Entrepreneurship.

Bottom-Up Market Sizing

5 min read·Apply by lunch

The question

If somebody stopped you this morning and asked how many people on earth have the specific problem you solve — the people themselves, not the industry they happen to sit in — could you give them a number and show how you got to it? One of those answers is a business decision. The other is decoration.

The idea

Bill Aulet is managing director of the Martin Trust Center for MIT Entrepreneurship and a professor of the practice at MIT Sloan; his Disciplined Entrepreneurship (2013) breaks starting a company into twenty-four steps, and the fourth is the one almost everybody does backwards. Aulet's total addressable market is the annual revenue you'd earn at a hundred per cent share of a single beachhead market — not a category, not an industry, one narrow set of end users you could plausibly dominate first. And you build the number from the bottom: how many of those users exist, what one of them pays in a year, multiplied. That's it. The top-down alternative — take an analyst's estimate of a category and claim a slice of it — has three problems. Somebody else drew that category, for their own purposes. The slice is asserted rather than earned. And the arithmetic produces the same handsome number whether or not a single human being would ever buy. Anyone who reads decks for a living has seen that slide too often to weigh it. A number you constructed yourself, from a user you can describe and a price you've actually quoted, is the only one that survives a follow-up question.

The framework

01
Draw the beachhead before you count anything.
A market you can size is a market you've narrowed — this is the where-to-play choice again, cut down until it can be counted. Aulet's sequence is deliberate: segment, choose one beachhead, describe the end user in detail, and only then reach for the calculator, because the count and the price mean nothing until you can say precisely who is being counted. 'Small businesses' can't be sized. 'Independent physiotherapy clinics in Australia with two to six practitioners' can. The narrower definition usually produces a smaller and more frightening number, and that is the useful one: it is the first market you could take, not the last one you can imagine.
02
There are only two inputs, and you already sell one of them.
The first is a headcount: how many end users of that exact description exist. Find it in something real — a professional register, an industry association's membership, a public platform's own figures, a government dataset, or, at the smallest end, a list you built by hand. The second is annual revenue per user: your price multiplied by how often they'd buy, or, if you have not set a price yet, what they currently spend holding the problem together. Write the source next to each number. An input without a source is a guess in a suit, and it'll be the first thing questioned.
03
A number that survives being halved is a number you can act on.
Run the calculation three times: as built, with the count and the price both halved, and with both doubled. What you're testing is not precision — you won't get precision at this stage — but whether the decision in front of you changes across that range. If halving everything still leaves a market worth building for, stop refining the estimate and go and sell something. If the decision flips between the low case and the high case, you've found the input that deserves another week of work, and you now know exactly which question to take back to real buyers.
04
Where does your number sit against the published one?
Published category sizes still have a use: they test your build rather than replace it. If your bottom-up number lands above the whole published category, you've double-counted somewhere, or your definition has quietly widened while you weren't looking. If it lands at a tiny fraction of it, either the beachhead is drawn tighter than it needs to be, or the analyst was counting things you don't sell. Cite the source and the year whenever you use one, and never let it carry the headline. The borrowed number collapses at the first 'how did you get there'.

Members only · 4 principles + template + AI mentor

364 more frameworks are waiting.

Bottom-Up Market Sizing is Day 1 of 365. One framework every morning for a year — across strategy, sales, negotiation, leadership, and more.

$1 /day

Billed $365/yr · cancel any time

365 frameworks

12 topics · templates · AI mentor

Reserve your place — $365/yr →

One payment a year · the whole library · no auto-renewal.

More Entrepreneurship frameworks

All 22 entrepreneurship frameworks →