Episode: 529 |
James Agres:
Market Sizing :


James Agres

Market Sizing

Show Notes

James Agres is the founder of  2nd St Strategy, an independent consulting firm focused on private equity and commercial due diligence work. He has experience in various industries, including software, industrial, and healthcare. James discusses the importance of market sizing in commercial diligence projects.

In this episode, he talks about the importance of market sizing varies project to project, and how it helps businesses understand the size of opportunities available to them. A large market can represent a large opportunity, while a small opportunity may be more limited. James explains that understanding the market’s competitive dynamics, market share, and growth drivers is crucial for businesses. James shares the different terms for market size, such as total addressable market (TAM), serviceable addressable market (SAM), and serviceable obtainable market (SOM). The total addressable market is the total population of the town, the number of haircuts, and the price of the haircut. The serviceable addressable market is the percentage of the town represented by men in a certain income demographic or willing to spend a lot on haircuts, and the serviceable obtainable market is the percentage of the town represented by men in a certain income demographic or willing to spend a lot on haircuts.


Determining Market Size

James explains that to reach the desired audience, businesses must advertise to the entire town or reach specific demographics and geography within the town. He talks about various market sizing approaches, including price times quantity and quantity times price, by segment. He explains that the most basic market sizing framework is price times quantity, which can be applied to dental practice management software. The market size is about half a billion, with 138,000 stores in the US and a close-to-100% adoption rate. He offers another example of software used to manage reservations at state, national, and local parks in the US and Canada. The market size can be estimated using various methodologies, such as the p times q methodology, which uses data on visitor numbers, pricing, and vendor percentages. The state parks and target organizations can also be used to determine their market share and percentage charges. James presents various market sizing approaches, including price times quantity and quantity times price, to analyze the market size of various industries. By utilizing these methods, he aims to provide a comprehensive understanding of the market size and competitive landscape in the dental practice management software market. 


Estimating a Company’s Market Share

The second method involves estimating a target company’s market share based on their revenue. This method assumes that all competitors operate similarly to the target company. This method can be applied to the rest of the market, as well as to the target company’s market share. The third method involves estimating the adoption rate of a product or service. For example, the market for waffle service is a complex one, with 680,000 restaurants in the US and a significant number of hotels and restaurants. To estimate the percentage of restaurants serving waffles, various methods are used, such as industry interviews, menu data, and analysis of menus. The adoption rate of about 10% is crucial for market size sizing, as it is often the hardest variable to determine when considering price and quantity. James advises that, In the context of due diligence, it is essential to gather data and make critical assumptions to determine the pricing of a target. This can be achieved through various methods, such as talking to customers, analyzing restaurant and hotel data, and contacting competitors or market participants.


Where to Get Good Quality Data

In industries where the quantity is not well-known, such as the number of dentists, it is possible to get the quantity side of the equation by using good quality data. This can be obtained from sources like the Bureau of Labor Statistics. However, when the quantity is not available, different methodologies can be used, and James shares the various methodologies and software that can be used. James also explains the importance of understanding market size in nascent or new markets, and growth markets,  such as the market for vocal biomarker software. This technology is used to detect behavioral health conditions and cardiovascular diseases, such as respiratory distress during the COVID-19 pandemic. He talks about the need to understand the actual use cases for technology, the different routes to market, and potential users of the technology. 


Pricing Strategies and Technology Usage in Market Sizing

James talks about the importance of asking questions about pricing, such as competitors’ pricing strategies or other clever ways to get people comfortable responding. Overall, he emphasizes the importance of understanding market size and the need for a well-rounded approach to understanding and addressing market trends and opportunities. When using technology, James suggests that the first question should be “What AI tools for what use case?” This helps build a foundational number from which to apply different criteria to build a market size further. He also discusses the possibility of triangulating the market size using different approaches and methodologies, such as using the same set of assumptions for each methodology. He also discusses the importance of understanding the difference between different methodologies and the need for additional data to remediate any errors. He states that multiple methodologies for the same market should aim to produce the same result, and that the question should be asked about the right data to help determine the appropriate pricing strategy. James emphasizes the importance of understanding the pricing in a particular industry, particularly in the cybersecurity solutions market. Some industries may be relatively transparent, while others are more picky and pricing is difficult to obtain. To size the market, Agres suggests using publicly available information, such as online forums and system administrators’ subreddits.


