Evaluating market size and predicting the growth rate and revenue that will be generated is a tricky exercise for startups. However, it is of utmost importance to evaluate the market size and data for your startup before starting out. It is important because if there’s no evaluation or a wrong estimation, your startup may either have to shut down or it may raise more capital which will dilute the equity.
Evaluating the market size helps find answers to strategic questions such as the level of investments required and the lucrative growth targets. It also gives insights on the potential B2B market volume and key data points which is important for making decisions and strategies. You can also check for Hoteling software, and many businesses are investing in it.
Market size and data evaluation are extremely important for startups to be able to create viable business plans and especially during investment rounds with investors. An exceptional team and a good product are not enough to convince investors to invest their time and money in a startup. The market size is what tells investors about the potential for your business. For example- Food delivery startups have a big audience these days, many businesses are looking to hire Food delivery app development companies.
Market sizing provides a roadmap to achieve your business goals and objectives with strategies. It influences the most important decisions of a startup from hiring to pricing, raising capital, developing new products, etc. So, let’s take a look at the best 8 ways to evaluate market size and data for a startup:
- Understand the problem you are solving
To start evaluating the market size you need to know the problem customers are facing and what is the potential of your product to solve that problem. Many startups tend to overlook this step and go about promoting their product without understanding the benefits and value their product will generate for the target audience.
If the startup founders understand the problem first and the value their product generates to solve the problem, they will be able to promote their product better. They can also create a story around the product to attract more customers.
- Identify your market subsegment
No company has a 100% market share irrespective of its revenue and size. As a startup, you may be able to achieve a market share between 1% to 5% of your target market in the initial phases.
Therefore, the first way is to identify your market subsegment. Search market share or industry categories for your market segment. For instance, Airbnb identified and grabbed its market subsegment due to the shortage of hotel rooms in 2007. Identify the initial pool of your target customers and create a stronghold before you think of expanding.
- Estimate your market share
Conduct a top-down market sizing to evaluate the total market for your product. A top-down approach involves estimating the total market as a whole and reducing the share based on the information of your business, target market, and an assumption of the target market you can capture.
You should also establish a realistic estimate for the market share of your product or service. For instance, if you are into the hospitality industry and the travelers spend $23 billion on vacation rentals. Further, a large hotel chain accounts for $13.8 billion of the total amount spent by travelers. Only $9.2 billion will be left for you to determine your market share.
- Bottom-up analysis
In this method, rather than breaking down big numbers, you need to estimate your potential sales. The sales estimation is done by analyzing where the product or service can be sold and the market share that can be carved out based on the manufacturing capabilities, sales force size, and distribution capabilities. Therefore, the bottom-up approach is based on the sales-related data of your product or service.
To follow this approach, you will have to determine the sales region for your product, the number of locations to stock the products, and the number of comparable products that sell. Compare these numbers with the overall market and calculate your share. If your share is between one to five percent, the plan is realistic.
- Consider your competition
When starting any kind of business, you need to always know your competitors and the industry in and out. You should figure out what kind of companies are leading in the industry and how crowded the industry is. For instance, if you are the only producer of a particular product in your region, it may be possible for you to get a 50% or more market share. Similarly, if your startup is a new airline in the airline industry, the probability of even getting a 10% market share is bleak. Therefore, you can evaluate your market size by knowing your competition and their market share in the industry.
- Assess your static market size
A static market poses tough competition for business owners. This is because the target customers for you and your customers will be the same. Therefore, you need to assess the size of the static market to evaluate your market size.
For instance, if your startup is a new hotel company, you need to identify which segment, out of the luxury and budget segment, is growing faster. This will give you insights on the change of the total addressable market size in the long term. You can gain a competitive edge by assessing your static market size.
- Read market reports
Another way to evaluate your market size and data is by reading market reports on your industry and the surrounding fields. Conduct research on a global level and consider the local market by geographical area. You can search for press releases and surveys by research companies to find more information on your market. Research companies frequently post information on market segmentation, market size, industry leaders, and trends.
- Consider products that have set benchmarks
To effectively analyze and evaluate the market size and data for your startup, look for similar products that have set benchmarks in the industry. The product should have similar behavior in terms of the target audience, distribution channels, or they should give a similar solution to the problem you are targeting. The market size of similar products will give you an idea of the potential market size and market share for your startup.
- Look at the supply-side of your market
Lastly, you can also look at the supply side of your market to evaluate the market size and data for your startup. You can assess the size of the suppliers available in your market and sum it up to know what your market size will be.
The Bottom Line
Evaluating the market size and data of a startup is not only important for a business plan but also to determine the current and future market of your startup. While the business plan may help you get a significant amount of investment, the realistic market value will help you determine how much of your market you can convert. Even if you aren’t seeking financing from investors, it is still essential to understand the market potential to make strategic decisions. Decisions for product development, organizational design, critical employee skills, partnering, and distribution are based on the market potential. Therefore, determining the market size is vital for the health and viability of your startup. The above 8 ways used in conjunction with each other will help you evaluate your market size and data to define appropriate strategies for your business.