The importance of evaluating market size for a business idea to ensure it can generate significant returns for founders and attract venture capital investors.
The importance of evaluating market size for a business idea to ensure it can generate significant returns for founders and attract venture capital investors. It differentiates between billion-dollar ideas requiring venture capital and lifestyle businesses that can be self-funded.
You don’t want to come up with an idea that could be small operating in a small market because that is also going to determine the potential outcome, the potential returns to you as the founder of the idea, and then also the potential returns to the investors that may be backing you on the specific project that you want to build on. Remember that also for investors, especially if you’re thinking about doing a hypergrowth because when you come up with an idea, you either have the idea that is a billion-dollar idea or the idea that is a lifestyle business idea. If it’s a billion-dollar business, you most likely are going to need venture capital financing, sophisticated investors that come in and invest in the business. If it’s a lifestyle idea, you can do it on your own. You don’t need that, and it’s fine whatever the market is. But, it’s also important and always important to make sure
that the market is big enough so that you know whatever hard work, sweat, tears that you put into it are actually going to justify all of the journeys that you’re going to through. The next thing is the competition. When it comes to the competition, what you want to know is who is already operating in the market? Do you have direct competitors? Do you have indirect competitors? Who has done this before? Remember that you’re never going to be the first one to do this. Just like people like Mark Cuban say, “There are at least 100 other people that have thought about that same idea that you’re having.” So, what you want to know is, what did they do? Did anyone succeed? If they succeed, how great or how big of a business have they been able to build? Have they raised any money? That’s also going to tell you whether it makes sense for you to go at it or not or whether there’s nothing you can
do because they’re going to crush you, given the money and the resources that they may have. The next part of evaluating if a business idea has legs or not is really doing some analysis. For part of the analysis, what you want to do is, you want to get some qualitative data and quantitative data. Quantitative data, you can probably get it from surveys, from doing a lot of surveys like from people and trying to get their responses and see what kind of data, what kind of information you’re receiving from that. The other thing is the qualitative data or qualitative analysis that you could do. Basically, there, what you are doing is getting on the phone with people, meeting people in person, and giving them certain types of questions that they would answer, so that is going to lead you to believe what’s the direction and how is the market and your potential target audience, how they are
thinking about that idea that you got. The last part is, you want to conduct a financial analysis. As part of the financial analysis, what you want to know is, how much is that going to cost you? Is it going to be super expensive? Are you going to be able to afford to bootstrap it and finance it your own way? Or, are you going to need investors, what kinds of investors are going to need to come? How much money is it going to require to validate? But at the end of the day, what you want to do, and now we live in a world where you can do this, is that you want to make sure that you can validate that business idea as fast as possible. Don’t try to put something beautiful out there. Just put something that is functional. You can start receiving some feedback, some data of those people you are looking to target.