

Ask HN: Can you put a value on your product at development stage? - jamesjguthrie

As the title really.<p>I'm building a software product that I aim to make a business of. How do I place a value on its potential?
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bkyan
What is the value of the product(s) that it's displacing?

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jamesjguthrie
That's a good thought. It's going to be a mobile product that would displace
products on both desktop and mobile.

Would it be appropriate to place the valuation somewhere in between the
current mobile and desktop products?

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bkyan
Yes, from a "potential valuation" standpoint. As for "current valuation", you
have to discount (a lot) for not having any existing marketing and sales
infrastructure.

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mindcrime
Sorta kinda. You can get a ballpark idea by figuring out the answer to "who
are we going to sell this to?" Once you have that, you can find out how many
such customers there are. Note: there will probably be a fair amount of
inference, if not outright guess work in this, depending on the scenario. For
example, if you're trying to sell B2B and you know your target market is
"Bolt, Screw & Nut manufacturers in NC, SC, VA and GA" then you can get a
reasonably accurate count of how many such companies exist. OTOH, if you're
doing B2C, and your market is "Adolescent boys with self-esteem issues who
like the color purple" then it's going to be tougher.

Anyway, you you know the number of potential customers (TAM, or "Total
Available Market), you then have to figure out pricing for your product.
Again, this is a heuristic process, with a fair amount of guesswork. But if
there are any similar products to yours, you can find out how much they cost,
and approximate based off of that. You'll also have to know if you intend to
compete as the "low cost" option or as a "premium" option or something else.

Once you have # of cusomers and prices, you can just multiply to get a
theoretical maximum revenue for your product. If there are 10 customers for
your $200.00 product, you probably need to try again. If there are 2,000,000
potential customers for your $5,000,000 product, you are probably onto
something.

Of course you won't actually get to all of your TAM. Your competitors will
snag some business, some just won't feel like they need what you're selling,
some will want it but won't have a budget for it, etc. But this kind of "back
of the envelope" stuff can give you a baseline to start working from.

If you're US based, various US and State level government bodies have
demographic info (business and consumer) that can help you size your market,
and for B2B there are companies like Hoovers that you can pay for data that
will help out.

There are also market research firms that specialize in doing this sort of
research.

