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Quantitative Methods for Sizing Markets                 6/19/2003                   Ilya Mirman            Vice President,...
Agenda•   Some considerations on market sizing•   Cook-book approach•   Available resources•   International market sizing...
Readily-available Market DataMay Be Hard to Find•   “The data available about market    characteristics, competitors, and ...
Sizing Techniques• The golden rule: no one source of info is that  reliable, or complete!• So it’s better to use multiple ...
Some key questions to ask…•   Is this the primary product produced at the    customer? Or is it one of the things that fac...
Several Approaches• Top-down• Bottom-up• Published reports• Which metrics matter?    –   Revenue of current competitors   ...
Building the “Total Available Market”(TAM) Model1.   Find a widely-available metric that correlates     with demand for yo...
1. Find a widely-available metric thatcorrelates with demand for your product•   Firms in certain industries•   Employment...
Example of metrics that correlate withdemand                              Seats VS Customers                              ...
Example of metrics that correlate withdemand                                                Seats VS Readers              ...
Example of metrics that correlate with             demand                                             Subscriptions VS Mec...
Example of metrics that correlate withdemand                                       Trade Mags Subscribers VS MEs in State ...
2. Carry out statistical analysis to identifythe scaling factor between demand andthis metric•   Need not be exact•   A to...
Scaling Factors May BeIndustry-Specific• Example: want to use “Employees” as the metric• Two industries with different emp...
3. Get database with the metric byindustry and geography• Not always obvious• Be creative• Be resourceful•   Here are some...
Government Databases•   Fairly comprehensive:    –   Industry    –   Zip code    –   State    –   Firm size•   The caveats...
Commercial Databases•   Harris Infosource http://www.harrisinfo.com/•   OneSource http://www.onesource.com/•   Corptech ht...
Useful Websites  •   U.S. Census Bureau http://www.census.gov/  •   The 1997 Economic Census http://www.census.gov/prod/ww...
Published reports (hardcopy, PDF)Structured databases (.XLS and .DBF)
Published reports (hardcopy, PDF)Structured databases (.XLS and .DBF)
Free from the Government:Amazingly Detailed Data
Free from the Government:Amazingly Detailed Data
Free from theGovernment:AmazinglyDetailed Data
Getting Demographics fromIndustry Publications’ Auditshttp://www.bpai.com/index.htm
Subscribers: By Industry
ByGeography
Simple Database Manipulation
4. Build the Model•   Could be a simple 1-parameter formula, or a more    complex multi-factor model•   Driven by:    –   ...
Building the Model: Which IndustriesMatter?• Need to filter out irrelevant industries!• A good starting point is your curr...
The Categories• No one universal way to categorize companies,  markets, segments• Most companies do more than one thing!• ...
SIC Code Primer         • SIC Codes are 2-, 3-, and 4-digit codes that refer to progressively           detailed industry ...
Sample Industry Breakdown ofCustomer Database                                358 - Refrigeration•   Typically, just       ...
Example 1• Opportunity  Predictor at the 5-  digit ZIP level• Works for single  ZIP code, or a  range
Example 2•   Labor workforce comparison across 6 industries                                                               ...
Example 3•   Engineers by state
5. Verify model’s predictive power•   Don’t release unproven data!•   Find opportunities predicted by the model•   Real Ex...
International Market Sizing•   Rule of thumb: USA is 30-40% of world market    (Europe is 40%, Japan+Asia/Pacific~20%)•   ...
Looking for sweet spots in your baseQuestion:• After being in business for 5 years, you have:    –   1,000 customers in in...
…It depends…Several considerations:• Product/industry fit• Current industry spending• Industry size• Channel fit• Geograph...
Quantitative methods for sizing markets
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Quantitative methods for sizing markets

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Quantitative methods for sizing markets

  1. 1. Quantitative Methods for Sizing Markets 6/19/2003 Ilya Mirman Vice President, Marketing SolidWorks Corporation
  2. 2. Agenda• Some considerations on market sizing• Cook-book approach• Available resources• International market sizing• Finding sweetspots
  3. 3. Readily-available Market DataMay Be Hard to Find• “The data available about market characteristics, competitors, and so on, is frequently inversely related to the real potential of an opportunity; that is, if market data are readily available and if the data clearly shows significant potential, then a large number of competitors will enter the market and the opportunity will diminish.” Jeffrey Timmons New Venture Creation (©1994 McGraw-Hill)
  4. 4. Sizing Techniques• The golden rule: no one source of info is that reliable, or complete!• So it’s better to use multiple approaches to “triangulate” on the real numbers• Metrics that correlate with usage – Government databases – Relevant publications’ reader studies – Commercial databases
  5. 5. Some key questions to ask…• Is this the primary product produced at the customer? Or is it one of the things that facilitates their business. – Communications Equipment at Lucent…vs – Packaging Machinery at Procter & Gamble• What industries are the sweet-spots for this product/segment?• Is this a MARKET or a POTENTIAL MARKET?• Do I want a worldwide overall assessment, or at the local level?
