S7 E30 Do you know your market size? No one will fund you without this information. Learn how to determine this important metric. with Jeremy Gray

We are not willing to compromise our values in order to increase our market share. Pavel Durov Is your target market large enough to support your ambitions for your company? This is an important metric that you, and your potential investors, need to understand to be able to assess your chances of success. I have read articles that say the market size needs to be in the billions. Yes, if you want to be the next unicorn with a $1 Billion valuation. But if being a unicorn is not your goal, the market still needs to large enough to support your business plan, and not by assuming you will achieve market dominance. At least not yet. How much you can sell is directly impacted by the size of the market you can sell to. Markets are finite, there is only so much demand for your product. As a start up targeting more than 5% share is unlikely to be believed by potential investors. Some important definitions. Total available market (TAM). Let’s assume you are launching a new electric toothbrush in the UK that sells for 10 pounds. What is your total available market? Population of the UK – 60 million, assume on average each person buys 1.5 toothbrushes per year. Total number of toothbrushes sold = 90 million at 10 pounds each – TAM 900 million pounds. But not everyone uses an electric toothbrush. In the UK about two-thirds of people use an electric toothbrush. So now your TAM is down to 600 million pounds. Maybe you are only going to sell your toothbrushes via dentists, dental clinics and online. Maybe this represents 15% of the electric toothbrush market. So, your potential or serviceable market will be 90 million pounds. Taking our guideline that 5% market share is the maximum a startup can expect – your top line sales will be 4.5 million pounds. Clearly if this is not sufficient to justify your investment you would consider broadening your distribution channels. Toothbrush market size is pretty easy to estimate market sizes. Nearly everyone uses them and there is a lot of market data out there available free for you to use. If it is hard to get hard data on the size of your target market, what steps can you take to estimate TAM and Potential Markets. Define you subsegment of the market Conduct top-down marketing. Follow this with a bottom-up analysis Where you will sell your products How many locations will stock your products? Estimate sales by location Be realistic, map out the ranges, focus on the lower end of your projections Consider the market dynamics – is the marketing growing? Is it static? Is it declining? Some other questions to ask: How well does your product fit the market needs? How much market share can we reasonably take? If you are already in the market what has made you successful What are my potential customers buying habits and how can I make it easy for them to buy from me? Tags: How to start a business, achieve start up success, Ansoff matrix, business growth, market penetration, the successful entrepreneur, business common mistakes small business start-up; avoid these common mistakes of business, mistakes in business, IBGR.network, Jeremy Gray, Practical Solutions to Difficult Problems