Now that you have your global market defined, what is your addressable market? Even though youve whittled down your numbers from a TAM of $10 billion in global mouse sales to a SAM of $4 billion in global optical mouse sales, what portion of that served available market are you really targeting?
Here youll need to rely on some of your sales and marketing planning efforts. For example, if you do not have key OEM relationships in place, you may find it difficult to justify market penetration predictions in the 75 to 80% range. What is the size of the market for individually purchased mice? Who are the leading vendors? What are the primary sales channels?
How you plan to market your wares will affect the size of your addressable market. You may realize that your best strategy, based on your current relationships and contacts, is to only market within the Continental US market, and then expand from there. If your initial distribution is the individual buyer via web sales, what is your actual addressable market? What portion of individual buyer sales are being done on the web today?
This is one of the most difficult steps for most entrepreneurs. The balance is between promoting the larger potential of your company and product, and setting realistic ands achievable goals for your team and for investors.
To continue with our example, maybe you have a relationship with one OEM, and decide to build your initial strategy around the US and Canadian markets or 25% of your SAM, which is $1 billion. Still a healthy opportunity.
How Much Of That Slice Should I Eat?
Now we get into tactical planning. You are starting a business from scratch, with limited funds and a small team. What portion of that addressable market can you conceivably target given your size and budget over the next 3 to 5 years? Which relationships should you build first, which will provide the most bang for the buck in the shortest time? Within that $1 billion opportunity, where will you go first? How will you expand your sales team? What is your marketing strategy? What is your expected market penetration?
You should have answers for all of these questions, as they directly apply to your business plan, your marketing strategy, and the tactical plans you provide to your team to go out and accomplish.
Hopefully Ive made my point that the easy answers are rarely the right answers. While it is true that investors recognize that any business plan contains numbers that are at best a swag, you must be able to defend your assertions, and have a credible strategy for making the numbers you present.
In a recent eWeek article, Peter Coffee berated the ease with which we slide our assumptions toward the optimistic limits, inching good numbers up and bad numbers down until we get the result we want failing to admit that the result is based on multiplying a series of less-than-even chances. (3/22/04)
Dream big. Have high expectations. Seek to accomplish all of your goals. But recognize the realities of your chosen marketplace, and the limits of your resources and build your business plan and strategy accordingly. Its all about the defendable swag.
The fact is, youll find it much easier to eat a slice than to swallow the pie whole.
About Red Hill Partners
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