Market size & Industry

Are you going after a billion dollar market?

Johny Fiala

Market Overview

While your problem and solution statements help set the stage and provide readers with insight into why you’re starting this company in the first place, clearly defining your market will allow you to call attention to the trends and industry conditions that demonstrate why now is the time for your company to succeed.

You’re going to want to supplement your own expertise with plenty of evidence in the form of market statistics and research to show readers that you’re not only an expert when it comes to your product, but your industry as well.

Your goal here is to help illustrate:

The SIZE of the market opportunity your company is positioned to address

The amount of GROWTH occurring in your market

The TRENDS driving the demand for your solution

The SUCCESS STORIES happening with similar companies in your industry

Total addressable market (TAM)

There are four methods for calculating TAM:

The top-down approach consists of using macroeconomic factors to define a subset of customers that are unified by characteristics of using a product or service. Data providers such as the OECD, UN, World Bank, and CIA World Factbook are useful resources for determining this.

Bottom-up analysis revolves around determining a local market size and then extrapolating it upwards to a wider population. It is perceived as more accurate as the data collected is primary, but its influence wanes over disparate geographies and cultures.

Value theory is useful for completely new concepts of products/services that will gain users from being a positive trade-off versus incumbent options. It estimates the value-add (tangible and intangible) provided by the new offering and uses that to assume a theoretical revenue opportunity.

Research companies, such as Gartner or IDC, publish reports that often postulate upon sectoral TAMs. This data has been professionally compiled, is credible and is quick to find; however, using it can compromise your ability to understand your market deeper via proprietary research.

Serviceable Available Market (SAM)

In the absence of monopoly control and/or unlimited financial resources, capturing 100% of a TAM is almost impossible for a business. Serviceable available market (SAM) carves the TAM up into sub-markets that cater towards different types of users. This can be defined by (but not limited to) differences in quality, price or functionality. Aside from competitive and financial limitations, other factors that lower a TAM into a SAM are geographic, cultural, regulatory, and product cannibalization considerations.

Serviceable obtainable market (SOM)

Shows how much of the SAM can be realistically captured by a business in the short/mid term. A combination of the competitive forces of the market and the company's own resources (financial and human), determine how much market share can be reached. Frameworks such as Porter's Five Forces can help to determine the competitive dynamics of a market and provide guidance on the SOM opportunity.

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Trends

What recent emerging trends have you developed your product/service in response to?

Are there any new technologies that have emerged recently that make your product/solution possible? Are there any specific brands or products you can point to that illustrate the demand for products/services like (but not too like) yours?

Examples of Trends

An increasing number of consumers are “cutting the cord,” replacing traditional cable subscriptions with subscriptions to services like Netflix, Amazon Prime and HBO NOW.

As the Baby Boomer generation continues to age, there is a growing demand for products that empower them to stay safe and maintain their independence for longer.

Consumers are increasingly seeking food options that feature locally-sourced ingredients.

The emergence of image recognition technology for smartphones.

Industry Success Stories

Are there any examples of similar companies that investors have supported that you could point to? Are there any recent acquisitions (examples of larger companies buying up companies similar to yours) that could bolster the case for

your own exit strategy⁠

Are there any similar companies that have recently IPO’d (gone public)?