This post is about the 2nd of the 11 essential elements of a business plan pitch.
Once you’ve established the credibility of the team, it’s time to take the audience for a ride. First, whet their appetite by showing them a very attractive market. Then, give them pause by describing a major road block—something customers need but don’t have today, or a problem customers face. After that, you’ll share your vision for coming to the rescue. Another way to look at this is as a Situation/Complication/Resolution narrative:
It’s critical that you get the audience to nod their heads throughout this ride. If they wince with skepticism during any of these three slides, you’ll probably lose them for good. Go over this section again and again by yourself, and with the help of outside feedback, to identify any weak spots and shore them up. In general, avoid making any outlandish claims, and back up your arguments with facts and insights from highly credible sources speaking on clearly relevant topics.
The market is big enough. To prove this, you’ve got to define the total addressable market, and show that it is large enough so for you to achieve your sales goals. Let’s say that every year, people buy 5 million electric scooters worldwide, spending $1.5 billion in total.
Caution…. Sometimes entrepreneurs size up the opportunity by saying, “This is a $1.5 billion market. It’s huge! If we capture just 1%, we’ll have a $15 million business.” The problem is, the $1.5 billion market size is pretty much irrelevant because it includes lots of segments that have nothing to do with your business. The part of the market you care about is the part you can sell to—the addressable market. Plus, 1% is arbitrary—that could be a little or a lot, depending on the competitive dynamics.
Conducting research on the market can be tricky. In many industries, market research companies (some big ones are Gartner, Forrester, NPD) publish detailed reports that have the answers you’ll need, but the prices are typically out of reach for entrepreneurs. Sometimes these companies will put highlights of their studies in their press releases, which you can access for free by searching the web or the press release archives on the companies’ sites. In most cases, you can also get free access to the tables of contents for the reports, including charts and graphs. Sometimes you can sweet talk the sales people into sharing one chart, or find a friend or colleague who owns the report and get the data that way. Other times, you’ll have to get creative. Industry associations, industry experts, suppliers, and competitors can be good sources of information, as are presentations other people have made about your industry, which you can find on sites like SlideShare.com.
The market is changing in ways that favor new entrants. Maybe the market is growing. Maybe there are trends making your specific niche more attractive, like a new type of design buyers are clamoring for, changes in technology that make it easier to buy and sell doodads, or new government policies that give tax breaks to doodad owners. For more information about market dynamics, read Competitive Strategy by Michael Porter.