Most of the businesses are started with one and only one objective of addressing a problem that is faced by mass. Bigger the size of mass that is facing the problem; more will be the chances of solution to be appreciated. Hence the selection of business model is also dependent on the market size that is being addressed. The targeted market base of Facebook is every person that is using internet, while that of linkedin is limited to professionals only.
Most of the startup struggles during the initial phase of startup journey because the targeted market base is not identified properly and hence the marketing strategies to capture that market base would not be defined properly.
Here are few tips from FS Labs to identify the market base prior to execution of startup business model.
1. Define the Problem Facing Market Base – Starting point for market size determination is the size of mass that is facing the same problem. The simplest approach to understand the market base is by analyzing the basic parameters: gender, age, profession, time etc.
If the product or service that you are planning to launch pre-exists in the market, the number is quite easy to determine. Based on the data of the competitors’ sales and marketing strategies, it’s quite easy to determine the same. You can categorize the same in different verticals as per your startup need.
If the startup is coming with an innovative product, the market size estimation requires a more precise and qualitative approach.
Case Study – Let’s assume the concept of startup is an e-commerce website for men and women clothing. Since every person needs the clothing so the targeted market base is the entire population filtered on the basis of affordability limits of the product.
2. Identify the Potential Market Base – The next step once the problem facing market is identified is to estimate the potential market that will be attracted towards your solution immediately. This will be the major focus area of marketing strategies.
The main factors that filter the problem facing market base into potential market base are the easiness, affordability, age etc. Answers to these basic questions will help in deciding the potential market base size:
- Who is ready to keep switching among available solutions?
- What will be the benefits to targeted market base by your solution?
- Why your solution is better than the existing solutions and people would be ready to pay?
Case Study – The potential market base for e-commerce website of men and women clothing can be decided by following factors –
- Age Filter – user attraction towards online shopping over window shopping
- Affordability Filter – actual customer among different age groups
- Acceptance Filter – user attraction towards easiest solution
3. Estimate the Infiltration Rate – Since the assumption of capturing all the potential market at once is invalid, so next step in determining the market size is to estimate the rate at which your product will capture the market. The factors that determine the penetration rate are the combination of features and facilities that your product or service offers as compared with the existing products or services.
- Competitor Data – Based on the sales records of competitors with time and the major drivers of those sales figures, you can estimate the penetration of your product into the established market.
- Industry Reports – Industry reports might be helpful to estimate the acceptability and switching reports of the product.
- Google AdWords – Date from keyword search is also helpful to understand the market need.
Case Study: The infiltration rate for e-commerce startup business model would depend on the product cataloge, features, discounts etc. Since a lot of players are dominating the men and women clothing e-commerce business model, so comparative analysis of sales figures and marketing strategies of competitors and your strategies of market capture will help in estimation of infiltration rate of your product.
4. Calculate the Market Volume – Based on the infiltration rate of the product it’s easy to determine the market volume. Market volume is a function of potential market and infiltration rate. Since infiltration rate is a function of time, so the market volume will grow as based on the penetration strategies in the market.
Case Study: – Market volume of e-commerce startup would be a function of identified potential market base and the estimated infiltration rate.
5. Identify the Scalability Rate – Ideally, the market volume shall be equal to the problem facing market base. Hence the target should be to enhance the infiltration rate to reach to the potential market base and then capturing the gap of remaining problem facing and potential market by awareness in the untouched market.
Benefit of identifying the market base of startup, infiltration rate and scalability limits is that during execution of startup one can easily track the progress and improvement scope in the startup business model.
These were few tips from FS Labs to estimate the size of market for your startup.
Wish you luck for your startup. Stay connected to know more.