The Large Market Fallacy

Last week, during a new product presentation, I had an all too familiar moment. We had reached the point in the meeting where it was appropriate to review the business logic behind the concept at hand. At this point the presenter threw up a massive sheet of numbers and calmly commented to the audience, “well, overall this is a $4 trillion dollar market, so we think if we only capture 5% of the market, we’ll earn around $200M in the first year.” She didn’t even blink. (I changed the numbers to protect the innocent…the sad part is they’re lower than the actuals.)

I sort of live for these moments in presentations. It’s probably the same attraction that keeps baseball fanatics glued to their television for hours of what appears to be a pretty boring game. After waiting patiently, and watching things slowly play out, something goes very wrong, At that point, all hell breaks loose. At that point, you see who’s the power player in the room, who’s done their homework, and who’s completely out to lunch. This part of the meeting was pretty mush a wash, that argument basically threw itself out the window. This presenter had just committed a pretty common error, one I now refer to as a Large Market Fallacy.

I’ll get to the details on LMF, but first a slight detour.

When I was in undergrad, I remember that some odd curriculum requirement forced me into a course on Logic. I think I was somehow dodging some history requirement, and the class ended up providing me with one of the few textbooks I kept beyond school. There was this fabulous section in the book that listed out scores of logical fallacies. Things like red herrings, slippery slopes, etc. were explained in detail. The book did a great job of taking pretty common arguing topics out of context and explaining why the arguments were problematic. This is where my head went when the overall market hit the trillions, (really?)

Ok, back to the market sizing.

I read a great piece in the WSJ around Large Market Fallacies earlier this year. (They weren’t using the phrase, but that was essentially the problem). This author used a great metaphor around selling a can of coke to every kid in China. The general idea is that people created flawed plans when they assume that the market holds an opportunity just because the market is massive. These business plans just want 5% of a MASSIVE market, which seems totally reasonable, right? I mean, 5% is a small share, so how could they fail.

I often wonder how people end up in this situation. For sure there are many reasons, but I have to believe that you only drive down this road if you don’t intend on executing the plans your making. If your on the line for these projections, you have a wholly different approach to things.

Ok, so enough ridicule, how do you get around this type of thing. Some markets are actually huge, how might you go about entering? Well, try to make the market small. Think about finding a niche (or creating one). Either cut it down to something digestible, or use a DDP and build a bottom-up estimate of investment versus return. (ex. “In the first year we’ll hire 50 sales people and we estimate that those 50 people will generate $20M in revenue.)

It’s not about being a hero in the business plan, it’s about getting closer to figuring out how you’ll actually launch your venture/product/service. If you just serve up a large market with no logic around how you’re going to success, there’s a pretty good chance you don’t really know who your customer is.

A small side note: I really, really wanted to refer to this sort of thing as a Chinese Market Sizing. Partly because I’ve seen it a lot when people size market opportunities in China (it’s a massive market and the plan has no idea how things really work there). However, taken out of context, I’d just sound like an ass, but still I think it would be a hilarious scenario.

You: “What was the problem with the plan?”

Me: “Chinese Market Sizing”

You: “Ohhh, Too Bad.”


  1. Logic book title, please?

  2. A Concise Introduction to Logic by Hurley. (I’m shocked it’s still in print.) The website I posted in the article pretty much pointed to all the fallacies I remember, but here’s a ink to the book if you’re still interested. I don’t guarantee greatness, I was 19 at the time and very impressionable 🙂

  3. I completely agree. Having worked in corporate strategy at a respected F200 company and now teaching, it’s amazing to me the extent to which people fall into the LMF. I’m also an advocate of DDP and have helped several large organizations try to use it’s principles.

    Here’s my observation about why people do this. I think there are 2-3 big reasons (that have some overlap). 1) Not as many peopla as we want to have actual curiosity and drive to solve problems. Intellectual lazinesss/lack of time is a huge factor. 2) Many people in positions to be doing the plan either lack skin in the game (as you point out), or more commonly (in my experience) they lack actual experience to even understand the depth of their ignorance. It’s a “they don’t know what they don’t know” issue. 3) Corporate culture sets this up as well. Many execs WANT the exiting plan to look good and figure that they’ll “figure out the details later”

    Good post and thanks for the knowing smile 🙂

  4. There’s nothing inherently wrong with viewing a large market and attempting to get a “piece of the action”.

    But as you point out, the top down approach (strategy/objective) must be paired with a bottom up analysis (tactics/execution).

    Questions like the following must be answered:

    How many units must be sold to achieve the target at what price?

    What does that mean in terms of leads or web traffic etc?

    What is needed to generate those leads/traffic?

    How much will that cost?

    What common characteristics define those leads? i.e. who is the initial target audience?

    What barriers are there to buying (or selling) our product to the target audience?

    Etc. Answering bottom up questions like these put a dose of reality into those large market assumption.

    The bottom up thinking will quickly support or collapse the top down assumptions.

  5. I whole-heartedly agree with the article and in general the comments put forth. I also think corporate culture invites this type of hype in the planning process. This is because no executive wants to be seen proposing something that has a modest potential. You have to go big and if you should fail in the end just blame it on other factors, versus the poor planning in the first place. In corporate America, we are rewarded partly for the perception we create, not actual results. Case in point, the financial melt-down.

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