Market modelling: How big is your market?
If you are thinking about floating your company, answering an investor question or simply revising the business plan for the next financial year, one key requirement is to know your market size.
“How big is your market?” is a deceptively difficult question. If your company uses market size data from one of the trusted 3rd party brand names in your industry (like Gartner, IDC, or Forrester) you may think the job is done. Whilst it helps, it is not the whole answer because companies need to really understand the dynamics of their market. The target market name, the market size, growth rates, sales volumes, pricing and market share should be taken from a live model of the company’s target market, not simply a number pulled from a recent report.
The trusted 3rd party analysis is very useful and confidence inspiring, but will not divide up their forecasts to meet your exact geography or portfolio.
However, if you have your own market forecast model, you are able to ensure it covers:
- Your precise portfolio (e.g. license sales, maintenance, professional services, managed services, outsourcing, hardware etc)
- Your exact geographic coverage (a region, a country, a set of named countries)
- Your target customer segments or sectors
Once you have your own model, it means that each bit of information you have about your sales or competitor sales, generates further input data on volume, price, geography and other details like contract length, churn and more.
With time, you will become increasingly confident about your model and use it to support business decisions, answer “what if?” questions and tie market strategy together with sales, product and marketing plans.
If you do not yet have a market model, there are several ways to get one:
- Use your existing in-house market modelling skills
- Let us run a training workshop so that your in-house people can build one
- Ask us to build a model (and either transfer it to one of your team or ask us to maintain it for you)
Let me explain to you why failing to have a model can destroy company value:
The CEO stands up, welcomes the would-be buyers of the company, and says that his company is the European leader of the ABC market. The CEO introduces the head of Sales to talk about their market, their customers and competitors and sits down.
The Head of Sales puts up his first PowerPoint slide showing a graph of the DEF market, he talks about the market size and annual growth rates.
The potential buyers look at one another in a confused way and then at the company’s information memorandum in front of them. Then one of the would-be buyers interrupts, “excuse me, your CEO and company information says you are in the ABC market but you are showing me a chart of the DEF market. Is that right?”
“Yes”, says the Head of Sales, “it is very difficult to get a forecast for our ABC market, but the adjacent DEF market gives an indication of scale and growth rates.”
“But just to be clear,” says the investor, “your customers are in the ABC market?”
“Yes,” comes the firm reply.
“And the competitors are also in the ABC market?”
“Ye-es,” says the Head of Sales looking at his CEO.
“And the market share, is that your revenues divided by the ABC or DEF market size?”
Silence, except for the sounds of a large and valuable truck grinding to halt on a bridge outside the office. How could it happen? The warning signs seemed so clear.
If you want to talk to me about how you can build an excellent market model to cover your company’s market or markets, please contact us. And by the way, you won’t be surprised to hear that the would-be buyers decided not to proceed.
< Back