Cybersecurity Solutions and Determining Market Size

James shares that collecting market size data can be challenging in some industries and cites cybersecurity solutions as being a difficult one to gather data on as  the exact size of the market is not as relevant as the market size. Instead, Agres suggests using Gartner data to understand the specific segments where the solution is most applicable. James suggests that to get to a more precise definition of the market, and figure out exactly which segment the target is relevant to is extremely important. He also discusses the challenges of predicting market size in industries like building products and construction. He suggests using data from various sources, such as EIA data, to build a model that accurately represents the market size. Additionally, there is the need for a more precise definition of the market and determining which segment the target is relevant to and he shares a few unusual examples such as the market size for fire doors and the market size for waffles.



01:32 The different types of market size

07:03 How to estimate the size of the market

11:54 Example case studies to understand market size

17:57 Example of a market for next generation 911 software

22:37 Measuring the market size of the deep foundation

25:17 The market for fire and security alarms

30:54 How do you determine market size for AI? 

35:36 Favorite questions to ask around pricing

40:13 Providing multiple layers of market size to private equity



Website: https://www.2ndststrategy.com/






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James Agres


Will Bachman  00:01

Hello, and welcome to Unleashed. I’m your host will Bachman and I’m here today with Umbrex member James address. And we are going to talk about market sizing. James, welcome to the show.


James Agres 00:12

Thanks. Well, I’m glad to be here.


Will Bachman  00:14

So James, I know that you have done well over 100 do diligence projects. And each one of those typically will include market sizing. Just give us a quick kind of snapshot on your background. So listeners know where you’re coming from, with your perspective here on market sizing. Yeah,


James Agres 00:33

absolutely. I’m a founder of Second Street strategy, an independent consulting firm that’s focused primarily on private equity, commercial due diligence work, I do most of my work in I would say software space, probably half of my work is related to software, commercial due diligence. And the other half was a mishmash of various topics ranging from industrial to, to healthcare, I had a few steps along the way to this to my current to my current role, I worked at EY Parthenon, I worked at who have been looking at investment bank, and I started my consulting career at McKinsey and Company. But now I do commercial diligence for middle market private equity companies, which naturally involves a lot of market sizing. And I’m very excited to talk about this topic.


Will Bachman  01:22

Fantastic. So, first question is a two part question, which is, why do we care about market size? And what are the different types of market size? There’s terms out there like total addressable market, and versions of that, when people say market size, there can be several different subcategories? Walk us through those and why why is it important to you know, size of market?


James Agres 01:50

Yeah, absolutely. I think, you know, the importance of market sizing really varies project to project. And I think, trying to understand how important market sizing is to each individual commercial diligence is its is the first question, you know, I asked myself, anytime I started a due diligence project or market sizing exercise, you will need to understand the size of the market to primarily understand the size of opportunity that’s available to the business you are, you’re looking at. If the market is large enough to represent a large opportunity to market a small opportunity could be a lot, it was more limited. A lot of times you want to look at the market to understand the competitive dynamics within that market in a better in a better way, you want to understand what type of market share, for instance, the target company has an old really way to understand that is to understand the size of the company and its competitors. And in relation to the overall market. Sometimes you really want to understand the growth, that’s that’s possible in a particular market. So what I try to do is understand the current size of the market and then understand its drivers and its growth drivers and projecting market to in future for three to five years to try to really try and understand the opportunity again, that’s available to the target company.


Will Bachman  03:16

So let me ask you this, and help us explain some of the different terminology for market size. So if I am thinking about opening up a barber shop in a town, you could say, what’s the market size? Well, you could say, well, the market size for the entire United States barber market is is x millions or billions of dollars. But I don’t care about that. Because if I’m in Senator of Indiana, I’m not going to give someone a haircut in New York. So you would focus probably on just the this number market size in your town. So what do you what are the different terms for market size? Like I think there’s total addressable market? And there’s probably some other versions of that. Walk us through the different terms and what they mean.


James Agres 04:02

Yeah, absolutely. I think the terms that you commonly hear in relation to market size, are tam total addressable market, Sam serviceable addressable market and some serviceable obtainable market. And the difference in difference in them is, it’s quite interesting. I think, you know, to use your analogy will, if you’re opening a barber shop in town, you won’t understand the total addressable market that’s available to you. You can look at the total population of the town. And then you know, the number of times somebody gets a haircut in a given period of time, and then the price of the haircut and kind of multiply everything out and you would get the total addressable market. Which queeny sizable town can be quite large. But then the question is, is this market really serviceable to you? You know, not every barber shop serves every type of client. Some serve only men, some Long hair salons always sort of women, some expensive, some are not so expensive. So you really want to say what services do you give in the capabilities that you have within the business and your target market. So that’s when the segmentation begins, maybe you’re serving, you know, providing really expensive, you know, haircuts for men, right? So you really want to understand, okay, what percentage of your town of your town is represented by men in a certain income demographic or willing to spend a lot of money on the haircut, and then the price point is going to be higher. And you can kind of multiply that out that adoption, this is how you would ended up with serviceable addressable market, the SAM and then and then there’s a concept of Sam, which is the serviceable obtainable market? Well, you’re not the only barber shop in town, presumably that provides high end men’s haircuts? How are you able to reach your desired audience? You know, are you able to advertise to the entire town is a people from every suburb in your city going to come to you? Or you’re going to, you know, advertise and try to reach a particular demographic, a particular geography within the town. So you can kind of further divide that out to obtain serviceable obtainable market, the sum.


