The global market place is more accessible than it has even been, so entrepreneurs can truly consider international customers as components of their potential target market. With technology advancements, it has never been more feasible to progress a new idea into a start-up business. But before launching ideas into a business, entrepreneurs should follow a structured process to assess the potential success of that idea as a start-up.
In our article Start-Up Series: 7 Step Guide to Assessing Start-Up Success we promised a series of articles to help assess which of your great ideas have the potential to go all the way. Step 1 addressed the important step to define the problem your idea will solve. Step 2 explored the important question of determining if the solution to the problem would create value for the end user. In Step 3 it’s time to analyse the potential market for this solution as the existence of a suitably sized market is vital to the feasibility of any venture.
So why is the size of the market so important? The size of the potential market will directly influence the ability to monetise the solution. If the market size was 10 individuals from the around world it is extremely unlikely that the business would be financially viable. Alternatively, if the size of the market was a billion people the financial viability would be much more likely.
We cover financial viability in more detail when we explore step 5. There we address the interaction between market size, pricing of the solution, and the cost structures to deliver the solution. In circumstances of small market size it is important to understand that it is still possible for the business to be financially viable if the price is high and the costs are proportionally lower. On the flip side it is also possible for a very large potential market size to not be financially viable if the price is low and the costs are proportionally higher.
Determining the size of a target market can often be a difficult proposition. At this stage it is not essential to spend copious amounts of time and resources to determine the market size with precise accuracy. The objective is to determine whether or not the market size is sufficient enough to support a business of appropriate size to deliver the solution.
The potential market size will be determined by the number of people and/or organisations experiencing the problem. It can be very valuable at this time to try and define these people/organisations as precisely as possible. The effort put in here will increase the likelihood of success for future tasks and planning.
- Who are they? An individual, family, small or large business, community group, charity, or government?
- What do they do? What is their industry/profession/cause?
- Where are they located geographically?
- Do they have one location or many?
- Who is the individual/group that will make a decision about whether to buy our solution?
Once the potential market size is assessed with a degree of confidence, a market share percentage needs to be applied. As much as every entrepreneur would like to think that everyone in their target market will fall over themselves to buy the solution, the reality is that only a small percentage will ever engage as a customer. Work out your initial thoughts about the market share here and then reassess it once you complete the next step on assessing the competition.
We encourage you to follow our Start-Up Series of articles to work through this 7 step guide to assess if one of your ideas could be a start-up success. If you want to delve into all 7 steps in one sitting, please download our Guide here. For assistance with any of these steps, please contact Matthew Beasley on 3218 3900 for a no obligation discussion.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.