So now you've come up with a Job Story for the Minimum Viable Segment you identified - hooray! This alone should give you a good sense of whether your killer idea actually has the legs to make it out there in the big bad world.
Armed with this knowledge, you can then define the problem you are addressing as a Value Proposition Design Brief.
This is a statement that outlines the key benefits and differentiation you expect your product or service to deliver.
Using the example of city rental bikes I covered last time - they deliver a way of getting around London that provides roughly the same fitness, recreation and speed as having your own bicycle with the key difference that you can be more spontaneous, because you don’t need to plan ahead to bring your bike or figure out how to get it home if you no longer feel like riding it.
Next step is to figure out the size of the market. This is pretty important if you want to attract investment as you need to be addressing a large enough market. If you just want to make a living and be your own boss, you still need to be sure there is enough demand to keep food on table and the lights on.
Estimating the size of the market is both art and science.
Essentially you need to provide a good statement of how big the “job to be done” you are targeting is. This is often also called the addressable market.
There are two ways to approach this. The traditional–but less effective one–is the “top down” approach.
Using the London Transport example, this would involve calculating how many passenger journeys of x miles there are in London daily and how much people pay for them? You would then narrow down this by eliminating journeys that are unlikely to switch to a rental bike.
This is where the guesswork begins, as such an approach does not give you an accurate number for your market. But it is useful insofar as it defines a maximum.
With the bottom up approach, you are trying to estimate how much of the market you can reasonably target within the next 1–5 years. This is best done by understanding your target segment at the micro or customer level. Talk to enough people who travel by other means right now and estimate how many might reasonably use a rental bike instead, how often, etc. Then find out how many such people there are in London to arrive at bike journeys per year.
This is still educated guess work but it provides a good reality check.
It won’t tell you with enough certainty how big your market is. This is especially true if you are disrupting a market, as that usually involves people changing their habits, which means there is only a potential market and not an existing one.
But this method will often tell you if your market is not big enough – in which case you need to come up with a better target market.
The third approach is the “what would have to be true” approach. This requires you to set a target revenue which will be attractive enough for you and/or your investors. You can then ask yourself how many customers you would need to adopt your product with what frequency to reach the revenue target. This is not a forecast but it is an effective reality check.
Even though it is impossible to predict the future – especially when it comes to a new disruptive product – investors expect you to estimate the market size you are addressing and project revenue. Intelligent investors are fully aware that these estimates are only a best guess and will treat them with appropriate skepticism.
Nevertheless, these estimates are useful as a hypothesis to be tested and as a reality check. As mentioned above, they will sometimes at least show you when a market is not worth pursuing. How you put together a plausible market estimate and communicate it is also a useful way of showing investors how you think and increases your credibility.
Hope y'all finding this useful - more to come soon!
Check out the previous advice:
Part 1 - Intro - @sroka87/how-to-launch-a-start-up-introduction
Part 2 - Minimum Viable Segment - @sroka87/how-to-launch-a-start-up-minimum-viable-segment
Part 3 - Job Story - @sroka87/how-to-launch-a-start-up-the-job-story