One of the most difficult judgements a start up entrepreneur has to make is sizing the market for their products. Your product can be applicable to every household in the US, but that doesn't translate to your market size directly.
There are lots of constraints that costs impose on the market size of a product, especially for a a start up. In addition to costs, there are other barriers, such as the level of competition, the relationship that the other competitors have with retailers and customers, the cash that competitors have relative to you, and so on.
It's important to be aware of the constraints to achieving your start up's full potential market size, as knowledge of these constraints can ensure you don't burn too much cash too quickly by over-anticipating the take-up of your product and burning cash too quickly.
Conservatism in your estimates is important. In the internet sector, many a start ups simply give their product away for free for the first months, with no expectation of revenue. Those that do so are usually venture capital funded, and have a relatively patient business plan and the deep pockets that this requires. For many companies however, this is not an option.
In the upcoming series of articles, I'll look at ways of sizing your start up's market size using a constraint-driven approach. A typical management consultancy or investment banking case study will talk about making macro estimates for a whole market, contingent on assumptions. These macro assumptions just don't apply to a a start up. Your available cash and rate of service will determine your a start up's market size, rather than a hazy and huge mass of 'customers' from an overblown estimate.
To find out more about how you can size your start-up's market, sign up now for this free series.
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