In this excellent short video, Dr. Seven Gedeon, PhD, MBA at Ryerson University’s Ted Rogers School of Management addresses a common problem in business plans – what he calls “big useless numbers”:
… People want to understand your go-to-market strategy. What they don’t want to see – which I see students make this mistake all the time – are big useless numbers: “Oh, the market is a bazillion gazillion dollars, and all we need is one percent of it!”
There are four problems with basing your business plan around market share in this way:
- Most companies are lucky if they get even one percent market share, no matter how big the market is.
- Market share doesn’t tell your investors what they want to know. They’re less interested in the market share you have to capture and more interested in how you’re going to capture it.
- Market share doesn’t tell you what you need to know, either. Market share is a goal. Like your investors, you need to know how to achieve that goal.
- Your product or service may not appeal to everyone in your target market. It may only appeal to a niche market or to a smaller market than you think.
Gedeon recommends working with your addressable market size, instead.
So it’s not so much that the health care industry is a trillion dollar industry. It’s more important to say that my product, the number of people that are capable of buying my product at my price point may only be 200 million dollars, but that’s a real 200 million dollars. I’m not nearly as interested in a hundred fifty gazillion dollar market because that tells me nothing about how big YOUR market really is.
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