How do you determine the potential of a product or business?

This is a very good, and very common question. Unfortunately, there's not necessarily a "right" answer. Here's how I think about approaching that question when looking to start/scale a new product...

Start by thinking about it very simply. There's a lot of assumptions to be made, so the more hard data we can bring to this exercise with deep market research, the better. Remember: garbage in, garbage out.

Revenue = Units Sold * Price per Unit

We have two dimensions to figure out an answer for. Not that crazy, really. Don't overcomplicate things at this stage. You're trying to do a very rough opportunity sizing, not flesh out an entire business model and develop growth projections. Keep it very simple, and work with potential ranges.

Let's start with price.

Does a similar product (read: target customer would consider it a competitive or substitute product) already exist? Great! How much does it cost? What's the price for the top 5-10 competitors? Average the prices, take the min, take the max. That's your pricing range.

Note: many products, especially SaaS products, are going to have multiple price tiers. In this case, I suggest you either take the second lowest (i.e. if there's an individual, business, and enterprise price, use the business price).

Ok, we have a price range. For sake of keeping my math easy, let's say the average price is $100/unit.

Now we need to figure out how much of this thing we can sell.

Let's do some market sizing:
-Total Addressable Market (TAM) -- the entire universe of your possible market
-Serviceable Addressable Market (SAM) -- the subset of TAM that you're immediately targeting
-Serviceable Obtainable Market (SOM) -- this is what we want to estimate. How much you can actually obtain.
-If not obvious: TAM>SAM>SOM

For sake of example, let's say you're building productivity software. (Note: in this case, we'll define a "unit sold" as one-year of SaaS service sold)

New tab->Google.com. Start doing industry research. What's the global productivity software market worth per year? How quickly is it growing y/y?

At a very fast glance, I found: ~$100Bn per year, growing ~2% per year.

Now whittle down. Of that market, how much is directly applicable to the idea you have? What's the category/product level breakdown of the TAM?

Let's say for sake of example you're interested in selling productivity software for software engineers and that accounts for 10% of that market, and is growing at a similar rate.

SAM: $10Bn per year, growing at 2% per year.

So how do we get to a SOM estimate? First, niche this down at least for geography and one more lower-level subset of the market. For instance: you'll target only the US market, and software engineers that [use X coding language/do front-end/do back-end/have a team size of Y], etc.

Let's say that represents $1.0Bn, growing at 2% per year. I think it's helpful at this point to convert the estimate into # of customers, for two reasons: 1) it's generally easier to think about large numbers in terms of something you can more easily relate to, and 2) this allows you to separate the average market price assumption and your product price assumption. For simplicity, I'll keep them the same, but hopefully you get the point.

At $100/customer/year, this means there's 10MM customers currently (a sizable pool of customers), with 200k new customers entering the market each year (that you can capture without needing to win customers from an existing competitor!).

From here, it's really more art than science. You're essentially trying to think through the reality of capturing increasingly large %'s of the customer base.

Does it seem feasible to capture .1% of the market increase—200 customers, $20k revenue—or .002% of the total market? Probably yes, assuming you have a decent network in the industry, friends you know who'd be willing to sign-up etc.

What about 1% of the market increase—2k customers, $200k revenue—or ~.02% of the total market?

10% of the market increase—20k customers, $2MM revenue—or .2% of the total market?

How would you capture those customers? What features do you think you can sell your product on vs. the existing market offering? And so forth.

When you start to hit numbers that feel unrealistic, you're probably in the territory of where your business might be able to go over time, with a fleshed out product, etc. How does that compare to your expectations, your cost structure, your desire to build a team to support it, etc?

Iterate this exercise as needed.

Long story made short: Breakdown the potential market into metrics you can understand (customers and $/customer), backed by as much real data as you can find, and start sketching out real potential strategies for finding those people and selling to them.

The best way to know if something is viable is to build a backlog for an MVP. Decide if the financial, emotion and intellectual cost is worth the risk. This can be done with a simple pro's vs con's list. If it is worth the risk, create the MVP. Build an audience why working on the MVP. Release the MVP than iterate. The 2 most important things you can do is start it and finish it. Thought experiments won't make you rich, executing will. I wish you the best of outcomes on your endeavors!