Why You Only Need 40 Clients (Zero to One pt. 3) | 015

Charles (: 00:21

Howdy y'all and welcome to the Unsexy Entrepreneurship Podcast. I am your host, Charles Harris, and as always, I am joined by my co-host, Seth Jensen. We are so excited for you to join us today. We're gonna go through market sizing and kind of what that entails. And we've got a fun treat. We're actually going to...

do live market sizing with you for a company we haven't market sized yet. So you can kind of see our process and how we'd go about doing this. But first let's, let's talk about how to even go through market sizing.

Seth Jenson (: 00:51

I love that you're like, what a treat, market sizing. And hopefully for our consumers of this podcast, it is. But I think this is maybe one of the few contexts where people are like, ⁓ yeah, bring up the nice China, we're market sizing. So yeah, so what is market sizing? Market sizing is just saying, okay, we're about to build a business. We wanna make sure this business makes good money.

Charles (: 00:56

I'm so excited about today.

Seth Jenson (: 01:15

So how much demand is there, right? Like how big is the market opportunity here for this particular business that we're building? I'll be honest, this is kind of an abstract process. We're gonna try to go from very abstract to slightly less abstract. But this is really for you to think through the assumptions of your business more than anything, as opposed to give you like real clear hard data that you're gonna like immediately start doing something with.

So for example, when you're looking for venture capital markets, there's always a market sizing slide in any pitch deck saying, hey, this is like a $5 billion opportunity and know, blue ocean and all those different things. And even the investors know, and even entrepreneurs kind of spewing this nonsense know that this is really like wild guesswork for the most part. Because the reality is if you're doing something new or different,

It's unclear exactly how big your market is going to be. It's unclear what your customers are going to see as substitutes for your product or not and exactly who you're competing with. So just kind of take this all with a huge grain of salt. And yet it's super important because you don't want to be chasing after an opportunity that is smaller than your goals. So that's why this is really important.

But yeah, at its simplest, it's trying to come up with an estimate number for how much money is there to be made pursuing this particular opportunity. So, and in fact, Charlie, like in your context, I'm curious, like, did you do any market sizing or calculations about kind of your local context?

Charles (: 02:43

Absolutely. Luckily for me, I can work anywhere in the country. I'm not going to do taxes for outside of country and I don't do international taxes. So if you have a bank account over in the UK, don't come talk to me. I'm not your ideal tax accountant. But I did look up how many small businesses are in the United States.

because that's a key, there are tons of CPA firms. so thinking through that, is there still enough of a market? Like, can I actually break in? Realizing that there are over a million small businesses, I don't know of 200,000 accounting firms. And new small businesses start every single day. And so it made it super easy to say, okay, there's going to be enough new businesses that start this year, and they're not gonna know.

Seth Jenson (: 03:27

Mm-hmm.

Charles (: 03:29

an accountant because I don't know the competitors and they're not going to go to PWC, EY or KPMG because they're too expensive for a small startup or a small business. So it was pretty easy to determine from my perspective at least like there there's enough of a market. And even well even more in depth I have several niches that I work on specifically I work on most businesses.

Seth Jenson (: 03:44

Yeah. And that's... go ahead.

Charles (: 03:53

I have businesses across the board, but I have two niches that I really have focused on over the last year, I guess. And one was music schools. And I looked up and there aren't that many. There may be 10,000, but that's really hard to guess because a lot of them are in-house and there really isn't very good data on that. And so that was a little bit of a gamble. And I think I'm probably, if you're a music school, I'm probably...

the accountant in the space already. It didn't take very long. ⁓ But not a lot of competition. Yeah. Well, and that's the thing, right? Like if you look up musical school taxes or something like that, I'm to be the name that pops up. It's not you might get some other names from bigger companies that are more productized. Like Bench had it would always beat me in SEO, which makes perfect sense.

Seth Jenson (: 04:26

Not a lot of competition, yep. So a small market's fine if you're the big dog in the market, yep.

Charles (: 04:47

Bench was like a productized bookkeeping service. They shut down because they weren't making money. But they made sure to put every single type of company into their listing and then push the SEO on that. So they went out on most of these small like weird niches. But outside of them, I'm gonna be your first.

