Market size is an important factor when an investor is considering your application. An ideal market for an investor is at least a billion dollars. If you don’t think your market is that large, then you may not be right for investment.

Chances are you think your market is much larger than that, which is one of the biggest pitfalls that entrepreneurs fall into. You will not impress an investor with inflated market numbers; it signals a lack of understand about the business you are trying to start. The goal is to hone this number down to a true reflection of the number of people that could be interested in your product or service.

Here’s an example using fake numbers for simplicity:

If you’re selling guitar strings, you could say that your market is the billion-dollar music industry, but that includes plenty of people that don’t play instruments.

You could claim that it’s the million-dollar musical instrument industry, but there are plenty of people that play instruments but not guitar.

You could say you plan to capture the $500,000 guitar owner market, but your strings are for electric guitars.

The electric guitar market is $250,00, however your strings are made of carbon-fiber. They are a huge step forward in the guitar string industry, but can only work with 50% of electric guitar models. Now your market is down to $125,000

This is the type of exercise that is necessary to determine the true size of your target market. When you get down to it, you may find that your market is too small. This is invaluable information to know BEFORE you invest yourself into a business that isn’t sustainable. You don’t want to a pitch an investor and look like this:

Jason Schwartz :: Jul.29.2008 :: Entrepreneur, Startup, Uncategorized ::