Market Sizing Workflow
Quickly estimate if an opportunity is worth pursuing before investing in ICP definition and content creation.
Human Role: Assumptions, sanity checks, go/no-go decision AI Role: Research, calculations, comparable analysis Spectrum: AI-Assisted
Overview
| Attribute | Value |
|---|---|
| Purpose | Validate opportunity size before committing resources |
| Trigger | New business idea, market entry decision, pivot consideration |
| Frequency | Per opportunity (before ICP work) |
| Duration | 1-2 hours |
| Owner | Strategy / Product Lead |
| Output | TAM/SAM/SOM estimate + go/no-go recommendation |
Prerequisites
Tools Required
| Tool | Purpose | Access |
|---|---|---|
| AI Assistant | Research, calculations | API or chat |
| Spreadsheet | Model building | Google Sheets |
| Industry reports | Validation data | Statista, IBISWorld |
Knowledge Requirements
- Basic arithmetic and Fermi estimation
- Understanding of TAM/SAM/SOM framework
- Domain knowledge of target market
Inputs
What you need before starting:
| Input | Source | Required? |
|---|---|---|
| Business idea | Internal ideation | ✓ |
| Target geography | Strategy decision | ✓ |
| Product/service definition | Product brief | ✓ |
| Pricing assumption | Competitive analysis | ✓ |
| Industry data | Research / AI | Optional |
Upstream Dependencies
| Upstream Activity | What It Provides | Link |
|---|---|---|
| Business Idea Generation | The opportunity to size | Ideas |
Process
Phase 1: Define the Market
Duration: 15-20 minutes Responsibility: Human-led
Step 1.1: Specify Boundaries
- Define the product/service clearly
- Identify target customer segment
- Specify geographic scope
- Set time horizon (annual market)
Step 1.2: Choose Estimation Approach
| Approach | When to Use | Accuracy |
|---|---|---|
| Top-down | Established markets with industry data | Higher |
| Bottom-up | New markets, specific niches | More conservative |
| Fermi | Quick validation, no data available | Order of magnitude |
Phase 1 Output: Clear market definition and approach selected
Phase 2: Identify Variables (Fermi Method)
Duration: 20-30 minutes Responsibility: AI-assisted research
Step 2.1: List Key Variables
For consumer markets:
- Total population in geography
- % in target demographic
- % with relevant need/problem
- % willing to pay
- Average price point
- Purchase frequency
For B2B markets:
- Total businesses in geography
- % in target industry/size
- % with relevant problem
- % with budget
- Average contract value
- Sales cycle length
Step 2.2: Research Each Variable
Use AI to find:
- Census/population data
- Industry reports
- Competitor disclosures
- Analogous market data
Phase 2 Output: Variable list with research sources
Phase 3: Make Estimates
Duration: 20-30 minutes Responsibility: Human judgment + AI calculation
Step 3.1: Estimate Each Variable
For each variable, document:
**Variable:** [Name]
**Estimate:** [Number]
**Source:** [Where this came from]
**Confidence:** [High/Medium/Low]
**Range:** [Low estimate] - [High estimate]
Step 3.2: Calculate TAM/SAM/SOM
| Metric | Definition | Calculation |
|---|---|---|
| TAM | Total Addressable Market | Everyone who could theoretically buy |
| SAM | Serviceable Available Market | TAM × % you can actually reach |
| SOM | Serviceable Obtainable Market | SAM × realistic market share (1-5% for new entrants) |
Phase 3 Output: TAM/SAM/SOM numbers with confidence ranges
Phase 4: Sanity Check
Duration: 15-20 minutes Responsibility: Human judgment
Step 4.1: Compare to Known Data
- Find published market size estimates
- Compare to competitor revenues (if public)
- Check against analogous markets
- Verify order of magnitude is reasonable
Step 4.2: Stress Test Assumptions
- What if key assumption is 2x wrong?
- What's the worst-case scenario?
- Does SOM still justify investment?
Phase 4 Output: Validated estimate or revised assumptions
Phase 5: Go/No-Go Decision
Duration: 10-15 minutes Responsibility: Human decision
Step 5.1: Apply Decision Criteria
| Criterion | Threshold | Your Result |
|---|---|---|
| SOM size | >$1M ARR potential | |
| Growth rate | >10% annually | |
| Competition | Beatable incumbents | |
| Fit | Aligns with capabilities |
Step 5.2: Document Decision
## Market Sizing Decision: [Opportunity Name]
**Date:** [Date]
**TAM:** $[X]
**SAM:** $[X]
**SOM:** $[X] (at [Y]% market share)
**Decision:** [GO / NO-GO / NEED MORE DATA]
**Rationale:** [Why this decision]
**Next Steps:** [If GO, proceed to ICP definition]
Phase 5 Output: Documented go/no-go decision
Outputs
| Output | Format | Destination |
|---|---|---|
| TAM/SAM/SOM estimate | Markdown | Strategy docs |
| Go/no-go decision | Decision doc | Team |
| Assumptions log | Spreadsheet | Reference for future |
Downstream Consumers
| Downstream Workflow | What It Needs | Link |
|---|---|---|
| ICP Definition | Validated market opportunity | ICP |
| Business Case | Market size for projections | Ideas |
Success Criteria
Quality Metrics
| Metric | Target | Measurement |
|---|---|---|
| Variables documented | All key variables | Checklist |
| Sources cited | Each estimate | Review |
| Sanity check passed | Within 2x of comps | Comparison |
Performance Metrics
| Metric | Target | Timeframe |
|---|---|---|
| Time to estimate | <2 hours | Per run |
| Decision clarity | Binary GO/NO-GO | Per run |
| Estimate accuracy (post-hoc) | Within 3x | 12 months |
Failure Modes & Solutions
| Failure | Symptom | Solution |
|---|---|---|
| Optimism bias | SOM seems too good | Use conservative assumptions, stress test |
| Missing variables | Estimate feels incomplete | List all conversion steps in funnel |
| No comparable data | Can't sanity check | Find analogous markets, adjacent industries |
| Analysis paralysis | Can't finalize numbers | Set time limit, accept order-of-magnitude |
Example: Robotic Lawn Mowers (US)
Variables
| Variable | Estimate | Source |
|---|---|---|
| US households | 130M | Census |
| % with lawns | 70% | Industry data |
| % interested in robotic | 10% | Survey data |
| Average price | $1,000 | Competitor pricing |
| Replacement cycle | 5 years | Product lifespan |
Calculation
Potential customers = 130M × 70% × 10% = 9.1M households
Annual purchases = 9.1M ÷ 5 years = 1.82M units/year
TAM = 1.82M × $1,000 = $1.82B/year
SAM (US suburban only) = $1.82B × 60% = $1.09B
SOM (3% new entrant share) = $1.09B × 3% = $33M
Decision
SOM of $33M justifies further investigation. Proceed to ICP definition.
Context
- ICP Definition — Next step after GO decision
- Business Ideas — Where opportunities originate
- Researching Business Ideas — Deeper analysis
- Marketing Activities — The Work Chart
Fermi Estimation Principles
- Break down the problem into smaller components
- Use round numbers to simplify calculations
- Make reasonable assumptions based on known facts
- Aim for order-of-magnitude, not precision
- Document everything for future reference
Changelog
| Date | Change | Reason |
|---|---|---|
| 2024-12 | Upgraded to workflow template | Standardize with inputs/outputs |