Course 7 - Market Size


Published on

Published in: Business, Technology
1 Comment
  • If you are looking a for a quick way to estimate a market opportunity, I also recommend you check out the B2B Market Sizing Tool at This is a tool to help entrepreneurs get at sizing a B2B market in less than 5 minutes using the US Business Census data.
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Course 7 - Market Size

  1. 1. Class 7What’s the Idea andHow Large is theOpportunityAntofagasta, Chile, June @depeteamWith the Support of: 1
  2. 2. INDEX• Customer Development Process Review – When to move out of Customer Discovery & Customer Validation• Your business strategy – Identify your market• How to size the market – Market Analysis Questions – Top down vs. Bottom Up • Examples
  3. 3. PEOPLELos emprendedores invitados
  4. 4. ayniQuechua {sust} : ayuda mutua
  5. 5. La Historia
  6. 6. Carolina Andrade
  7. 7. ¿Quiénes somos?ayni La plataforma virtual (web) socialmente responsable que ofrece una selección única de accesorios exóticos
  8. 8. Somos un baúl de tesoros artesanales del mundo
  9. 9. Impacto Social• Responsabilidad social - comercio justo• Asociaciones con ONGs para promover programas de educación sanitaria• Impacto tangible en comunidades de artesanos
  10. 10. Socios Claves Actividades Propuesta de Relación con Segmento de Claves Valor Clientes Clientes• ONGs• Directorio • Diseño de una • Conectar al • Página web • Consumidor• StartUp Chile página web artesano con el • Redes sociales socialmente diferenciada consumidor final • Eventos responsable y • Cuidadosa de una manera deportivos afluente entre los selección de tangible 25 y 40 años enRecursos Claves producto Canales el mercado -• Capital • Optimización • Ofrecer norteamericano• Diseñadores y de cadena de productos únicos • Página webprogramadores producción, alto y de moda y una • Boutiques o• Know-how de involucramiento experiencia de tiendas selectasmarketing y en proceso compra • Flagship storeprocesosEstructura de -Costos Revenue Stream• Promoción • Ventas en línea• Página web • Ventas a través de tiendas físicas• Inventario, flete y aduanas• Personal (marketing y operaciones) 11 Source: Business Model Canvas, © 2009 Alexander Osterwalder & Yves Pigneur
  11. 11. TIP• Ejecución es mejor que parálisis: tomar decisiones con información incompleta y probar las ideas lo más pronto posible
  12. 12. CustomerDevelopmentProcessReview
  13. 13. The Goal To determine if there are customers and a market for the vision that is developed by the founders and the product development team. – Not to gather feature lists from perspective customers, nor is it to run lots of focus groups.
  14. 14. The Goal Find out who the customers for your product are & whether the problem you believe you are solving is important to them
  15. 15. The Goal Customer validation proves that you have found a set of repeatable customers and a market who react positively to your product
  16. 16. The Goal Create end user demand and scale that demand into the company’s sales channel. Key Marketing Spending & Where you take investment.
  17. 17. The Goal Transitioning the organization from one that is designed for learning and discovery to a well- oiled machine engineered for execution.
  18. 18. Where weare at
  19. 19. Discovery & ValidationTells you the following• Verifies your market• Locates your customers• Tests the perceived value of your product• Identifies the economic buyer – who’s budget pays for your product - different from user in some cases)• Establishes your pricing and channel strategy• Checks out yours sales cycle and process
  20. 20. Discovery & Validation• ? Have we identified a problem a customer wants solved?• Does our product solve these customer needs?• If so, do we have a viable and profitable business model?• Have we learned enough to go out and sell?
  21. 21. Get out of the Building!!
  22. 22. Don’t be these guys• Fastoffice, 1994 – Raised 8 million USD – 18 months development – Product: a device that would offer fax, voicemail, intelligent call forwarding, email, video and phone calls Product Price: $1395 Great Product, Raw Market
  23. 23. Your Strategy Existing Resegmented New Market Market Market Customers Existing Existing New/New Usage 1. Cost, 2. Perceived Simplicity andCustomer Needs Performance need convenience 1. Good enough at the Low in “traditional low end attributes,” Performance Better/faster 2. Good enough for improved by new new niche customer metrics Existing, Non-consumption / Competition Existing Incumbents Incumbents other startups 1. Existing Existing Risks Incumbents, Market Adoption Incumbents 2. Niche Strategy Fails
  24. 24. Marketsizing/estimationsEstimating the number ofbuyers of a particularproduct, or users of aservice
  25. 25. Market Sizing Analysis Questions1.What does the venture do “best”, and more importantly, “better” than others? –2.Who will pay for the venture’s offerings, and are there enough such players ready to pay?3.How much are potential customers currently paying for similar offerings/ needs?
  26. 26. Market Sizing Analysis Questions4. How much value is the venture delivering to customers, and how much will they be potentially ready to pay for its offerings?5. Assign a number to the value you are delivering to customers. Is it critical. Is your offering saving them $100 or $20?6. Do the economics work out in the target customer base?
  27. 27. Market Sizing Analysis Questions7. How much value or “wallet share” is the venture capturing out of the client’s budget?8. Who is the venture’s REAL competition? • For Coke and Pepsi, more than each other, their competition is with the homemade lassi, nimbu pani, juices and even drinking water.
  28. 28. Market Sizing• Market Sales Potential (MSP) – Prospective Buyers (B) * Quantity Sold (Q) * Price (P)• The main purpose of market sizing is used – To inform business viability, • specifically go/no-go decisions, – Key marketing decisions • pricing of the service or marketing tactics to increase usage. – Preliminary estimate of the level of operational and technological capabilities required to service the expected market.
