The Entrepreneur’s Guide To Estimating Market Size For It’s Startup

Note: Before I begin, I would like to clarify the difference between market potential and revenue estimate. I have often seen entrepreneurs use the two terms interchangeably.

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Market Potential

Market Potential is about estimating the size of the overall market opportunity. It is a sum total of the potential revenues of all players who are addressing that opportunity, if all the potential customers were to buy. I.e. If you were selling ‘affordable’ golf kits for first-time golfers, then you could estimate market potential as follows (all numbers are indicative for illustration and do not represent actual market) :

  • There are about 20 millon golfers across the top 10 golfing markets in the world. Additionally, about 100,000 new people take up golf every year across the top 10 golfing markets in the world.
  • About 25% of these find the cost of golf kits expensive. If you take this as the addressable market at USD 400 a kit for 5 million buyers, we are addressing a USD 2 bn market opportunity, even if you look at only those who find the price of current golf kits too high.
  • Additionally, the ‘high-quality at lower price’ value proposition is likely to attract regular and casual golfers too i.e. 20 million golfers. This opens up a USD 8 billion market among existing golfers. And that’s a market growing at 15% pa.
  • However, given that most people who want to play golf do not take it up because the current kits cost upwards of USD 1500, we believe that a USD 400 kit will explode the market and we would be able to encourage 10 times the number of people to start playing golf. I.e. by redefining the price-point, we can create an additional market potential worth over USD 500 mn.
  • i.e. with an ‘affordable and high-quality golf kit’, we will be playing into a market that’s roughly USD 8 – 10 billion in the top 10 golfing markets of the world.

Revenue Estimate

Continue reading “The Entrepreneur’s Guide To Estimating Market Size For It’s Startup”

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The Importance of Market Research

“Research is formalized curiosity. It is poking and prying with a purpose. ”

Zora Neale Hurston, American author

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Scene 1 : A couple of years ago

You or your visionary team have a great idea for a new product!! It ‘feels’ like the answer to everyone’s problems! It will definitely be a big hit! So you get your creative heads, product designers, technical staff and experts all into a tizzy! The product must be ready in next 6 months! After hours and hours of hard work, there it is – to take the consumers by storm. You launch it with big fanfare!!

Scene 2 : Cut to the present

The ‘great’ and promising product was ‘great’ only on the drawing board! Your negative inventory is piling up; there are just not enough takers!

What went wrong?

The consumers just didn’t connect with the product or the price point was wrong or the brand personality did not appeal or the communication was not clear or the distribution was poor or the value-proposition was not meaningful!! There are a number of things that can have a very different response in the market, than you had imagined it. Continue reading “The Importance of Market Research”