Determine Your Market Size

7/25/2019 Determine Your Market Size

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5 Strategies to Effectively Determine Your Market Size

TX ZHUO

Besides developing an exceptional product or hiring the right talent, doing somemuch-needed market researchis the most critical step for any startup. A part of thisresearch should involve market size. Without knowing your market size, you may beconducting business in a market so small, its next to impossible to make any money.

!nderstanding market size helps you distinguish between two categories" the

addressable market, which is the total revenue opportunity for your product or service#

and the available market, which is the portion of the addressable market for which you

can realistically compete. By outlining the difference between these two, you candevelop a product offering to tackle that consumer sweet spot.

Without a solid grasp on your market size, you endanger your business success in not

only the early stages, but also throughout its entire life cycle.

Seeing the business horizon.

$arket sizing gives you a sense of market trends. %t can clue you in on the necessary

drivers of demand, as market movements often continue in one direction or another

for a period of time. Whats more, those trends often indicate whether a substitute for

your product is on the horizon that could potentially affect market size.

&ake 'odak, for example. (rior to the late )*+s, almost every picture in the !.. was

developed on 'odak film. %ts name was synonymous with photography. But then

digital broke big, and the number of digital cameras went from . million units in

/+++ to /0.1 million units in /++2.

%nstead of doubling down on digital photography, 'odak steadied its course,

neglecting to look at what digital meant to both the addressable and available markets.
http://www.entrepreneur.com/author/tx-zhuohttp://www.entrepreneur.com/article/202106http://techcrunch.com/2012/01/21/what-happened-to-kodaks-moment/http://www.entrepreneur.com/author/tx-zhuohttp://www.entrepreneur.com/article/202106http://techcrunch.com/2012/01/21/what-happened-to-kodaks-moment/


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As the addressable market dwindled, so did the available market, and the companys

complacency led to the downfall of its brand.

3nce you understand its importance, how exactly should you go about determiningyour market size4

1. Define your subsegment of the market.

5ot even the largest, most established company has a 6++ percent share of the market.

%n the case of Airbnb, its first big grabcame from the shortage of hotel rooms during

the /++2 7emocratic 5ational 8onvention. 9ero in on your initial pool of customers,

and make sure you have a handle on this group before you expand.

2. Condut to!"do#n market sizing.

:ook at the total market for your product or service, and then establish a realistic

estimate for your market share. &ake, for example, the hospitality industry. !..

travelers spent ;/1 billionon vacation rentals in /+6/ -- if $arriott %nternational

accounted for ;61.0 billion of that spend, it would probably be a stretch to count the

remaining ;*./ billion as yours for the taking.

$. %o&&o# #ith bottom"u! ana&ysis.

7etermine where youll sell your products, how many locations will stock them and

how many comparable products typically sell. &ry to be as ob


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industry, on the other hand, the likelihood of getting even a 6+ percent market share is

slim.

)e&ated* + Strategies for ,-!anding a ihe /rodut 0nto e# arkets

. 3ssess the stati market size.

7oing business in a static market comes with fierce competition. >ou and your

competitors vie for the same pool of customers every year. :ooking at hospitality

again, a new hotel company must determine if the budget segment is growing faster

than the luxury segment. &his will inform how the long-term total addressable market

size will likely change, which can help you respond to trends.

Being realistic about your pro


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(ut simply" an invention or concept that could only potentially appeal to a small

population is typically a riskier investment than those with mass-market appeal.

=ow do you go about determining the size of your ideas potential market4 ure, youcould hire an expert to conduct a market analysis. =owever, % adamantly believe that

the more involved inventors are, the more information they are able to absorb, and the

better off theyll be in the long run.

With government data,trade association data,censusesand customer surveysat your

fingertips, there is no excuse to not at least estimate a ballpark figure.

Eor the sake of this article, lets say youve invented a new product that you believe

will dramatically improve the way people groom their dogs. !sing publicly available

data and a touch of critical thinking, you can easily estimate the ideas potential

market size.

According to the /+61-/+6 A((A 5ational (et 3wners urvey,there are 01.1

million dogs owned in the !., which is up from 20 million dogs in the previous year.

o your market size is 01.1 million, right4 5ot Cuite.

According to the same A((A survey, 2 percent, or F.2 million households, own a

dog with 1+ percent of those households owning more than one dog. &hat leaves you

with about 62 million households# since its likely each household will only need one.

'eep in mind, this estimate doesnt factor in price point, perceived value, necessity

and durability, which are all potential purchase ob


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Because even if your idea is truly revolutionary, it is impossible to achieve a 6++

percent market adoption rate. &o put things in perspective, as of Ganuary /+6, 6+

percent of American adults in the !nited tates still dont own a cell phone. As of

April /+6, 1 percent of Eortune ++ companies have adopted marketing automation.

