In my last post, I shared a market assessment I used in my last role evaluating new markets for an enterprise software company. This approach served us very well. That said, I have also seen less successful approaches to market assessments and, in this blog, I would like to share one of those.
Top Down Frameworks
Many companies seem to take a very top down approach to market opportunity — and then stop there. They evaluate metrics such as:
- The number of potential buyers there are in the market,
- The percent of the market the company believes they can capture, and
- The average deal size (i.e. revenue per sale that they expect to see).
While all of these are important metrics to evaluate, often companies derive this information from a very academic exercise without doing strong analysis around market demand, the strategic fit of the opportunity, or what it would truly take (cost) to be successful in the market. At the same time, they are often full of assumptions that are not well communicated or validated, and can therefore give a false sense of comfort around the merit of the opportunity.
These evaluations can be useful for a rule of thumb validation of market size, but the more you rest on them, the more you tend to stack assumptions upon assumptions and you can quickly lose sight of reality. Eventually, you need to validate those nasty assumptions and you have to dig a little deeper and this is where more comprehensive frameworks like the Business Model Canvas or the approach I outlined in my earlier post can prove useful.
As a note, when I say “more comprehensive,” I am primarily referring to the number of dimension looked at and not necessarily the depth of analysis. In respect to the depth of analysis, I am a strong believer in starting with a high-level assessment that gives you ballpark directionality and then digging deeper if and when it makes sense.
If you have seen or used a framework like this, I would love to hear your thoughts. Please feel free to post comments and share your own experiences.
In my next blog, I hope to share a bottoms up approach to assessing market demand (this one I like).