[TAM ~ Total Addressable Market]
A bigger Total Addressable Market (TAM) means more buyers, which means more money, right...?
Well, maybe if you're Apple who have a shot at literally selling to everyone - but not if you're a startup with half a product and a quarter of a team who's just entered their market.
You might think a massive TAM sounds sexy to investors - i.e. "Our market is people who enjoy breathing, so with 8-billion potential buyers, we are basically the next unicorn..."
But for seasoned investors, it's not only meaningless but it's a red flag that this person either hasn't done their research or is incredibly naive - both of which aren't worthy of their time and money.
How to determine your TAM?
There needs to be a realistic balance:
🤏 Too small - EG we sell to retirees who like to climb Mount Everest!
➡️ The ROI won't be big enough to warrant risk of investment
🌏 Too Big - EG we sell to people who don't like having Covid 😎
You'll dilute your go-to-market:
➡️ Too many people, means
➡️ Too many different problems, which means
➡️ Too many different solutions, which means
➡️ Too much effort will be needed, which means
➡️ Too much money will be needed over too long of time,
➡️ Too risky to invest in...
The success of startup is the speed in which you can effectively connect someone's problem to your solution.
So if you have done your research and have found a problem that enough people want solved urgently enough to take a risk on your new product - you might stand a chance in creating and sustaining growth.
And isn't that the goal for all of our companies?
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