Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 2 down vote favorite

How would a startup that intends to provide a brand new type of service quantify the market potential without spending a lot of money on legitimate survey research? Or without rolling out the product on a small scale in a test market and then making assumptions about the larger market?

Take Groupon and Airbnb as examples. No similar services existed prior to these guys, so how could they (or how did they) estimate the number of potential consumers (or transactions, etc.) in these brand new markets? As far as I know, neither company targets a real specific demo, though both services might be more appealing for lower-income, budget-conscious consumers. But that's far too broad. How could you estimate the number of people who would be willing to sleep on a stranger's couch, given that this was never a real option before? And how would the numbers change if a new site were to facilitate matching and provide some legitimacy and security?

Follow-up question: Assuming that estimating the market size with even the slightest hint of accuracy is a virtually impossible task for a bootstrapping startup, can you get around this dilemma when seeking funding? What do you do when an investor asks about the potential market size and share?

share|improve this question

1 Answer

up vote 1 down vote

My thought is that when you estimate market for a previously non-existent product, you estimate the numbers for what that idea replaces. Using couch surfing as an example, numbers of people who travel and stay in hostels, what is happening with the venue of budget travel in the current economy, how many sites/apps have written about couch surfing, and what kind of traffic those products create. You're looking for the market potential, yet, with an informed data set.

Perhaps, think five years from now. When your product, such as couch surfing, is booming, think of what customers used to do before your product. The numbers should be available on things such as coupons before Groupon, daily specials before LivingSocial, etc.

We tend to think that we're offering something entirely new when we are thinking a bit differently and offering a new way to do something we've always liked to do such as travel, save money, etc. Numbers on what people currently do who will become customers and numbers on people who are currently participating in the type of marketing you will pursue will help.

Lastly, most of the current money out there (beyond F&F) is for companies at revenue. Market estimates are, and have always been important to not blanket as in "everyone". As you launch and build a customer base, you'll also have those numbers; growth, conversion, etc. to analyze with what you consider to be the market.

share|improve this answer
Thank you so much! (I'd give +1 if I could.) Here's my follow-up. If we continue with the Groupon analogy, I'm not sure we can assume their customers came from the coupon-clipping pool, as the former save $10.00+ per coupon and the latter save $.25-$2.00 per coupon (a true a price discrimination tactic for the extremely budget-conscious). So where did the customers come from who now buy dining Groupons? They probably dined out prior to Groupon, but now use Groupons to explore new or more expensive places. – caligirl Dec 23 '11 at 23:01
Or they are people who might have made dinner at home, but Groupon made the prices just low enough that they became willing to spend a little money dining out. So how could they have estimated those two groups prior to launching? A fraction of all money spent on dining, and a fraction of all money spent on groceries? I really hope I don't sound incredulous -- I appreciate what you're saying, I'm just struggling with the practical application. – caligirl Dec 23 '11 at 23:01
Can you give a hint of your product so we can explore in the context of your true potential audience rather than the Groupon hypothetical? – Kelly Cooper Jan 6 '12 at 22:49

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.