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Addressable Market, Market Share: Twin Reality Checks

When I think “Market Research” I usually want to go hide. It is, hands down, my least favorite thing to do. I’ve learned over the years to slice the effort different ways to get to the point more quickly. Certain high-level information tells me whether or not I need to keep digging. Market Research doesn’t have to painful, it just usually is.

Market research is a giant arena with almost no bounds. If you are lucky enough to have a very clear target – all attorney’s general of the 50 united states. Or human resource managers of Fortune 500 companies – or some other quantifiable, limited arena then you can skip this step and proceed to the next conundrum – pricing. If you have a more general product and therefore a harder time nailing down who your market truly is – follow these helpful steps and try to be conservative.

Too many startups and blessedly naive developers/visionaries think their addressable market is huge, and their market share will also be huge. Huge in the former depends on many things but huge in the later is more than 3%. What? That’s what I mean by conservative. Remember – your biggest competition is almost always “do nothing”. There is no money being spent on “doing nothing”. There might be a lot lost, unrealized gains and poor efficiency but not budget line item. Ye old “do nothing” has most of the loyalty. Add the competition, being a new kid on the block – and you shouldn’t count on much market share out of the gate.

Now – with 1-3% of X as a starting point – will that feed your children? Will that keep the lights on? Get you to a point where you can start drawing a salary of some kind? Will you be able to NOT starve the product, or yourself? All these questions assume you know what your pricing strategy should be – that’s the subject of another article – but assuming for the moment you do – does it throw into question the validity of your pricing strategy? Time to rethink? There’s value in being conservative – far more value in being conservative than jumping in too quickly and being surprised.

I once advised a group on their go-to-market strategy. They told me what they wanted to draw, the cost of doing business and their overall approach. After a couple of moments of quick calculations on the back of a napkin, I told them they’d have to sell to 115% of the market to achieve that outcome. They sat in stunned silence. They tried anyway. 115% doesn’t exist and neither do they. They were smart, ambitious people, but they were already committed to a course of action and weren’t willing to let reality intervene. Lesson learned – do your homework first.

Without realistic addressable market figures and a conservative estimate of market share – you can’t possibly know what expected profitability is. Without that, you may well be spitting into the wind. Know your numbers, stay conservative and don’t line down a line of code until you’re sure.

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