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By Nathan Rose, Assemble Advisory
Marc Andreesen, venture capitalist, co-founder of Netscape and board member of Facebook, eBay and Hewlett Packard wrote a seminal post in 2007 on the importance of operating in a healthy market to a venture’s success.
Andreesen begins by making the case that businesses can be boiled down to three core elements: team, product and market. He then goes on to convincingly argue that market is the most important element of the three – that a baseline competent team with an acceptable product can still be successful in a booming market, while the reverse is rarely true. “In a great market… the product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product… Conversely, in a terrible market, you can have the best product in the world and a killer team, and it doesn’t matter – you’re going to fail.”
Whether they have read Andreesen’s 2007 post or not, investors intuitively understand the importance of exposure to large and growing markets, so it will be extremely helpful to your case if you can show that your venture is operating in such a space. Of course, it is not enough for an entrepreneur seeking funding to simply assert that a market is large and growing – investors will invariably want it quantified: “how large” and “how fast-growing”, based on reliable third-party sources.
Despite the importance of quantifying their target market size, companies often shy away from doing so.
This reluctance can be due to either a lack of understanding of the importance of sizing the market, or due to difficulties in obtaining reliable data. Hopefully the first part of this article has convinced you of the importance of sizing the market. Next, I want to show you some good places to begin your search for third-party sources you can credibly reference.
There is a very good chance an industry body is out there that represents the interests of whatever your business does or whichever group it is selling to. Sometimes you can download reports on the size and growth of a market directly from their website. Otherwise, you can get in touch with the industry body to see what figures they may have to hand – and at the very least they should be able to point you in the right direction.
Governments routinely commission reports to inform public policy. They are particularly happy hunting grounds for information around such things as tourism, construction, housing, energy, and transportation. Statistics departments also gather amazingly detailed information on demographics, trade and consumption, and these can often be accessed by the public either online or with the assistance of a statistics department employee whose specific job is to assist with queries such as yours, free of charge.
Privately-commissioned research commentary is produced daily on every aspect of the economy. PwC is particularly prolific, and their reports tend to be easily available and downloadable. Sometimes it is possible to get industry think-pieces from brokerage houses, such as Goldman Sachs and Credit Suisse. Special research organisations such as Forrester and Gartner also produce highly credible data on just about every market, albeit for a price.
Companies listed on the stock exchange regularly produce publicly-available reports and investor presentations rich with data designed to fulfill their continuous disclosure obligations. Access these reports online, flick through a few and you could be amazed at what you find.
Very useful for making statements such as “73% of consumers surveyed say they are prepared to pay more for environmentally sustainable paper” or “82% of businesses with revenue of over $1 million agree or strongly agree that they expect to increase their social media spending in the next 12 months”. If someone else has done work that supports your investment case, go ahead and take advantage of it!
Including a market size figures in your presentation pre-empts the questions that potential investors are going to ask anyway if you don’t include them. Having market size data to hand shows that you have done your homework and that you are on top of the trends shaping the space that your venture is operating in. Though the data may not be easy to come by, investing the time to find something reliable is absolutely worthwhile when developing a business plan or writing a presentation to seek funding.
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