A Huge Market Is A Red Flag To Your Investors - Brett J. Fox

A Huge Market Is A Red Flag To Your Investors

Businessman running away from falling dollar coin, VECTOR, EPS10

“We’re going after a huge market,” “Giuseppe*,” said to me. “It’s around $1.5 trillion!”

“Really,” I said skeptically.

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“Yeah,” Giuseppe said, “And the best part is we don’t even need to get one percent of the market to be successful!”

“Walk me through how you determined the market is $1.5 trillion,” I said.

You look like an idiot when you make outrageous claims.

 

“I said ‘potential,’ Giuseppe said, making air quotes when he said potential.

“Well, then how big is the market today?” I said.

“I don’t know,” Giuseppe said. “Maybe a billion…. And we still only need one percent of that to win!”

I sighed deeply.

 

You need to size the market you’re focused on so you can be relevant.

 

“Ah, the old, ‘I only need one percent to win,’ plan,” I said, laughing. “That’s the kiss of death.”

“What? Isn’t that great?” Giuseppe said.

“Giuseppe, if you make claims like this to investors, they’re not going to take you seriously. And, you’re making things worse by saying you only need one percent share to win.

Giuseppe nodded, but he didn’t seem convinced, so I went on with my explanation.

“The problem is you need to segment the market down to a size where you can be relevant. Any market that is $1 billion in size is likely made up of several subsegments.

“Cut the market down in size, so you can dominate one of the subsegments. Then, once you dominate a subsegment, you can focus on another subsegment and dominate that. You’ll have a much better chance of success doing than trying to build a one size fits all product for a large market.”

Giuseppe nodded again, but I could see he still wasn’t convinced.

“I have a one trillion dollar opportunity!” Giuseppe screamed at me. “And you want me to focus on maybe a one hundred million dollar opportunity first. That doesn’t make sense to me.”

“I know it doesn’t make sense, and maybe it never will. Let’s see if we can agree on some things, okay?”

“Okay,” Giuseppe said.

“Do you think every customer in the billion dollar market you are focused on wants the same thing?” I asked.

Giuseppe thought for a second, and then he said, “No, I think there are few different things customers want.”

“Great,” I said. “That’s how you segment the market. Take each one of the customer needs you’ve identified and estimate how big the market is for each.

“How different are the needs of each of the segments?”

“They’re pretty different,” Giuseppe said.

“Ignore the size of the market, which one do you think you have the best chance of winning, and does one form a building block technically for the other markets?” I asked.

“Yes, I think market A does for both,” Giuseppe said.

“That’s the one we go after first,” I said. “Now you’ve given yourself the best chance of success.”

 

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