The Entrepreneur’s Guide To Estimating Market Size For It’s Startup

Note: Before I begin, I would like to clarify the difference between market potential and revenue estimate. I have often seen entrepreneurs use the two terms interchangeably.

Market Potential

Market Potential is about estimating the size of the overall market opportunity. It is a sum total of the potential revenues of all players who are addressing that opportunity, if all the potential customers were to buy. I.e. If you were selling ‘affordable’ golf kits for first-time golfers, then you could estimate market potential as follows (all numbers are indicative for illustration and do not represent actual market) :

  • There are about 20 millon golfers across the top 10 golfing markets in the world. Additionally, about 100,000 new people take up golf every year across the top 10 golfing markets in the world.
  • About 25% of these find the cost of golf kits expensive. If you take this as the addressable market at USD 400 a kit for 5 million buyers, we are addressing a USD 2 bn market opportunity, even if you look at only those who find the price of current golf kits too high.
  • Additionally, the ‘high-quality at lower price’ value proposition is likely to attract regular and casual golfers too i.e. 20 million golfers. This opens up a USD 8 billion market among existing golfers. And that’s a market growing at 15% pa.
  • However, given that most people who want to play golf do not take it up because the current kits cost upwards of USD 1500, we believe that a USD 400 kit will explode the market and we would be able to encourage 10 times the number of people to start playing golf. I.e. by redefining the price-point, we can create an additional market potential worth over USD 500 mn.
  • i.e. with an ‘affordable and high-quality golf kit’, we will be playing into a market that’s roughly USD 8 – 10 billion in the top 10 golfing markets of the world.

Revenue Estimate

Revenue estimate is about how much of this market potential do you plan to target. Here’s how you could think about it:

  • We intend to launch this product in Japan, the world’s largest and fastest-growing golfing market. There are 3 million active golfers in Japan and over 50,000 new golfers are added every year.
  • We believe that with an affordable golf kit, we could double the size of the golf market in Japan.
  • In year one, we intend to attract 5000 customers, going to 20,000 customers in year 2 and selling to 100,000 new and existing golfers in year 3. These will be in the top 5 golfing markets in Japan. In year 4, we intend to take the concept to US and Europe, with a target to sell over 500,000 kits in year 4, across all markets we are present in.
  • Thus, our revenue estimate (at current prices) is USD 2 mn in year 1, USD 8 mn in year 2, USD 40 mn in year 3 and USD 200mn in year 4. (In comparison, the leading golf kits brand is doing USD 2 bn in revenues currently)

Estimating the size of the market, and then predicting how much revenue the startup can achieve and at what growth rate is indeed a tricky exercise. But going wrong on this could either kill your company, or if in a rare case you have underestimated your revenues, you may end up raising more capital than necessary and thus diluting more equity at an early stage of the venture.

It is therefore very, very critical that entrepreneurs focus on working and reworking on the market size and revenue potential based on sound assumptions and with minute detailing.

Many startups make the mistake of taking broad brush reports from large consulting or research firms, and estimate the size of their market on the basis of those reports. Often we hear entrepreneurs mention “According to Gartner, healthcare is a $80Bn industry with a 23% growth rate”. Now, while this could be broadly true, for an investor, and even for the startup, these figures have little relevance. Here’s why…

In most market segments, the investors would be broadly aware of the scale potential. At a startup stage, investors will most likely invite a startup for a meeting only after they have assessed that the concept does address a large market. Hence, stating the obvious, especially in segments that are very obviously large does not add any value. E.g. For a startup in the education sector, highlighting in minute details the number of schools, number of students and growth rate in India is wasting precious time in the first meeting with investors. Assume that investors who are meeting a startup in the education space know the potential of the opportunities in the domain.

Investors don’t get any comfort from market estimated from industry research data. They want entrepreneurs to build up their estimates based on their insights and conviction – on how their concept will alter the dynamics of the market they wish to operate in.

How then do you estimate the market potential? Simply by being specific about your segment and making some assumptions on the specific segments and the revenues per customer/consumer. E.g. If your concept is about premium home tuition, instead of saying education in India is a $18 Bn market, it will be prudent to state “With over 250,000 students in the top 10 cities in schools with fees above INR 10,000 a month, at INR 2500 per student, the market potential is roughly over INR.500INR.600Cr per annum. At an all-India level, the same translates to a market potential of well over INR.1000 Cr.”

