Stop Calculating Market Share

$75 billion.

That's how much is projected to be spent in the USA this year on pets, that's a lot of money. And imagine if we can get a market share of only 3%. By year two, we will have over $2 billion dollars in revenue. Now I know you've heard this type of thinking before; entrepreneurs are always on about it, thinking, “If we could just get this type of market share, we will have that type of revenue”. But this type of thinking is not only a huge waste of time, it's not only a distraction, it could actually kill the growth of your company.

If you've been to business school or forced to put a business plan together by a bank or an investor, then naturally you're going to start to think in terms of market size, target geographies, target companies, and you are going to be moved and tempted to focus on market share. Unless you are a multinational corporation, and if you are, you're probably not watching this, but unless that is you, there is no reason to calculate market share. There is one time where understanding market size will help you, and I'm going to get into that in a minute. But calculating your market share is a complete waste of time.

Here's an example. Look at this chart that shows the BMW US market share from 2012 to 2018. BMW only has a 2% market share plus or minus in the US over all of these years. Is BMW a bad company? Are they not doing well? Are they not a leader in the marketplace? 2% plus or minus market share? If you sat down and asked anyone their thoughts on BMW, they would say things about the engineering or the safety or the performance or the European styling, they would say great things about BMW. So does it really matter that they have a 2% plus or minus market share compared to Toyota or GM or any other company? Again, looking at the chart where they have a better company in 2014 when they had a higher market share compared to 2017 when they were at their lowest market share?

Well, I did some more research, and in 2014 they had one of their highest volume sales year. Awesome, revenue was up, profits were up, dividends were up. But in 2017, they had one of their lowest market shares. What was going on, what happened there? In 2017, net profits soared 26% to a record high. This is why market share is such a dangerous distraction. And the real danger with market share is that you will spend so much time focused on it, you will ignore the KPIs and the metrics in your business that matter the most. I'm talking things like year over year revenue, or gross and net profit margins. You have to look at the receivable aging reports or your revenue per employee or revenue per client. There are so many important metrics that will speak to the health of your company and market share is not one of them.

So earlier I mentioned there's one time where looking into this kind of thing actually will help you out. It's about market size. If you are developing a new product, a new go-to-market strategy or doing something completely new, understanding the market size, and your potential will actually help you with feasibility reports or even developing the type of company that you want to build.

So here's another real-world example: I have a client that makes aftermarket accessories for Tesla's; when they're planning a new product, and they're going to go to market, it is extremely helpful for us to know that there are only 16,000 Tesla Model Threes on the road in the US and Canada, it is helpful for us to know where the supercharging stations are. And are they in California? Or are they on the East Coast? Or do they have higher sales in Ontario and Canada or Alberta? Us knowing the actual number of Tesla's sold will help us ensure that we don't over-invest or create a company that can't be sustainable. If there's only 16,000 Tesla Model Threes on the road then we are never going to sell hundreds of thousands of products.

What I'm not doing is I'm not saying there's 16,000. And if we had a 15% market share that will get us 8000 sales and blah, blah, blah, blah, blah. None of that stuff really matters. What matters from a feasibility point of view, is understanding the market size, if it's working against you, if it's a huge market, if you're a tiny player amongst giants, don't spend any time focused on this because it will distract you from nipping at the heels of those huge companies. It'll distract you from the metrics and the KPIs that actually matter most in your sales and your marketing channels.

Focus on what actually matters.