How big can this be?

What do you answer when an investor asks you "How big can this be?" 👇

What they are really asking:

Is this market big enough to offer an interesting return on my investment? Does the startup have a credible roadmap/resources for reaching a sufficient part of the market and achieving sustainable growth, to deliver a good return on my investment?

Where you should look for the answer:

This question is all about the market opportunity. It requires you to have good analysis of the market, both top-down through secondary market research and bottom-up through primary research with potential customers. You need to understand how to segment the market to find an attractive segment to serve as your beachhead market, i.e. the first segment you will enter. Then you need to be able to paint the picture of how you can expand from this segment to reach and capture the overall market opportunity over the next few years (maybe 3 to 5 year timeframe, depending on the sector you are operating in). For example, you may show that your beachhead market is £/$/€ 50 million if you start in a single country with a clearly defined customer profile, while over time you plan to access a £/$/€ 1 billion market by expanding to adjacent segments and across countries.

How to make your answer compelling:

There are several critical things to bear in mind as you discuss market potential:

Know your numbers well: Your first investors will hopefully be “smart money” bringing expertise, experience and connections that will be invaluable for your business – and they may well already have experience in the sector, so you really need to be able to discuss the numbers with confidence.

Ensure you have credible sources: This follows on from the previous point and is critical. National statistics and research reports from well established organisations (consultancies, industry bodies, research companies, academic institutions, etc.) will bolster your arguments, whereas random internet sources or a survey of a handful of customers will not.

Bring in the voice of the customer: However, if you do have primary research and/or a prototype you are testing with customers, show some direct quotes from these customers saying that they (a) find the product valuable, and (b) are willing to pay for it – the voice of the customer is powerful.

Be clear about your assumptions: All market analysis requires assumptions. Be upfront about the ones you have made and why you have made them. Don’t immediately back down if an investor questions these – you may well have a deeper understanding of the market than they do – but be open to discussing the assumptions and gathering additional information to test them.

If you need help with your pitch preparation, feel free to book a FREE chat with our team.