How to come up with the Market Size for your Startup

1. Market Size
Cycle #1 – October 2014
WiFi Pass: buildfuture #avatech

2. Market?
• All actual and potential buyers of your product/service
• The need drives the definition of the market. (Car vs.
Horse)
• Be Specific:
– Consumer? (X2C) Demographic, Behavior, Geography, …
– Enterprise? (X2B) Industry, Size, Geography

3. TAM, SAM, Target Market?
• TAM (Total Available Market) ~ When you get 100%
of the market share (Pet Food / Mobile Apps /
Elearning)
• SAM (Served Addressable Market) ~ Part of TAM
which receives your main VP. (Dog Food / Healthcare
Mobile Apps / Mobile Learning)
• Target Market ~ Where do you start? Demographic?
Geographic? (Puppy Food / Healthcare mobile App
for Elder Female / Mobile Learning for Engineers)

4. Exercise 1
IRAN KHODRO
TAM, SAM, TARGET MARKET?

5. Exercise 2
LINKEDIN
TAM, SAM, TARGET MARKET?

6. Exercise 3
YOUR STARTUP
TAM, SAM, TARGET MARKET?

7. Size Up: Top-Down
• Top-Down
– Research Report / Industry Report / From
Universe Cut down to TAM by key
assumption ($ spent eating food outside)
Example: 1B Chinese* – 70% eat outside
daily** - Average Meal Size *** => Estimated
market size!
UNIVERSE
Filer 1
Filer n
Estimated TAM

8. Size Up: Bottom-Up
• Bottom-Up
– The problem with Top-down: it includes different customer segment,
ignores variables (e.g operational constraint)
– Start with your numbers and do calculations (It is about your
product/traction)

9. Why Market Sizing
• Because you live once!
• To know business viability (go vs. no-go)
• Key Marketing Decision (Pricing, Marketing Tactic)
• Estimate level of required operation over time to serve the market
• Your investor cares about:
– Market Size
– Growth
– Potential Penetration
– Competition

10. Quantify, Come up with number!
• Feel Lucky? Find the industry or market report
• Not? Build a model
• Run different scenarios
• Time Frames (Now? / in 5 years?)
• Start Projecting and keep updating
• Market Sales Potential
– Potential Buyers (B) * Quantity Sold (Q) * Price (P)

11. Rules
• Make it understandable and logical
• Investors look for big numbers (min +20B IRT in 5 years)
• Clarify Assumptions (Worse – Best Scenarios)
• Cite resources
• Use multiple ways
• TAM should be optimistic & based on reality
• It is not a science! It should be directionally correct!

12. Exercise 4
YOUR STARTUP
SIZE UP THE MARKET SIZE