5 Strategies to Effectively Determine Your Market Size

TX ZHUO

Besides developing an exceptional product or hiring the right talent, doing some
much-needed market research is the most critical step for any startup. A part of this
research should involve market size. Without knowing your market size, you may be
conducting business in a market so small, its next to impossible to make any money.
Understanding 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 can
develop 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.

Market sizing gives you a sense of market trends. It 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.
Take Kodak, for example. Prior to the late 90s, almost every picture in the U.S. was
developed on Kodak film. Its name was synonymous with photography. But then
digital broke big, and the number of digital cameras went from 4.5 million units in
2000 to 28.3 million units in 2007.
Instead of doubling down on digital photography, Kodak steadied its course,
neglecting to look at what digital meant to both the addressable and available markets.

As the addressable market dwindled, so did the available market, and the companys
complacency led to the downfall of its brand.
Once you understand its importance, how exactly should you go about determining
your market size?

1. Define your subsegment of the market.

Not even the largest, most established company has a 100 percent share of the market.
In the case of Airbnb, its first big grab came from the shortage of hotel rooms during
the 2007 Democratic National Convention. Zero in on your initial pool of customers,
and make sure you have a handle on this group before you expand.

2. Conduct top-down market sizing.

Look at the total market for your product or service, and then establish a realistic
estimate for your market share. Take, for example, the hospitality industry. U.S.
travelers spent $23 billion on vacation rentals in 2012 -- if Marriott International
accounted for $13.8 billion of that spend, it would probably be a stretch to count the
remaining $9.2 billion as yours for the taking.

3. Follow with bottom-up analysis.

Determine where youll sell your products, how many locations will stock them and
how many comparable products typically sell. Try to be as objective as possible -- itll
help you figure out where realistic growth could take you in five years. Then, compare
your numbers with the overall addressable market. If its 1 to 5 percent of the pie, you
have a realistic plan.

4. Look at the competition.

How crowded is your industry, and what types of companies are at the forefront? If,
for instance, you were the only steel producer for a specific type of product, itd be
reasonable for you to get to a 50 percent market share. As a new airline in the travel

industry, on the other hand, the likelihood of getting even a 10 percent market share is
slim.
Related: 8 Strategies for Expanding a Niche Product Into New Markets

5. Assess the static market size.

Doing business in a static market comes with fierce competition. You and your
competitors vie for the same pool of customers every year. Looking at hospitality
again, a new hotel company must determine if the budget segment is growing faster
than the luxury segment. This will inform how the long-term total addressable market
size will likely change, which can help you respond to trends.
Being realistic about your projections is really the most important aspect of
determining market size. That means staying objective and impartial about not just
your product or service, but also about consumer need and want. Otherwise, you could
find yourself doing business in a market too small to stay afloat.

Why Entrepreneurs Must Research Market Size

"Everyone will buy this product!" This overambitious misjudgment underscores an all
too common fallacy in the world of entrepreneurs: the entrepreneur's bias. After all,
ideas quickly become "your baby," and no one wants to hear their baby is ugly. But
this thought process, could be a costly mistake. Instead, entrepreneurs need to ensure
there is a need for their "baby"
Reasonably and thoughtfully estimating an idea's potential market size is a key step to
successfully bringing an idea to market. When seeking out potential licensors or
investors, you can bet theyll consider market size to judge the revenue generating
potential of a new idea.

Put 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.
How do you go about determining the size of your ideas potential market? Sure, you
could hire an expert to conduct a market analysis. However, I 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, censuses and customer surveys at your
fingertips, there is no excuse to not at least estimate a ballpark figure.
For the sake of this article, lets say youve invented a new product that you believe
will dramatically improve the way people groom their dogs. Using publicly available
data and a touch of critical thinking, you can easily estimate the ideas potential
market size.
According to the 2013-2014 APPA National Pet Owners Survey, there are 83.3
million dogs owned in the U.S, which is up from 78 million dogs in the previous year.
So your market size is 83.3 million, right? Not quite.
According to the same APPA survey, 47 percent, or 56.7 million households, own a
dog with 30 percent of those households owning more than one dog. That leaves you
with about 17 million households; since its likely each household will only need one.
Keep in mind, this estimate doesnt factor in price point, perceived value, necessity
and durability, which are all potential purchase objections that will dictate market
penetration, or the percentage of the target market that consumes a product or service.
Market penetration is why not every household with a dog will buy your product. So,
while 17 million could be the true market size, you need to take these factors into
consideration and drill down to come to your true targeted market demographic.

Because even if your idea is truly revolutionary, it is impossible to achieve a 100

percent market adoption rate. To put things in perspective, as of January 2014, 10
percent of American adults in the United States still dont own a cell phone. As of
April 2014, 53 percent of Fortune 500 companies have adopted marketing automation.
And as of October 2013, 52 percent of Americans 12 to 64 own or use a household
tablet.
Taking the time to research the market your invention will potentially enter will help
you answer these important questions:

Is the potential market size big enough?

