Market Analysis or Proof of Market?

Do you need to prove your market to outsiders? Big numbers don’t work without a believable story. I know firsthand that angel investors want to understand the market story so they can judge for themselves the size of the market. Numbers alone are not enough. 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, please refer back to Lead with Stories, Stories as Strategy and Planning for Angel Investment.

In previous sections of this chapter I used several examples of market definitions that depend on educated guesses. 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.

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.

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