A big part of my summer experience at Asan was sitting in front of an Excel, trying to think about the company’s numbers for the near future. In order to expand internationally and keep serving its Indian market, Asan is seeking to raise funds in order to support the big push this will require. To prepare for this, the founder and I spent hours and hours discussing major things regarding the direction of the company. As you try to put a value to your startup, a million questions can come up. What’s the size of the market I have the possibility to reach? At what cost? How will my company grow in order to serve it? Etc, etc, etc. The answer to all of these questions (and many more!) have to ultimately become a number, a number that shows up in the company’s financials and provides an insight into the value of your endeavor.
This blog post will cover a few of the questions that we spent A LOT of time talking through and that eventually led to more and more discussions that will inform the strategy Asan will follow going forward. Due to the nature of the project, the post will only include general topics, but hopefully it can help the reader define a starting point and key things to think about when doing something similar.
1. How on earth do I get to a “believable market size”?
a. Method: All market sizing exercises can be approached from two angles: a) top down i.e. start from the big things and start piecing out what is relevant to your business model and b) bottom up i.e. what is the last relevant unit of analysis and how does it grow to eventually become a sizable market. Once you have this approach, you get to your TAM- Total addressable market. But in reality, your business idea will probably not reach the whole pie, there is a portion of it that your product/service can tap into- that is your SAM (Serviceable Addressable Market). Nevertheless, you are probably not the only one serving this market therefore you need to have an estimated SOM (Serviceable Obtainable Market/Share of market), the portion of it you think you can own that your competitors won’t.
b. Assumptions: Triple check your assumptions, benchmark, interview, validate. Your assumptions end up being a big part of your market size definition. These may include: number of purchases per customer, average order size, % adoption of a specific product, etc.
c. Cross checking: After you’ve done all your numbers and you get to your desired market size, it’s time to validate with reality. In order to do this, there are a few things you can do: a) take a look at public data from competitors, what’s their annual revenue? Does it make sense with your results? b) look for external reports on your industry, are their projections to where the market is going aligned with yours?
