“Stay focused.” It’s a mantra for many in the startup world, and possibly the most frequently dispensed advice in the Valley when it comes to startup strategy. To build a successful business on scant resources, founders are encouraged to concentrate all their company’s energy on a specific target, usually a single market or narrow customer need. The flip side of that coin, however, is that a market too narrow will deter venture investors and limit a company’s upside. It’s crucial to strike the right balance.
Tintri, an NEA-incubated company selling storage for virtualized environments, is a perfect case study. The product, a hybrid flash plus disk array, is for virtualized workloads only. That’s it—VM files and nothing else. It’s a laser-focused strategy that guides their sales force, focuses marketing, and keeps the company firing on all cylinders. This approach has propelled the company to explosive market success and a fast revenue ramp, all on relatively little funding.
However, the pursuit of a highly specialized market can become an obstacle as a startup gains traction. A real concern is that specialized solutions become constrained by their niches, causing startups to hit a growth ceiling. So how can a focused or “niche” startup become the next big thing?
One way is to establish a presence in a specialized area, and then expand into a broader market as the company grows. For example, NetApp started with NFS file service and then grew into a general purpose storage company worth $15 billion.
A second, equally powerful approach is to focus on a segment of the overall market that incumbents are ignoring or not fully addressing. If that segment grows quickly, or if the startup is successful in expanding the segment, a niche market can become big quickly. Data Domain, another NEA-incubated company, specialized in disk-based deduplication – a fast-growing niche market that the company quickly dominated. 3PAR developed thin provisioning technology for cloud computing (which, believe it or not, was once was a niche market). Both Data Domain and 3PAR were acquired for more than $2 billion.
Tintri has taken the second approach, and it’s been thrilling to see their niche segment become a big mainstream market. Founder and CEO Kieran Harty, who I worked with at VMware (he ran engineering), knew that even though he was targeting a very specific market, the potential for growth was tremendous.
When we think about partnering with companies like Tintri there are a number of key considerations for us:
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Size of the target market – although obvious, a large opportunity is critical. Tintri’s market in storage for virtualized environments is $11+ billion, giving the company plenty of room to grow.
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Growth rate – the best opportunities for startups are in areas growing explosively. For Tintri, storage for virtualized environments is not only a large category, but also the fastest-growing category in the storage market. The market for external storage for virtualization is projected to grow at almost a 10% CAGR through 2017—more than twice the anticipated growth rate for the storage market in general.
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Markets becoming mainstream – many fast-growing niche markets will also be in the process of becoming mainstream. Tintri targeted virtualized environments with a product designed for this use case. It’s clear that storage for virtualized environments is something nearly everyone in the storage industry is now thinking about. Many people even referred to the 2013 VMworld as “VMstorage” because storage for VM environments has become such a hot space.
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Market leadership – the best startups are often the first to exploit the opportunity. If you can dominate your market, even if it has its limitations in size, you can still build a big business.
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Major trends – major technology disruptions can provide excellent tailwinds. Tintri is being propelled by a technology wave in flash storage, which is the biggest disruption to hit the storage market in years. Tintri has incorporated these technologies from the beginning, giving it a big advantage against incumbents.
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Domain expertise – the startup ideally has privileged knowledge of the target market. In the case of Tintri, Kieran Harty is an expert in virtualization. Through his work at VMware he knows the space and has excellent insight into its future direction.
- Vulnerable incumbents – storage with a file system designed for virtual machines is fundamentally different than general-purpose storage. A “least common denominator” approach from other solutions means that Tintri can blow away their competitors in this space.
The rest of the storage landscape increasingly views Tintri’s ‘niche’ as a hot market. Competitors are putting virtualization front and center in both development and marketing efforts, and Tintri is poised to dominate a growing, undeniably mainstream market. The team’s laser focus over the last five years puts them many steps ahead of the competition, and I think they’ll continue to outpace and outperform for years to come.
In fact, the longer I work with this company, the more excited I get about the technology, the team, and the potential. They carved out a niche, defined a nascent space, and are now roaring down the path as an industry races to catch up. It’s been a privilege to partner with Kieran and his team since the beginning, and I’m really looking forward to the next leg of the journey.