Market Sizing – Futile or valuable?
Anybody who has ever been in a product management or product marketing role has likely been tasked with the nebulous concept of determining the “market size” for your product/software/service/widget. It always strikes me as such an exercise in futility, and purely as a product of Business School and “Consultants”. It is now expected that market sizing precede any innovation, which in my opinion is a big mistake. Never mind that Market Sizing is always vague at best, it’s a by-product of formalized methodologies and not a catalyst for innovation, something I’d like to discuss first.
- Bell thought it would be super cool to transmit voice
- The Wright brothers certainly did not think about market size before pioneering flight
- I doubt George Eastman spent months analyzing market size before inventing photographic film
- Steve Jobs and Steve Wozniak had a passion for building a home computer
- Bill Gates, although I’m sure thinking about market size when he licensed his OS to IBM, probably created MS DOS out of passion
- Zukerberg was at first concerned about getting classmates online long before thinking of the market size potential
- I’m sure Sergey and Larry were passionate about search technology, not market size
Market Sizing can kill innovation. This argument was particularly highlighted recently at the company I work for. We have two “co-ceo’s”. One is the founder of the company – an entrepreneur, the other is a hired CEO to play the CEO role. It has been an interesting dynamic at play: The Entrepreneur-CEO has a passion for coming up with new technology based on it either being cool or with the belief that it can be lucrative (the idea of being lucrative based on a “gut feel” market size, not a market sizing exercise). The hired-CEO on the other hand feels the need to play the traditional CEO role and engage in market sizing activities before coming up with a product: In other words, find a market with a demand and of sufficient size and then build a product for it. The Entrepreneur-CEO on the other hand believes in coming up with a crazy cool product and figuring out then how to go to market with it.
I’d not be so naïve to suggest there is absolutely no merit to the “market analysis first, product second” approach. I do however feel that this is best suited to the more traditional manufacturing industry that has an incredibly high start up cost. I believe that when it comes to software and technology companies, market analysis can and does kill innovation.
The other problem with market sizing (as if killing innovation were not enough), is something I alluded to in the beginning of this post: It’s highly theoretical, vague, practically impossible to substantiate and rarely ever possible to hold some accountable too. Here is parody of how a market sizing exercise goes in a software company:
CEO: “Go find out the size of the mobile market because maybe we should have software for it”
Product Manager (after some research): “Gartner says it’s a 120 billion dollar a year business, expected to be a gabazillion over the next decade. Forrester confirms this saying adoption will quadruple over the next 18 months”.
CEO: “Great, let’s go build a product. We only need 1% of that market and we’ll be rich!”
Yes, I’m simplifying it. But no matter how deep you do your market analysis, the figures will remain vague at best. And forget about accountability. When nobody buys the product, it’s because the “market conditions changed”, or, “the product was badly designed”, or, “The market wasn’t ready to adopt this technology”, or, “Marketing did not know how to market it”…etc etc.
Now, to be clear, there is a difference in my mind between Market Sizing and a Go-To-Market Plan, the latter having real value.
I know there are a thousand counter-arguments to this (and a thousand counter arguments to the counter arguments…and…ad nauseam). I’m sure there have been successful market sizing activities in the past and I’m even more sure that market sizing activities will continue in the future. It will allow the CEO to check the appropriate box that they’re following a methodology and play CYA. I know too, that, sadly, I will likely still be involved in market sizing exercises. I also know however that, thankfully, the world will continue to produce the Eastmans, Jobs, Zuckerburgs, Gates and Brins of the world who will innovate, market size be damned.