Where did you get the data to drive your assumptions of market size or market share?![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2017\/07\/Plan-a-b-c-300x200.jpg\")
\u00a0 Most entrepreneurs quote a resource for market size but fail to then take the next step to eliminate all parts of that market unreachable by the company or product.\u00a0 For example, if you supply software to the chip design industry, do you segment your market into digital and analog users, into high end or inexpensive buyers, and into which languages or platforms users demand or request?<\/p>\n
TAM, SAM, SOM? What is your market size?<\/strong><\/p>\n You could be fooling yourself with market data. \u00a0Are you trying to estimate TAM (total available market?) \u00a0That\u2019s likely to be completely unreachable for you with almost any amount of resources. And yet, some plan their futures upon a percentage slice of this, rather than\u2026<\/p>\n SAM (Serviceable available market) which is is closer \u2013 the market you might be able to reach in your future and service effectively. \u00a0And finally, there is the SOM \u2013 serviceable obtainable market, the one most likely to fit your planned resources and capabilities.<\/p>\n My story of creating a number for market size<\/strong><\/p>\n [Email readers, continue here…]<\/em><\/span>\u00a0 \u00a0It\u2019s easy to find someone to quote a size of market estimate.\u00a0 I became something of my industry\u2019s source for such a number when I carefully catalogued the 160 players both domestic and international, estimated revenues from knowing the number of employees or installations for each (which were often public knowledge or stated by those companies.)\u00a0 I then created a gross domestic and gross international annual market size estimate for my industry\u2019s products.<\/p>\n No-one challenged this number, and it became an unattributed source of the metric for market size for years.\u00a0 Perhaps there was no other way to project the size of that market.\u00a0 But many decisions were made within my company walls, and surely by competitors, based upon those numbers.<\/p>\n The \u201cGloves in China\u201d syndrome<\/strong><\/p>\n Create an \u201cassumption section\u201d of your plan or spreadsheet<\/strong><\/p>\n And these are just two of the many assumptions that underlie any business plan.\u00a0 At the very least, all assumptions should be driven by numbers separately listed in an \u201cassumptions section\u201d of the planning spreadsheet, allowing the reader to manipulate those assumptions to see the various outcomes, and challenge the numbers for the benefit of all who have to defend them.<\/p>\n","protected":false},"excerpt":{"rendered":" The biggest error in planning may not be spreadsheet calculation error.\u00a0 Or cost estimation.\u00a0 It is most often missed assumptions about the market, the competition, the speed of adoption, or other critical metrics you\u2019ve researched, or selected, or even just … Continue reading ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2020\/10\/Gloves.jpg\")
Then there is the famous entrepreneur\u2019s statement about market share: \u201cAll I need to sell is one percent of the total available market to make this a rampant success.\u201d\u00a0 We call that the \u201cgloves in China\u201d syndrome when analyzing assumptions within business plans. Without a trace of how the business will get that one percent, the entrepreneur confidently shows that this is all it takes to make us all rich.\u00a0 Even if the total number of annual units in a market is known, the leap to a percent of that market without a specific plan is often a fatal one.<\/p>\n