Why "All we need is 1% of this very large market" is a red flag
There's a slide that shows up in countless pitch decks. You've probably seen it, maybe even written it yourself.
A $100 billion TAM from a research report, a neat arrow pointing down to "just 1%," and a big, round revenue number that's supposed to make everyone lean forward.
Instead, it usually makes investors lean back.
As a builder first and investor second, I don't dislike that slide because the math is wrong. I dislike it because it reveals a mindset that rarely builds enduring companies.
The seduction of "1% of $100B"
On the surface, 1% of a $100 billion market sounds irresistible.
That's $1 billion in annual revenue. Or in another common version: "Each customer of the incumbent is worth $1 million per year. I just need a handful of those logos to build something interesting."
The issue isn't ambition. It's that this framing quietly assumes away the hardest parts of company building: how you'll win customers, at what cost, and whether you can ever become a category leader rather than a rounding error.
Market share follows a power-law distribution, meaning that revenue concentrates heavily at the top. To capture just 1% of a market with 10,000 companies, you'd need to rank in the top 10. Even in a market of only 100 companies, you'd still need to crack the top 20. That's not modest. That's elite territory.
When an investor hears "we'll just capture 1%" with no credible path to how that happens, they're watching theater, not strategy.
Win rate or die
Let's talk about why this mindset fails in practice.
Imagine you're selling a high-value product where each enterprise customer is worth $1 million per year. You tell yourself: "If we close 10 of these, that's $10M ARR. We're off to the races."
Now overlay how enterprise sales actually works. Long cycles with multiple stakeholders. Incumbents with deep relationships. Procurement departments wired to say "no" by default.
If you pursue 100 qualified customers and win 1, your cost of sale will crush you. Those 99 lost deals aren't free. Each one consumed sales hours, marketing dollars, executive time, travel budgets, and the opportunity cost of not chasing better-fit customers. With that kind of win rate, your unit economics collapse into a long, expensive science project.
For an early-stage company, the only way the economics work is if you have a compelling product and a high win rate in a focused segment. When I say "high," I don't mean 15-20%. I mean greater than 50% in the sub-segment that matches your initial ICP. The customers for whom your product is so sharp, so obviously built for their pain, that you become the default choice when you show up.
A builder who says "we're getting 60% win rates with mid-market manufacturers running legacy systems" is telling a fundamentally different story than one who says "we're going after all enterprises." The first has discovered something real. The second is still hoping.
Tech doesn't reward "Nice 1% businesses"
The second reason investors dislike the 1% slide is about the long game.
In technology markets, especially those with network effects or large fixed R&D costs, rewards don't distribute evenly. They follow a power law: a small number of companies capture the vast majority of value, while everyone else fights over scraps.
Data from venture capital firm Horsley Bridge shows that just 5% of capital deployed across 7,000 startups generated 60% of all returns. The winners don't just win. They dominate.
Winner-take-most dynamics mean that only market leaders can justify continuing to invest at scale in product, distribution, and acquisitions. Over time, the gap widens. Smaller players can't keep up with the required spend and either stagnate, get acquired at mediocre multiples, or disappear.
Public market investors recognize this pattern. They don't value "stable #7 players" very highly. They disproportionately reward category leaders with the best multiples and exit outcomes. So when an investor hears "we'll be a nice 1% of a massive market," they translate that to: "We're planning to be structurally sub-scale, probably forever."
That's not a fund-returning outcome. And frankly, it's not worth the pain of building a company either.
Product First, not TAM first
This is why we talk so much about being Product First at N47.
The traditional world splits into "Market First" investors who chase giant TAMs and "People First" investors who chase pedigrees. Our experience has taught us that both approaches miss the main signal: what you've actually built, and how users respond to it.
A great early product tells me you deeply understand a real problem. You've made deliberate, opinionated choices. Users are engaging, coming back, and asking for more. From there, we can work together on the wedge, the ICP, and the path to category leadership.
But if you show me a mediocre product and a slide that says "we'll just take 1%," you're essentially telling me you hope market size will compensate for lack of sharpness.
It won't.
What should you do instead?
If you're a builder thinking about how to design your company, trade the 1% fantasy for these questions:
Who is my exact initial customer? Not "enterprises" but "US mid-market manufacturers with 200-2,000 employees running legacy systems."
Is my product a "must have" or a "nice to have" for them? Can you articulate their pain in their language? Is your product meaningfully better than their status quo?
In that narrow segment, can I win more than half of the well-qualified deals? If not, why? Product gaps? Pricing? Positioning? Something structural?
What do my unit economics look like with realistic win rates? Work bottom-up: accounts you can touch, expected conversion, contract values, acquisition costs, payback periods.
If I win this wedge, what adjacent segments open up next? That's your expansion plan. Your path from wedge to category.
When you approach the problem this way, your TAM slide becomes an output rather than a premise. It reflects a thoughtful strategy grounded in product truth and go-to-market reality. The market story follows the product reality, not the other way around.
Conclusion
The real problem with "we just need 1%" isn't the math. It's the mindset.
It's the belief that if the market is big enough, an average product and a fuzzy strategy will still work out. The opposite is true.
The only teams that survive the journey are those obsessed with building something exceptional for someone specific, and then earning the right to grow from there.
So if you're building today, don't aim for 1% of a very large market.
Aim to be the obvious choice for a very specific set of users. Then use that foundation to build toward category leadership.
That's the kind of company we want to help you build.