Option, which is really cool. It's it's really easy. And for me, it makes me a good chunk of change every year to do a bunch of musical tax returns and I love it and I love the audience. So I have no issues with it. The other niche that I work pretty heavily in is law firms and that there are other accountants that service them. And so before I niche down into law firms as well, I did do market research on that because I realized, Hey, there are already several.

Seth Jenson (: 05:21

Mm.

Charles (: 05:30

I can name five other firms that focus on them. What I quickly realized is that there are still plenty.

Seth Jenson (: 05:31

Yeah.

I mean, there are so many law firms in the US and in any specific context, Because we talk a lot about not just a big customer base, but one that you have access to as well. And you know that even if you had to go, you know, Main Street, walk and knock on people's doors, you'll trip over law firms throughout the DFW area, right? And so like that's comforting too, as you're going through this market sizing process where it's like

Charles (: 05:41

Well, and that's the thing, right?

Right.

Seth Jenson (: 06:05

Not only are there a lot of law firms, but there are some that I can reach very easily and even go see in person and develop relationships with, which is good to know,

Charles (: 06:14

Well, and that was the big thing for me too, right? I need, let's say 20 to 40 clients. So could I get 20 to 40 clients in that space? Absolutely, right? That would be less than 0.1 % of the total group. And so there's definitely a market, there's definitely a possibility. And so both of those I felt really comfortable with and it was really easy. I would be curious, Seth, on how you determine something that

Seth Jenson (: 06:25

Yep. Yep.

Charles (: 06:43

isn't so ubiquitously needed. How do you determine the market size on that?

Seth Jenson (: 06:46

huh. Yeah.

So, and this is really a creative process and we're not going to, mean, there's lots of levels of detail you could do with this, right? Like, you can get very technical and very fine grained. ⁓ and in most situations you don't really need to, right? it's, it's, this is for most people, a high level exercise is going to be where a lot of their traction comes from.

But yeah, let's do an example and kind of demonstrate that process. And so you had an example coming from a high school student that you've been mentoring.

Charles (: 07:13

Okay.

Yeah.

Yeah, super fun. She wants to be a florist, right? She wants to decorate her mindset. I don't know if you're familiar with Texas for those listening, but there's something called mums, which are these giant floral arrangements. ⁓ People spend hundreds of dollars on them. They're ridiculous.

Seth Jenson (: 07:31

Mm-hmm, yep. man, mums. This is like, it's one of those

weird things that as far as I know, basically only happens in Texas. Like it's a really weird tradition. But yeah, for major dances, I guess specifically homecoming, ⁓ people spend hundreds, even thousands of dollars on these hideous. And we're talking just like, like ugly.

Charles (: 07:43

Think so.

Yeah.

You

Seth Jenson (: 08:00

terrible, ruin your dress or suit monstrosities of fake flowers and clinging bells and ribbons. Like, Google pictures of Texas mums and it will blow your mind. It's the weirdest tradition ever.

Charles (: 08:01

You

Yep.

highly recommend it.

So what was interesting is as she was talking about this, I was like, this is great. It's a great business for one month of the year. No one cares about homecoming mums outside of

mum season or homecoming, right? Yeah, it's pretty short window. And so how do you make consistent money throughout a period of time? And so we were talking about this and she really wants to work with flowers. That's her real big passion. She wants to grow flowers herself. And obviously we talked about, hey, they're not always in season. You're gonna have to order some from flower shops and things like that. And that's a whole conversation.

Seth Jenson (: 08:26

September, October, yeah, I'm not sure, yeah.

Charles (: 08:51

But really we were trying to come up with a way of getting consistent money. And so we had both heard about this gal who decorates pumpkins on the front porch. And wildly successful, absolutely crazy. And so I had been thinking about this, I had heard about it recently. And so I was talking to this young woman and I brought up

Seth Jenson (: 09:05

wildly successful in the DFW area,

Charles (: 09:18

what if you did a subscription service to decorate a front porch? So the benefits of this is you're going to be doing it year round. They're gonna pay monthly for decoration, right? You can do a nice, beautiful wreath with a lot of flowers and then do the wreath according to the season. You could do other things as well. You could decorate banister for extra fee, right? Your minimum could just be the wreath and then you could go above and beyond, right? So.