  6. 6. Several Approaches• Top-down• Bottom-up• Published reports• Which metrics matter? – Revenue of current competitors – Firms – Size of problem• “Total Available Market” vs “Annual Spending”• Today’s talk is focused on Total Available Market
  7. 7. Building the “Total Available Market”(TAM) Model1. Find a widely-available metric that correlates with demand for your product2. Carry out statistical analysis to identify the scaling factor between demand and this metric3. Get database with the metric by industry and geography4. Build the model5. Verify model’s predictive power
  8. 8. 1. Find a widely-available metric thatcorrelates with demand for your product• Firms in certain industries• Employment in certain industries• Particular occupations in certain industries• Spending on certain categories• Subscription bases of certain magazines• Etc.
  9. 9. Example of metrics that correlate withdemand Seats VS Customers (for 50 U.S. States) 1,000 SolidWorks Seats in State (#) 100 10 100 1,000 10,000 Mechanical Engineers in State (#)
  10. 10. Example of metrics that correlate withdemand Seats VS Readers (for 50 U.S. States) 1000SolidWorks Seats in State (#) 100 10 1 0.10% 1.00% 10.00% Trade Magazine Subscribers in State (#)
  11. 11. Example of metrics that correlate with demand Subscriptions VS MechEngs in Industry 10,000MEs Employed in 3-digit SIC 1,000 100 10 10 100 1,000 10,000 AVG Subscription in 3-digit SIC
  12. 12. Example of metrics that correlate withdemand Trade Mags Subscribers VS MEs in State (for 50 U.S. States) 10.00%% of Trade Magazines Subscribers (%) 1.00% 0.10% 100 1,000 10,000 Mechanical Engineers in State
  13. 13. 2. Carry out statistical analysis to identifythe scaling factor between demand andthis metric• Need not be exact• A top-down approximation may be enough• Primary use will be to compare relative opportunities of various industries and geographies• Examples: – 1 software seat per each firm of 50+ employees – 1 software seat per 20 workers – 5 software seats for each mechanical engineer – $1,000 for each $100,000 spent on fabricated metal structures
  14. 14. Scaling Factors May BeIndustry-Specific• Example: want to use “Employees” as the metric• Two industries with different employment characteristics may have 2 different scaling factors• Example: – Target customer: IT administrator – Manufacturing sector: ~1 IT admin / 100 workers – Financial Services sector: ~1 IT admin / 25 workers
  15. 15. 3. Get database with the metric byindustry and geography• Not always obvious• Be creative• Be resourceful• Here are some ideas…
  16. 16. Government Databases• Fairly comprehensive: – Industry – Zip code – State – Firm size• The caveats: – Don’t distinguish between type of location (sales, design, manufacturing, etc.); – Don’t provide names of firms;
  17. 17. Commercial Databases• Harris Infosource http://www.harrisinfo.com/• OneSource http://www.onesource.com/• Corptech http://www.corptech.com/• Thomas Register http://www.thomasregister.com/• InfoUSA http://www.infousa.com/• The Problem: incomplete databases (not all firms are included). Nonetheless, good for relative market sizing.
  18. 18. Useful Websites • U.S. Census Bureau http://www.census.gov/ • The 1997 Economic Census http://www.census.gov/prod/www/abs/97ecmani.html • 1997 Economic Census Reports http://www.census.gov/epcd/www/ec97stat.htm#SUBJECT • Industries Ranked by Growth http://www.census.gov/epcd/ec97sic/RANKUSD.HTM • Statistics by US State http://www.census.gov/epcd/www/97EC31.HTM • Massachusetts statistics http://www.census.gov/epcd/www/97EC_MA.HTM • U.S. Bureau of Labor Statistics http://www.bls.gov/oes/1998/oessrch.htm • Industry Quick Reports http://factfinder.census.gov/servlet/IQRBrowseServlet?_ts=73639935829 • Bureau of Economic Analysis http://www.bea.gov/bea/uguide.htm • Census Bureau’s CD/ROMs http://www.census.gov/mp/www/rom/msrom.html#County • County Business Patterns http://censtats.census.gov/cbpsic/cbpsic.shtml • International Statistical Agencies http://www.census.gov/main/www/stat_int.html • Department of Commerce http://www.commerce.gov/economic_analysis.html • Economic Census Reports http://www.census.gov/epcd/www/econ97.html • Related Census Sites http://www.census.gov/main/www/stat_fed.html • State of the Nation http://www.stat-usa.gov/econtest.nsf • Trade Data http://www.stat-usa.gov/tradtest.nsf • Census Bureau Access Tools http://www.census.gov/main/www/access.html • Business Counts in a Particular SIC Code http://www.melissadata.com/Lookups/sic.asp? • Audits of Business Publications http://www.bpai.com/index.htm
  19. 19. Published reports (hardcopy, PDF)Structured databases (.XLS and .DBF)
  20. 20. Published reports (hardcopy, PDF)Structured databases (.XLS and .DBF)
  21. 21. Free from the Government:Amazingly Detailed Data
  22. 22. Free from the Government:Amazingly Detailed Data
  23. 23. Free from theGovernment:AmazinglyDetailed Data
  24. 24. Getting Demographics fromIndustry Publications’ Auditshttp://www.bpai.com/index.htm
  25. 25. Subscribers: By Industry
  26. 26. ByGeography
  27. 27. Simple Database Manipulation
  28. 28. 4. Build the Model• Could be a simple 1-parameter formula, or a more complex multi-factor model• Driven by: – Who will use it? – How? – Required accuracy? – Relative market assessment? – By geography? – By industry? – Sales territory assignment? – Product development/investment decisions?