  29. 29. The Cost-Revenue Model Profit Revenue Cost( Price X Quantity )—( Fixed + Variable ) • Price • Customer • Capital • Labor discrimination segmentation equipment • Materials • Changes in — New/existing • Land • Energy pricing — Loyal/ • Buildings structure switchers • Viability of • Channel pricing over restrictions or time temporary • Discounts or disturbances couponing • Changing • Competitor’s consumer pricing demands
  30. 30. Market Sizing Methods• Top-down Approach – involves defining a “universe” target market and applying various filters that continually reduces the figure to an estimation of the total addressable marketThere are a billion people in China; 70% of them donot have 20/20 vision; eyeglasses sell for $20 a pair; our addressable market is therefore $14 billion.
  31. 31. Market Sizing Methods• Bottom Up Approach – Sizes a market using projections of individual clusters. – First, identify the customer segments it intends to reach, and then make estimates of their size and growth.Our retail location at Dongsnhuan in Beijing gets 2500 passersby each weekday. Average conversion rates for retail opticians are0.8%, so we project selling 20 pairs of glasses a day. We can open 20 locations in a year, so by years end our annual revenue run rate will be $1.7 million.
  32. 32. Top DownApproach
  33. 33. Top-down approach Starts with anUniverse estimate of the overall market and then Filter A evaluates the (limited) successive proportions that it intends to Filter N reach.Estimation of TotalAddressable Market
  34. 34. Government plans to distribute social payments to rural farmers through mobile phones • Universe = any adult in a rural area – 20 million adults. • Out of these, 20% are farmers. • Payment only works for people with mobile phones, this equates to 70% • 40% of these, qualify based on crop revenues.20,000,000 adults * 20% farmers * Market Potential 70% (mobile ) * 40% (qualify) 1,120,000
  35. 35. How many pairs of boxers are sold in the UK each year? 0-10yrs old7.5 potential buyers No boxers users 10-20yrs old 20-40yrs old 40-80yrs old 3.25 mn potential buyers 6.5 mn potential buyers 13 mn potential buyers 75% wear boxers 50% wear boxers 50% wear boxers 3 million users 3.2 million users 6.5 million users 3 pairs/year 4 pairs/year 3 pairs/year 3 pairs / yr 4 pairs / yr# boxers sold to men  9.5mn users   3.2mn users   41 million boxers user user 36
  36. 36. Bottom upapproach
  37. 37. Bottom Up ApproachThe problem with a top down approach• Includes different customer segments• Ignores variables such as operational constraintsThe bottom up forecast is more robust and bothshould be included when evaluating the size ofyour market.
  38. 38. Methodology1. Our product/service will save (audience) a lot of money. – We estimate $X per year based on current spending for this product/service.2. An average customer will spend $X per year with us because they spend three times that now.3. Using (example) sales as a proxy (such as copier sales) we think that our average sales rep can make 10 cold calls per day and develop 3 solid leads per week. – Of those, the rep can close 2 per month.4. At a 2 per month closing rate per rep, thats $Z on an annual basis. – Heres a table of the cash flow based on this: (TABLE)
  39. 39. Methodology5. Using our experience in (market) as an analog, we estimate that customers will stay with our product for 3.5 years.6. If we time these cash flows correctly, we can hire 5 new reps per month. – Assuming 90 days to train them and a maximum of 15 reps, heres a table of what we will look like at a full up run rate.7. Notice that at about 36 months our hit rate drops off and our development $ go back up. – By this time we anticipate competitive pressure and we will use leads acquired per day and time from conversions to sales as an early warning metric.
  40. 40. Key Points1. Make sure to ask the right question to size the market as accurately as possible2. Estimates are only as good as the quality of the information3. Willingness to purchase and competitor moves are highly subjective4. Offer ranges rather than point estimates.
  42. 42. Example 1• A typical customer will pay us $1,000/year• We’ll hire five sales reps – Each rep will sell 10 per month• We’ll lose a certain percentage of customers per year• We’ll up-sell a certain percentage of customers• With this math we’ll add approximately $600,000 in annual recurring revenue per year assuming customer dropoff and up-sell equal out
  43. 43. Key Key Value Costumer Costumer partners activities proposition relationships segments Live- Makes Stream events Social Media Sponsors for Events booth Photos more fun Electronics Print Branded Direct Photostrips Venues Memories Marketing on-site Manufacturers Follow Events Production Key resources Live Channels Companies & Ad agencies Printer Supply Booth Deep Companies Electronics Production Brand Wedding Simple Interaction Companies Sites Enclosure & Agencies Word of Transport by Custom Sales People SW Mouth Cost structure Revenue streams 10% to Fixed Printer execute the deal Rental Booth Sale Supply Cost 10% to close Up-Sell the
  44. 44. Startup Metrics - StudioSnaps Adquisición - Reuniones Friend Network->Email Introduction: (3/mo.) ; 2 (67%) ; 1 (20%) ; .5 (10%) Cold call (5/mo.) ; Cold E-mail (5/mo.) 13 total Activación – Booking Bookings obtained from meetings 1 (50%) ; 1 (100%) ; 1 (100%) Retención Time will tell (TBD) Ingresos Everyone pays & ½ up front (100%) Referidos 2 (200%) ; 1 (100%) Referral Business ; 1 (100%) 5.5 bookings / mo. (.70*5.5* 450.000+.30*5.5* 70% Simple Rentals – 450.000 1.700.000)*12 = 54.450.000 CLP/yr 30% Full Activation – 1.700.000
  45. 45.
  46. 46. GROUP WORKA ensuciarse las manos
  47. 47. LA TAREA!• HOY – Presentaciones de la clase – Trabajo grupal: Calcular tamano del mercado buttom up y top down.