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$14 Trillion Spent Annually On Trying To Look Cool

03/29/2010

As a consultant I have the opportunity to look under the hood of business concepts on a regular basis. I’ve written business plans for eCommerce concerns, health care hopefuls and software superstars.

One element of business plans that always leaves me flat is the estimation of market size. If you take enough of something similar it becomes significantly large. I often hear the lyrics of “Everything Counts” by Depeche Mode swirling in some back lobe of my brain as I compile market size data.

Depeche Mode

http://www.lala.com/#song/360569458055882310

Too many entrepreneurs confuse their addressable market with their market size. It’s rare that these two numbers are the same. And, mixing them up can be a problem.

The market size is the total revenue generated in a particular segment of the economy. For example, the internet advertising industry may be X billion dollars this year – the total amount of money spent on advertising on the web.

The addressable market is the total amount of revenue that your company could generate if it acquired every potential customer. The entire group of potential customers is often referred to as the addressable population.

The addressable market is unique to your narrow industry focus and therefore is often different from the high-level market size numbers that analysts quote about that sector of the economy. If you are an banner ad company – your addressable market is not the same as the online advertising market size. Your addressable market is a sliver of that market. Getting this wrong is bad.

Since the addressable market is often much smaller than the market size, using the market size as your addressable market typically means that you are over-stating the opportunity.

Which is exactly why the headline of my post today taken from the March 25th issue of The Onion is wonderfully hilarious.

http://www.theonion.com/articles/report-14-trillion-spent-annually-on-trying-to-loo,17125/

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