Industry Analysis for Startups
Post on 19-Oct-2014
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Managing Technological InnovationIEOR 4998, Tuesdays 1:10PM - 3:40PM 1137 Seeley W. Mudd Building
Today
Readings
Industry analysis
Market sizing: top-down & bottom-up
If a thing is not worth doing, it’s not worth doing well. !- Charlie Munger
Readings
Describing the Habits of MindManaging OverconfidenceHow to Detect a Management Fad--and Distinguish It from a ClassicWidgets Make a Big Splash on the NetRead any three reports at IBISWorld Market Research Reports
Describing the habits of mind
What does good thinking have to do with market sizing?Why do smart people attack tiny markets?Why do people spend their lives trying to squeeze blood out of turnips?
Managing Overconfidence
What causes overconfidence? Where have you seen this happen?When is overconfidence useful? When is realism useful?Weather forecasters are good at their jobs?!
How to Detect a Management Fad
What do management fads have to do with market sizing?
Simple, intuitive, clearcutConfidently promises big resultsBenefits for every industryStep-down capability (implementation by part)Cocktail-party readyNovel, not radical. Repackage older ideas in fresh formGuru-certified with a few star examplesFun, upbeat, memorable
How to Detect a Management Fad an Industry
Industry analysis
Technical requirements Industry economics Market structure
• Competitors • Market positioning • Products • Customer bases • Industry trends • Industry size and growth
Collect solid info on:
Industry analysis
Competitive analysisPorter’s Five Forces
Industry analysis
Market positioningTwo by Two Grid
Industry analysis
Product comparisonFeature grid
Industry analysis
Product comparisonFeature grid
Industry analysis
Product comparisonPricing segmentation
Industry analysishttp://www.computerhistory.org/atchm/early-apple-business-documents/
What is the market? How big is it?
What can you capture?
Market sizingBut for now...
The revenue available from all actual and potential buyers or users (customers) of your product.
What is “the market”?
Market sizing
Markets are defined by customer need
What do Netflix’s customers need?
Market sizing
Netflix
Market sizing
What need? Which customers?Key questions
Need MarketA movie to watch (1996) Home video rentalsA movie to watch (2013) Home video providersA movie to stream Home video streamingSomething to do Consumer media
Opportunity triangulation
Reach
Bottom-up
Top-down
Market opportunity
Market sizinghttp://iterativepath.wordpress.com/2013/02/12/sure-the-market-seems-big-but-what-can-you-address/
Is the market worth your time?
Market sizing
Top-down market sizing
How much revenue does your market generate?
$$$
$$
$
$$$
$$
$
Key questions
Total addressable market
How big is the pie?TAMServed available marketHow big is my slice?SAMTarget marketHow much can I eat?TM
Top-down market sizing
$$$
$$
$
Rules of thumb
Top-down market sizing
x% of the market/segment you could get
100% of the segment you could sell to
100% of the market for type of product you sellTAM
SAMTM
Example
US taxi services $5.3b SAM
US taxi & limousine services $9.7b TAM
Uber’s share (2%) $106mLargest company in industry has ~2%
TM
Uber
Source: IBIS World
Top-down market sizing
Example$57.2b
$31.5b
$4.5b Diamond engagement
Source: US Census Bureau, Diamond Information Center, J. Walter Thompson
Engagement rings
TAMUS jewelry
SAM
TM
Diamond jewelry
Top-down market sizing
ExampleMint
TAM?
SAM?
TM?
http://www.slideshare.net/hnshah/mintcom-prelaunch-pitch-deck
Top-down market sizing
ExampleAirBnB
http://www.businessinsider.com/airbnb-a-13-billion-dollar-startups-first-ever-pitch-deck-2011-9#-5
Top-down market sizing
TAM?
SAM?
TM?
ExampleSquare
http://www.businessinsider.com/airbnb-a-13-billion-dollar-startups-first-ever-pitch-deck-2011-9#-5
Top-down market sizing
TAM?
SAM?
TM?
Data sources
http://www.businessinsider.com/airbnb-a-13-billion-dollar-startups-first-ever-pitch-deck-2011-9#-5
Top-down market sizing
•CLIO!!! •Economic census •IBIS World •Standard & Poor’s •Industry trade associations •ProQuest •Federal Reserve •SBA.gov •Pew Research •FedStats
Start with research
Focus on big picture
Is the market “worth” your time?
Market sizing
Top-down market sizing
Strengths? Weaknesses?
Uses? Abuses?
$$$
$$
$
Market sizing
Bottom-up market sizing
How much are potential customers spending?
$$$
$$
$
Key questions
Bottom-up market sizing
Who? What segments? How many? How often? How much?
Focus on key drivers
ExampleCampus coffee shop
Bottom-up market sizing
Passers-by per day: Conversion rate: Customers per day: Average ticket size: Annual revenue:
5,000
5%
250
$5.00
$450,000
Key questions
Bottom-up market sizing
How else could we have defined the market?
How else could we have calculated the market?
Are we making realistic assumptions?
Data sources
Bottom-up market sizing
•Customers •Surveys •Consumer research •SEC Filings •Competitive research •Partner research •Industry research •Google trends
Start with customers
Focus on behavior
Is the problem “worth” solving?
Market sizing
Bottom-up market sizing
Strengths? Weaknesses?
Uses? Abuses?
Market sizing
Reach
What can you realistically hope to achieve as a NY-based startup with limited resources?
Market opportunity
Recap
Bottom-up What’s the target customer’s spend?
Top-down What’s the total industry revenue?
Reach What can we actually do?
Market sizing
Recap
Essential questions
Market sizing
What market are we in? What problem are we solving?
One more
Market sizinghttp://www.computerhistory.org/atchm/early-apple-business-documents/
Apple Macintosh
Next week’s readings
Disciplined Entrepreneurship, ch. 15-19Startup Killer: Cost of Customer Acquisition: http://www.forentrepreneurs.com/startup-killer/Customer Acquisition and Monetization: http://www.slideshare.net/DavidSkok/customer-acquisition-monetization-keys-to-your-business-planQuestions about homeworks?
Next week’s speaker
Steven Cohn, CEO of ProdthinkReview prodthink.comSign up and try it out (it’s free)
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