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How do I market a great idea?

Stock Market: How can I calculate the market size of my idea?

  • Hi all, I have just started working on the customer discovery process and I am trying to figure out what is the potential of my idea.  "The Startup Owner's Manual", from Steve Blanks, says that I should estimate the TAM, SAM and Target Market, but I am really struggling to understand how to measure it. My idea is basically an App that helps people to play football more regularly by helping them to find the right place, time and people.  How would you guys advice me on that? Do you recommend any tools? Thanks in advance!

  • Answer:

    Actually calculating TAM, SAM and SOM is not as hard as it can look like the first time. First, the definition: TAM (Total Addressable Market) - Everyone you wish to reach with your product. SAM (Serviceable Available Market) - The portion of your TAM that you can actually address. SOM (Serviceable Obtainable Market) - What is the realistic prediction of acquiring share of your SAM by you, considering competition, locality, your distribution and sales channels and any other market influences. Now, I'll make some assumptions about what are you trying to offer and to whom: website application in english business highly depended on the locality (means that you can't offer to someone from NYC to go play football to let's say Boston) Let's say you'll start with one city. You can later scale this to the whole world if you'll be sucessful, but IMHO in your business is crucial to start in one city and then scale it after you actually know what are you doing (means you've met the demand and you know how to properly serve it). TAM - There is 18 millions football players in USA. SAM - You're only focusing on the NYC at the beggining. NYC has 350,000 football players what represents 1.94% of your TAM. SOM - There is some competition in NYC, which already get more than 100,000 users. It tells you that there is demand for such a product. With your new product, you hope to gain let's say same number of users as your competion in 3 years, so your SOM will be 28.57% of your SAM and 0.6% of your TAM. But you can look at this differently, from the business model perspective: Let's assume that for your business model to work, you need to make deals with the venues. TAM - There is 2,000 venues in NYC where people can play football. SAM - 1,398 already signed deal with your competitors. You're left with 602 unsigned venues and you can maybe steal 10-20% of already signed venues. Your SAM is 802 venues or 40.1% of your TAM (including 10% already signed venues). SOM - You will be the only one employee of your company and you can sign only 3 venues per week. So in 3 years you can address 468 venues or 58% of your SAM and 23.4% of your TAM. As you can see the whole calculation greatly depends on how you'll define your initial market. You must do some research to find the proper numbers for your case. At the end the most important is not if your calculation is as close to the reality as possible, but if anyone will find it trustworthy (potential investors, banks, your employees and of course you).

Rasty Turek at Quora Visit the source

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The most important thing to help you figure out what may seem like an amorphous problem like this is to provide a logical structure to your problem to help you break it down. Structuring your problem well will also make it easy for you to justify your number to people who may end up scrutinizing it. There are 2 ways you can structure the "calculation" of your market size. I put "calculation" in inverted commas because you are really using a structured approach to estimate the size. The first, top-down approach where you whittle down from a large population number to a logical smaller figure. The second is the bottom-up approach where you extrapolate overall figures from a small subset of raw data. I will briefly illustrate how you may use these approaches to estimate your market size. In the top down approach, you would obtain large population information from census, market research reports and the likes,such as proposed by Rastislav and make informed estimations/assumptions to whittle it down. (18 million football players, stats from industry reports show 50%/9mil would like to play regularly, 70%/6.3mil of adults in market use smartphones, through market reports or surveys, 50%/3.15mil of whom indicate they regularly download and use apps to help them with daily problems.) In the bottom up approach, you would obtain a smaller subset of raw data, directly from the ground (surveys, interviews, ask them directly!) or through secondary sources (particular venue's sales volume). Thereafter extrapolate this number using logical parameters (market share of the data source, number of venues nationwide/region-wide) to get the figure you need. (5 of the venues you interviewed report 100 bookings a month totalling 500 bookings. Each booking consist 22 players each totalling 1100. These 5 venues make up only 1% of the total number of venues in your market =>110,000) These 2 approaches may give you very different numbers and you might do well to use the average between the two numbers. Understanding the approaches may be simple but moving on to actually getting yourself all the data and information to make logical estimates and guesses to get your number may be more tricky. One solution is to focus on what data you know is readily available and use them as proxies to the figure you need. Applying these approaches to the concepts of TAM, SAM and SOM shouldn't be difficult thereafter.

Raymond Yang

I would redefine your market as ad-hoc recreational activities + recreational leagues (real life score tracking in ladders is an obvious premium feature). There is no need to limit it to just football. Tennis, golf, and less common sports like badminton come to mind. Smaller team sizes (two for tennis and badminton, four for golf) are easier to coordinate and they are less likely to be organized. Refereed matches could become very interesting. Remember that this is about sports, which always triggers competitive instincts. Ability to find an available trained and impartial referee could be more valuable than finding random teammates. Formalized scoring leads to ladder tracking. Now you are bringing out the best in people without the hassle of rigid league structures. This is how I would approach your market. It's a theory that would have to be validated, but feel free to explore it. I have no immediate interest in this. :) Inspiration: Internet-based ladder tracking systems in online games.

Leonid S. Knyshov

Bottom-up market sizing (it is what we and investors focus on) requires assumptions about the size of your segment, assumptions about business model and pricing model.

Sramana Mitra

I also recommend to check out this video that will complement your TAM, SAM, TM decisions. The SPA tactic will narrow down which market you should address first based on the Size, Price affordability and you access and reach to that specific market.  http://customerdevlabs.com/2012/08/23/prioritizing-customer-segments-with-excel/

Luis Barrios

I'd also recommend taking a look at the B2B Market Sizing Tool at ScienceOfMarketing.org. It's very easy to use, gets to a market size in around 3 minutes, and pulls data directly from the US Census Bureau so it's pretty reliable.

Rene Miller

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