Will Bachman  06:20

Okay, great. So I know that you have prepared for us several examples. And, and what I’m looking forward to is you walking us through, like, different approaches to sizing a market and, you know, kind of in different categories. So, I’ll let you just go ahead and lead. Yeah,


James Agres 06:39

and, you know, feel free to jump in with, with questions as I kind of go along. And, you know, I try to organize them when kind of, you know, from easiest to hardest, so to speak to analyze. So, you know, I think the most basic market sizing framework or methodology you can have, is price times quantity, quantity times price, by kind of segment. So, one example I can I can provide here is, I looked at the market for dental practice management software a couple years back. So, you know, you everybody goes to the dentist, presumably, and they run their business, some practice management software, and, and wanting to understand the size of the market. So, this is this is a fairly easy market the size, right? For a number of reasons. One is the number of dental practices in the US is a known number, it’s 138,000. Stores in 2021. When I, when I when I did this project, and also their segmentation is fairly known, you understand how many of them are solo practitioners, I mean, even have multiple locations, amania, owned by large dental service organizations, and so on. And pretty much all of them have adopted some sort of a practice management software. So the adoption rate is close to 100%. And all of these segments, the pricing for software across all these segments is also fairly well known. So it just becomes really easy to multiply quantity times 100% adoption rate times monthly spend with on practice management software to get to the, to this market size, which was about half a billion.


Will Bachman  08:18

Okay, I follow that one. Okay. So that’s number one, price times quantity, what’s number two?


James Agres 08:25

Well, so you can get, we can get a little bit hard example, right. And a lot of times, I try to use multiple methodologies whenever that’s possible, too. And hopefully, they kind of line up with one another, to really estimate a market size well, so another example, I looked at software that was used to manage reservations at at state and national and local parks, in US and Canada. So, you know, if you were to take a camping trip, you would go and try to book your campsite reservation on the on the portal site for for the apologize for the you know, for the for the State Park, for instance, and the State Park would provide pay a share of the reservation costs to the software provided, right. So what I was trying to understand is essentially the size of the market for these providers. Well, you can use, you know, the old kind of p times q methodology methodologies that I mentioned earlier. For instance, we know the number of visitors to parks across the US and Canada. We have some data on how many people go to campsite, which we can use to figure out basically the number of visits. We also know the pricing and kind of the percentage that these vendors typically pay. Or the state parks typically pay to these vendors to come up with one way of doing it. And then another way is, you know, there’s only so We have the state parks and target here, we have their data. And they they serve 20 out of let’s say, 80 different parks organizations out there. And I know what their kind of share is of the market, and what their percentage charged. And I can use that as a proxy to kind of extend that across the other, the other parks that they do not, do not serve. So I basically use the proxy data that I have to extend it to a wider the wider market size.


Will Bachman  10:41

Okay, so let me let me check on this one. So this, this one would be, let’s call this method number two is, if you have a known target company that operates in a market, and you know, their revenue, you could take a estimate of their market share, say, Well, we think we have a 13% market share, or let me make it easier 20% market share. So then the market is five times your company’s revenue, right?


James Agres 11:09

Yeah, yeah, that’s exactly right. I think there’s a underlying assumption, the Validate here, which is, all the other competitors operate in the similar manner to the target here. So you can feel comfortable extending this, you know, this methodology to the to the rest of the market. And in this case, that is, you know, this is how these companies operate. So this was this was the second way to kind of size the market here.


Will Bachman  11:35

Okay, great. So we’ll call this the sort of backing backing into it from your, your own company’s market share. Yeah. All right. Cool. That’s number three.


