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In today’s email:

• How to Spot and Build in Nonobvious Markets

• Vertical spotlight: Dutchie & Cannibis

• A few good links

Let’s get after it.

How to Spot and Build in Nonobvious Markets

Many founders struggle to identify and capitalize on nonobvious markets, often overlooking opportunities that don't fit conventional wisdom. This challenge can lead to missed chances for innovation and growth.

The startup world is full of stories about unconventional ideas that initially faced skepticism but eventually led to significant success.

For instance, Mariam Naficy's journey with Minted, an online design marketplace in the traditional paper industry, faced doubts but tapped into a unique market of distributed design talent. Similarly, Elad Gil's experiences with companies like Google and Twitter highlight the difficulty of spotting these nonobvious markets.

To successfully identify and build in nonobvious markets, founders need to adopt a strategic approach. Elad Gil, with his extensive experience, suggests focusing on market structures rather than just the founding team's traits.

He emphasizes the importance of first principles thinking, revisiting fundamental assumptions, anchoring to real-world problems, and being product-centric.

Additionally, exploring fringe areas and understanding market dynamics can reveal hidden opportunities. Gil's insights suggest that nonobvious markets often appear too niche, crowded, or high-end at first glance but can lead to hypergrowth if approached correctly.

Key Takeaways:

• Nonobvious markets require a deep understanding of market dynamics and the ability to challenge conventional wisdom.

• Success in these markets often comes from focusing on real-world problems and adopting a product-centric approach.

• Founders should explore fringe areas and be open to revisiting assumptions about markets that seem too crowded or niche.

• Identifying and capitalizing on nonobvious markets can lead to significant growth and innovation.

Read more from First Round

Vertical spotlight: Dutchie & Cannibis

Entering a nascent, highly regulated market like cannabis is a daunting task for any startup. The challenge is amplified when building a Vertical SaaS (VSV) platform, as seen with Dutchie.

Despite the complexities of local cannabis regulations, Dutchie identified these as opportunities to serve merchants better. Their journey wasn’t straightforward, involving early transformative mergers and acquisitions (M&A) to control both point of sale and channel management – a bold move contrary to typical startup advice.

Dutchie’s success story, as discussed by CEO Ross Lipson and Executive Chairman Tim Barash, is a testament to mission-driven entrepreneurship. They built a platform that not only navigates but also leverages the dynamic regulatory environment of the cannabis industry. By integrating payment and financial services compliant with shifting regulations, Dutchie aims to transform the industry and support the growth of cannabis dispensaries.

Key Takeaways:

• Dutchie’s approach showcases the potential of Vertical SaaS in emerging, regulated markets.

• Their early M&A strategy was crucial in capturing control points in the market.

• The company’s focus on understanding and adapting to regulatory complexities gives it a competitive edge.

• Dutchie’s journey is a blueprint for entrepreneurs aiming to innovate in challenging industries.

Read more from Tidemark

A few good links

• Ten lessons from a decade of vertical software investing

• This Founder Built Startups in 2008, 2016 and 2018. Here’s What He’s Learned About Resiliency

• 12 Frameworks for Finding Startup Ideas

• Making sense of product-market fit