It is hard to forecast the size of a market that exists today in a few years. It is impossible to predict the size of a market for a product that does not even exist. Startups working on new products deal with this issue in every investor presentation.
My suggested solution: come at it from different directions to give a potential investor confidence that there is something there.
- Big billion dollar point estimates from Gartner or IDC research reports, and pointing out that in the future part of that spend might be cannibalized.
- Looking at comparable markets. For example IT security spend is roughly 10% of every IT budget. If you are working on a new product category that you think will be as indispensable as IT security, you can provide a market size range by applying a % to a future IT spend forecast.
- Going down to company level, and point out that of the few pilot customers you have, they were willing to pay x$ per seat, x% of their IT budget, and then scale that up to the total market.
- Bottom up: customers x product per customer x price per product
- Etc.
In most cases your “made up” numbers which are backed up by a transparent and logical analysis will be more useful than point estimates lifted from out-of-date, out-of-context research reports.
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