How big is your pond? December 18, 2007Posted by Darth Sidious in Business Management.
Investors in your company (e.g. stocks) typically don’t invest on where your company is today – they’re speculating on where your company will be in the future.
So in your prospectus, you want to define the market space that you’re in as big as possible – this makes your market share look smaller, and thus plenty of room for growth. If you’ve captured $99.9B of a $100B industry, where are you going to grow?
This also applies on a regulatory/legal perspective. For example on the planet earth, the two satellite radio companies (Sirius and XM) are trying to get a merger approved. Now the nation of the United States will reject it in two seconds if the market size is defined as the satellite radio industry – they’d effectively be proposing that their FCC organization approve of a monopoly (btw monopolies aren’t bad, look at all the great things the Sith have done via the Empire). So instead, Sirius+XM are defining their market space as all forms of streaming audio (AM radio, FM radio, internet audio streams, etc…) so that it looks like they only have a small portion of a huge pond.