James Agres 11:44

And another methodology is I kind of want to go back to p times q, but there’s a key question of adoption rate that wasn’t present in the dental example. And that’s often the kind of the hardest thing to get, right. So the example I want to, I want to bring up is I looked at the market for, for waffle service. So you know, if anybody stays at a hotel traveling for business, I’m sure they’ve seen waffle irons that hotels, those are actually provided by a handful of not even a handful, a couple of vendors that that provide a whole service, waffle iron mix, and everything else associated with it. And they serve hotels as well as restaurants. And I was looking to understand understand the market size for something like this. Well, on the surface, it’s kind of easy, right? Because you know, how many hotels are there across the US and make some estimates in terms of, you know, what type of hotels by price point, for example, serve waffles and don’t serve waffles? You know, the number of restaurants in the US is 680,000 restaurants in the US that’s that’s known from the National Restaurant Association. And you also know the pricing for for waffle service, or the annual spend rather hotels and restaurants have with these vendors. What it’s really hard to understand, particularly for restaurants is what percentage of them are going to serve waffles. Right. And that’s kind of in this kind of the crux of the of the Medicare right? So the idea is that I needed to understand different ways to estimate what percentage of restaurants are waffles. So I looked at things like industry interviews, so talking to a number of number of folks who participate in industry, for instance, in the waffle industry, right to try to get a sense of how how they see this market, what percentage of the of the restaurants by waffles, there’s data you can get on menus. And you can do some analysis on that data to basically understand how many times the word waffle appears on menus, excluding things like waffle fries and waffle cones and things like that. That is that’s an important component as I warned because that does overestimate the actual the actual amount of waffles that have been sold out there. So getting that adoption rate which is about 10% is kind of the key. The key to getting to get into market size sizing right here. When you have the price and the quantity the overall quantity is kind of known that adoption rate is often the hardest, the hardest variable to get here.


Will Bachman  14:27

If you were doing this outside in and you were not say doing due diligence on a particular target, how would you go about getting the pricing of the this waffle service and by the way, that’s news to me, I I’m so surprised I thought the hotel would just buy a waffle iron and make their own batter. This is news, but Oh yeah,


James Agres 14:48

definitely knows there was news to me as well a lot of times,


Will Bachman  14:52

because I imagine these waffle companies, you know, say call us for a quote, right? They probably just don’t have a price on their website. Oh, it’s you know, 150 $10 a month for your hotel for the service. So how would you go about getting that that pricing? Yeah, that’s


James Agres 15:06

a great question. Well, because I think particularly in the due diligence context, and for those listeners who don’t know, the diligence tends to be a very kind of Sprint like, project, typically three weeks in duration, where you kept together a lot of data, of planning ahead, and figuring out how you’re going to get some of those critical assumptions is, is extremely important. Because the worst thing you can afford to do is, you know, and, and wait till week three, and then figure out you need to do a broad survey of the market, when you need to talk to, you know, 20 different people in order to get some of those assumptions. So, I mean, there’s, there’s several ways to get the pricing if it’s not available to you one, and probably the the one I use most common is talking to people, I talk to restaurants, I talk to hotels, and I understand how much money they spend while for service. And if the numbers are fairly consistent, or I can standardize them to the size of the restaurant, or size of the hotel, a particular segment that’s that’s a great data point to use in market sizing, talking to competitors, or market participants is another way of doing it, people from, you know, willing to share general pricing information, that that’s not necessarily that sensitive, to be able to then incorporate those inputs into the market sizing equation as well.


Will Bachman  16:31

Fantastic. So that’s, I mean, any market sizing eventually is going to be basically, in generally based on your price times quantity. So that’s some different ways of getting at the price piece of it. In these cases that you’ve given, so far, some of the quantity was fairly well identified, you can look up how many dentists there are. But how do you go about getting the quantity side of things when, you know, it’s not a known industry or an industry with sharp data, like the number of restaurants but something more like, you know, I mean, I’m sure you’ve worked on industries where getting in the quantity itself requires a lot of digging?


James Agres 17:12

Yeah, absolutely. So the if, if the key to being able to do price times quantity is just a word of his availability of good quality data. And a lot of industries have good quality data with we proxy data you can use for quantities. You know, the Bureau of Labor Statistics, you can prisons, get the number of plumbers, and the number of roofers and a number of various other professions that if you’re selling to those, into those, you know, for those segments, you’re able to then figure out the quantity side of the equation. But a lot of times, like you said, that is that is not available and different methodologies can be used, I think a popular methodology or common methodology where it’s available is kind of a competitive buildup, right. So one example I can give, I looked at a market for next generation 911 software. So if you call 911, there is a call center obviously, that’s that is staffed 24/7 and it has a software solution that that it operates on. And the software solution is quite involved, because it has to involve all the you know, the telecom providers in the area and a lot of redundancy and emergencies, and so forth, they need to be handled extremely well given given the importance of, of the software. And so as a result, there’s only a handful of companies that are participating in this market. And these contracts tend to be awarded on state by state basis with the exception of California that kind of split it into into four different zones. And there’s only there’s only 12345 companies that that are really that are really doing this some of those companies are public or they publish their revenue information some of them will one of them is the target so in the revenues are and then for the rest you can you can you can develop estimates to throw coals and on top of that, because this is done at a state by state level for the most part, and you know, the population of states and the pricing is based on a number of lives covered so to speak very often you’re able to kind of marry those things two together and say okay, I know that company X you know represents 30% of the market and their revenue is 100 million. Company Y represents 20% on the market and so on and so on to build a market up this way.


