The Fallacy of Top-Down Market Sizing

Business founders mistake of using published research about their potential market size as validation. For example:

  • Total student loan debt is $x trillion dollars.
  • The annual marketing budget for e-commerce retailers is $x billion.
  • There are X million pet owners in the USA.
  • These data points are actually the result of a conceptual fallacy with regards to startups.

    Today's big markets aren't that exciting. In those markets, someone has already won, so your solution either has to disrupt that market or be so compelling that customers will switch. Trying to get a client to throw out their existing solution is usually a painful experience.

    The most attractive markets are in their infancy. For example, Uber's actual market was on-demand transportation as a service. When Uber started a decade ago, on-demand was tiny.

    In the early 2000s, the concept of socially sharing was a small market. Facebook has since ridden a wave to grow to an enormous business. Communication as a category was huge. Communication via social media wasn't yet.

    Look for things that are small now but with some imagination will be huge markets someday.

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