Whether you sell to consumers, to businesses, or both, market sizing provides intelligence you need to deploy sales and marketing resources effectively. Benefits of Market Potential Analysis Understand market potential for a single store, network of stores or a new market Deploy resources effectively by ranking markets in priority order Forecast total opportunity in terms of number of customers and revenue potential Estimate your market share Market Potential Analysis:
How to Miss By a Mile: And as you would expect, his answer is critically dependent on these two assumptions. As the Series A investor and board member at Uber, I was quite intrigued when I heard that there was a FiveThirtyEight article specifically focused on the company. I have always loved the deep, structured analysis that Bill Simmons and Grantland bring to sports, and when Nate Silver also joined ESPN, I was looking forward to the same thoughtful analysis applied to a much broader range of subjects.
I could hardly wait to dive in and see the approach. Young math students are warned about the critical difference between precision and accuracy.
Financial models, especially valuation models, are interesting in that they can be particularly precise. A discounted cash flow model can lead to a result with two numbers right of the decimal for price-per-share.
But what is the true accuracy of most of these financial models? So here is the objective of this post. It is not my aim to specifically convince anyone that Uber is worth any specific valuation.
I am also not out to prove him wrong. I am much more interested in the subject of critical reasoning and predictions, and how certain assumptions can lead to gravely different outcomes. And I hope the analysis is judged on whether the arguments I make are reasonable and feasible.
Damodaran uses two primary assumptions that drive the core of his analysis.
He then guesses at a market share limit for Uber — basically a maximum in terms of market share the company could potentially achieve. The rest of his model is rather straightforward and typical. In my view, there is a critical error in both of these two core assumptions.
There are multiple reasons why this is a flawed assumption. When you materially improve an offering, and create new features, functions, experiences, price points, and even enable new use cases, you can materially expand the market in the process.
The past can be a poor guide for the future if the future offering is materially different than the past. Consider the following example from 34 years ago that included the exact same type of prediction error: Bythe number of subscribers worldwide had surpassed 5 Billion and cellular communication had become an unprecedented technological revolution.
We will now walk through those key differences, dive deep on the issue of price, and then consider a range of expanded use cases for Uber, including one that changes the game entirely. A Radically Different Experience Pick-up times.
In cities where Uber has high liquidity, you have average pick-up times of less than five minutes. For most of America, prior to Uber it was impossible to predict how long it would take for a taxi to show up. As Uber becomes more established in a market, pick-up times continue to fall, and the product continues to improve.
As Uber evolves in a city, the geographic area they serve grows and grows. Uber initially worked well primarily within the San Francisco city limits. It now has high liquidity from South San Jose to Napa.
This enlarged coverage area not only increases the number of potential customers, but it also increases the potential use-cases. Uber is already achieving liquidity in geographic regions where consumers rarely order taxis, which is explicitly market expanding.
With Uber you never need cash to affect a transaction. The service relies solely on payment enabled through a smartphone application. This makes it much easier to use on the spur of the moment. It also removes a time consuming and unnecessary step from the previous process.
This is well documented and understood. With taxis, users worry about being taken advantage of, and many drivers spend all day with riders accusing them of such.
This can make for an uncomfortable experience on both sides. Most Uber riders believe they are safer in an Uber than in a traditional taxi. This sentiment is easy to understand. Because there is a record of every ride, every rider, and every driver, you end up with a system that is much more accountable than the prior taxi market it also makes it super easy to recover lost items.Yesterday I went to to the grocery store and asked a person working there why beef was so expensive.
He told me that the market determined the price, and his supplier raised prices, so they had to raise prices on the consumer as well. The best way to get market size is to contact local research agencies if it is a small business. If it is a large business, it is better to take Market research data from companies like Nielson or IMRB.
Determination of market size is the first step to determine market potential. The good news is that there are a variety of ways you, as an entrepreneur, can conduct some market research to assess the potential demand for your product or service without spending a lot of.
"Job applicants with white names needed to send about 10 resumes to get one callback; those with African-American names needed to send around 15 resumes to get one callback." A job applicant with a name that sounds like it might belong to an African-American - .
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