Discover more from The O’Daily by Kathryn O'Day
4 Ways To Crush Your TAM/SAM/SOM
Deliver your best pitch ever.
Great pitches talk about The Money.
These pitches both opened with a TAM/SAM/SOM analysis.
In other words — how big is the pie? how big can your
cherry-filled dollar-filled slice be???
There’s two kinds of market analyses:
Guess which one is better?!?
(Did you say #1?🤞🤞🤞)
So why would someone end up with #2 and how can you improve to #1?
Here a 4 ways to crush your TAM/SAM/SOM — aka THE MONEY — analysis during a pitch!
1. Pick a credible TAM.
A common mistake is picking the wrong Total Addressable Market.
It’s a big TAM but not aligned or believable.
If you’re building a new Segway, it’s a (really, really big) stretch to say that you’ll capture 10% of the global automotive sales ($3.6T).
But how many people are riding bikes, taking public transportation, or live within 3 miles of their office? What if 10% of them switched to your hot new Segway?
Now, that feels reasonable. I’m starting to believe.
VCs like big markets. So definitely showcase the biggest market possible for the TAM — if — it makes sense.
If it’s too much of a stretch, the whole analysis loses credibility.
Show your vision, think big, and also make the logic rock-solid.
Is your market small now but will grow significantly over the next 3-5 years? Explain why and how. VCs love expanding markets.
2. Do realistic math.
If we get just 10% of all F500 to pay us $10,000/mo, we’ll have $6,000,000 ARR in Year 1!
The math is correct. The assumptions are a stretch.
Yes, you believe in your product and some companies (including yours!) will grow insanely fast.
But you’ve got to factor in:
People are slow to change.
Big companies are harder to sell than you think.
You haven’t stress-tested pricing.
Product-market fit may need some iterations.
Investors appreciate unwavering confidence but it’s important to show you understand potential challenges and have (at least somewhat) realistic expectations.
If you have early indicators that you can outpace typical startup results and growth rates, by all means, highlight these!
Comparing your metrics to the early metrics of big companies in a similar market (e.g. in year 2, Salesforce had x dollars of ARR, and we’re already at y) is a nice way to do this.
3. Show your work.
Bringing it back to 4th Grade Math.
Walk through your thought process, assumptions, and data in each stage of TAM, SAM, SOM.
Founders often rush through this slide.
I’m not sure if it’s because it’s a “required” slide, they don’t want too many holes poked, or they assume investors already understand.
Here’s the thing.
If you’re building a B2B sales or marketing platform, I get it. 5 seconds and move on.
Anything else…spend at least a few moments walking through your thought process and data.
Showcase your industry knowledge
Give enough color commentary to make it feel “real.”
Understand your audience and adjust detail and explanation accordingly.
You may have picked the right TAM (#1) and done realistic math (#2) but if you don’t walk us through the math, we won’t know how you got the market size answer!
Valeria Brenner of Thryft Ship does an amazing job of this here. The detail shows that she deeply understands her customer, product, and market.
4. Evaluate your goals.
You pick the right TAM.
You do realistic math.
You show your work.
…and the market isn’t worth billions.
This is okay!
There’s many amazing businesses in the world of all sizes.
Most VCs look for companies that could do $100M ARR within 10 years and be valued at $1B or more. This requires a really big market in the billions and even trillions.
But some of the most successful entrepreneurs never go the VC route. They self-fund, lean into a niche, or build a cash-flowing business from day 1.
There’s many ways to succeed, change the world, love your life, and make lots of money!
So, have an honest conversation with yourself.
Do you want to build a really big company? Do you want to raise from venture capital?
Rethink the opportunity and find a much bigger one!
It may be a different market.
It may be an expansion of your current idea.
Do you want to solve the current problem that you are wildly passionate about?
Great! Stay the course but adjust the financing strategy.
Raise from alternative capital sources, grants, crowdfunding, angel investors who care about this problem
Or —crazy idea here — get customers to pay you! 😉
VCs run their own (more conservative) analysis of TAM/SAM/SOM. Want to rigorously vet your idea ahead of time? Use this fantastic chart from A Smart Bear.
Market size is key to understanding how big a business can get.
Every investor is thinking about market size and doing their own analysis while you’re pitching.
Help them see what you see by walking through a well-researched, believable, rock-solid TAM/SAM/SOM analysis!
What tools or tips do you have for market sizing or TAM/SAM/SOM slides? How do you keep the market analysis clear yet concise in a pitch?