You can’t boil the ocean overnight are wise words especially when it comes to making a pitch for funding or making a presentation in a business awards competition.
Let me explain. Just two weeks ago I had to listen to a range of start up businesses in different sectors from across the island of Ireland as part of the Startups Awards 2015 judging process. It was a privilege as most of the presenters told great and thoroughly engaging stories about what motivated them to set out on their own and establish their own business. It takes guts and determination and you can’t but be inspired by these brave people.
But to the point of this post and the boil the ocean reference. Some of the pitching entrepreneurs based their expected revenues and growth targets on unrealistic market sizings. The Startup Awards is a great platform to practice a funding pitch. My fellow judges are all experts in their respective fields (banking, accounting, patents) and we all picked up on this mistake. It’s a trap that many aspiring entrepreneurs fall for. I recall making this point along with the lack of pitching practice during the judging process in the 2014 awards process.
In effect, you are telling would be investors that you don’t fully understand how to size a market. This is critical as the potential investor will not hand over cash for a proposal that is based on unrealistic forecasts. It’s the kiss of death.
A key concept is the Total Addressable Market size (TAM). TAM is a term that is typically used to reference the revenue opportunity available for a product or service if there was no competitors. The error some of the contestants made was that they did not add any constraints to their TAM. They were pitching and telling us that they were going to conquer the world or boil the ocean overnight. Very unrealistic and totally unattainable targets.
The addition of constraints such as competition, personnel and distribution challenges helps to modify your strategy and bind it with a more credible set of boundaries. The actual exercise of analysing the competition is absolutely critical. This task alone will teach you so much but omitted, it’s a fatal flaw.
So, looking to gear up to launch a new business, well make sure you nail the TAM.