I was talking to an experienced entrepreneur the other day about how to determine the market size of your startup, and he blew my mind with a sneaky, but effective approach to determining your market size. So when there is no good source that can tell you exactly what the market size is for your product or service here is a sneaky approach that can provide great first hand data.
Let’s say you want to start a dog boarding business in your city. Here is what you could do to determine market size:
1. Call your Competitors as a Potential Customer – First, call the other dog boarders in the city and act as if you are an interested potential customer.
2. Ask For a Quote – Then ask for pricing information. You might ask the nightly rate, and whether they give discounts if you board over a certain number of days.
3. In Astonishment About the Great Price, Ask for Volume – When they tell you a price, no matter what the price is, react in astonishment and say something like, “WOW! That is great! At that price you must be boarding hundreds of pets each week! How many pets do you have on an average night?” Then just let them know you will call back later to book your pet.
4. Repeat – Now call your next competitor and do the same thing until you have contacted every boarder in your service area.
5. Analyze – With price and volume information in hand you can get an idea of the total market for your service, you can also determine which competitor has the most market share. Lastly, you can take the average sales for your competitors and assume you will have the average, and then determine whether that is enough to breakeven. If your overhead requires you to have 50% of the market to breakeven, you may want to reconsider whether the market is actually big enough for your business to make sense.
I am not a proponent of lying or cheating, but I also think accurate market data will make a world of difference in your startup, so if you are feeling sneaky, go for it!