Conduct Market Research

The purpose of market research is to better understand the business environment of your idea. Market research does not need to be a lengthy report, but by assessing market size and conducting a competitor analysis, you can identify whether the business idea is worth pursuing further.

 

Market Size Assessment

Market size is a key factor in evaluating the growth potential of a startup. Without a sufficiently large market, a startup cannot grow into a significant business, even if the product itself is technically successful. A market that is too small means the company will never reach substantial revenue. That is why assessing market size early on is important — so you don’t realize too late that all the work has been in vain.

Startups typically use three levels of market size assessment: Total Addressable Market, Served Available Market, and Target Market. These levels provide a comprehensive view of your business potential.

Total Addressable Market (TAM)

The total number of people who experience the problem you are solving. TAM helps illustrate the long-term potential of your business, but it is rarely directly accessible. For example, if you are developing a fitness app, TAM could be the total number of fitness enthusiasts worldwide.

Served Available Market (SAM)

The group of people who experience the problem you are solving and can realistically use your product or service. SAM provides a mid-term perspective. In the fitness app example, SAM might be active gym members in a specific country or region.

Target Market

The specific group you plan to reach within the next three years. You should not expect to capture more than 50% of any market — most companies never achieve even 10%. Still, your target market should be large enough that even a 1–5% share could generate significant revenue. In the fitness app example, the target market might be 20–30-year-old gym-goers in Finland.

 

Tips for Market Size Assessment

1. Use data and reports: for example, open data from statistics agencies, consulting firm reports, or industry publications.
2. Keep calculations realistic: avoid over-optimism, especially when estimating market share.
3. Define your target market precisely: it must be large enough to allow your business to grow profitably.

 

Competitor Analysis

Understanding your competitors helps you identify how you can differentiate in the market and what barriers to entry you might face. It is highly likely that other companies are working on a similar idea. This does not mean you should stop developing your business, but you must carefully consider why you could succeed where others might fail.

Competitor analysis includes both direct and indirect competitors:

• Direct competitors: offer a similar product or service to the same customer segment.
• Indirect competitors: solve the customer’s problem in a different way.
• Substitute solutions: alternative ways customers address the problem without a traditional competitor (e.g., Excel vs. SaaS software).