For example, you may discover that the market size is too niche to be even worth
pursuing. Realizing 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. Having this information prepared, with reliable sources to support your
assertions, can be immensely valuable when approaching potential licensing or
acquisition 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. Even seemingly
minor data such as spending habits, aesthetic preferences and trend studies, along with
price elasticity can alter the trajectory of development, patenting and marketing.
Understanding the nuances of your product's potential market is key to the survival
and success of your product.

Are you someone youd want to go into business

with?
Potential 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. Using 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. I always urge entrepreneurs to
maintain an appropriate level of detachment to their products.
So, before cashing in your 401k or quitting your day job to pursue an idea, be sure
you do your part to learn the market. Both you and partners will appreciate the
diligence in the long run.

9 Questions to Ask When Assessing a Market

Surprisingly, I see many organizations struggle to develop an accurate assessment of a
market they are already in or are considering entering. Too many companies are not
able to properly assess the potential size of the market, the behaviors required to
succeed in that market, as well as how much of the market is actually attainable and
why.
Assessing market-growth opportunities should be no different than anything else an
organization does. There should be a disciplined way of going about it. This
assessment will help a company determine whether to invest time and resources in
trying to capture parts of that market, so the assessment needs to answer the right
questions. Sometimes capturing share of an existing market is not the right strategy,
because you should be creating a new market (think Apple's iPad).

It is important to note that you will never be able to know everything about a
particular market, but here are some key questions you need to answer in order to
make the right decision:
1. What is the current size of the market? What is the potential size of the market?
Will it grow or contract? Why?
2. How much of the market share can we conservatively take? Whats that worth to
our organization, both financially and otherwise?
3. How well does our product fit into the current market? Can we create a new market
for our product?
4. If we are in the market already, what has made us successful and/or what has made
us unsuccessful?
5. What are the buying habits in the market and how can we exploit them?
6. What are the different segments of the market? Do we want to compete in all of
them or only some of them? Which ones are growing and which are contracting?
7. Who are the competitors in the market and why do customers buy from them? What
do we need to do to get customers to buy from us?
8. What kind of margins should we expect in this market? How does that align with
the overall margins for our organization?
9. Who are the customer organizations we should be targeting first?
As you can probably glean from these questions, its as important to understand what
your organization brings to the market as it is to understand the markets external

forces. Often, organizations arent able to succeed in a market because they dont
properly assess their own capabilities.
Assessing growth potential in existing or new markets requires some common sense,
critical thinking and analysis. Dont over-think the decision. Review your answers to
the questions above and then make an educated decision as to the best move to make.
Are you asking the right questions when assessing market growth opportunities?

8 Strategies for Expanding a Niche Product Into New

Markets
Niche markets are so last year. Just think about HubSpot, Asana or Infusionsoft. These
companies havent gone after one niche and called it a day. Theyve 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. Plus,
adapting to new sets of customers and their challenges can strengthen your product or
service.
My company has a diverse customer base ranging from real estate agents who need to
organize their projects to pastors who want to stay engaged with their congregations.
Most products and services can work across multiple industries. You just have to
make the leap sensibly.
Here are a few tactics for stepping outside your niche and appealing to audiences
across multiple industries:

1. Identify core motivations.

Before you approach a new industry, plot the core motivations that drive your current
customers and your potential customers. Most 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. Identify repeated daily actions.

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. This will help you keep the core functions of your brand relevant for every
market you enter.

3. Move with purpose.

You need to enter new verticals purposefully. You can't just stroll around the
marketplace and wander into different industries at random. Conduct research to
identify the pain points of the new industry, and gear your marketing efforts toward
how you can fulfill that need or solve that problem.

4. Dont neglect your core market.

Just because you want to leapfrog to other verticals doesnt mean you should phase
out your core market. Keep a strong and stable original product that your core
customers can count on. Forgetting about your old market and trying to reach too
many verticals at once can really hurt your brand.

5. Think beyond the chasm.

Geoffrey A. Moore, author of Crossing the Chasm, argues that theres a gap
between visionary customers and pragmatic customers where a product is likely to
fail. You need to deliver proven problem-solving products to keep these pragmatists
interested because the visionaries will get on board no matter what you deliver.

6. Keep your language universal.

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. For instance, recruiters think in terms of
candidates, while salespeople are looking for leads. Instead of choosing one or the
other, why not just call them contacts?

7. Think of your product in building blocks.

Your initial product is a platform. Once 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.

8. Create a message with broad appeal.

Instead 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. Consider Basecamp: Its messaging refers to helping companies with
projects, but it never comes out and says what typeof companies or projects.
Once you have a distinct brand message and tone in place, you can add industryspecific details, such as case studies, that will generate interest from a particular
segment of the market.
While its important to go after a specific niche in the beginning, if you stay laserfocused on a single industry or customer throughout your companys life, you could
stunt its growth. You dont have to dump your original customer base or buy a
different novelty hat for every industry you enter. Just figure out what your potential
customers need and how you can deliver, then adjust your messaging to speak about
the solution you have to offer.