Who’s Your Daddy? Steps to Take to Realistically Estimate the Size of Your Market
Jul 11th, 2008 by admin
Assuming that you can be all things to all people is the single greatest mistake that you can make as an entrepreneur – projecting that everyone in the developed world is a potential customer. Wrong! Not going to happen. Never has. Want to turn-off an investor? Show them a presentation outlining that your target market consists of 4 billion people growing at an annualized rate of 926 percent. Next Wal-Mart, eh? Right.
I have reviewed countless business plans over the years, and can’t tell you the number of times I have seen this mistake – this tragic, business-killing blunder. Don’t exaggerate the size of your market! There are ways to estimate this critical piece of data; methods that enable you to produce reasonable and, more importantly, believable numbers.
Here are some steps to take before guessing who your customers are and how many of them exist (4 billion, sure.):
- Determine the geographical area or range (local, regional, national or global/international) that you will be able to effectively reach through your marketing efforts and sales channels (partners or authorized distributors). For example, an auto body shop in Readfield, Maine is not going to work on a car owned by Raphael – an exchange student studying in Munich, Germany. Likewise, a social networking site that exists solely on the Web won’t be confined by the boundaries of brick walls. Online businesses have the potential to tap into markets all around the world.
- Segment your market by lifestyle attributes and demographics (i.e. male, female, baby boomers, tweens, household income, employment status, etc.). If you’ve decided to market a line of junior-sized footballs, your target market might consist of boys, ages 5 to 13 living in suburban or rural areas of the United States (I said football, not soccer).
- Consider existing competition. Who are the market leaders? What is their market share? Maybe you’ve decided to launch an online auction site. Well, get ready to compete with eBay, a company who has built up a favorable reputation and loyal customer base.
- Define the barriers to entry such as existing competitors, start-up costs, etc. Will you be able to enter the market quickly and establish awareness in a relatively short timeframe? Or will it take considerable time to enter a market because there are a number of established players or the costs to launch your business are so significant, it will take some time to raise the necessary funds.
Keep in mind that no one expects you to get the numbers 100 percent correct. Forecasting the future of a start-up is a lot like looking into a crystal ball. Just make sure you follow the steps above and are able to defend your assumptions when questioned.
4 billion, that’s funny.
