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Startups tend to be contrarian to the market. But… often they should not be completely contrarian.

Startups tend to be contrarian to the market on some fronts, but in step with the market on others.

There is a harmonized sweet spot of a startup being contrarian enough that it exploits a market inefficiency, but not being too contrarian that it sabotages the startup’s likelihood of winning.

Let me describe what I mean.

A market constraint is an embedded market rule - a way that the market thinks, feels, and operates. Market constraints live everywhere in a market.

Yet, I have seen that there are four major categories of market constraints.

Market constraints are neutral in and of themselves. What is not neutral is the posture the startup takes on each one. The startup either takes a contrarian posture or an accommodating posture on each one.

The top-down market pressures, e.g. regulatory or prevailing beliefs, that are directing the way the majority of the market is thinking and feeling.

The business models that tend to prevail in a given market between market actors. Startups can either choose to employ a business model that is in harmony with existing business model or is at odds with them.

The way that customers are accustomed to discovering and buying products in the market. The startup can either be selling the way that the customer wants to buy or choosing to go to market in a way that the customer is not as used to.

The customer behaviors and workflows that the market actors currently take to solve the problem. The startup’s product can either tamper with the existing customer behavior or accommodate it.

✅ Now, it is not that being contrarian or being accommodating is the goal. The posture that the startup takes across each one should be determined by where the untapped value in the market lies. ✅

I once talked to a startup that had a hardware and a software play for a given industry. The startup’s product had this unique combination of technology that it had never yet been accomplished in the industry. This startup’s play was that it was a 2 in 1 product selling to mass market consumers. The product was cool, technologically speaking.

As a considered the constraints across the four categories, this was my analysis of the startup.

Through the process of discussing with the startup, I sent an email to the founding team regarding their Go-To-Market motion:

Matthew: “Something that crossed my mind - the market dimension here seems to be that customers probably buy Product 1 and/or Product 2 once every few years. Perhaps the key limitation in your case is that rarely both the Product 1 AND Product 2 are needed simultaneously unless [listed a very unique use case]. Have you considered ways to think about the GTM with that in mind, to essentially make that a non-issue?”

Founders: “Matthew, thanks for your thoughtful note. You have hit on a couple of our market challenges… We have two distributors in play and hopefully will be online with one or both of them soon.”

I found it interesting that the founding team noted in writing to me that they were essentially, contrarian (my words), on their GTM Strategy.

Unfortunately, even though the company raised venture capital, they ended up calling it quits after trying to execute unsuccessfully.

Every startup and every market is different. It is not three strikes and you’re out, in the case of this startup above. It could be just one strike and you’re out.

I’m aware of another startup where the constraint that presents the biggest challenge is the macro-level constraint. In this particular market, there are top-down pressures in the form of mandates. Yet, the startup has not adjusted the product in light of those constraints. Rather, the founding team takes the approach to rail against these constraints and mandates.

When the macro-level constraints are not in your favor, and you’re just a startup, all of your shouting and railing on is equivalent to being in a stadium of 80,000 cheering fans and you’re the only one booing. You’re not going to change the prevailing belief that is playing over the stadium loudspeaker, so you need to adapt. Not the other way around. Unless you are one of those uncommon founders or founding teams that carries disproportionate influence over a given market. Yet, that is very rare.

Let’s contrast these two examples above with one of the Tundra Angels’ portfolio company, COnovate. COnovate is a battery technology company led by Co-Founder and CEO, Dr. Carol Hirschmugl. COnovate has developed a new compound called COphite, a compound that can replace or blend with graphite, the typical anode (-) end of a battery. COnovate has proven that COphite give a battery highly superior performance advantages compared to graphite anodes.

Here is how I would breakdown COnovate across these four categories:

On the Macro-Level, this is where it gets very interesting. The Macro-Level constraint was CONTRARIAN when we invested in April 2021.

COnovate was swimming against the current in the battery market. China was the world’s biggest exporter of graphite, the typical anode (-) end of a battery. The prevailing market belief saw graphite as perfectly fine - no change was necessary.

Through Tundra Angels’ and other co-investors investments and grant funding, COnovate continued to develop and scale up their material to kilograms of production a day. They continued to engage with prospective battery manufacturers, but the prevailing belief of “graphite is fine” resulted in tepid interest for their COphite material.

Looking at the analysis above, the Macro-Level constraint was undoubtedly the biggest constraint for the company. Yet, COnovate but itself wasn’t going to create an inflection point or massive change on a global scale by itself and its own efforts.

Then in October 2023, everything changed with this news headline.

China severely tightened their exports of graphite to the world.

The Macro-Level constraint and the prevailing market belief suddenly changed - “We need to find alternatives to graphite, NOW.”

Since that moment, COnovate has been hotly pursued by battery manufacturers that once had tepid responses. Other battery manufacturers that had been familiar with COnovate now are coming out of the woodwork to engage with COnovate and request batteries to test.

Additionally, now that the Macro-Level Constraint has changed in favor of COnovate, notice something else subtle. The Customer Behavior/Workflow Constraint and the fact that they are ACCOMMODATING to the existing battery supply chain puts them in a very rare breed of company compared to other battery material startups.

Now, did Tundra Angels see this shift in the Macro-Level Constraint coming? Of course not. But, it wasn’t out of left field, either. The incongruity graphite and its supply chain was noted in our due diligence.

We held the bet that graphite was exhaustible, and so COphite had an angle. Furthermore, there were downfalls to graphite and its supply chain, so we anticipated a potential shift in the Macro-Level Constraint. Yet, when or even if that timing would come, we had no idea.

At the time prior to investment, one of the main reasons we chose to invest was because COnovate was ACCOMMODATING to the Customer Behavior/Workflow constraint. Although the Macro-Level Constraint was contrarian to COnovate, our investment decision held the bet that COnovate ACCOMMODATING the existing supply chain held a disproportionate amount of value compared to the other three constraints.

✅ That is the truth about market constraints - one or two constraints might carry disproportionately more power than others. It completely differs from one market context to another. ✅

Accommodating each one of these four constraints is not the winning hand every time. Every market is different. Every startup is different. Every industry has different constraints. That’s what makes this game fun and exciting.

There are some markets where you need to be contrarian on one constraint, and that’s all that the startup needs to tip the market in favor of the startup. There are some markets where you need to be contrarian on two constraints, and that’s frankly the only way that a startup can win.

Realize that there is a line that if startups are too contrarian, they sabotage their likelihood of winning in the market.

Think about your market. Go through the four different types of constraints.

It is not that being contrarian or being accommodating is the goal. The posture that the startup takes should be determined by where the untapped value in the market lies.

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