Planning, Startups, Stories


Tim Berry on business planning, starting and growing your business, and having a life in the meantime.

Why Market Numbers Are Like Patents: Good, But Not To Be Believed 0

I was enjoying Chris Dixon’s Size markets using narratives, not numbers when I realized his point is a lot like a point I like to make about patents:

good to have, but not to believe in

On sizing new markets, with startups looking for investors, Chris says:

The only way to understand and predict large new markets is through narratives. Some popular current narratives include: people are spending more and more time online and somehow brand advertisers will find a way to effectively influence them; social link sharing is becoming an increasingly significant source of website traffic and somehow will be monetized; mobile devices are becoming powerful enough to replace laptops for most tasks and will unleash a flood of new applications and business models.

That makes good sense to me. He adds:

For early-stage companies, you should never rely on quantitative analysis to estimate market size. Venture-style startups are bets on broad, secular trends. Good VCs understand this. Bad VCs don’t.

I’m with Chris on this (although I like to call them stories, instead of narratives; just a matter of style). Markets are future developments that haven’t happened yet, and stories picture the developments better than data.

But even as I write that I realize that as a frequent reader of business plans, for judging and investment purpose, I also like the numbers. I want to see how many buyers now, or how many people who meet those criteria, how much money now, a certain amount of numbers to give me a sense of size.

Which takes me back to the patents reference: I realize the best is having them but not believing them. I want entrepreneurs to realize their numbers are more background than data. Show me what it could be, but don’t think it proves anything. And with patents, well, here’s what I wrote about that last March, in  10 requests from your business plan reader:

Show me your patents if you have them but if you do, show me something about how defensible they are (if at all) and make sure your projections include legal expenses to defend them.

Does that make sense? Is there a parallel there? Both are good to have, but not to believe in? I wonder how much of business planning, entrepreneurship, and startups fit into that same basic category.

(image: Sergej Khakimullin/Shutterstock)