Part 1 of 2
In the realm of Medtech startups, the journey from innovation to market success is paved with numerous challenges and milestones. Among these, accurately assessing your market size holds a pivotal role not only in shaping your strategic roadmap but also influencing the valuation of your startup during the fundraising process. In this first of several articles, we will explore why strategic market sizing is essential for Medtech startups. As a follow-up, we will discuss how it can directly impact your startup's valuation during the fundraising process.
The Significance of Market Sizing for Medtech Startups
Market sizing is part of the process to estimate the total revenue potential of your product or solution within a specific market. (See our previous article for more details) For Medtech startups, this exercise is fundamental for several reasons.
Strategic Planning: As the organization defines the problem being addressed, who owns the problem and what the customer value proposition (CVP) is, determining the size of the target market is the natural carry-on strategic step. It can help you size potential market opportunities, assess competition, develop appropriate business models, and allocate resources effectively to realize the opportunity.
Investor Attractiveness: Investors are naturally drawn to startups that operate in sizable markets to gain the returns desired due to the risk profile perceived by them. The risk profile could be related to the maturity of the technology, unproven business model or anything else. A well-defined, data-driven market sizing effort demonstrates the initial opportunity and growth potential of your business, making it more appealing to potential investors to participate in early-stage rounds.
Resource Allocation: Accurate market sizing is the basis for determining the scale for key decisions regarding sales and marketing strategies, distribution channels, and product development efforts. It allows the appropriate allocation of resources to where they are most needed which ultimately builds the expense portion of your 5-year proforma.
Risk Assessment: Understanding the market size also helps in evaluating market-related risks. Going through the process of marketing identification, and sizing, naturally requires a solid understanding of your target market characteristics and thus enables you to assess whether your target market can support the desired growth objectives. This may be in the form of physical or non-physical barriers to adoption, such as affordability, location, and other adoption characteristics.
Methods for Market Sizing in Medtech
Estimating market size in the Medtech sector, in our opinion, requires a systematic approach. Here are some common methods which applied in a systematic, data driven methodology, will bear great fruits:
Top-Down Approach: This method involves starting with the overall market size, total addressable market (TAM) and then narrowing it down to the part of your TAM which your products and services can serve, the serviceable addressable market (SAM). Next, identifying the portion of your SAM which can be realistically captured through your business strategy is the segmented obtainable market (SOM) which will be the focus and basis of your forecasts. For instance, one might begin with the total cardiovascular market and then focus on the specific disease area your product may addresses (i.e., aortic stenosis). Further, reducing your market size by specific demographics which your product or service may serve is a logical next step towards narrowing down to your SAM. This is a good first approach before confirming with a bottom’s up approach.
Bottom-Up Approach: In contrast, the bottom-up approach involves estimating market size by aggregating data from individual customer segments. You might calculate the market size by considering the number of potential customers and their purchasing behavior. In totality, the sum of the parts should estimate the SOM.
Market Research: Conducting primary and secondary market research is crucial to inform your assumptions supporting your market assessment. Surveys, interviews, and analysis of existing market reports can provide valuable insights into customer needs, preferences, and market dynamics. While secondary research is helpful in grasping the big picture, the results must be confirmed and further refined by primary research, speaking with your target customers. This is where many organizations typically are less robust and tend to create blind spots for the business. Missing the confirmation step leaves risks in the strategy by having unconfirmed elements of a strategy which are easily identifiable by others who may be domain experts in the space. It’s an easy misstep which can be mitigated by speaking with a sub-set of customers to confirm elements of the business model.
Summary
Strategic market sizing is not a mere theoretical exercise we do in business school or as a backup slide in a pitch deck, but rather a critical component of your Medtech startup's strategic plan and roadmap. It can shape your strategic decisions, attracts investors, and directly impact your startup's valuation during fundraising efforts. By diligently estimating and validating your market size with target customer interviews, you not only enhance your chances of securing investment but also set a solid foundation for long-term growth and impact in the Medtech industry. Remember that market sizing is not a one-time task; it's an ongoing process that should evolve as your startup grows and the market landscape changes.
Our expertise goes beyond market sizing; we are architects of strategic business planning, carving pathways into new products and markets. With a relentless commitment to excellence, we can guide you through product development, ensuring quality remains uncompromised as a supporting partner to executing your business goals. Our goal is to help you maximize your potential for growth and impact on a global scale.
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