Do you need to prove a market to investors or bank loan managers? More than ever, good market analysis lives on stories, not numbers. The difference between 10 and 20 million people, as prospects, is minimal. A story of real market need, a solution that a lot of people want, is way better. If you were an investor, which of these cases would pique your interest better:
Of course this is a matter of opinion. But what I’ve seen, among angel investors looking at possible investments, is that the story works better than numbers. The investors themselves imagine the size of the market, for themselves, when the story is done right.
And I don’t mean you should ignore the numbers; but tell the story first. And never leave a market analysis with just the numbers. Granularity and credibility are very important. Investors would much rather hear about a market made up of small business owners who value social media but don’t want to do it themselves than a market of 4.5 million small businesses. For more on this, you might like other posts here including How Startups Estimate Market Size, Stories as Strategy and Will Your Startup Get Angel Investment.
Informed angel investors and judges at business plan contests accept educated guesses easily, but only if the underlying assumptions are laid out openly. The story behind them drives the credibility.
Fundamentally, at the core, what proves a market is that people will need or want the business offering. It takes enough people to make the market interesting. And it can be a need or want, not necessarily just need. People need gasoline, food, and clothing; but they want status, prestige, self confidence, and image. Make that story believable.
Furthermore, no market numbers are ever exact. They are always guesses about the future and extrapolations of available information. So whether Have Presence determines its total potential market is one million or two, there is no practical difference between these alternative numbers. There is enough market to operate in, and the business will have to win customers one by one.
Numbers and research rarely if ever really validate a market for investors or banks. Sales validate the market. One of the best opportunities for real entrepreneurs, these days, is to put a product idea on Kickstarter.com or a similar site, to show that people will pay money for it when it’s available. This is essentially pre-sales, or commitments to buy, and it’s very convincing.
Other good validators are early sales, market tests, or letters or commitments from distributors and buyers.
Avoid surveys that collect random or anonymous opinions from people about what they say they would buy or what price they would pay. People behave very differently when answering survey questions than when they are actually spending their own money.