The Market Opportunity

THE MARKET

The purpose of providing angel investors information about the market is to convince them that your business has enough customers in the industry, despite competition. It is one of the most important parts of the plan and may require extensive research. Many of the sections that follow will be based on the estimates you create here.

CUSTOMERS

When creating a description of the target customer for your product or service, it is important to be specific and thorough. If you have an existing business, list trends in sales to your current customers. To create a customer definition, describe your target customers in terms of common identifiable characteristics. Tips

• A common mistake is to describe customers in general terms, such as all "people who want to buy a computer." To avoid this, create a list of the characteristics of the people or companies that will buy your product or service.
• Include details of what geographic region you plan to sell to.

MARKET SIZE AND TRENDS

This section defines the total market size as well as the segment of the market your business will target. Use numbers as well as trend information to make a case for a viable current market and its growth potential. After you define the total market, create a description of your target market including geography, company size, business organization, lifestyle, sex, age, occupation, and other characteristics to describe the companies or consumers you are targeting. Tips

• Include discussion about factors affecting market growth. Show what impact these trends will have on your business.
• Cite all sources for your data. This will show that you've done research and that your information comes from a reliable source.

COMPETITION

The competition discusses where your products or services fit in the competitive environment. It is important that you present a short discussion of each of your primary competitors, including their annual sales and market share. You should also explain how successful they are at meeting customers’ needs and why you believe you can capture a share of their business. Examining the strengths and weakness of your competitors can also be valuable. Sales, quality, distribution, price, production capabilities, image, and breadth of products/services are all possible ways companies differentiate themselves. Ask yourself: Who is the price leader? Who is the quality leader? Who has the largest market share? Why have certain companies recently entered or withdrawn from the market? Tips

• Never say that you have no competitors. Lenders won't believe you. Even if your product or service is truly original, you need to look at what your customers could buy instead.
• Think about indirect as well as direct competitors. For example, if you are selling chicken noodle soup you will compete directly with other chicken noodle soups but you may also compete indirectly with chili or other types of soup.
• Think broadly when devising a list of competitors by characterizing competitors as any business customers may patronize for similar products or services.
• To establish your competitors' strengths and weaknesses, think about why customers buy from them.
• A table is an effective way to present your competitive analyses, since it will allow your competition to be evaluated at a glance.

ESTIMATED SALES

Estimated sales for your business are based on your assessment of: the benefits of your product or service, your customers, the size of your market, and your competition. Your analysis should include sales in units and dollars for the next three years. These numbers will be crucial to other financial documents you will need to develop later in the plan. Justify your projections using a short summary. Also explain why you believe your customer base will grow and indicate how you plan on achieving this growth. Tips

• If you derive your average sale per customer from trade association information you have found while research, cite where you found it.
• Do not use the word conservative to describe your sales projections. Angels always see this term used to precede projections that are usually anything but conservative.
• Do not make unrealistic projections.
• Use "best case," "worst case," and "likely" scenarios to create a range of different sales projections.