And as of 3ctober /+61, / percent of Americans 6/ to F own or use a household

tablet.

&aking the time to research the market your invention will potentially enter will help

you answer these important Cuestions"

Is the potential market size big enough?

Eor example, you may discover that the market size is too niche to be even worth

pursuing. Dealizing this early on, before any resources are exhausted, will save

valuable time and money that can be contributed towards other ventures.

Alternatively, you may find that there is a greater potential market than originally

anticipated. =aving this information prepared, with reliable sources to support your

assertions, can be immensely valuable when approaching potential licensing oracCuisition partners.

Do you understand your target markets preference?

While conducting research to understand potential market size, you will likely learn

valuable lessons about the characteristics of your target demographic. @ven seemingly

minor data such as spending habits, aesthetic preferences and trend studies, along with

price elasticity can alter the tra


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Are you someone youd want to go into businesswith?

(otential licensors and business partners will respect well-informed entrepreneurs that

have taken the time to conduct research and understand their product and the target

market. !sing exaggeration and unsubstantiated assertions to support your claims is

not a responsible or professional way to conduct business.

While its important to be educated, ultimately licensing partners are the true experts

of their product lines and consumer preferences. % always urge entrepreneurs to

maintain an appropriate level of detachment to their products.

o, before cashing in your +6k or Cuitting your day


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%t is important to note that you will never be able to know everything about a

particular market, but here are some key Cuestions you need to answer in order to

make the right decision"

6. What is the current size of the market4 What is the potential size of the market4

Will it grow or contract4 Why4

/. =ow much of the market share can we conservatively take4 Whats that worth to

our organization, both financially and otherwise4

1. =ow well does our product fit into the current market4 8an we create a new market

for our product4

. %f we are in the market already, what has made us successful andJor what has made

us unsuccessful4

. What are the buying habits in the market and how can we exploit them4

F. What are the different segments of the market4 7o we want to compete in all of

them or only some of them4 Which ones are growing and which are contracting4

2. Who are the competitors in the market and why do customers buy from them4 What

do we need to do to get customers to buy from us4

0. What kind of margins should we expect in this market4 =ow does that align with

the overall margins for our organization4

*. Who are the customer organizations we should be targeting first4

As you can probably glean from these Cuestions, its as important to understand what

your organization brings to the market as it is to understand the markets external


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forces. 3ften, organizations arent able to succeed in a market because they dont

properly assess their own capabilities.

Assessing growth potential in existing or new markets reCuires some common sense,critical thinking and analysis. 7ont over-think the decision. Deview your answers to

the Cuestions above and then make an educated decision as to the best move to make.

Are you asking the right Cuestions when assessing market growth opportunities4

8 Strategies for E!an"ing a #iche $ro"uct %nto #e&

Markets

5iche markets are so last year. Gust think about =ubpot, Asana or %nfusionsoft. &hese

companies havent gone after one niche and called it a day. &heyve focused on

building a product that appeals to professionals in a wide range of industries and roles.

While focusing on one vertical can form a strong basis for a business, once that

platform is built, moving into other verticals can ensure your brands longevity. (lus,

adapting to new sets of customers and their challenges can strengthen your product or

service.

$y company has a diverse customer base ranging from real estate agents who need to

organize their proou


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Before you approach a new industry, plot the core motivations that drive your current

customers and your potential customers. $ost importantly, identify where these

overlap. Whether they care about saving money, staying organized or looking good,

this is the magical place where your brand can attack.

2. 0dentify re!eated dai&y ations.

While youre identifying where core motivations intersect for your current and

potential customers, also consider actions that both sets of customers engage in on a

daily basis. &his will help you keep the core functions of your brand relevant for every

market you enter.

$. o4e #ith !ur!ose.

>ou need to enter new verticals purposefully. >ou cant ou need to deliver proven problem-solving products to keep these pragmatists

interested because the visionaries will get on board no matter what you deliver.

8. 9ee! your &anguage uni4ersa&.


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Whether youre diving into the wedding planning industry or entertainment, the tone

and vocabulary of your external communication and in-product messaging needs to

appeal to all of your potential customers. Eor instance, recruiters think in terms of

candidates, while salespeople are looking for leads. %nstead of choosing one or the

other, why not our initial product is a platform. 3nce you have the right building blocks to

customize your product or service, you can tailor your offering to each new industry

and customer you approach.

+. Create a message #ith broad a!!ea&.

%nstead of stating specifically what niche youre going after in your marketing

communications, give your brand a clear message and tone that appeals to all your

audiences. 8onsider Basecamp" %ts messaging refers to helping companies with

pro

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Determine Your Market Size