Seth Jenson (: 09:45

Yeah.

Charles (: 09:46

During Halloween season, you could copy what this woman does and use pumpkins. During Christmas, you could add poinsettias, right? Like there are all these things that we can do. And so I talked to her about how we could do this. So the question isn't, I think it's a doable business, but how do we market size that? That's the question that we're gonna talk about today.

Seth Jenson (: 10:06

Yeah.

So, and again, you'll see very quickly that this is more of a creative process than a scientific one. But the first question that I just want to bring up is, and you may or may not have talked about this with your mentee, but.

Sometimes it makes sense to just go straight to the entrepreneur's goals, right? So if this young aspiring woman wants to build a nationwide brand, then we're gonna try to market size a nationwide opportunity. And it's funny, your pumpkin example of that entrepreneur in Dallas is a good one because she recently just expanded to a nationwide brand. She's kind of almost franchising her model at this point, kind of seeding her brand around. And so she went from kind of a

Charles (: 10:46

I didn't know that. Yeah.

Seth Jenson (: 10:51

local thing to a big thing and that's often the case. But for kicks and giggles, let's think about the total American addressable market here. So if she was gonna have a big full national brand and so obviously her, it's nice, we can kind of think through the logic of this pretty quickly, right? So we know that she's focusing probably mostly on affluent.

single-family homes is going to be her bread and butter and she might choose to exclusively focus on that for simplicity and marketing purposes. So we can do a quick Google search here and ask how many homes are there in the United States of America over, let's just say a million dollars. Let's say we're only going to focus on people with million dollar homes or more. They're the type of people that want to spend a lot of money on fresh flowers or handcrafted art.

Quick Google search tells us that's over eight million homes in the US alone. ⁓ Yeah, so if she's gonna go, you know, only cater to single family homes in the US, she's got eight million to work with. So then that gives us a number for the, if she was sell to everyone that could possibly be a customer, she's got eight million to work with. And then the question is, well, what's her annual subscription? So what do you think?

Charles (: 11:41

Good market size.

Seth Jenson (: 12:02

What are people going to pay a month for this? Or is it quarterly?

Charles (: 12:06

Great question. We didn't talk about that. I would probably try and push monthly, but it could potentially be quarterly, right? There could be different tiers, like just the wreath or the full porch decoration. You could say quarterly, so you just get Halloween, Christmas, don't know, Valentine's Day and something in the summer. ⁓

Seth Jenson (: 12:23

Yeah. So I think

we could probably say, you know, if this is going to be a year round thing and it's fresh and it's custom, maybe we say that it's three grand. it's, it's less than a grand a quarter for a year because we know from the experience of the pumpkin lady in DFW that you can charge a thousand bucks for these services to this particular kind of affluent client base. Right. So,

Charles (: 12:35

for a year. Yeah.

Right.

And that would be 250 a month, which I think could provide you with a nice, beautiful wreath. then, huge. Yeah.

Seth Jenson (: 12:53

That's a flower arrangement, like a nice big flower arrangement can easily cost you 250 bucks, right? So that seems pretty reasonable.

So right now we've got eight million potential customers. We've got $3,000 she could make a year. And the total addressable market is just those two numbers multiplied by each other. If all eight million households over a million dollars spent a $3,000 on a product, that's pretty easy. That's a lot of zeros.

Charles (: 13:12

You

Seth Jenson (: 13:22

I'll let the accountant add all those. It's 24 something. How many zeros are we talking about here?

Charles (: 13:26

8 million, is that right?

Seth Jenson (: 13:28

8 million times 3 grand.

Charles (: 13:30

So we're looking at 24 billion a year.

Seth Jenson (: 13:32

Right.

So that's saying that if again, now does that number mean anything to this young woman? No, this is the total addressable market. So this is, this is assuming, you know, Apple is a total addressable market are all of the high end smartphones in the world. Right. Now we know Apple only has, I mean, admittedly a big chunk of that market. In fact, let's find out how much. So what's the total addressable market for

Charles (: 13:40

Hahaha

Yeah.

Seth Jenson (: 13:59

Smartphones

And again, this is a common thing I bet Google can just tell us. There's been reports of 500 billion in smartphone sales. And I think that's globally.

