The 1% Market Share Myth Debunked
Tackling big markets is great. Nobody wants to start a company in a market worth $5. Creating new markets is great too, but most startups are built in existing markets - and often they tout the enormity of those markets as a great reason to get into them.
“The mobile industry will be worth $50 billion in 5 years!”
“Advertising online is going to be worth $100 trillion by 2010!”
You can get this sort of data all over the place. Analysts put out reports all the time expounding the growing size of various markets.
The result is that many startups take this approach:
“If we only get 1% of that market, our company will be doing $5 million in sales, easily. And we’re being conservative. Just 1%.
I used to think that way. Part of me still does because it sounds so damn tempting and easy. But it’s the wrong way to think, and it’s the wrong approach for your business plan and pitch.
Let’s debunk the 1% Market Share Myth:
- Market numbers are nonsense. At the rate things change in so many industries (and particularly technology) it’s almost impossible to really get a handle on the size and growth possibilities of various markets. Plus, when analysts talk about markets it’s often in vague terms, bunching things together that don’t necessarily belong, or certainly including companies and product offerings that wouldn’t compete against what you’re doing. “The online collaboration market is growing at 1000% per year!” Um…what the heck is the “online collaboration market” and what does it include?
- You’re selling yourself short. Sure, 1% of a huge market could be a lot, but 1% is a piddly number. There’s a difference between being conservative (which is smart) and lowering expectations. Promoting the concept of 1% is lowering expectations and setting the bar way, way down.
- VCs hate hearing this. If you’re going after funding, you’ll need a business plan. At minimum you’ll need a pitch. And that pitch is going to include sales estimates, market sizes, etc. Basically, you’ll throw a bunch of numbers into your pitch that will show VCs how much money you’re going to make for them. Truth is, they know the numbers are BS, but they have to be there anyway. What VCs hate is the “1% of market” argument. So if you’re looking for funding, don’t pitch it that way.
- Getting 1% of any market is damn hard. The big fallacy about nabbing 1% of a market is that startup companies think it’s easy. “How hard can it be to grab 1% of a market? Plus, when we show that 1% of a market is worth so much money, it’s a no-brainer!” Grabbing any amount of a market is hard. Closing a single deal is hard. If it was really easy everyone would be doing it, and there goes your competitive advantage!
If you’re starting a new business don’t think about 1% of the market. It’s bad business in so many ways.
Tags: business-plan, business-planning, business-success, Entrepreneurship, funding, market-share, pitch, venture-capitalPOSTED IN: Business, Entrepreneurship, Starting a Business
9 opinions for The 1% Market Share Myth Debunked
Bill D'Alessandro
Mar 9, 2007 at 10:05 am
Great post Ben, this is the judgement error called “Chinese Math” - basically because people believe that if they sell a $1 widget to 1% of the billion people in China, they’ll make $100 million in sales.
The judgement error is that 100 million customers are nearly impossible to get, just because the market is huge, the customers are still hard to get.
You can read up more in this article:
http://www.businesspundit.com/50226711/please_stop_with_your_chinese_math.php
Bill D'Alessandro
Mar 9, 2007 at 10:06 am
OK, it’s still early, my math was off by a factor of 10, but the point still comes across…
- Bill
Robert
Mar 9, 2007 at 12:25 pm
I like that one Bill. I once heard someone say that the funny thing about math is that it is fairly easy to prove just about whatever you want to hear.
My high school algebra teacher showed us how, using basic algebra of course, that 1 can equal 2.
Adam Ferguson
Mar 9, 2007 at 2:16 pm
Good points all around. Guy Kawasaki discusses this in ‘The Art of the Start’ as well. He makes the same point about selling soda to 1% of the population in China.
His point was also that it’s a stupid thing to say to VC’s. Good post.
The 1% Market Share Myth Debunked « Tons of Fresh News
Mar 9, 2007 at 2:52 pm
[…] March 9, 2007 at 9:49 pm · Filed under Uncategorized The 1% Market Share Myth Debunked Startups are often fond of saying something like “ “If we only get 1% of that market, our company will be doing $5 million in sales, easily. And we’re being conservative. Just 1%!” The only problem is, that’s a myth… here’s why.[news] [world & business] [business & finance] […]
Ron E.
Mar 9, 2007 at 2:59 pm
Great post Ben! I’ve seen this “1% rule” being applied to many small businesses, and after some time they usually get to the same conclusion you did: It isn’t easy to get 1% of the market.
As well, I’d like to remember that market share information is always tricky and depends on the metrics used to measure, not to mention WHO is measuring.
Great Post,
Ron E.
http://brandcurve.com
One By One Media » Using FeedBurner goodies to promote your blog
Mar 9, 2007 at 3:12 pm
[…] Around here, Ben is the king of Digg. Seems like he just has a knack for writing super-diggable posts. This is, of course, very cool. This morning Ben had another winner on his B5 blog Startup Spark. This afternoon the e-mails are going around the group to digg it for him. I did it this morning. I’m not saying this to brag, I just noticed that in Ben’s FeedFlare his Digg link had diggs on it. Click, click, dugg. […]
Josh
Mar 13, 2007 at 3:34 pm
You’re right, Ben the 1% Market Share myth is one of the things that created the .com bubble in the first place, IMO.
Gary Reid » Blog Archive » When 1% Market Share is Enough social media optimization and digital marketing
May 22, 2007 at 4:26 am
[…] for Bebo it can only go to fuel the 1% myth that haunts so many business plans, some have tried to debunk this myth Sure, 1% of a huge market could be a lot, but 1% is a piddly number. There’s a difference between […]
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