Is there a “there” there?
Now that you understand the market size and have an initial set of prices, you can calculate the potential size of this opportunity. We do this by combining the answers from Steps 10 and 11:
Market x Price = Opportunity
QUESTION 26:
How big is this opportunity?
Bird Watch—[Opportunity size]: In Step 10, we determined that we could expect to sell 400 tags in the first year. In Step 11, we determined that the first tags would be sold for $25 each. That would mean we could expect to bring in 400 x $25, which is $10,000. We can expand this to the rest of the calculations:
After one year:
400 tags @ $25 = $10,000.
80 base stations @ $150 = $12,000.
Total = $22,000
After three years:
4,000 tags @ $25 = $100,000.
800 base stations@ $150 = $120,000.
Total = $220,000
Total opportunity size:
8,000 tags @ $25 = $200,000.
1,600 base stations@ $150 = $240,000.
Total = $440,000
Concrete Battery—[Opportunity size]: In Step 10, we estimated that we could sell ten flywheels in the first year. In Step 11, we set a price for the initial flywheels at $100,000 each.
After one year:
10 flywheels @ $200,000 = $2,000,000.
After three years:
150 flywheels @ $100,000 = $15,000,000.
Total opportunity size:
1,000 flywheels @ $100,000 = $100,000,000.
Close to Home—[Opportunity size]: In Step 10, we estimated that an average of 10,000 homes are destroyed in the U.S. each year. In Step 11, we set a sales commission of 6-8% on an average sale of $30,000. Taking the lower commission, the total opportunity size is $18,000,000.
Ensibuuko—[Opportunity size]: In Step 10, we stated that there are 5,000 SACCOs in Uganda, with total annual deposits of over $500 million per year. In Step 11, the price was stated as $1,000 per year for each SACCO plus a 0.5% transaction fee. The annual fees are thus a potential of $5 million in revenues plus another $2.5 million in transaction fees
QUESTION 27:
After reviewing the opportunity size, do I need to revisit the market sizing or pricing, or look for additional customers, or go all the way back to the beginning and change the product?
Are you surprised by the vast difference in the sizes of these opportunities?
Before including the price, Bird Watch seemed to have had a big opportunity, selling thousands of products. However, revenues (i.e., money earned by the company in selling the product) are what pay the company bills.
Close to Home’s total addressable market has even more potential unit sales than Bird Watch and a far higher price per sale. However, of that sale price, Close to Home only gets to keep 6-8% of the total. That causes its opportunity size to be large but not outrageously so.
To American readers, Ensibuuko’s potential $7.5 million in revenues may sound small, but when looking at revenues in the developing world, you have to keep in mind the average incomes in those countries. In a country where $500 is an average annual income, $7.5 million per year in revenues is 15,000 incomes. The U.S. average income is $50,000, and thus the equivalent business would be roughly $750 million in revenues.
The average sale price of Concrete Battery makes its opportunity size the absolute largest of these four examples. No doubt a large percentage of that price will be spent on the creation of the flywheels, but that factor is not part of the calculation of opportunity size. Similar for Close to Home. They will collect the tens of thousands of dollars per home, but over 90% of that revenue goes to the company that builds the homes.
In reviewing these examples, what questions come to mind about the assumptions being made? As you create your own opportunity size for your company, think about what questions others will have about your assumptions. If that is difficult to imagine, then ask a few trusted mentors or advisors for their opinion, and use their feedback to refine your calculations.
All of this leads to a key question: is the opportunity large enough to pursue?
QUESTION 28:
Is the opportunity worth the effort?
Is the opportunity large enough to support a company? If the market is competitive, is the opportunity large enough to support multiple companies? Is the opportunity large enough to match your own aspirations? If you need outside investors, is the opportunity large enough for investors to be interested in investing?
