Sizing your market from the bottom up

It goes: the global market for this is worth some enormous sum, Africa is a share of it, Nigeria is a share of that, and if we capture one percent we are a large company.

Every investor has seen this hundreds of times and it proves nothing, because the one percent is chosen rather than derived. It also quietly says that you have not yet worked out who your customers are, which is a much worse signal than a modest market.

Start from the buyer you defined in your go-to-market plan and count how many exist. How many registered pharmacies operate in Lagos. How many licensed operators in your sector. How many businesses of the size you serve are on the register.

Then multiply by what one of them pays you a year. Not a hoped-for enterprise price. The price you actually charge someone today, or the closest thing you have to it.

The result is usually smaller than the top-down figure and always more defensible, because every input can be checked and argued with. Being argued with is the goal. It means the investor is engaging with your business rather than skipping the slide.

Cite where each number came from, on the slide. A market size with sources attached is treated as an estimate. The same number without sources is treated as a claim.

• Corporate Affairs Commission registrations, for how many entities of a type exist.
• Sector regulators, which often publish licensed operator lists: NCC, CBN, NAFDAC, state health boards.
• National Bureau of Statistics releases, for establishment counts and sector output.
• Trade associations, which frequently publish member counts.
• Your own directory or panel data, if your company already collects first-party information about businesses.

Total market is everyone who could ever buy something like this. Your serviceable market narrows it to the ones your product, language, geography and payment methods can actually serve today. What you can realistically win in a few years is smaller again.

Founders often present the first and imply the third. Present all three with the reasoning between them, and the deck starts doing an investor's work for them, which is exactly what a good deck does.

One last test. If your serviceable market is fifty thousand businesses and you have spoken to four hundred of them in a year, that is under one percent of coverage and your growth constraint is reach, not demand.

If it is eight hundred businesses and you have spoken to six hundred, you have a different company than you think you do, and the plan needs a second segment. Market sizing done properly changes what you do next. If it does not, it was decoration.

• TAM, SAM, SOM — Total market, the slice you can serve, and the slice you can realistically win.
• Bottom-up market sizing — Building a market estimate from countable customers rather than a global figure.
• ICP (ideal customer profile) — The specific kind of buyer your product fits best, described precisely.

This guide is general information about how investors read a business and how to present one. It is not investment advice, not legal advice, and not tax advice. For anything specific to your company, take professional advice from someone who knows your situation.