Some Points To Consider When Estimating Market Potential

  • Clearly define what problem you are solving… and for whom – this will give you a good idea of the number of customers with that problem in the geographies that you plan to be available in.
  • Estimate the practical reach e.g. while there may be a 100,000 people in your target audience spread across 50 cities, you may want to take the top 5 or top 10 cities and see how many people you have within your target audience. This of course gives you the total market potential, if 100% of potential customers were to buy.
  • Now, apply some filters i.e. ability to pay, ability to reach via media, etc. E.g. while there may be 60,000 potential customers in the top 10 cities you identified, and you may be planning to use a combination of media, if the total reach of these media vehicles is 50%, the total potential of the market is really 30,000 customers.

You could also apply some price filters to test the elasticity of the demand in comparison to price. I.e. work up alternate scenarios to reflect the increase / decrease in demand in case the price were to be moved up or down; and then evaluate which scenario makes a better business case. [Note: For different situations you may have very different parameters for a good business case. In some cases, rapidly acquiring customers, even if margins are lower, would be a key criteria (often relevant in categories; it is important to achieve scale to be relevant – e.g. e-commerce – lock in potential customers on whom profitability can be increased later)].

Now, if the product is of a repeat purchase nature, you would need to make some assumptions on the number of times the customers would buy the product / service in a year. In doing this, it is critical to map the reality or in case of new product categories, to do some qualitative and/or qualitative research to validate your assumptions on the number of repeat purchases within a year.

All the above will need to be worked and reworked at different levels of assumptions often to arrive at what seems like a practical market estimation.

Why entrepreneurs should watch MasterChef Australia

This article is not about cooking or opportunities in the F&B sector. Instead, it is about the importance of design, presentation quality, and visual appeal. And the impact it can have on your business, including your ability to attract employees, mentors/advisors, suppliers, and investors.

MasterChef Australia to me is an excellent reminder that producing a great product is not enough. Presenting it well enhances the appeal, and value, of the product manifold.

Likewise with startups, producing a great product or service is not enough. Even if the product or service addresses a strong consumer need, the adoption rates will be lower if the product is not designed well. In India recently, Indigo Airlines and Paper Boat (Aamras, Jal Jeera and juices) are great examples of how a brand can be built on design and aesthetics. It goes without saying that the product is very good. But the design, look & feel makes you pick it up from the shelf instantly.

But it is not just about making your product look beautiful. To really delight your customer, it is critically important that you design the overall experience around the product or service. Everything that you do can be presented well. Your company website, marketing material, signage in the office, power-point presentations (Oh God… how many times do we sit through ppts that are awfully designed), word documents, PDFs, etc. More often than not, we see excellent content get diluted in impact because of poor formatting of the word document or PDF.

Even excel sheets can be done beautifully. Yes, ‘beautifully’. With the startups that I advice/mentor, I insist that they spend some time, effort and energy to design their excel sheets. And it does make a huge difference. Just redoing the line spacing and alignments well makes documents much better than factory settings. Try formatting your excel sheets – indenting, making the rows slightly bigger than the content so that it looks well spaced out, coloring the different headers etc. – and see how pleasing it looks to read. It takes less than 30 seconds to move from a -10 to a +5 on an excel sheet look & feel by just doing indenting and spacing. Try it.

If you invest time in making your product and everything that you put out to the world – website, documents, excel sheets and presentations – look beautiful, the overall impact on your business can be surprisingly significant. Not only will your consumer/customer perceive higher value in your product, a company that has a culture of design aesthetics also finds it easier to attract employees, vendors, advisors/mentors, and investors.

Why product startups need to pay serious attention to brand name and logo design

A logo is one of the most visible faces of your brand. In other words, the logo is most likely to be your most frequent and most visible brand representative.

Ideally, a logo should clearly state the following:

  • Who you are
  • What you do

How the logo is designed and how well the messaging is in the tag line will create the first impressions about the brand’s personality.

Right from the time you exchange business cards, or when you release an ad – in print, TV or online, or when someoen sees your logo on the app store or when someone visits your site, it is often the name of the company, represented by the logo + tag line  that will be noticed for the first time, and that is what starts creating the story about your brand in the users mind. While a badly designed logo may not necessarily send the wrong impression, a well-designed logo will most certainly create a favorable impression.

If your logo and UI is not good, and therefore if the assumptions about you start off on an incorrect note, it is usually very, very hard (and certainly very expensive) to change that perception.

For startups, it is critical that the logo and the tag line be designed well. This is because when you are new, most people would not know what you do and who you are. Hence, when they interact with your brand for the first time, it is usually the logo unit that will set the first impressions about what you do.

Similarly, with tag lines. Tag lines should be used to communicate clearly what you do. E.g. “Online fashion store” or “Analytics for SMEs”.