Will Bachman  19:51

Excellent, fantastic. Okay, let’s go to the next. The next example you have.


James Agres 19:55

Another example is is customer buildup, right? So it’s One of the the flip side of that this, this is particularly useful in a situation where there’s only a handful of customers out there. You know, for instance, I did another diligence looking at mobile device management software that sold through telecom operators in the US. And in the US has only three major telecom operators, Verizon, att and T Mobile. Their size, as well known, the number of subscribers is well known. So you kind of know what the opportunities available with each of these individual customers. So you’re able to essentially at a mall to figure out what, what is the size of the market, this is also going to be very relevant if you’re selling listens for big box stores or home improvement stores, you know, this Lowe’s, Home Depot and Menards. And then we’re going to certain that we have a certain market share, and doing building products, plumbing products that have worked in the past, this is a methodology that you can also use to try to build up the market from the customer side.


Will Bachman  21:06

So you’re saying if you know how much home depot spends on garden hoses, then you could sort of make some estimate, and you know, how much Lowe’s and Menards does, then that’s gonna be a pretty good share of the market. And boom, you’re done.


James Agres 21:21

That’s That’s exactly right.


Will Bachman  21:25

Fantastic, and the other examples,


James Agres 21:28

I have examples of other methodologies. For sure, I think another way to look at it is trying to understand what is the share of the broader market that the market you’re looking at represents. So an example in this section numbrix project that has looked at micropiles, which is deep foundation technique. So if you’re thinking of like, if you look at a skyscraper or a highway bridge, the way the foundation for some of these structures would look like, there would drive these giant metal tubes into the ground and use them as Foundation to support the rest of the structure. Well, there’s no quantity, right available for something like this. Because there’s just so many different construction projects, and they vary year to year, and so forth. So what you kind of have to do is, so the way I did it is I you know, the share of the broader construction market that micropiles represents. So let me give you kind of more details. So, you know, the US Census, they have an estimate of construction put in place, by of course, various types of buildings. In 2021, when they did this, this was a bunny on $2 billion. Then there’s data out there on understanding what types of buildings are over 100 square 100,000 Square feet, which typically involves heavy loads, which have a use for this type of foundation technique. Then through industry interviews, you can gather numbers on the deep foundation as a percentage of the total construction costs for these for these buildings. And I’ve done a number of interviews to try to get an average number and everybody was kind of aligned more or less on the deep foundation representing five to 10% of construction costs of most buildings. And then there’s some data from EIA, that talks about the types of deep foundations that vary state by state region by region, because though that that foundation or technique is only applicable to certain geologists across the US, and essentially them kind of multiplying everything out to figure out what what the size of the market is for micropiles.


Will Bachman  23:57

So you’re taking something that’s a fairly known market size, and then figuring out a percentage of that. So it sounds like you took the total construction market and then figure out how much is that construction market is for big buildings for skyscrapers and then for skyscrapers? How much of the cost of the skyscraper is the deep foundation? And that led you to the answer?


James Agres 24:18

Yeah, that’s exactly right. So it just continues stepping down from a broader, you know, from a broader market to a more narrow market that that you’re looking at. Another good example for something like this, I will add parts for appliance repair distribution of parts for appliance repair. So you know, appliance repair and number, size of the industries is a published number. And through interviews and other research, I can estimate what percentage of appliance repair costs is represented by parts, it’s about 29%. So multiplying all of that out, you know what parts spend for the appliance parts spent for repairs in the United States?


Will Bachman  25:08

Fantastic, what is your next methodology?