Charles (: 14:08

That seems about right. There are what 300 million people

in the United States and then a smartphone phone is a thousand bucks, let's say. So that would be 300 billion. Yeah.

Seth Jenson (: 14:16

So yeah. So that's the total addressable market, but

now we can say, how much, what's Apple's smartphone market share? So in the premium segment, they've got about 61 % in the US and 75 % globally, right? So there's that big number, that hundreds of billions number.

And Google is the dominant picture, but it's still only 60 % of that big, that big hundreds of billions number, right? And so for this young entrepreneur, the big opportunity is 24 billion, right? That's what we said. ⁓ So that's the big, if she had everyone, but she's only gonna get a tiny, tiny, tiny fraction. And that's okay, because that's a huge number,

Charles (: 14:42

Right.

Right, yep, 24 billion.

Honestly, if you get 1 million, that's less than 1%, right? ⁓ I'd have to do the math because I can't do math in my head, but that's a really, really small percent.

Seth Jenson (: 15:00

Yep. Yep.

Definitely. So let's actually bring this a little bit more tractable for her. Maybe she's like, you know, I don't want to deal with a national brand. I just want to be local. Let's do the DFW area. let's say how many, um, yep.

Charles (: 15:19

least starting out that makes sense right she's she's

not gonna be able to sell to Des Moines Iowa very well I'm pretty sure there are wreath mailing subscriptions too so that is a competition there that she can look up

Seth Jenson (: 15:25

Yep. Million.

So it says that, so this is interesting, there's 12,000 luxury million dollars or more homes sold in Texas. And Dallas is one of the bigger areas. So I think it's reasonable to say that a third of those were in Dallas. Don't you think?

Charles (: 15:46

Yeah, I think that's reasonable.

Seth Jenson (: 15:47

Maybe it will say a quarter just to be extra safe. So let's assume there's 3000 homes in DFW over a million. So now it's 3000 times 3000. Math, how many zeros do we got there? Six zeros now? Yep. So that's a $9 million opportunity, which is super awesome.

Charles (: 16:06

Just nine million. Yep.

Seth Jenson (: 16:13

So that's her total addressable market if she's just going to focus on the DFW area and she's only going to focus on million-dollar more homes Which is honestly kind of helpful for her for a marketing strategy because she can look at the neighborhoods that that qualifies for and really focus in on there She can send her Instagram

Charles (: 16:26

Right. Well, and we've talked about

it before with channels and everything like that. You're not going to find $1 million home every mile. You're going to find them all clustered together. Right. And so it makes it easy to figure out where they are.

Seth Jenson (: 16:35

Yeah, exactly.

And honestly, you know, Meta and other ad platforms are pretty good at geolocating or income bracketing and things. So she could probably actually have even online targeted ads very specific to her niche. And it's the type of thing that would probably sell quite well in a video Instagram format reels and things like that. so now she's got a $9 million market. This is helpful because that's a lot of money for a high school student. ⁓

Charles (: 16:58

Yeah.

Mm-hmm.

Seth Jenson (: 17:06

But then the question becomes, well, what is she going to go after in the short term? And that's something called the serviceable obtainable market. So what's obtainable for her and that she can actually service. So the total addressable market is just this big back of the napkin figure of the big, opportunity. If she was able to be the dictator of the world and make everyone buy her product in her customer segment, the serviceable obtainable market is what she thinks she can realistically do.

And sometimes at this point, if you're a tech firm, you'll just choose kind an arbitrary number. You'll be like 5%. We think with a bunch of advertising, we're like this competitor, this competitor currently owns 5 % and we think we can steal 5 % market share from these other competitors because we're better than them. So sometimes at this point, you'll literally just slap a percentage on, or you can build the logic from the ground up and say, okay, if I want to work on this full time and I'm, you know,

Basically, you can start with your constraints and say, I'm willing to hire 10 of my friends and it takes five hours to design these per client. And anyway, she can kind of see what her limitations are and kind of build up. So maybe she realizes with the amount of people she's willing to hire, the amount of time it takes to serve as a client. She's like, I can do a hundred of these really at scale.

that becomes a hundred times: 3000

Charles (: 18:32

Yeah.

