Do I hate to hear those words.
Nothing gives an investor the heebie-jeebies faster than that phrase.
It means that the entrepreneur hasn't done the hard work of figuring out a business model at a detailed level, nor allocated the total investment required to achieve their goals.
They have looked at a total market and backed into a financial projection that looks great at a small market share. In almost every context, to an investor it sounds like an excuse for a lack of detailed planning, based on the fact that the proposed venture is a "can't miss" sure thing, so why bother to really work the plan?
Yet, they have a very difficult time finding an example of a company that has 1% of the market in a stable, successful business.
Why is that? Markets are inherently unstable. If the proposed business does start to grow rapidly, it won't stop at 1%. And, if it achieves 1% and does stop, it won't stay at 1%. It will decline. If the end goal is to sell the company, who will buy it at 1% and declining?
If they achieve some early success, often at high profit margins, they will draw bigger competitors. If they have protectable IP, their growth should accelerate. Yet their plan is for a fast growth to a modest market share - almost surely not a combination that will work.
Their planning process has not done the hard work of validating their assumptions - because just a modest market share" achieves spectacular results, they think.
What should the entrepreneur do?
Start with an exhaustive list of assumptions. (Often people work these backwards. They start with, say, a needed conversion to sales rate from a click stream and work back to the quantities and conversions at each step to achieve profitable results.)
Once you have those, ask how each one can be validated. Check the experience of others for detailed data. If you don't already know about it, check out the ECHO awards of the Direct Marketing Association. Award portfolios can often be a source of comparable data on these kinds of results. Here's the DMA bookstore link to the most recently published portfolio.
Then, devise small tests to begin to get at how close you come to your assumptions. If it's click rates, or purchases per hour, or acquisition costs, give it a try. Zipcar, the Boston-based local car sharing service, began in exactly that way.
Invest just enough capital at each step to validate an assumption.
Then build a projection based on actual testing.
Include growth rates as part of this process. The faster you can see repeatability from customers on the scale you estimated, the better. You may find that while your initial cost/per is higher than planned, it is OK if your repetitiveness is more frequent than you had thought.
This should allow you to construct a plan for growth that includes reinvestment rates over time and time to breakeven cashflow. So, you wind up with a working business model and a projection based on tests that validates both the model and the growth rate.
And, if the venture meets an untimely end, you haven't over-invested. (If the assumptions prove to be best in the world by a factor of two based on your research of comparables, perhaps you've only invested time.)