Archive for Market Size

On evaluating market size – Part 2

Last post I discussed a number of methods we had used to try and discover market size, some more successful than others. While our attempts seemed logical enough, there didn’t seem to be a lot of information on the web to steer an aspiring entrepreneur in the right direction.

What is the lesson here?

“The lesson is, never try”.
Homer Simpson

Well, not quite. A better lesson is probably:

“When in doubt, ask someone who has already solved the problem”.
Wise man with white hair and long goatee

So that is what I did, emailing a range of experts, entrepreneurs and C-level executives with the question:

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

Eight emails sent, with three great replies received. I have shared them below, because each answer has a few gems in it that will assist people out there looking to start a business.

Martin Wells, CEO and Founder of Tangler

Tangler Logo

Sizing a market is a tough one, and sometimes how you get to the result is dependent on what you’re trying to achieve. I guess since you mentioned VCs then you’re likely doing it for investment.

The two ways I use to estimate markets are:

  1. Hire a marketing consultant
  2. Guess (and plug in as many facts as I can) – You’ve listed a bunch of good ways to accumulate facts in your article. I think the only one you missed was to track down analysts in your sector and talk to them. Sometimes you can swap knowledge with them, but you want to build a relationship early.

Since you’re a startup you can’t really be expected to have detailed market knowledge, so at this point investors are really looking for market size to evaluate the high level potential of the business. Who cares about making a better blade for lawnmowers if it’s a $1m market?

Sizing a market is done by making a series of high level assumptions based on known values. For example, you could get to online ticket spending by doing:

  • Number of people in market (20 million for Aus)
  • % people attending events
  • Total $’s they spend
  • % people online
  • % people who buy tickets online
  • Total $’s spent in online ticketing

Then you plug in whatever facts you have now, and then whatever you discover along the way. I know this seems like a bunch of guesses, but that’s ok, investors will look at your assumptions to see if they are reasonable; they won’t expect exact numbers.

The other thing to look for in your market evaluation is the trends that are changing that market – trends are the core of your market assumption; what’s changing in the market that makes your product an opportunity – internet usage, acceptance of online purchasing, new web technology. I find investors like to hear about those more.

Andrew Pearce, CEO of New Water

New Water logoI think it very much depends on the nature of what you are attempting to put into the market, but I would suggest the following practical approach.

This is in part what we have done.

Define who you think your target customer group(s) are

In our case it is people who fall into the “Do-it-for-me” category of home owners – ie people who are the opposite to DIY. We are obviously a business to consumer type of company. In a business to business type of operation it might be an industry segment or a functional segment or a size segment or a combination of all three (eg medium sized companies in the telco. sector)

Validation of your target group

This is the hard part – especially if you have a new product or service which people/organisations do not understand (we have this challenge with our grey water treatment system as people do not readily understand what it is). You need to basically be able to go and speak to a representative sample of what you think are your target customers, explain what you do and ask them if they see a need for it.

Also try to find out how they value it (this will enable you to determine if your price points are correct). Market research firms will set this up for you (via focus groups) if you have the money to pay for it. The alternative is to arrange one to one interviews yourself or ask people at networking functions – this is much more cost effective. The good thing about this approach is it also helps you develop your sales pitch for use later – ie what are the customers “hot-buttons” etc. and how do you appeal to them?


Assuming you have validated the above, then basically you need to quantify how many people/organisations (or whatever measure is appropriate) are in your target customer group? If it is people then the ABS (and equivalent in other countries) provides heaps of statistics. If it is businesses then you can use business directories – there are various ones, some from the ASX and others from organisations like Dun and Bradstreet. Again by way of example we know there are approximately 766,000 homes in our target market so if we can achieve a penetration of only 5% that is 38,300 sales.

For international sizing, you will find the US distorts any analysis you do because it is so large but with VC’s they look for rigour in one market and then extrapolation for others.

Ben Richardson, Co-Founder of Freshview

Freshview Logo

When we were looking at the potential market size for our first product, Campaign Monitor, we had 2 key areas to look at. Firstly, we had to make sure there we a need for the service our product offered – email marketing.

A quick Google search showed a bunch of stats produced by companies such as Jupiter Research showing that “email marketing spending will reach $1.1 billion in 2010” etc etc.

Is it just me or does it seem like there are stats just like this by one research company or another for pretty much every industry? For me the best validation that there was a decent market for email marketing was the amount of competition out there, and the fact that quite a few of them were reporting very impressive profits.

The second market of interest to us was Web Designers, since our product is built specifically for this market. We were a web design company before we moved into product development, and after watching the industry grow over the 5 years we’d been in business, we had a good feel for the number of web designers worldwide. We didn’t bother looking for exact numbers of how many designers there were, but we knew there would be more than enough to make our product worth developing. And since we bootstrapped our product, we didn’t need to come up with a figure to satisfy a VC’s checklist.


Leave a Comment

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


If you have a startup question, there is a good chance it has already been asked and answered at 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.


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 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.

Comments (2)