5: Market Analysis
Now, we're going to take a quick look at the market itself. These are the questions we want to ask:
- How big is the market; that is, how much money is spent on solutions like yours each year?
- How many customers are there in your target customer segment?
- How much money does each customer spend on average per year on solutions like yours?
A pretty short list of questions, I know. But you'll need to have at least a basic understanding of these figures if you are to make an informed decision about the opportunity.
Let's look at you find this information.
We are looking for macro-economic data. For most markets and industries, you can find data on this from sources like the US government's Bureau of Labor Statistics, the US Census Bureau, or the Small Business Administration.
Take a look at their sites. I know, it's a bit overwhelming. But remember, you're not doing econometric research for a PhD dissertation. You're just trying to get a general sense of the economic data.
You can also get a reasonable swag at the data from looking at sites like Quora or even just Google. Just be careful that you check the data is coming ultimately from a reliable source through those sites.
How does this data help us?
Suppose you want to build a customer scheduling solution for barber shops and hair salons. What data would you need to look for? Well, you might start by figuring how many of those businesses there are. The BLS site has that information, for every business, broken down by industry.
It turns out there are 86,000 hair salons in the US this year (I couldn't break out barbers, specifically).
If you were to combine this number with the information you learned from your problem interviews (for instance, when you asked, "how much did you spend on scheduling software last year?"), you would be able to extrapolate how much hair salon owners spend in total each year on software. Mix that in with your understanding of the competitive landscape, and you've started to get a picture of how much market share is available to you, and how hard you'll need to fight for it.
Let's pretend that we learned hair salon owners spend an average of $200 per year on software, or about $16 / month if it were a SaaS subscription model. If you could capture 10% of those 86,000 owners as your customers, you'd have 8,600 customers paying you $16/month in revenue. That's $137,000 MRR for your business.
Keep in mind that you'll spend money to acquire those customers, either through sales or marketing or both. Once you figure out your projected operating profit (see this article for help), you can decide: "Is this customer segment big enough"?
Maybe, though this customer segment is just your first vertical. Maybe you plan to expand into selling to other types of store owners who need to schedule appointments. You'd want to do separate research on each of those segments as well.
At the end of these research exercises, you should have a reasonably clear idea of the upper bound of the market opportunity is for your business idea. Kill it here, or push forward?
If you want to push forward, in the next step we will start building an experiment to test your value proposition with actual customers
Next: Landing page experiments.
I am here to help.
Don't feel ready to go it alone? Give me a call so I can help you.
Prefer email? That's fine. I am reachable at mcafee . sam at gmail . com