Market size · Non-profit

Best way to estimate your total addressable market when you have more than a primary and secondary?

Zeeshan Shah Project Manager |Technology Architect |Entrepreneur

August 19th, 2015

If you have an idea where you feel you have 3 target markets, how do you quantify the TAM for your pitch? Does one focus on the largest existing market for one  or do you roll up all the 3 markets into a large number- this might have double counting as well.
e.g. data analytics /predictive analytics for crime, water and traffic; this being relevant for travel agencies such as expedia or for security agencies or for insurance;  I know the analytics market is 125Billion today but that mainly covers marketing/CRM.

Do I consider each sub market inside and roll it up to a large number or keep a primary market+ secondary + tertiary? 

Florian Pestoni

August 19th, 2015

For your pitch, I'd recommend keeping it simple and picking one target market. The market should be large enough such that you won't "run out of market" if you're successful. There's a big difference as well between a new solution in an established market vs. a completely new market (hint: the latter puts the burden on you to show that there is actually a market/willingness to pay for a solution to an unrecognized problem.)

If you have multiple potential target markets, it's OK for you to track them (this will come in handy in case of a pivot) but I would recommend you devote 95% of your energy to establishing an initial foothold in the easiest market. It's much easier to expand from there to other markets.

Lastly, beware of just quoting analyst reports, at least without understanding in pretty good detail what exactly they're measuring. You may need to read the analyst notes, or possibly look at the raw data (if available) to figure this out. If you happen to run into a detail-oriented investor who questions the number, you want to be prepared to defend it ... and then move on.

In any case, you shouldn't spend too much time on this IMO. Many/most investors are weary of these numbers, which always have a very large TAM and an unreasonably large SAM (for an early stage startup.) 

Anonymous

August 20th, 2015

Zeeshan,

The TAM or the total horizontal market opportunity needs to be explained as the total possible opportunity but you will not have the capacity or the funds to address the entire market. You need to identify specific vertical markets that you can focus on and potentially dominate. Then show a road map of how you can leverage the knowledge learned in one vertical to move into other vertical markets. -- Keith

Scott McGregor Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.

August 20th, 2015

Roll them up into your TAM, but be clear which you will actually serve in your serve-able available market (SAM; might be only your primary segment) and then figure your likely share of the SAM. Scott McGregor, mcgregor94086@me.com, (408) 505-4123 Sent from my iPhone

Michael Brill Technology startup exec focused on AI-driven products

August 19th, 2015

Focus on the bottoms-up. Derive TAM from what you're selling, who you're selling it to, what they'll pay and how you can reach them. Your understanding of these dynamics is much more important for investors... and for you. As Florian said, most investors are pretty annoyed at lazy TAM analyses with no understanding of selling mechanics.