How to Get the SaaS Startup Market Size Right
I have read a lot of pitch decks in my life, especially recently while helping many startups in Sydney. I noticed that one chapter most startups fail in their pitch deck is actually one of the most important in the eyes of investors: our target market size. Now look, I’m not trying to portray myself as someone who always gets it right. When it comes to my own startups’ market size, I also make mistakes and try to look like a superhero. But the fact is that defining the market size properly is crucial for our scale-up focus.
How to Identify Our Market
Our SaaS market is not the industry we are targeting, but the entities in that industry who can become potential clients. There is a critical difference between the two. I will give a simple but unrealistic example: if my product is a productivity tool for Sydney startups’ chief marketing officers (CMOs), my market is not the overall Sydney Startups group or even the Sydney Startups CMOs. Instead, it is the group of CMOs in Sydney startups that actually use productivity tools. Any CMOs that, in principle, do not use productivity tools are not part of my market.
What is the “Market Size”?
Once you identify your market, you can then try to identify your market size. The market size is not the total budget of that market but the amount of money spent by your market on products and services similar to what you offer—the disruptive part of that market. Is your head spinning? Let me return to my example and give more examples below. For my CMO productivity tool, the market size is the average amount of money spent by CMOs on a productivity tool, multiplied by the number of Sydney Startups CMOs that use productivity tools.
That is why it requires massive research, and a lot of work understanding your market. Understanding your market is hard work!
Confused? Here are some other examples:
Example 1 -An AI-powered commercial coffee shop coffee grinding machine.
Market: Coffee shops that grind coffee.
Market size: The total amount of money spent by coffee shops on coffee grinding machines, multiplied by the number of coffee shops in my market. Market is not: The international coffee industry, and the market size is not the total revenue of coffee shops around the world.
Example 2 – A cloud-based inventory management system for independent bookstores.
Market: Independent bookstores that need inventory management.
Market size: The total amount of money spent by independent bookstores on inventory management systems, multiplied by the number of such bookstores in my market.
Market is not: The entire bookstore industry, and the market size is not the total revenue of bookstores globally.
Example 3 – A specialised project management app for freelance graphic designers.
Market: Freelance graphic designers who use project management tools.
Market size: The total amount of money spent by freelance graphic designers on project management apps, multiplied by the number of such designers who use these tools.
Market is not: The entire freelance industry, and the market size is not the total income of all freelance graphic designers.
Example 4 – An online scheduling platform for personal trainers.
Market: Personal trainers who use online scheduling platforms.
Market size: The total amount of money spent by personal trainers on online scheduling platforms, multiplied by the number of personal trainers who use these platforms.
Market is not: The entire fitness industry, and the market size is not the total revenue of all personal trainers.
Regards
Eran
