BUSI 701
Artistic Entrepreneurship
Class 4
Market Potential
Vernon’s Razor
©2008 Patrick Vernon
Vernon’s Razor
Go or No-Go?
Vernon’s Razor
©2008 Patrick Vernon
Full Frame Razor Analysis
Go or No-Go?
Vernon’s Razor
©2008 Patrick Vernon
Market Potential
How big could this thing get?
Vernon’s Razor
©2008 Patrick Vernon
Market Potential
• An estimate of the maximum possible sales
of a product or service
• Market potential of a venture:
Sum of all products and services
• Given as a $$ amount
Vernon’s Razor
©2008 Patrick Vernon
Market Potential
• Remember: we are quantifying opportunity
• Keyword: “potential”
• Requires a balance of assumptions and hard
data
• How big could this thing get?
– Depends on the strategy*
Vernon’s Razor
©2008 Patrick Vernon
Defendable SWAG (article)
• Outline what you know about offerings and
develop “use cases”
• Develop scenarios to visualize customers
• Keep eye out for new uses/customers
• Segment customers
• Think outside the box
Vernon’s Razor
©2008 Patrick Vernon
Market Potential – 2 Components
1. Bottom Up
2. Top Down
Vernon’s Razor
©2008 Patrick Vernon
Bottom Up
• Identify and quantify # of potential
customers
• Justify price
• Sometimes called “unit economics”
• Demonstrates that the entrepreneur knows
the business intimately
Vernon’s Razor
©2008 Patrick Vernon
Identify and Quantify Customers
• Must pick strategy and identify customer
within the value network
– Industry expertise needed (discussed later under
Team)
• Quantify total potential # of customers through
research
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–
–
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Extensive web searching
Davis library resources
Trade groups and trade magazines
Cite references
Vernon’s Razor
©2008 Patrick Vernon
3 Ways to Justify Price
1. Comparable products/services
2. Quantify value to customer
– Faster, better, cheaper
– E.g., “each customer can save $___”
3. “Primary” market research
– Interviews
– Focus groups
– Surveys
Vernon’s Razor
©2008 Patrick Vernon
Examples: Bottom Up
• Full Frame
– 25,428 “ticket number” x
$____ = $_____
• Tickets: $10-15
• Passes: $65-150
• Paperhand Puppets
– 24 performances per year x maximum $2000
per performance = potential $48,000
Vernon’s Razor
©2008 Patrick Vernon
Film Festivals (from TableBase)
Santa Barbara Int'l Film Fest
2005 Admissions: 123,000
2004 Admissions: 86,000
2003 Admissions: 63,000
Los Angeles Film Fest
•2005 Admissions: 60,000
•2003 admissions: 37,000
AFI Fest
• 2004 Admissions: 55,000
• 2003 Admissions: 47,000
CineVegas
• 2005 Admissions;, 80,000
• 2004 Admissions: 72,000
• 2003 Admissions: 46,000
•Palm Springs Int'l Film Fest
•2005 Admissions: 105,000
•2004 Admissions: 83,000
•2003 Admissions: 65,000
Vernon’s Razor
©2008 Patrick Vernon
Top Down
• Find data about existing market(s)
• Justify comparison and your market share
• Include growth trends
Vernon’s Razor
©2008 Patrick Vernon
Example: Top Down
• According to ABI Research, there are
nearly 50 billion devices that can benefit
from wireless M2M communications, and
computers represent only 5% of these
devices. In 2005, the M2M modem market
size was $1.2B, while the potential market
size for Linkmaxx wireless modem
software is just under $1B.
Vernon’s Razor
©2008 Patrick Vernon
Example: Top Down
AdGrove.com represents the intersection of two growing US markets:
advertising and business-to-business electronic commerce. The
advertising industry represents a $190 billion industry and is expected to
grow at 5.7% compound annual growth. The radio advertising market is a
$17.7 billion sector of represented by more than 12,275 radio stations in
268 major markets.1 Approximately 75% of radio advertising is purchased
at the local level.2 Although there has been consolidation in the radio
industry since the Telecommunication Act of 1996, the industry is still
highly fragmented and growing at an 8.5% annual rate.3 In addition, radio
stations have generally been slow to adopt Internet strategies. Business-tobusiness e-commerce revenues for 1998 were $17 billion and are
projected to grow to $1.7 trillion by 2003.4 It is projected that by the year
2002 almost one-third of all business-to-business transactions will be
performed via e-commerce (1998).5
Vernon’s Razor
©2008 Patrick Vernon
Example Top Down
Market
Description
Size
Market Growth
Online Retail
& Gift
Registries
Sales made through the
internet and/or online gift
registries
Online sales in the U.S. in 2005
were $172.4 billion. Couples will
spend an estimated $7.9 billion
on the internet for their weddings
in 2006.
Online sales are projected to grow
at a rate of 14% per year for the
next five years. By 2010 the U.S.
market is predicted to be valued at
$328.6 billion
Wedding
Market
Includes both sales related to
wedding events and gifts
given to couples getting
married.
The market for sales related to
wedding events in the U.S. in
2006 is predicted to be over $60
billion. Guests who attend these
weddings will spend an estimated
$20 billion.
The wedding market will fluctuate
with population growth and keep
pace with inflation.
Ethical
Consumption
& Fair Trade
Fair Trade – Products sold at
equitable rates by farmers
and artisans worldwide
Total sales of Fair Trade items in
2002: $180 million.
2002 Fair Trade sales in the U.S.
saw a 44% increase from 2001.
The intersection of these three markets, the Fair Trade online gift registry
market, has a potential maximum market size of $1.25 billion annually
Vernon’s Razor
©2008 Patrick Vernon
Finding Data (for top or bottom)
• First, define the market (may need an expert)
• Secondary research:
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Davis Library Resources
Mintel Reports
TableBase
Factiva
• Pay for market research (usually not recommended)
• Cite all references
Vernon’s Razor
©2008 Patrick Vernon
Vernon’s Razor
©2008 Patrick Vernon