Tuesday, September 11, 2007

Myth of Market Size

One of the most frustrating questions to be asked if you’re an entrepreneur is “what is your market size”? Investors, recruits, and even your friends ask this question when you’re starting a new business. As a matter of practice, it is very difficult to know your market size, even in an established market where you’re disrupting a known purchase.

The reason is it is hard to know exactly how many people or companies have the exact problem you can solve. In Disruption Theory parlance, you don’t exactly know how many people have the job-to-be-done that you can fulfill.

Many times, folks will take a big number like the population of people age 50 to 60 in the United States and say that 10% of them are the market. But the assumption tied up in that 10% is that those people have the problem you can solve, they actually want to pay for a solution, and that you can solve it better than a competitor. That is a very hard thing to know until you have enough sales data to look retrospectively at a market.

This leads to another point which my co-Founder Jonathan Spier has so wisely put on many occasions. The only way to start a business is, well, to start it. To me, this means you can’t have all the info you’d like to have, so you have to start with what you’ve got. If you don’t, someone else may. Same thing with investors. Each type of investor needs to have a certain minimum level of information to know whether they want to invest. When selecting an investor, target investors whose questions you are ready to answer. Same with recruiting employees for an early-stage business.

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