James Agres 25:11

Next month, I’m kind of coming towards the end here. So another market I looked at is market for. So we’ll get into a very complex, they’ll say mark is that just gonna have a lot of published data on it? Right. So another market I kind of looked at is, is market for fire and security alarms. And there’s just even as you can imagine, you know, fire and security alarms go into pretty much every commercial building, every multifamily residential building is just a very, very broad market. Globally, as well, that’s just not going to have a lot of foundational data. And the pricing is also going to vary quite a bit from project to project from building to building. And is also a lot of different vendors who participate in various aspects of the market, making the competitive build really, really impossible. So we can have to do is you have to rely on Publish industry sources. So for instance, we know that from a number of different reports that the global fire and security markets in, it was about $110 billion a year kind of looked at it. And it’s segmented across different regions. And it was interesting, particularly in North America, so can take a segment of that, and into what, what North America represents. We can then from, from some other secondary sources, we can kind of split that into fire and life versus security, to try to get a sense of okay, what is the fire alarm market is and then, and then kind of marry that with a more of a bottom up estimate from the number of different companies. Right, so this is, you know, there’s fire and security systems implemented by integrators, and there’s a published list of top 100 integrators in, in globally in the US, will Canada revenues. But that’s not a complete list of companies to participate in this sort of, so through industry interviews, you’re gonna have to try it out to get to, you know, so you know, what the revenues of those top 100 companies is, because that’s a published number. But like I said, it’s not a complete list, you have to throw it up to, to basically understand what other companies are not included in the list. So it’s a combination of using that competitive build methodology. And then, and then exclude some companies that don’t do fire, just do security contracting, and essentially, kind of massage all those numbers together to come up with, you know, about a $25 billion estimate for, for for fire alarms and security. And the reason this estimate is, you know, this method is so ambiguous, I guess. And, and the precision and it’s probably isn’t as high as other numbers, is that, you know, if the market is $25 billion, or if it’s $15 billion, you know, looking at a company here, there’s probably $100 million in revenue. It’s not really that important at the end of the day, right? Whether the market is $25 billion, or 35, or even $50 billion. The question for the for the acquirer here is more about the opportunity, the competitive of the competitive dynamics of the market, the growth dynamics, how easily is it to displace, for instance, some of these companies, so the market size becomes a less important question and these kind of more ambiguous situations.


Will Bachman  28:41

All right. Now, I want to ask you about how have you dealt with situations where it is a nascent or a new or not even yet existing market? Yeah, like if I had asked you a year ago? What’s the market size for tools built on chat? GPT for right, like, Well, it hasn’t been released yet. So it’s zero right now. But, you know, a year later today, it’s it’s, you know, it’s existing, and it’s growing. So how do you? How do you think about that when their market doesn’t yet exist because of technological change or innovation?


James Agres 29:20

Yeah, that’s a great question. Well, I think looking at nascent markets, this is one example where market size currently isn’t that important, right? Well, you really have to understand is market growth, dynamic and adoption of these emerging technologies. For example, two years ago, I looked at the market for vocal biomarker software. So you know, the theory and the science that theory this is the science behind that is that a number of behavioral health conditions and as well as like cardiovascular conditions, can be not diagnosed. That’s not the right word, but at least markers can be found in people’s voices, and particularly during the size of this was done during peak of COVID. Right? So having people pull a phone line, right and produce a sample of their voice, and then having an algorithm be able to pick up that there is signs of respiratory distress. Right. So then be able to say he should probably go tested that there’ll became, it was a very, you know, important, I guess, use case for this type of software. But there’s other use cases, right, you can pick up the signs of depression, or cardiovascular disease, the disease. So this is an emerging market, right? This is not a practice that’s commonly adopted. There’s just very, very limited current, you know, current utilization of these types of technologies. So, you know, how do you look at a market like this? Right? Well, I think you have to work to understand, you know, what are the actual use cases for technology? What are the what are the different routes to market? Who are the potential users of this technology? Right, so for something like this, there is biopharma or clinical research organizations that are using vocal biomarkers in their clinical studies, this company has been interested in using this technology for employee health monitoring. So these tend to be, you know, large, kind of large employers and employers in the United States, there’s a way to incorporate this technology into consumer devices, to monitor for, you know, for certain populations, where appropriate, things have smartwatches. There’s obviously payers, who may or may not be interested in the separate technology, and as part of their, you know, service delivery, and then also practitioners, clinical practitioners. And you can figure out the number of, you know, of each of these players is, but the big question becomes, what percentage of them can possibly utilize that technology? Right, and because you’re looking, none of them, we’re really utilizing it now, with the exception of biopharma we try to do is you try to establish what percentage of them could eventually adopt something like this. This is done through interviews, this is done through through research, I didn’t do a survey for this particular for this particular project. But a survey could also be used to try to essentially identify, you know, how many instances of this type of software can be can be utilized across these different segments. And then, and then work with a target to try to see what what the price could be for these different use cases, they kind of thought about them, and they have a pricing model in mind, to try to figure out what the market size could be in, in the few years for these types of technologies. And that’s the same, you know, if somebody asked me to size the market for AI tools, I think the first question should become, okay, what AI tools for what use case, because that’s essentially what is needed in order for you to, you know, build a foundational number from which you can then apply different criteria to build a market size further.


