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THREAD: The TAM/SAM/SOM template is leading founders astray on market sizing.
It doesn’t fulfill its ostensible purpose. It obfuscates more than it reveals. It gives investors very little information.
It’s barely even a good conversation starter.
It doesn’t fulfill its ostensible purpose. It obfuscates more than it reveals. It gives investors very little information.
It’s barely even a good conversation starter.
First, a quick primer on the TAM/SAM/SOM convention
TAM = Total Addressable Market
SAM = Serviceable Addressable Market
SOM = Serviceable Obtainable Market
(image via https://fourweekmba.com/total-addressable-market/)
TAM = Total Addressable Market
SAM = Serviceable Addressable Market
SOM = Serviceable Obtainable Market
(image via https://fourweekmba.com/total-addressable-market/)
The definitions seem clear, right? But there’s a big one missing. It will always be missing. One word. The most important word.
“Market”
“Market”
TAM/SAM/SOM takes a founder’s focus off one of their top priorities: Understanding who their customers are. The trick in the deck is to talk about individual customers and unique segments as part of a nuanced market. Does TAM/SAM/SOM help? https://twitter.com/Jer_Diamond/status/1259860084034883590
TAM is encouraged by custom to be comically large
SOM is basically pulled from nowhere
SAM — the only potentiall interesting piece — gets hung out to dry without context
The vaunted TAM/SAM/SOM box that absolutely positively must be checked obscures the thing it supposedly measures!
Market sizing is too important to be a box-checking exercise.
Market sizing is too important to be a box-checking exercise.
So many decisions flow from how an entrepreneur defines their customer base. Just to name a few: segmentation, targeting, positioning, pricing, and even fundraising. https://twitter.com/Jer_Diamond/status/1259860088124321794
You need to connect a holistic view of the market to a ground-level understanding of your customers' problems.
At a high level, this is what sizing a market “top-down” vs. “bottom-up” is really about. https://twitter.com/lpolovets/status/1265780518139777024
At a high level, this is what sizing a market “top-down” vs. “bottom-up” is really about. https://twitter.com/lpolovets/status/1265780518139777024
TAM/SAM/SOM can be helpful in highlighting underserved customer segments in a mature market. But it’s an end point, not a starting point.
As is, it encourages founders to grab a huge number from an industry report and maybe pull out one broad segment.
As is, it encourages founders to grab a huge number from an industry report and maybe pull out one broad segment.
And it locks them into a snapshot in time.
In a fast-growing market, the conversation isn’t about existing segments. It's "We're going from X in this market to big-multiple-of-X within 10 years. How does that happen?"
This is the meat of the whole pitch! TAM/SAM/SOM hides it!
In a fast-growing market, the conversation isn’t about existing segments. It's "We're going from X in this market to big-multiple-of-X within 10 years. How does that happen?"
This is the meat of the whole pitch! TAM/SAM/SOM hides it!
I recently saw a pitch that applied the template to projections that are 10 years out. This market is growing 50%+ every year.
TAM/SAM/SOM encouraged the founders to sidestep the biggest questions facing their market.
But accuracy here is less relevant than insight.
TAM/SAM/SOM encouraged the founders to sidestep the biggest questions facing their market.
But accuracy here is less relevant than insight.
Anyone can recite a market research report. The real market size conversation happens when someone articulates a model of the market forces in play. Then we can grapple with the big questions.
Questions like:
Questions like:
“What is driving change in this market?”
“Who will be most affected by this change? Why?”
“What’s a winning position? What’s a losing one?”
Naturally, you believe your position is the winning one. The goal is to articulate why from your customers’ points of view.
“Who will be most affected by this change? Why?”
“What’s a winning position? What’s a losing one?”
Naturally, you believe your position is the winning one. The goal is to articulate why from your customers’ points of view.
If an old template is making it harder for you to do that, get rid of it and don’t think twice. /fin