Seth Jenson (: 18:56

and she can probably take home half of that easy in terms of the margins for a business like this.

Charles (: 19:00

Yeah.

Well, I know this isn't what we're talking about, but this gets me excited for what I do, right? I love doing not only figuring out the market, but then figuring out, how much are we gonna earn from this? Is it possible to make a living? What do we need to make to make a living? So I typed into JetGBT, how many homes are above 750,000, 750,000 in the DFW area?

Seth Jenson (: 19:18

Mm-hmm.

Charles (: 19:26

And this this helps us a lot too. And this is why you use chat. JBT. This is why you use Google because doing multiple multiple things helps. It says almost five thousand million dollar homes in DFW. So I don't know how how those compared to the because it said what eight thousand in Texas. There should twelve oh twelve thousand in Texas. OK, so almost half are in DFW, which is great. And then obviously that's not seven hundred and fifty and above. I figured seven hundred and fifty.

Seth Jenson (: 19:30

Thank you.

Yeah, 12,000 in Texas total.

Charles (: 19:55

They're going to have the spending money for $3,000 because $3,000 is a pretty small amount for if you're making that much money.

Seth Jenson (: 19:56

Mm-hmm.

Especially in Texas where home values aren't as inflated as New York or California, right? You can't find a home in California for under $750, but in Texas, if you're spending three quarters of a million dollars, it's a nice home.

Charles (: 20:07

Yeah, yeah. In Texas.

Yeah,

, but it's more than: 5000

Five thousand it's more than five thousand is gonna be less than it's gonna well I should do the math before I say something wrong because people judge me on here So 80 of five thousand would be 1.6 percent And like I said, that's that's basically just a million dollar home plus so if you're doing 750 or even 500 which is still a nice home in Texas You're really looking at probably less than 1 %

Seth Jenson (: 20:58

Yeah.

Charles (: 21:05

of market saturation in order to make a really good living. Like six figures plus, it's hard to complain about.

Seth Jenson (: 21:09

Yeah.

And what I love about this example we're giving, I always, we were just talking about this before we were recording, but I love those businesses where you can see the break even point or the short term goal is accessible in kind of things that don't scale, kind of that man to man. And so if she only needs 80 homes to be comfortable, you can literally knock on doors till you get 80 customers, right? Like you can.

Charles (: 21:37

Especially

in her situation, right? She's a young woman trying to be an entrepreneur. You go, you knock on those doors, you're gonna get stay at home moms who are like, yes, I wanna support you and your business. This is awesome. That's all I have to spend. She's got a business right there.

Seth Jenson (: 21:41

Mm-hmm. Yep.

Yeah, absolutely. And so

that's nice because it kind of, again, as she grows, she's going to want to master online marketing. She's going to want to come up with processes and strategies and diversify in multiple channels. But it's beautiful when you have a path to that serviceable, obtainable market. And you're just like, you know what? This isn't rocket science. I can just kind of just talk to people till it works, right? Just kind of.

be my own sales team and make it happen. Or I can hire some, you know, snot-nosed college kid to go knock on doors and sell for me. Or I can make a free Instagram account and, you know, I only need a few, a little bit of traction for it to ⁓ bring, know. So that's the power of this process is helping you think through the reality of your business. And it starts abstract. This total addressable market is just helping you be like,

Is there money to be made here? That's really the question you're answering. And then bringing it down to that serviceable, obtainable market, that market that you really think at scale you can accomplish, and then even closer, where am gonna get my first few customers? Like what's the path to that serviceable, obtainable market? And do I like what I'm seeing? And for this young entrepreneur, this idea you discussed, I love what I'm seeing. This is a great business, ⁓ high margin, and low risk for her, right? Because she's only buying materials after she's landed the clients.

Charles (: 23:03

yeah, this is totally doable.

tissues made the sale.

Seth Jenson (: 23:10

very low cost

of customer acquisition. So this is a low risk experiment to try. Who knows whether it works, but it's certainly a low risk experiment to try with the potential of a huge market, obviously. And that's what we've learned from this kind of market sizing experience.