Will Bachman  33:22

Talk to me about how you may or may not work to triangulate the market size by coming at it from different approaches, different methodologies that you’ve discussed, to say, did they come up with the same answer? Are they off by a factor of something?


James Agres 33:40

Well, that’s a great question. But sometimes sometimes they do. Right. And that, that’s really, you know, the, that’s really exciting. And I guess, makes you feel good about your calculations. And sometimes they don’t. But I think in both cases, you have to kind of understand if you, if you come up with market size with two different methodologies and come up with exactly the same answer, I think the first question I asked myself is, did I use, you know, the same kind of set of assumptions to, to put into the different methodologies in order to produce the same result? Right, so then if the if the answer to the question is yes, then you’re not really using kind of two different two different methodologies. You just rewind everything in that, and the single adaption. And when they do that, well, then the question becomes more interesting. I think you have to understand, you know, why not? Right? If one method is, you know, 10 times produces a result that’s 10 times larger than the other method. No, that produces a natural question, why right? Well, maybe you’re kind of bottom up method that produce the result that’s 10 times smaller, just looks at the segment of the market, that the top down result for instance, generated Then, then you have to do some work on your top down analysis to try to figure out, okay, you’re looking at the right segment, can you cut it down? And or maybe you miscalculated something we’re human right? Use the right assumptions for you bottom up sizing. And you really have to adjust that to, to kind of to help to help Delta both markets means, ideally, multiple methodologies for the same market should aim to produce the same result. You know, if when they don’t, then the question becomes, you know, where am I wrong? And my assumptions, what additional data do I need together in order to remediate that?


Will Bachman  35:42

You ask you do a lot of interviews, what are some of your favorite questions to ask around pricing? And I’m guessing that sometimes it might not be the best just ask, okay, what’s the price? Maybe you go after it and say something like, Oh, what do you think your competitors typically charge? Or maybe have other clever ways to get at it? Where people feel more comfortable responding?


James Agres 36:06

Yeah, I think you have to, you know, when you ask these questions, you have to understand the nature of sensitivity to pricing in a particular industry. You know, in the waffle example that I was talking about earlier, pricing, is that a secret? Everybody kind of knows what everybody’s charging. So you could just trade up and ask, you know, what is? What is the price here? Right?


Will Bachman  36:30

By the way, by the way, what is the price for a waffle service?


James Agres 36:35

I think for restaurants, it was annual spent for Hotelling was spent about $3,000 a year, if I remember correctly. So that includes you know, all the better ascension, all the stuff that they’re buying. And for restaurants is a little bit cheaper, because they don’t necessarily buy as many waffles, there’s lots of other stuff, you can get a restaurant, I was about 2.3 to $3,000


Will Bachman  37:02

a year, like my kids do like those hotel waffles. Okay, back to the So, so Okay, so sensitivity. So some industries, may be just relatively transparent. So they’ll just tell you, right, and they’re not, it’s not like a big secret.


James Agres 37:15

And then and then when they choose words with more or less transparent rather, from the competitor perspective, I also do a lot of customer calls. And I think asking what your annual spend is or what your monthly spend this for particular service and category can open help you understand what what the pricing is in a particular industry. I think you know, for for, for projects on 911 systems that I was talking about earlier, a lot of that information is publicly available, given the public nature of, of those of those of those projects and solutions. A lot of times looking at online forums is really helpful. And we read it as a great tool for a number, there’s a number of sub Reddits. For particular, for system administrators, I’ve worked in a number of kind of system admin tools out there. And they tend to be very vocal about the tools they like they don’t like and even how much money is has been spent on various solutions. Some industries are a lot more picky and pricing is difficult to get. And you really have to think of different methods to size the market.


Will Bachman  38:37

Tell me about one of those, some industry you worked on where it was really hard to get pricing?


