On evaluating market size – Part 1

How do you work out the size of the market that you are about to enter?

Market in Cambodia

Answering this question is proving hard, despite having exhausted a number of avenues to source the information. It is made all the harder when none of our competitors are publicly listed.

As we move from “bootstrapping” the prototype to seeking funding for expansion, it becomes a critical question.

If all we planned to do was use our existing money to slowly grow the business over the next 10 years, it wouldn’t matter. We know (gut feel, anecdotally, the fact we have numerous competitors, plus any number of other ways) that our proposed market is big. Online registration and ticketing is growing in size (we think!), and there is enormous potential for the right company to build a killer product. We think we have it.

Now try that same justification, but imagine your in a boardroom pitching to a table full of venture capitalists.

Trickytix: “Yes that is correct, we want a few million dollars for not much equity”.

VC: “How big is the marketplace you are going after” (what they are really saying is, “how much money can you make us?“)

Trickytix: “Absolutely no idea, now hand over that cheque”.

Doesn’t quite fly does it. So what exactly have we done so far to research the size of our prospective marketplace?

1. Google the phrase

Is there anything Google can’t tell you? Apparently there is. Always my first step in any research project, typing in the phrase “how to evaluate the size of a market” returned only results telling me what a great idea evaluating market size is, with none actually telling me the best way to go about it.

The MIT Entrepreneurship Competition was good for the quality of the comments by Omar Khudari, but didn’t offer much past that.

Google searches for “evaluating market size”, “size of online registration market” and “size of ticketing market” all returned results of little or minimal value.

I at least found out that:

  • Lawson Ticket Inc did 6 and a half billion in sales in Japan alone (different market to us though)
  • The German based Get-Go did 6.2 million Euro in sales for the first 2 quarters of 2002, just two years after launching (probably mostly David Hasselhoff tours).

It is a start, but nothing I can really put in the business plan. Much more success with “online ticketing growth” and “online registration growth”, which told me that:

  • Ticketmaster did more than 4 billion in sales in 2002 (although this includes their retail outlets and call centres)
  • For all sales channels, the events tickets market reaped over $30 billion in 2005
  • The market for all tickets sold online was expected to be in excess of $5 billion in 2006

2. AsktheVC.com

If you have a startup question, there is a good chance it has already been asked and answered at www.askthevc.com. A search returned nothing of of any real value (although I did spend a pleasant hour reading through the archives).

3. Australian Bureau of Statistics

If you want to know the average household income of DINK’s living in Sydney, the ABS is your honey pot. If instead you want some global market size statistics for the online event registration business, welllllllll……not so good.

ABS

4. Post in a forum and hope someone heeds your call

Australian Anthill have a new forum up and running, so back in September I posted a question about market size. It got just the one reply after 30 days (my own!). I may have had more luck posting in a larger number of forums.

5. Ask another entrepreneur

I emailed a fellow entrepreneur, as people who have been through the same trials as you are often more than willing to give advice. He recognised the problem well, and steered me towards point number 6. For his particular market he was fortunate enough to get the information he required from the Aus-US free trade agreement documents! No such luck for me.

6. Purchase a report.

Both IBIS world and www.researchandmarkets.com provide paid reports on any number of companies and industries. If your target market is travel or the gambling industry, you need look no further. Slim pickings for online ticketing though.

I did find one report on a major competitor, so gleefully shelled out $A150 for an electronic copy. I would have been better served hanging onto my money, as it contained no financial information whatsoever. Jibbed!

7. Ask the accountant and the lawyer

While I have a great accountant and a great lawyer, neither has sufficient exposure to the global markets that we are targeting. I could be wrong about my lawyer, but the thought of paying a few hundred an hour for a quick phone call makes me quiver. There has got to be a way of getting this info for free.

8. Professional Organisations

They exist for things like the secondary ticket market place, but nothing specific enough for my needs.

9. Analyse your competition

Possible the best way of evaluating market size and potential. Ridiculously easy if your competitors are publicly listed, but tough if they are privately held. Unfortunately all our main competitors are privately held, so the best we can do is make educated guesses.

Competitor 1:
Claimed to have done single digit millions in ticket sales in its first year, and will be doing double digit millions in 2007. If we assume a figure of 20 million, this would give them revenue of $500,000 (they take 2.5% of all tickets sold).

Competitor 2:
Invested $10 million in setting up their business, and have since processed over a million transactions. No idea of pricing model.

Competitor 3:
Processed close to 5 million transactions, and has over 40 staff. If we assume an average salary of $US50,000, and if wages make up 40% of revenues, this would give them annual revenues in excess of 5 million.

10. Ask people who have been there and done it before

I have decided to expand the scope of my network and ask a much larger range of people the question:

“When you started your company, how did you estimate market size prior to commencing trading?”

I have emailed a range of Australian, US and UK business folk in the hope that a few will have some pearls of wisdom. I won’t list them here now, but if I get any replies I will include them in a follow up post next week.

I guess no-one said doing a startup would be easy. If you have any experience in estimating market share, please share your thoughts in the comments below.

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2 Comments »

  1. […] 13, 2007 at 2:53 pm · Filed under Market Size Last post I discussed a number of methods we had used to try and discover market size, some more successful […]

  2. Marko said

    Thanks for sharing the info.
    I am starting something completely different, but I don’t know how you get the time to keep a blog going. I find Im so busy with doing what needs to be done, I would like to blog my “adventures”, but seem to run out of time.
    Good Luck
    Marko

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