Photo by Rob Curran on Unsplash
The terms Market and Population are used often interchangeably when discussing business ventures. While I’m not a stickler for using the right jargon, I find that usually, this happens because most people don’t distinguish between the two.
Show me the money! - Tom Cruise, Jerry Maguire
So why is it so important?
A population is a segment of the world aggregated by a common denominator - soccer fans, subway commuters, Norwegians, Type II diabetes patients. While many times a population is a great way to figure out a market, it’s at best a starting point. At worst, it could be a wild goose chase.
A market is, loosely, a population defined by their spending choice - Yankees cap buyers, MTA subway ticket purchasers, smoked Herring aficionados, insulin purchasers.
Obviously, when discussing a market, we’ll usually describe the population, but with direct reference to the market.
One population, multiple markets
I’d like to consider one very well know population, and two markets in that population to demonstrate the important difference - computer programmers.
Let’s get some stats from U.S. Bureau of Labor Statistics:
Computer programmers - In 2018, there were 250,000 computer programmers making a median annual salary of ~$84K In the USA alone.
Roughly speaking this population is pulling in $21 Billion a year.
That looks like a great market right?
Maybe…
“All that glitters is not gold” -William Shakespeare, The Merchant of Venice
So these programmer types are just rolling in dough, right? And we also know that they’re in high demand, so the company spending on them is insane. I mean, anything we try to sell them, will get snatched away. We’re all gonna be rich! Let’s start building something for them.
Hold your horses there, let’s examine two markets and see why a population is not enough to start a good business.
The code building thingy
So for those of you who aren’t coders, there’s this thing called an IDE (integrated development environment). Think of it like Word for programmers. It’s where you build all the software goodness. And I can give you another hint, there are zero programmers not using an IDE. Literally every single one of them is using it.
So let’s do some math - 250,000 programmers * $100 annually IDE license = $25MM
Now given that there are somewhere between 10-20 million programmers in the world and that a large proportion of them can afford $10 a month, let’s rerun the math. Let’s say that 2.5 million can afford it, and we can carve out a 5% sub-segment with our unique new software:
2,500,000 programmers * $100 annually IDE license * 5% = $12.5MM
Whoa! If we get a 5% share of this amazing market, we could be making $12.5MM!
Stop counting your “money” for a second
So the sad part of the story is that most of the IDE’s are free. Yup. Free.
Let’s look at the popular ones:
Visual Studio - ~25% - freemium
Eclipse - ~17% - open source
Android Studio - ~15% - free
You get the picture. So while the population is great, the market, not so much…
So I can’t make any money from this population? (gulp)
Of course, you just have to look for the right market.
I’ll give you some more insider information. Virtually every professional coder uses GIT. Think of it as a dropbox on steroids for programmers. While GIT itself is open source, providers of GIT managed services, are very profitable! (did anyone say $7.5B GitHub acquisition by Microsoft?)
So there are 10-20 million programmers out there paying for these services ($5-$10 a month) and since the code is there, it’s also a great marketplace for addons!
So the hosted GIT repositories market is in itself billions of dollars, and with the added services, it’s a multibillion-dollar business.
Final thoughts
While a population is a good start, the best indicator for where you can make a payday is where people, well, pay. A market is a community defined by its spending. Sometimes that community will be a defined population, other times it will be harder to define. I love Reese’s peanut butter cups, but I’m not sure I’m part of a population, although I’m a very reliable market!
Do you have any thoughts or questions?
Have you found yourself chasing a population and not a market?
Please comment, I’d love to hear from you!
This is great, Jonathan! I think I've indeed been looking at populations, not markets.
I get caught up in thinking of cool solutions but something I need to keep in mind is that I also have to pay my bills... and probably it's best to only pursue the kinds of solutions that people are already used to paying for.
Sure, it's not very appealing to the ego to build yet another project management tool, or yet another slack plugin, or yet another website builder. But it's a hell of a lot better than building the world's greatest domain name generator, when people think that domain name generators should be free.
Of course this can just come down to messaging at times. Package together some information and try to sell it and... nothing. Now take the same thing and call it coaching, mentorship, a course, etc. And now, in theory, people start buying. Because people are used to paying for those things. <--- I don't actually know this to be true as I've never tried it, but seems right.