Plausibly estimating the market for your invention

You hear it all the time from inventors. They proclaim with utter certainty that “everyone is going to need to buy their invention.” Less grandiose, but certainly no less confident, proclamations may go something like this: “There are nearly 320 million people in the United States. If only half of them buy my invention that is 160 million sales!”

Inventors are understandably very excited, and if you spend enough time working on an invention it does become “your baby.” It is easy to lose objectivity. But at the intersection of pride and greed many an inventor will become unrealistic, which is the kiss of death if you are trying to do business with anyone reputable.

There is nothing wrong with dreaming, but there is an extremely important cautionary tale to be told about the tremendous harm that can be done to opportunity when inventors exaggerate the market size for their invention.

First, let’s start with the obvious. No product or service is ever going to be purchased by everyone, period. Remember, less than 36% of America watches the Super Bowl, about half of the people in the U.S. do not file or are not counted on a federal income tax filing, only 79% of Americans know that the earth revolves around the sun and only 76% of Americans know that we achieved our independence from the England/Great Britain/UK. See Gallup poll. So 100% is never achievable.

If you are serious about determining the size of the market you will research publicly available information and dig through the data to see what realistic and plausible assertions you can make. You could hire experts to provide a market analysis, but going through the effort of trying to realistically figure things out yourself is a very important step, and the only cost you will incur is the time you invest. In exchange you will gain critical insights into all aspects of the market you are seeking to enter. If you are going to succeed in business knowledge must be your friend.

To give you an idea of how you may be able to make use of freely available data, consider the data provided by the Census Bureau. Let’s take for example a baby product aimed at children learning to walk. You could quite quickly learn from the 2010 Census data that there were 20.2 million children under the age of 5 in the United States at the time of the Census, which was an increase of 5.3% when compared to 2000. See Table 1. But many children under 5 already know how to walk, and still others in the under 5 category are too young to learn to walk. That would suggest that your potential market is some fraction of those 20.2 million children, certainly not all of them.

Since we are talking about trying to come up with a plausible estimation based on factual information with reasonable assumptions, let’s say that the invention would be appropriate for use with children who are between 9 months to 16 months old. If we were to assume an evenly distributed population, that would suggest 13.3% of those 20.2 million children are the target market, which corresponds to approximately 2.7 million children.

But will the parents of all 2.7 million children purchase your invention? No. It is important to always remember that 100% adoption of the target market is unobtainable. So there will be a much smaller subset of potential purchasers. For example, according to the United States Department of Agriculture, in 2013 only 80.5% of households with children under 18 were food secure. Now we are starting to compare apples to oranges a bit because we don’t know for certain that we are dealing with an even distribution with respect to households with children under 5, which is where we obtained our base data, and households with children under 18. Nevertheless, the point here is that it would seem unrealistic to expect all households with children to purchase a particular invention when nearly 20% of U.S. households with children have difficulty finding enough money to buy the food they need for the household.

Notice also that we haven’t started to consider how many multiple child households there are in the United States, whether the invention is one that could be resold or passed on once used, or the price point of the invention, which could weed out a great many potential purchasers. For this reason it is generally considered difficult to achieve even 5% penetration within the realistic potential market, at least initially.

So let’s be generous and say that your invention is both revolutionary and appropriately priced to be accessible to a large percentage of the potential market. Even if you do achieve 5% market penetration in the first year that means you are looking at 135,000 sales, which is probably far fewer than you would have thought prior to going through this endeavor.

While you may be disheartened by an appropriately estimated market it is important not to despair. Spending the time to realistically approximate the size of the market is useful for at least two different reasons. First, the market size may wind up being so small that pursuing the invention just doesn’t make sense, which frees you up to work on whatever your next invention will be, and there will be a next invention if you are an inventor.

Second, if you spend the time to realistically figure out the market size you will be viewed very differently than the inventor who can’t be bothered with such research and just assumes that everyone, or nearly everyone, will want to purchase the invention. Whether you are seeking a licensing agreement, or you are looking for investors or partners, those who engage inventing in a business responsible way will be viewed differently and ultimately have a disproportionate chance of succeeding.

