In our last post we took up part 2 of the executive summary; explaining the problem that needs to be solved. We talked about trying to avoid the mistake of finding a problem for the solution, as opposed to solving an existing problem. Today, I want to tackle a huge issue that many plans tend to leave incomplete:
3. Do you have a keen understanding of the market you intend to compete in? This sounds easier than it really is. Most entrepreneurs think that sizing the market and providing some competitive intelligence is sufficient. However, accurately understanding the market is a combination of finding the quantitative (the addressable market opportunity) and the qualitative (a true sense of your place in the addressable market).
To get to the quantitative you need to take a hard look at the piece of the overall market that applies to your solution. This can be very difficult and sometimes frustrating because information tends to be segmented and sometimes even double counted. For example, we have been sizing the market for software solutions in the event management space. While the overall market size is clearly huge and documented at an estimated $300-500 Billion for all events, meetings, etc., it only tells part of the story. Such a large percentage of those dollars are spent on travel related services and when you crunch all the numbers and come to understand that the software is aimed at the $3-5 Billion spent on event management solutions, you have a better idea of the potential size and scale of the business. Next, you need to appreciate current penetration rates in that addressable market. If current penetration is 80%, then your solution better be aimed at taking away market share. If it is only 20%, the market can be immature and leave plenty of land grab opportunity. Additionally, an understanding of your target customer is key here. If you are looking at middle market enterprises versus large companies, you need to further break down the rates.
On the qualitative side, you need to look at how the problem that you just defined is being solved today. Current solutions being inferior to yours is not the point. Clearly defining how your solution can change the current “value chain” and redefine the market is absolutely important. This view of the market can be really impactful and when combined with an understanding of the addressable opportunity, it helps the investor envision how you are going to expand, what eventual size your business can grow to and how you can all eventually reach an exit.
Next Post: 4. Who is the competition, both obvious and not so obvious?