  29. 29. Building the Model: Which IndustriesMatter?• Need to filter out irrelevant industries!• A good starting point is your current customers or prospects• Dun & Bradstreet can append company demographic information to your customer data: – Size – Revenue – Standardized categories of line of business, SIC codes – Etc.
  30. 30. The Categories• No one universal way to categorize companies, markets, segments• Most companies do more than one thing!• Categorization approaches – Text descriptions – Structured codes (SIC, NAICS, others) – SIC is most popular, being gradually replaced
  31. 31. SIC Code Primer • SIC Codes are 2-, 3-, and 4-digit codes that refer to progressively detailed industry classifications. • In the example below, we see how the 2-digit SIC Code #35 can be split into several 3-digit categories, and how one of them (#356) can be further split into seven more – each one with more detail.30 Rubber And Misc. Plastics Products 351 Engines and Turbines31 Leather And Leather Products 352 Farm and Garden Machinery 3561 Pumps and pumping equipment32 Stone, Clay, And Glass Products 353 Construction and Related Machinery 3562 Ball and roller bearings33 Primary Metal Industries 354 Metalworking Machinery 3563 Air and gas compressors34 Fabricated Metal Products 355 Special Industry Machinery 3564 Blowers and fans35 Industrial Machinery And Equipment 356 General Industrial Machinery 3565 Packaging machinery36 Electronic & Other Electric Equipment 357 Computer and Office Equipment 3566 Speed changers, drives, and gears37 Transportation Equipment 358 Refrigeration and Service Machinery 3567 Industrial furnaces and ovens38 Instruments And Related Products • Further still, 3565 (Packaging Machinery) can be broken down further, by product code; Examples: – 35651-23: Cartoning & Multipacking Machinery – 35651-27: Paper, Film & Foil Wrapping Machinery – 35651-45: Capping, Sealing & Lidding Machinery – Etc.
  32. 32. Sample Industry Breakdown ofCustomer Database 358 - Refrigeration• Typically, just and Service Machinery Other a few SIC 362 - Electrical Industrial 354 - Metalworking codes are Apparatus 366 - Machinery relevant, Communications Equipment making the 371 - Motor Vehicles and 356 - General Industrial Equipment database 372 - Aircraft and Machinery Parts work simpler 353 - Construction and Related Machinery 367 - Electronic Components and Accessories 355 - Special Industry Machinery 382 - Measuring 359 - Industrial and Controlling Machinery Devices
  33. 33. Example 1• Opportunity Predictor at the 5- digit ZIP level• Works for single ZIP code, or a range
  34. 34. Example 2• Labor workforce comparison across 6 industries Machinists Employment Across Six Industries 100% Maintenance and Repair Workers Mold Makers and Operators 80% Cutting, Punching, and Press Machine Operators Employees Electronic Equipment Assemblers 60% Welders, Cutters, Solderers, and Brazers 40% Inspectors, Testers, Sorters, Samplers, and Weighers Engineering Managers 20% First-Line Supervisors/Managers 0% Motor Plastics Electronics Fabricated Aircraft Medical Team Assemblers Vehicles Products Structural and Parts Products Metal Products
  35. 35. Example 3• Engineers by state
  36. 36. 5. Verify model’s predictive power• Don’t release unproven data!• Find opportunities predicted by the model• Real Example (medical product manufacturers): 1. Predicted opportunity within 3-digit ZIP codes (based on government database) 2. Randomly picked several locations with high predicted opportunity, verified presence of medical manufacturers with Harris Infosource 3. Overlayed current medical customers as double- check Let’s take a look…
  37. 37. International Market Sizing• Rule of thumb: USA is 30-40% of world market (Europe is 40%, Japan+Asia/Pacific~20%)• Alternative approach: 1. Find widely-available metric that drives market opportunity 2. May need to adjust by country-specific factors (e.g., per-capita GDP)
  38. 38. Looking for sweet spots in your baseQuestion:• After being in business for 5 years, you have: – 1,000 customers in industry A – 2,000 customers in industry B• A new telesales person is starting tomorrow. Which industry should she call into?
  39. 39. …It depends…Several considerations:• Product/industry fit• Current industry spending• Industry size• Channel fit• Geographic channel performance

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