People with money or those who control distribution channels don’t usually prefer to do business with those who are not professional. They also don’t appreciate exaggeration because it screams that you are unrealistic, which means you will be difficult to work with in the long run. Nobody enters a business deal with someone when they think they will only create a headache.

For those seeking additional reading on the basics of inventing I recommend:

Gene Quinn Gene Quinn is a patent attorney and a leading commentator on patent law and innovation policy. Mr. Quinn has twice been named one of the top 50 most influential people [...see more]

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com.

Join the Discussion

7 comments so far.

angry dude
March 29, 2015 11:53 am
Benny,

The beauty of this project is that parts are cheap – a few bucks in bom
with no custom manufactoring required (a little soldering at most)
Good luck with ir – collecting and converting depth maps to what you really need reqires lots of power and cpu cycles (and some very advanced algorithms too).
And it doesn’t work in direct sunlight.
Leap Motion is the leading contender there – try it out.
Ultrasonic is much more power/cpu efficient and (hopefully) can be more robust and cheaper than ir.
Elliptic Labs already does pretty good job with 40Khz
Maybe not good enough for universal acceptance
200Khz is a little too high for now – AD converters become too expensive above 192, so it should run below 96, plus dissipation in air increases with frequency

As far as “prior art” goes – there are tons of it already – I have few dozen US patents/apps and non-patent papers on my shelf waiting to be read – 95% of them are bs anyway
Microsoft, Apple ?
Those companies usually buy (or steal) whatever works best from small upstarts
Soundwave looks sort of like science hack day project (and works accordingly)
Benny
March 29, 2015 10:24 am
Angry,
Two “ifs” in your comment. ROI is dependent on them.
As for your DSP, I wish you luck and success, but if I can achieve similar
results using infra-red for a 10 cents less production cost per unit, I
know which way I am heading.

Off topic, methinks you will be needing a darn high frequency ultrasonic
beam (200KHz?) to get a workable resolution, and that doesn’t come cheap.
Did you look at prior art such as 12/367720, or Microsofts’ Soundwave
project, or Apples’ ultrasonic touchless gesturing system ? (multiple solutions again).
angry dude
March 29, 2015 09:35 am
Benny,

If my compression algorithm outperforms all others N times (because it uses different principle of compression) then using another algo makes your product inferior in the market, so it won’t sell.
And if my algo is unobvious enough then you really need that proverbial “flash of genious” to develop your own “flavour” – good luck with that 🙂
Return on my investment of years of time (which is money not made doing something else) and mental labor becomes questionable if others can use the fruits of my labor for free without even asking me.
Such is the situation with US patents today.
So the next thing I am working on right now (ultrasonic in-air sonar for gesture computer input and possibly robot navigation) will sure as hell be on encrypted DSP.
And If it works better than others then I will be selling those by a piece – a DSP chip (actually a little tiny board) with encrypted software you can’t reverse-engineer.
No more patents for me.
Benny
March 29, 2015 07:11 am
Angry,
You are correct. There are multiple solutions to most problems. So even if you do own the IP rights to one data compression algorithm, I can always choose to use another, or develop my own flavour, leaving you with questionable return on your investment.
Paul Morinville
March 28, 2015 08:40 pm
Benny, It would be nice if every patent was something earth shaking, but that’s not really the purpose of the patent system. The purpose is continuous improvement. Every once in a while an improvement is an earth shaking improvement, which starts up another round of continuous improvement.
angry dude
March 28, 2015 06:13 pm
Benny,

“minor” and “major” are just words without exact meaning

You don’t have to come up with the “thing” totally new and unseen before to make a major impact on industry

E.g. there are zillions of data compression algorithms – lossless or lossy, but if you come up with something like that fictitious super-duper algo from HBO’s “Silicon Valley” show, you can have a real impact on many industries, even though they have many alternatives doing exactly the same thing – compressing data (at much higher cost)
Benny
February 16, 2015 01:52 am
You might also add that 99%+ of all granted patents (excluding biotech patents) are minor improvements on a known technology, and the potential customer almost always has a viable alternative to solve the needs or wants addressed by the product.