James Agres 38:44

Yeah, so like, you know, for instance, I looked at cybersecurity solutions, firewalls and natural firewalls and a couple other solutions. And it’s just such a big market with so many different companies, both large and small, and so many different competitors, participant in the market at various price points, than doing this kind of p times q is just not really possible. And the same time, it’s not really that important, right? Because the market for the solution is about $40 billion, again, under companies for about $150 million in revenue, right? So the exact size of the market is not as relevant. What became very relevant is okay, under that $40 billion, what are the actual segments where the solution is the most applicable to? Right so, you know, if we’re talking about software and and particularly security, software and nature, there’s a lot of reports from Gartner for instance, that look at these markets in a lot of detail and they provide you know, various segmentation on on the type of software, you know, whether you let Gartner or not People don’t and whether it’s pay for play, which it is, it still it still makes it you know, there’s still good data that can be generated from those reports and different segmentation, right. So then, you know, the question and the market sizing become becomes not really okay, what is the size of the total market here? What are this $40 billion, you know, which what segment of the market do SMBs represent, which is what this this solution provider targeted, and that of that $8 billion that SMBs represents? Okay, what percentage of that is, you know, physical firewalls or identity security software, a couple other kinds of different things that that this company was really targeting. And that became the key question of, of the cases using the Gartner data and trying to really understand, okay, where there’s a solution most applicable do


Will Bachman  40:57

want to ask you if you make a practice of providing multiple layers of market size to help provide context to your private equity clients. And I’ll give an example. Let’s say that you were looking at a company that produces organic, freshly made dog food, right? So you could imagine you might communicate to them to put the numbers in context, you could say, Well, look, this is the entire pet food market, the United States. And then here’s the dog food market. And then here’s the organic dog food market. And then here is the freshly made organic dog food market. So they could kind of see where that fits in. Right? Do you ever do anything like that? Like trying to show the left? You know, kind of the, the not exactly the Venn diagram, but just sort of the expanding, expanding as you expand the definition?


James Agres 41:57

Yeah. So I think I think trying to get to a more precise definition of the market, right, and figure out exactly which segment the target is relevant to is, is extremely important. The example I just gave with the cybersecurity solutions is a perfect example of that. You know, like I said, the cybersecurity solutions market, according to Gartner, and a couple other sources $40 billion. Well, what segment is really relevant to this particular company? Well, it’s SMBs, which is a billion dollars out of 40. And then they only provide certain types of solutions. That that you can figure out what what the segment, what’s, what’s the size of those individual segments for SMB customers is, and that becomes the market sites. Awesome. And it’s not, it’s not that they, in theory to not participate in that $40 billion market, because it provides network security solutions, and that’s the network security solutions market size. They’re just not necessarily as well positioned to support enterprises or provide other types of, or provide solutions for other sub segments of the market.


Will Bachman  43:07

James, I’m wondering if you may be able to pull out one last example. I’m curious if anything comes to mind of sort of the wackiest or the most creative or outlandish, or, you know, roundabout way that you have done to come up with a market size where you were proud of yourself, it was, you know, some kind of some kind of clever that you had to apply to it.


James Agres 43:34

Yeah, I’m just like this. Besides the waffles, I think you would have asked me that question. That’s probably the one I would use. I think looking at it, anything that has to do with building products, and, and construction, it’s always kind of interesting to me, because there’s just not a lot of good data published this Sunday to publish on and so you know, there’s EIA Data on on site, your square footage of commercial buildings, by by sector and industry and trying to build a model essentially, to kind of marry the data doesn’t update it, unfortunately, very often. So you can always have to bring it forward a certain number of years based on the construction trends and the US but then trying to kind of marry it with with different construction projects. Like for instance, I look at fire doors. So, you know, these are doors if you go to a hospital, for instance, and somebody trips a fire alarm roll, the fire doors are going to close automatically to prevent the spread of fire between different parts of the building. Right? What’s the market size for that? Since there’s so many different buildings for this can be applicable to and and you know, how many fire doors are there in the building, right? So you kind of had to you know, use that square footage data. That’s publicly available, but then try to figure out how many doors on it well, how many different types of fire doors are there some type of buildings have like hospitals, like I said that fire doors between different sections of the building. Some buildings have fire doors that are only at the address of the building, or the interior of the building. And so on down the line, some have them on every kind of, if it’s a multi storey building, you’re going to have a fire doing every entry to the stairwell. So trying to send you a count of oldest fire doors, and then figure out what the service component of them is because that was that was the key question of the case. And I tried to marry that all together. It was a very kind of intense data exercise to be able to be able to estimate that that market says,


Will Bachman  45:51

James, where can listeners find you online if they want to follow up?


James Agres 45:56

Second Street strategy.com Or look me up on LinkedIn, James Eggers,


Will Bachman  46:00

and we will include those links in the show notes. James, this was hugely educational for me. Thank you so much for joining today.


James Agres 46:08

Thank you for having me on. Well, I really appreciate it.

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