Market size is crucial. Most pitches get wrong.
“Our new product will disrupt a $47.9 billion dollar market growing at a CAGR of 7.3%.”
Listening to early-stage startup pitches, I’m constantly bombarded with bombastic claims like these. When I dig in, it inevitably turns out they’ve developed a niche product within a large industry, and their market opportunity is only $20 million.
Founders seem to think that big numbers will grab investors’ attention, but wild claims only lead to skepticism about the entire pitch. What matters is not the industry size but the opportunity for your particular product.
Smaller is often better, anyway, since smaller markets are easier to break into without having to invest millions on Super Bowl ads.
But whether the opportunity is big or small, what investors need is a realistic market analysis that explains the opportunity rather than breathless claims of huge markets that say nothing about the company’s prospects.
When I mentor startups, market sizing is usually the first thing we work on since the business plan has to be driven by market need, not product idea. Unfortunately, most TAM/SAM/SOM analyses that I see are a mess.
So here’s what you need to know about market sizing and how to provide the information investors are looking for in your pitch. Instead of trying to get us excited about the size of the market, impress us with your industry knowledge and show you fully understand the specific opportunity you’re attacking.
What are investors looking for?
After a short description of the problem and the solution you’ve developed, the next slide in the pitch should be the market size. It tells us who the customers are, how many there are, and how you plan to compete.
The overall goal of the pitch is to convince investors that buying equity in your business is a good investment that will pay off with a huge return. This will happen because the company will grow at exponential rates to reach $100M+ in revenues within a few years and be acquired, or stay on a trajectory towards $1B+ in revenues and do an IPO.