The essential guide for adding market size to your pitch
In this post you will learn how to present market size in a way that gets the attention of investors and attracts investment.
There are 4 essential steps to optimally presenting your market size as part of your pitch, which includes:
- Showing you can think big
- Demonstrating your business is replicable or scalable
- Knowing how to position yourself
- Demonstrating you can build something of great value
We invited Sarah Dusek to present a workshop on calculating and presenting market size as part of your pitch when approaching investors. The full workshop is available on Youtube here
The reason Sarah is super-qualified to host the workshop is two-fold:
- She started a business from scratch herself, raised capital to scale her operations, and grew it to a value of over $100 million.
- She is now a Venture Capitalist who invests in businesses.
She explains that when approaching VC investors, it is absolutely essential to understand what they are looking for and to think about the reason they are investing. There are also common mistakes that should be avoided at all costs.
Venture capitalists invest to earn a return on their investment. Simple! Ideally, they would want a 10 times return over a period of 5 to 10 years. So when you are pitching to them, it is essential to showcase that your company will be able to provide this type of return for them.
How is this done?
One essential element is to optimally present your market size.
The heart of market size is to show you can think big and demonstrate you have a business that could be worth a great deal one day. Think $100 million! That’s the type of value we are talking about.
So what exactly is market size?
Market size gives a picture of how big your business could become, measured in either number of customers or total potential revenue.
How do you include market size in your pitch?
STEP 1: SHOW YOU CAN THINK BIG
The whole concept of market size is really an indication of how big you are thinking. It is your moment in the pitch deck to showcase how much potential your vision, your idea, your business has.
It’s not so much about what you think is possible right now and what you imagine you can achieve in the next couple of years, but rather about what your business is capable of down the line.
This is where you need to look at the glass ceilings and self-imposed limitations holding you back, and consider how you can smash through them.
Sell a dream that is bigger and better than you are today.
STEP 2: DEMONSTRATE YOUR BUSINESS IS REPLICABLE OR SCALABLE
Everybody starts with 1, and then 10, and then 30. You start small. To generate revenue that will interest investors you need to replicate what worked in small numbers and scale it to massive quantities.
If your service works in one location, could it not be replicated in numerous locations, or even globally?
When Sarah started Under Canvas, they offered only one location for ‘glamping’ in Montana. After the concept proved to be successful, she realised they could replicate that model in every national park in the country.
There is a vast difference between pitching that you need investment to run one camping site in Montana versus pitching that you are going to replicate your proven model and have a camping site at every national park in the country.
In order to scale, you sometimes you need to think differently about your business. This could mean opening new revenue streams, or opening new markets.
Think about how you can do 1000 X more than you are currently doing.
STEP 3: KNOW HOW TO POSITION YOURSELF
Show you know how you fit in the existing ecosystem in the world and what you envision you can become.
Keep the following two critical concepts in mind:
- Market size
- Market share
The easiest way to grasp these concepts is to imagine a cake. The cake would be the total users or total revenue for your product or service. That’s the market size. Then imagine a slice or two of the cake. That is your market share. It’s the portion of the market you envision servicing.
An example would be to say that there are 12 million vehicle owners in South Africa, and you plan to capture 20% of those users. This means that out of a market of 12 million, you will have 2,4 million customers. You can further state what each customer generally spends per annum, and what your resulting revenue will be.
Making use of the internet and using search tools such as Google is really where you will get your information from. You need to do a search, continue the strand, and dig deep until you find what you need.
STEP 4: DEMONSTRATE YOU CAN BUILD SOMETHING OF GREAT VALUE
Businesses are valued at a multiplier of the net profit generated. The official term is the EBITDA, which stands for earnings before interest, tax, depreciation, and amortisation. If you have a net profit of $1 million, and use a multiplier of 10 (which is generally the norm), you get a valuation of $10 million.
You want to find ways to build a business that could earn $8 to $10 million in net profit over a course of 5 to 10 years, or even 15 years.
What would it take?
If you understand your margins, it helps you determine your needed revenue to get the outcome of your desired profit.
You want to demonstrate that you understand the market required to generate the revenue and profits needed to build a high-value business. Investors are often asking themselves during your presentation if your business could grow to the point where they make a large return on their investment. Answer it for them by showing the math and the path required to get there.
Here are some practical take-aways:
- Dream big.
- Think about how you position yourself.
- Don't think too small.
- Remove the parameters holding you back.
- Think about how you can do 1000 X more than you are currently doing.
- Leverage your idea to be replicable to sell in a larger way or service a larger group of people.
Watch the complete workshop here for in-depth explanations, examples, and additional tips.
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