You’re familiar with TAM, SAM, and SOM on the market size menu. You can develop a business model that shows you have the potential to grow a big company around your product or service idea and to generate returns for your investors and your family. If you have a clear competitive advantage, either with IP or timing or process, you can prepare the “up and to the right” magic quadrant to support your projections.
Your first validation point will be customer discovery meetings, even if by Zoom. In my regular office hours I recently saw a plan to create an Amazon for a new category. It was presented to me by an impressive young entrepreneur, but I told him there were too many unanswered questions between his conception point and his $bazillion goal. I encouraged him to hitch himself to a relevant incubator or accelerator and get some help putting meat on the bones of his idea. Drive-by advice like I provide in office hours has its merits for tightly bounded questions, but it takes total immersion by a team of peers and advisers to do something as ambitious as this particular endeavor. The discovery I hope he took away from our meetings should have been that his plan required the “suspension of disbelief” – as they say in Hollywood. What entertains in an action movie likely won’t play well to an investor audience.
This gets at the point of how you may be received by potential investors if you show too big a plan in an area that is already full of competitors of all sizes. Having competitors is good; they help you develop a market, and they keep you on your toes. There’s a widely circulated infographic of digital ad agencies (I believe, but it’s been a while since I have seen it.). It looks like a 5000-piece jigsaw puzzle. The vast majority of them may be doing good work and doing well; a few may have reached some scale; but your odds of jumping into that fray and having anything more than a small professional services business are pretty slim. If that’s your calling, go for it. But don’t expect an investor to see an opportunity for venture returns there. You put yourself in front of a generic buzzsaw.
As a corollary, there’s a focused buzzsaw that kills many entrepreneurial hopes and dreams. That comes from showing your projections to someone who is an accomplished investor in your specific space and knows too much. He or she may be plugged in enough to be aware of competitive threats not yet unveiled. I know a luminary in the information security space who sees all, and I’ve heard him reject deals by saying “all the spaces on that checkerboard are occupied.” It’s better for you to learn that fast than to get bitten later. Add to your discovery list anyone you can reach who knows your area inside and out. If you do have something indeed novel, you may get immediate support. Anyone who is well versed enough to say no to nearly everything in his field is also the person who can recognize a great innovation that leads to a yes.
At the time this is written in March 2021, there’s another major consideration about any calculation of market size. It goes without saying that each of us has for over a year become a “stranger in a strange land” (Exodus 2:22 and also the title of a popular novel by Robert A. Heinlein from 1961). The business rules are different for many of us. I’ve seen entrepreneurs cash in very well on evanescent markets related to the pandemic, only to have them disappear as societal priorities have evolved. Remember the long lines for testing, now replaced by long lines for the vaccines? I’ve seen some fascinating testing products out of GA Tech labs that are already declared obsolete. When the pandemic has subsided to something loosely called “normal,” what is the size of the business travel market, or the actual need for office space as currently configured? Many of our routines have been permanently changed. It will be impossible to un-Zoom our culture now that so many people have found efficiencies using that tool in lieu of in-person business meetings, church services, and many levels of education. Even if current predictions by Dr. Fauci hold true that most who want shots in arms will have them by May, how long thereafter will it be that we have herd immunity and unfettered freedom of movement? Keep in mind this is a global crisis, with new virus variants appearing regularly, and not something that can be contained alone by the US. How long will people keep buying guns at such a white-hot pace? Do you have your pro rate share of at least a dozen? What are they going to be used for? Think about such an over-armed populace with the pervasive mental illnesses that have accompanied the pandemic disruptions. I’m not doom scribing here, but I am trying to make the point that if you are using market data prior to March of 2020, it may be giving you the wrong signals.
As an aside, natural disasters have done their share in upending our routines. There’s probably several years of plumbing work and home repair to be done in Texas and neighboring states as a result of the deep freeze. For some time, if you are a plumbing contractor in that region, you will be the new customer for a business jet. The supply chain will take quite a while to meet all that demand and restock the pipes and fittings. None of that, however, will solve the dated infrastructure damage and questionable governmental decisions that affected Texas most directly. The term “supply chain” was barely in the public consciousness, except for those of us like me with Industrial Engineering degrees, until the combination of Mother Nature and geopolitical forces taught us to wait 9 months for the new washer/dryer of our dreams. When you make your market projections, it’s no longer safe to assume that you can actually build on schedule things you are intending to sell.
One last point deserves some mention. I am at the stage of life where I am more interested in simplifying than accumulating. It’s fascinating watching my children and grandchildren on the opposite pole. Did you know that infants now have easy-to-wrap Velcro-lined swaddling? I look back at the decades of various hobbies I have thoroughly enjoyed and later discarded, and I still have too many things I wish I had never bought. Interests change, friends get you into new pastimes, and, most important, your own children often redirect your interests. As you get older, your maturing physical abilities and your luck of the draw on diseases and injuries can certainly alter your activities. There are great customer opportunities as we baby boomers advance through life, so don’t count us out in your product planning and revenue forecasting. Please just give us the senior discount!