7.5 startup mistakes. Mistake number 3: My market is huge

We continue the series of publications 7.5 startup mistakes about ambitious expectations and great disappointment of entrepreneurs. Today, Daniel Kozlov, director of business development for GVA LaunchGurus, talks about the third mistake of startups.

Daniel Kozlov:
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I remember a joke about two representatives of the English shoe industry, who went to Africa in the early 19th century. One wrote to his partners in England - “There is no market. They do not wear shoes! ” The second wrote - “The market is huge! They don't wear shoes! ”

Such logic is often found in the reasoning of startups, and usually a mistake is made in the direction of the large size of the market, “big” in the understanding of the entrepreneur.

For example - "My market will be 4 million spoons for shoes per year!", The businessman writes proudly. And this is great. It's great that so many spoons can be sold, but how and who sells them is another story. At the same time, the fact is completely forgotten that the manufacturer’s revenue per spoon makes 15-20 rubles, and that the resulting market of 60-80 million rubles a year does not exceed the revenue of a small Moscow store. And if this is true, then why do you need such a startup. This is just a small, rather dreary business, with no serious prospects for scaling.

The opposite situation: the entrepreneur's calculations lead him to completely astronomical numbers - two, three, five trillion dollars a year. How are such calculations obtained? This usually happens when an entrepreneur does not segment the market. For example, if a SAAS product is created, then the market is not the entire SAAS market. Even such giants as Oracle, SAP do not “play” in the entire SAAS market, solutions, they have their own “niches” or narrow markets within the large SAAS market. Do not take it widely, you will not impress anyone. Take a better narrow segment, but explain why you can successfully grow on this particular segment.

Logical errors abound in calculating market sizes. The most common mistake is to take the maximum volume of production, which (in dreams, of course) can be implemented and multiplied by the price of the goods. Colleagues, this is not your market, this is your potential revenue. But businessmen regularly and joyfully use this quite convenient method. After all, this is much easier to consider than to bother with collecting statistics, analyzing competitors, searching for sales volumes and prices.

Another mistake is the assumption that all similar products are bought and sold at about the same price. This is not the case; in many markets, similar products are sold at completely different prices; it is necessary to estimate the sales volumes of each price category.

Often an entrepreneur looks at the market at the current moment, while completely ignoring trends in the market. If you are developing programs for consumers of virtual reality devices, at the moment your market is relatively small? But how much will it increase in 5 years, and in 10? Is it worth it to go to it now and earn a little in the hope that in the future you will become one of the leaders (far from guaranteed) or you should wait another 1-2 years and go out with the understanding that there is really enough room in the fast-growing market.

Usually, when asked why the calculation of the size and dynamics of the market does not reflect a number of the questions mentioned above, entrepreneurs respond that there is no information, reports are expensive, and they don’t have access to analytics like large companies. Here are some practical tips:

• Check search engines up to 10 pages and make inquiries using 3-4 different phrases. You can even try in several languages, sometimes there is more information in English-language sources.
• Look for free resources on the websites of large consulting, information, media and government companies (EY, BCG, McKinsey, RVK, RBC, etc.) they publish a lot of free reports.
• See if there are presentations of your competitors on the Internet. They can often find a ready-made analysis of the market (though not always reliable).
• Put your question on the profile forum.
• Ask for help in one of the accelerators or incubators - perhaps they had startups from the same or related field, or they themselves conducted such research.

All these studies you conduct to understand how you build an effective business, and not to report to the investor in a presentation format.