Monday, 29 September 2014

Market size: what's totally addressable (dude)

For some months now I've been wondering how med-tech startups were able to claim such huge global market sizes, and then I read this post from EC1 Capital. If I understand the definitions discussed in that post, then I've been using tiny Total Addressable Market numbers where I could have used much, much, much bigger numbers. As in several orders of magnitude bigger.

Med-tech companies sometimes quote global market sizes in trillions of dollars, which can only be the amount being spent on health or medical-related activity. So the equivalent for TwoTen...

Our product is designed for primary schools, nurseries & families, so we could use the same logic to claim that it has a total market size in the UK alone of over $100bn. I think.

This figure is derived as follows:

the estimated cost to parents of bringing up a child to age 21


divide by the number of years to get a per annum figure


Multiply by 5.2m - the number of households with children aged 10 or under (our target age group)


Add in primary school state funding (approximates to the primary school budget)

Average funding per school £4100, times approx number of pupils 4.4m

=£18bn (those are figures just for England rather than UK, so this total is low)

Total figure, which excludes nurseries and private schools to avoid any double counting of parental expenditure, is then


which in USD means our market size, just in the UK


An 18* multiple seems fair for extrapolating the global market size. Conveniently, yay! Turns out we're also targeting a global market worth trillions of dollars!

This huge number makes for an interesting contrast with the financial figure we would normally quote. It's from a report from analysts ABI Research, which estimated the global market for parental control software will grow to a rather dull


by 2018.

Again, based on the EC1 article, I think it's appropriate to use that as a starting figure for TwoTen's global Total Addressable Market (TAM) -  a starting figure because it excludes revenue sourced from schools, nurseries, mobile partnerships and special use cases. But still, that means our TAM is around only 0.1% of the market size derived above.

So while it's tempting to emulate those med-tech startups and use the big number, ours was always the more realistic and informative, simply because we can grow to dominate that dull figure, as all of it is expenditure on what we do (only we're doing it better, of course ;) ). On the other hand we would never, ever take more than a tiny fraction of that hugely cool first number, which includes spending on food, clothes, housing, primary and nursery staff wages, etc..

Similarly the med tech market size figure contains huge elements of expenditure that they can't expect to replace; nursing staff wages, medicines, food, power, buildings; so their figure might look impressive, their TAM is certainly smaller - and if they can't find a suitable analyst report, they're welcome to just apply our neatly calculated 0.1%.

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