Why It’s So Hard to Predict the Size of New Markets

One of the basic skills required to invest in, buy, or sell businesses is the ability to correctly predict the size of a market for a product once it reaches maturity. Most professionals get these estimates wrong. At the core of under- or overestimation are a few common errors. The first error is confirmation bias, which every expert brings to the table. The second and third errors are “sins of omission,” which are both related to treating this as a purely theoretical math exercise. You must factor in consumer passion, otherwise the size of prize will be too low. But you must also factor in practical application (e.g., how would you actually realize the size of prize), otherwise the size of prize will be too high. Getting these estimates right is the key to consistently making money in a variety of industries.