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  • Writer's pictureAndy Hamer

Importance of confirming the market opportunity for a great idea before investing

Bill, my boss at Wongs Electronics, was a highly successful serial entrepreneur who had been, in the past CEO - Sinclair Electronics, CEO - Mars Electronics and founded a company to commercialise CT2 phones, which he later sold to ATT.

He came into the office one day and asked me if I would conduct market research and write a report on market size for coin-operated machines because he was thinking of investing and setting up a new company to manufacture a new innovative electronic coin mechanism. He was generous. He gave me a week to complete the task. I’m one for a challenge!

I spent the first day playing around with ideas of how to size the market because I needed access to traditional market research sources, and I would have to create a market model from 1st principles.

I had a brain wave base the market model on payphone penetration. Why? Because most countries used to have a payphone on every street corner. I could then work out a rule of thumb for the number of coin-operated machines in the proximity of payphones. Early days of the internet, no Google; however, I eventually found a table with payphone penetration across Europe, North America and APAC.

Having found my baseline date, I started to work out a common sense ratio for coin-operated machines to payphones. I had to think about the type of machines using coin-operated systems ie parking machines, and vending machines.

Finally, I was happy with the market model. I had my assumptions, and I wrote my report.

A week later, Bill asked for my report. I explained to him how I had created my market model and the assumptions I used, then showed him the market model broken down by region and country where data was available, which he agreed with.

He asked for my conclusion. I told him it was a very large number and even if only 5% penetration were achieved based on the potential selling price, it would be a substantial business.

This story highlights the importance of confirming market opportunity before investing in a new business idea. Even a successful entrepreneur like Bill recognizes the value of market research and validation to ensure the potential success of a new venture. By conducting research and creating a market model, the research can provide valuable insights and confirm the market's potential size. This allows Bill to make informed decisions about investing in the new coin-operated mechanism and can help to minimize risks associated with starting a new business.

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