Market Share Pie: How Big is Your Slice?

There is a fundamental concept to consider when business planning that is often overlooked. Before you start market research, including a thorough analysis of the competitive environment, you need to understand this basic principle:

In every industry, whether food, hospitality, manufacturing or service (the list is infinite), in each market, the total of all sales equals 100% of the market or pie.

The goal is to take market share or a “piece of the pie” from an existing player in the market.  These existing players are your competition.

Sometimes you may find out that the pie does not exist and no other competitors are trading in this market. However, if no one is trading in this product or service, ask yourself whether there is in fact a market or business to be had.  The answer will in most cases be no. This is not to say that there is no need or opportunity for innovation, however, most new entrepreneurs have neither the time needed, the financial resources, or risk capabilities to create brand new markets.

Looking back at the pie or 100% of the market in question, think about which players in this pie are the weakest or most vulnerable.  In other words, who are you going to take a piece of pie from?  Or, is there a group of existing players, from whom you can take “slivers”?  These pieces and slivers of pie will be the revenue for your business. In this example, PIE = Revenue.

Once you get to the market research phase, you need to define the competition and do a thorough SWOT analysis.  SWOT is Strength, Weakness, Opportunities and Threats.  If you do a good job on this, you will then see how many pieces/slivers of pie are attainable.  This key step will help you understand who you are competing with and determine your income/revenue projections  for the business. Your financial projections will be based on how much pie you think you can get based on your analysis.

In summary, when thinking about your marketplace, try to visualize the whole pie and think of which competitors your pieces and slivers are coming from.   Think also about how much pie you can actually eat.  Think big, but be realistic.  Take it one piece at a time.

One of our goals at the Halton Region Small Business Centre is to empower small and medium-sized enterprises and provide access to the tools you’ll need to succeed.  Contact us today! You can also follow us on Twitter @HaltonEcDev for daily tips and information.

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