GE 4: Market sizing - why does it matter?

There are three reasons it is good to know the size of your market.

1. Investors will want to know

When the time comes to raise investment or perhaps even sell your company one of the many questions potential investors will ask is “How big is the market opportunity?” They want to make sure that the market is big enough to ensure they get a return on investment. If they are a private equity firm, they will also want to ensure that the market is big enough for the next buyer too. As an owner or founder, you need to have an answer ready for the market size question and a methodology and supporting data to back this up. The conversation is part of establishing yourself as a credible person to invest in.

2. Helps you prioritise development

In order to accurately size your market, you must first understand it. What size of customer will you sell to first? Where are they located and what do they do? Once you know the answer to these questions, you can prioritise the features for this particular market segment. Understanding the size of expansion markets can help you push back on developing complex features that do not provide sufficient return on investment — the complex language translation, the specialist dictionary of terms or the Enterprise level security features.

3. Provides new ideas and inspiration

Determining your market size is not just a case of multiplying a couple of numbers together. Instead you must dive deep into the true nature and value of your product and potential customers. Throughout this process you will challenge previously held assumptions and discover new areas that you had not previously considered. Market sizing requires a disciplined approach that digs into how much your customers will actually pay, what gives you the right to win over the competition and the order in which you should act upon the opportunities in front of you. Many founders procrastinate in developing a market study, perhaps with a fear that the market may not be big enough. But the reality is that the exercise is almost always positive and will energise you and your team to accelerate and realise the full potential of your market.