In my last post I made the point that by better understanding the marketplace for your ‘great idea’, you will be able to qualify and quantify the future opportunity for your business. So how exactly do you do this?
First, in order to blossom and thrive, it is important that your idea be relevant for a lot of people and/or companies. In the consumer (B2C) high tech marketplace, this usually means millions or billions of people (think mobile phones [Apple], advertising [Google], social networks [Facebook]). Less than this size and the impact isn’t significant enough to generate a critical mass of ‘buzz’ and excitement. In the business (B2B) high tech marketplace, this usually means hundreds of millions or billions of dollars in revenue (think computer hardware/software [Intel/Microsoft], enterprise applications [SAP/Oracle], and middleware/services [IBM]).
Now your specific market is probably currently in its infancy (since you are a startup) so it is unlikely that you will have high levels of consumer and/or business interest at the beginning. Instead, you need to pull out your crystal ball and forecast growth rates and interest over the next 3-5 years based on trends and drivers. For this task, the key information analysts like Gartner, IDC, Forrester, Frost & Sullivan, and others can be very valuable.
Ok, so let’s say that you now know that your business is entering an explosive marketplace with all the right numbers, trends, and drivers in place, is this good enough? Actually, no. There is significantly more work to do. What you have determined is the Total Available Market (TAM), however, what you need to know is how much of this market is actually going to be interested in your technology (SAM or Served Available Market) and how much of this market you can actually access.
So let’s look at this a bit more closely. Let’s consider that you are developing an application for serving location-based ads on mobile phones. The TAM will be the world of all mobile phones (huge, billions), while the SAM will be all mobile phones with GPS capability (primarily smart phones, so hundreds of millions). Now though, let’s look at the competition and your channel to market. In the US the competitors are quite large, they include Google and Yahoo and Microsoft (and soon Apple), while at the same time you will need significant relationships with advertisers.
So what could look like a multi-billion dollar opportunity via the TAM, actually may turn out to be a very modest or niche offering because of the power of competitors and the company’s inability to gain mindshare with advertisers. So here we see it is not just about the business proposition and the technology, it is also important to consider the ecosystem, the size and technology-savvy of competitors, and the company’s relationships.
Ok, well that’s it for today. Next I will take a look at the execution or go-to-market plan.
In the meantime, have a great day!