. Nevertheless, if growth is measured by the companies hiring as mad, the Trees are reaching the sky. No wonder there is a thriving cottage industry of services all catering to La Cana. We see News Trackers, Legal and Compliance services, as well as Human Resource providers all focused on one substance. Both Wurk – #59 and Vangst #2121 are riding this high on the staffing front.

This brings me to my first point: a high growth but regulated industry needs skilled labor. Legal professionals are best positioned to help unravel regulation. Lawyers would be the stable underpinning for this blooming business. One reason the cryptocurrency craze was so chaotic wasn’t the lack of laws but the absence of legal sense. If you read up on all the crypto crashes, most likely cause was a security gap in the “smart contracts”. Usually, these ‘loopholes’ were the result of logic an engineer would use but a lawyer would never agree too.

[ Fun fact: Uruguay and Canada are the only countries were farming, distribution and, sale of Sinsemilla is legal. ]

Puff, I digress…where was I?

My second point: the Dutch may be the foremost experts in the authorized sale and distribution of ‘the Dutchie’. The Netherlands were legal pioneers in decriminalizing the possession of Pot back in 1972. While many still think this is a bad move, stats and society have proven otherwise. Every first-time tourist to the Netherlands will confess, Dutch Coffeeshops are one of the safest places to chill. And that is by an intricate legal design of do’s and don’ts. Maybe this expertise can become Holland’s next big export.

Reality is that the legal industry earns the bulk of its income servicing other businesses. Therefore growth for the legal industry needs these businesses to not crash but to safely reach a new high.

Now, don’t Bogart and pass it along..on the left-hand side.

[ Fun fact: I had way too much fun writing this post. ]

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