Knowing the market size is important for a startup before they actually launching a product or service. The goal is to find out the potential users or benefits that can be obtained from the sale of these products. During the pitching to investors, these statistics regarding market size are also one of the main explanations needed - for these investors related to the projected ROI (Return of Investment) that can be obtained.
In general, every startup should go through a phase called product-solution-market fit, namely;
(1) validating the product being developed is really needed,
(2) ensuring that the solutions presented are efficient in solving the problem, and
(3) convincing consumers which will make the business survive.
To define problems and solutions, the approach can be varied. One of them can use the Business Model Canvas. While to measure the market, there are other methods that the founder can follow. The two most popular are Top-Down Market Sizing and Bottom-Up Market Sizing.
Top-Down Market Sizing
This mechanism is done by defining the user's market share in general. Then it is lowered to a number of levels using certain filtering attributes until it reaches the estimation of a conical potential market. The following is an example of measuring the market size for an online educational platform as supporting learning material.
Bottom-Up Market Sizing
Contrary to the previous methodology, the bottom-up starts with identifying specific customer segments. From there the founder can measure market share and growth projections. The calculation process starts from the most realistic scope - bottom-up mechanisms are usually chosen because of limitations such as resources to reach the market. With the case study the same as the example in the previous methodology, the process is obtained as follows;
Which approach is suitable?
In calculating market share there is the terminology "TAM-SAM-SOM". TAM is an acronym for "Total Addressable Market", which is anyone who is expected to be reached with the product being developed. SAM is short for "Segmented Addressable Market", which is the portion of TAM specifically targeted by startups. And SOM or "Share of the Market", which is the part of SAM that has been achieved, the user is in the initial phase of startup.
The market sizing top-down methodology is very suitable for estimating TAM and SAM. While bottom-up market sizing is more likely to calculate SAM and SOM estimation.
Egogo Hub can assist both brand or startup to lift and upsize their market strategy through the unique and appropriate methodology. Let's collaborate with Egogo Hub by directly contact us at firstname.lastname@example.org