Charles (: 23:24

Well, and I want to bring up one more thing too, and this is kind of tangential to market sizing, but I see this a lot in startup businesses, is like a pumpkin decorating your front porch business, it doesn't seem scalable, it seems very small business, and so people immediately think, it's not worth doing, because they don't see the billions that come from an Amazon.

But we clearly ran through the numbers just now. Like it is completely doable to make a great business off of very few people, off of a very niche service. And then, and then just like our DFW friend, well, I shouldn't call her my friend because I don't know her, but our DFW person, right, that we've been talking about, she makes boocoos of money and she's expanding nationwide now.

Seth Jenson (: 23:58

Definitely.

Charles (: 24:13

Whereas before she was just local. So I think sometimes we we limit our thinking because we think I can't this isn't the market isn't 500 billion like an apple and it just doesn't need to be and I think the second we kind of break that idea of thinking we're so limited by the market being 200,000 people. are we doing? Like that is a huge market and that is awesome.

Seth Jenson (: 24:14

Mm-hmm.

Yeah.

Mm-hmm.

Yes.

Charles (: 24:41

And as long as you're giving a good service, market sizing definitely checks out.

Seth Jenson (: 24:46

Again, using you as an example, 40 clients a year is making a killing living for you, right? Like you were doing just fine with just 40 clients, right? And so that's literally two clients a year for a few years and you're there, right? That's enough growth for you to hit this incredible amount of scale. And there's tens of thousands of potential companies within a few miles of you, just personally. For my consulting business,

Charles (: 24:52

yeah.

Yeah.

Seth Jenson (: 25:15

Again, high margin, high ticket item. I'm thrilled with a dozen clients a year. Like if I just get one a month, I'm doing just fine, right? And so, and again, you and I both have high ticket items, which is important to realize, but it shows, again, just to reemphasize your point, you don't have to be huge, you don't have to be sexy, you don't have to be a nationwide brand. Some of the richest people I know,

run businesses you have never heard of and they are things that you've never considered before, like digging swimming pools or like repaving driveways or just like things that everybody, we all recognize like, yeah, I guess we need that. There's a lot of that happening.

Charles (: 25:49

Yeah.

Seth Jenson (: 25:57

but incredibly successful companies.

The other thing I love about this example we've given for this young high schooler considering a very simple business, decorating porches and doors. It's kind of an out there business, you know, it's not it doesn't fit the categories of business we think of on a daily basis. And for that reason, people might discredit it. They might be like, ⁓ like, you know, it doesn't exist and so it probably isn't going to work or whatever. And yet we pursue things like restaurants.

Charles (: 26:18

Mm-hmm.

Seth Jenson (: 26:25

which are very low scale, very low margin, high capital intensive. And we like accept those as incredibly one of the worst fail rates of any business. We accept that we're like, yeah, starting a restaurant, that's normal. Like the good business model. And we give that two thumbs up kind of unquestioningly. And so just, I encourage our listeners to think critically about business models and not just go down the beaten paths necessarily. Go look for these unsexy opportunities.

Charles (: 26:26

Yeah.

highly risky.

Seth Jenson (: 26:54

because you don't need a huge amount of skill to be successful. It doesn't need to be flashy or a beaten path. If the numbers work, the numbers work and you can build incredible lives.

Charles (: 27:05

Well, and

from our conversation to this business model makes a lot of sense because worst case, she graduates and works a job and does this on the side. Right. There is little to no risk, no upfront costs, no risks. If, if suddenly she loses all our customers, she's down to one wreath. It's still worth it for her to do once a month. And right.

Seth Jenson (: 27:26

I know, yeah, it's valuable even at a scale of one, right? If she has one customer,

that extra 1,500 bucks isn't gonna turn her off of her business, right? So ⁓ you're absolutely right. And there's opportunities like this in everyone's life. You just gotta be willing to look for them. Or let Google tell you them, right? Let chat GBT just suggest a bunch of ideas like this for you. You don't even have to be creative.

Charles (: 27:37

Right.

Absolutely.

Yeah.

Seth Jenson (: 27:52

You just gotta be willing to take the plunge and get out there and try it, which I love.

Charles (: 27:57

Well, thank you everyone for listening to the Unsexy Entrepreneurship Podcast. I hope you're inspired and you had some fun today. And we'll be back next week. Thanks, y'all.