How many times have you heard an early stage VC say that it only invests in companies that solve a single, meaningful problem? So what is the issue in diversifying into more products, customer segments or geographies? Surely it is both expanding your addressable market, and a risk mitigation strategy?

Certainly not if your company is still small and not well established in its market.

If your company has validated its initial product/customer segment with meaningful revenues (say an ARR of upwards of $5 million) and with sufficient resources (a good rule of thumb is perhaps 50 employees) then it may make sense to start expanding into adjacent value propositions or other vertical segments. If your company is VC-backed, then this would probably be after a Series B round, and your company is truly in “growth stage”. In growth stage, investors are looking for you to consolidate your current position but also to start moving into “adjacencies” (be it in the value proposition, segment or geography), either through acquisition or organically.

Until then, the narrower you define your target market, the greater chance of success. Your narrower addressable customer segment will readily understand your message and the value proposition, which speaks directly to their needs (whilst those outside this segment will just as readily be able to rule it out).

After launching your startup and “getting your feet wet”, you will have a better idea, through sales activities and customer interaction, with whom and why your proposition is hitting the mark. You would therefore naturally narrow your focus, if you are going to progress beyond this.

It’s a great exercise to think about how your own business could be more or less successful, depending on a greater or lesser range of products, market segment and geographical focus.

In the case of our advisory business, with its proposition (M&A, Capital Raising), sectorial focus (target segments of Fintech, IoT , Telecoms and now MedTech) and geographic focus (EMEA), compared with other boutique advisors that very often do not have a sectorial focus, or perhaps have a single sector focus, like FinTech (still quite broad) or even just “emerging market payments”.

I have often heard the notion that startups should globalise early, so as to increase their value and increase their addressable market. Again, at the right time, but too early can be fatal. Each market has its particular requirements and needs resources and focus. I like to think of the analogy of concentrating your kindle together when lighting a fire, to increase the chances of the fire catching properly.

To be successful, you need to start by building your “tribe” of converts. Sam Altman from Y Combinator said in his great How to Start a Startup lecture “that it’s better to build something that a small number of users love, then a large number of users like”. Concentrating your kindle, again.

Even the FAAMG (Facebook, Apple, Amazon, Microsoft and Google) platform companies, who now do “almost everything”, started out solving a single problem in a single market. Mark Zuckerberg started by making a social network only for Harvard students.

Young companies need a narrow focus, but if they manage to navigate through their early stages, then there may come a time when expanded value propositions, segments and geographies will make a lot of sense.