Often entrepreneurs make the mistake of using a tag line which is nothing but a smart set of words with no reference to what you do. This is of little use in brand management. E.g. for a healthcare brand, if the tagline said ‘We care for you”, it really means nothing to anyone and does not establish what the brand does. Instead, if the tagline were to be specific saying “Your neighborhood childcare clinic’, there is specificity in communicating what the promise is.

It will be ideal if your tag line can also communicate your value proposition. E.g. “Affordable cardiac care.”

Likewise for brand names too. Decide on the name for your startup very, very thoughtfully. Give it as much importance as a parent would give to naming a child. YOU will have to live with that name for life… even if the startup fails and shuts down.

Ideally, a name should give your intended users/customers a clear idea of what you do. e.g. Make My Trip or It should be easy to pronounce for all people across geographies and it should, as best as you can research, mean the right thing in all languages.


Ideally, it should be short, and should sound nice.

More importantly, the domain should be available. If not, trying to create a ‘compromise url’ (e.g. is not very useful.

The sound should be relevant to your audience. E.g. if it is an enterprise solution, it should sound very professional and solid. If it is a fun thing for teenagers, it should sound fun.

Likewise, the logo design for that name should also reflect the personality that is relevant for the intended audience.

All this is expecially more relevant for product companies, as unlike services companies who often have the opportunity to sit in front of the customer to help create the first-impressions and communicate the value proposition, product companies depend only on the customer’s self-analysis of who you are based on what your touch points look like. And logo and brand name are often the first touch points. After all, marketing is the art of managing stakeholder perceptions.


Ship Version 1.0 soon!!!!

Finishing the design and development of a product or a service is often challenging for entrepreneurs. That’s because they are so passionate about the product or service that they want to perfect it! Every feature that they think of, appears really really important to them and they want to incorporate it in the on-going development phase. This is even more pronounced among entrepreneurs in India whose product and service design and development never seems to end.

However, product and service designers (founders) need to discipline themselves on working on a roadmap. I.e. A plan for features to be added to a product and launched in a planned and phased manner.

The way to do it is to list down all the features that may be possible in the product. Then categorize them under two heads

(a) Must-have and

(b) Nice-to-have features

(Be careful, don’t go by your own judgment else everything will appear to be a must-have feature… check with others, particularly users/customers).

Once this is done, identify what needs to go into version 1.0, then what will be added to version 1.1, and then what will be added to version 1.2 and so on… When there is a major change from the original version, call it version 2.0.

But, have a road map. And stick to it.

And defining a road map does not mean that you cannot adjust /alter it and add/delete some features. But once a plan is defined and communicated to the team, if anything new is to be added, you should have the discipline of debating and deliberating it and taking a very well thought decision to add something in, and only if it MUST be added.

It is good to have an external review committee (may be a few other entrepreneur friends, a few friends who are potential customers, etc.) to discuss these things with… and perhaps share and test the product periodically.

If you do not have the discipline of a roadmap, you will constantly lumber in development stage. It will appear to be progress, and it will be, there will be no sense of achievement, which comes from SHIPPING A PRODUCT OR LAUNCHING A SERVICE. (A wise senior from TiE describes this as ‘MAFA’ – Mistaking Activity For Achievement’).

Also, if you launch and test with a base set of features, you get a chance to test various things on a smaller scale. Apart from the product or service, you can test the value proposition; communication; brand personality and some other assumptions underlying your business plan (e.g. how many visits does it take to close a sale), etc.

Ask other entrepreneurs who have launched a product. The joy of shipping something is comparable perhaps only to (ok, may be a shade lower than) bringing a baby into the world. It changes the mood in the team. It automatically brings a different level of maturity to the startup. It brings in a sense of responsibility and pride. It multiplies the passion and commitment. Shipping a product or launching a service fundamentally changes the organization. It is a joy that you cannot imagine, until you experience it. And that is very valuable in building the foundation of a strong, scalable company.

(Well, some people have asked me “so, what if we ship and it bombs, it could kill the enthusiasm in the team”. Well, surely it will. But better to hear bad news earlier than later. Also, not for one moment am I suggesting you ship an inferior-quality or incomplete product or a product with fewer features than the consumer/user needs. But don’t over engineer the product, which most founders tend to do.)

So, go ahead. Define your product roadmap. And ship that version 1.0 as fast as you can.

If you have stories of your product or service launch experience, we would love to hear from you. Any learnings and insights you have from your experiences will be valuable for other budding entrepreneurs.

If you have stories of your product or service launch experience, we would love to hear from you. Any learnings and insights you have from your experiences will be valuable for other budding entrepreneurs.