Total addressable market TAM numbers in your pitch could be incorrect.
Please do consider the following to get them right.
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Total Addressable market or TAM is Total market you can reach to calculate revenue opportunity for product or service. More often than less this can be incorrect. Your lack of awareness around the assumptions that support this number will also reflect unpreparedness and reduced confidence in your pitch or story. This is a key number which underpins the magnitude of the opportunity you are chasing. Others are interested in the size of the prize or dream that you are sharing. Potential investors will explore if this is going to make them rich.
Bounded rationality - In the early 1940s, IBM's president, Thomas J Watson, reputedly said: "I think there is a world market for about five computers”. Does not matter where you are in corporate ladder but we bring our bias. We rely on imperfect information to suggest a perfect version of future and often proven wrong. Is your version of future based on assumptions, check these assumptions.
Behavioural shift - We don’t consider shift of market behaviour. You may start getting on more food deliveries at your home or work because of providers like Uber or Amazon. Recent emergence of boxed raw food delivery companies, that deliver products with recipe for you to cook meals, is another example where you may reduce eat out.
Tradeoffs Price vs convenience tradeoff avoiding queues by paying bills online bank post office. When staying in a hotel if you find that in room dining is slow and expensive, you may reconsider your decision.
Humanising and reducing friction Number of new products and services have thrived because of the reduced friction and making it easier to buy. Social interaction at the nearby grocery shop and the ability of vendor to drop items in the car boot may encourage shoppers in comparison with another nearby grocery store where they have to push their own trolly and load items in the car.
Nudge a polite nudge as a strategy works. Do you want fries with that . One of the coffee shop owners used to ask his customers, do you want one for the road when they were paying and leaving. Many of the shoppers opted in. That said there is a fine line between nudge and push. The marginal cost of additional features in an online platform may encourage customers to opt in.
Competition Though the number TAM does not consider competitors but there may be players moving in if market becomes lucrative. That said players moving out in a declining market may give false indication. I recall our neighbourhood blockbuster store looked busier during the early days of decline of business as smaller video stores were closing down.
Copycats Success brings copycats impacting market. A gym chain becomes successful ( the measures used was gets significant capital investment ) others follow suit. On the same street many gyms open next to each other. Covid happens and people change their habits. They exercise at home. Not just one business but the industry gets impacted. While copying the business model it was not assumed that something may change the market ; the thinking was that people will buy membership because one gym offers marginal business model differences and people are becoming fitness conscious.
Systems thinking - sometimes impact in our consumption patters of one substance like plastic can have life changing impact on other. The shift in market is not sudden. Sometimes it may take generations. Take micro plastic for example when consumed in food can reduce reproductive ability, impact tissue, liver and other organs. Requiring medical experts to assist with these issues. What is happening in the world allows you to predict a version of future that may be plausible.
Disrupters and incumbents are quick to pounce if the market is lucrative and large. Buy now pay late market was relatively less active till afterpay changed it for ever. Many small players and banks jumped the bandwagon with different flavours of it. The market got sliced and diced rapidly. Same happened with the taxi industry in fact the new players called them ride-share business. One disrupter is usually followed by many who then slice and dice the market changing the industry completel
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Rationale and Coherent Story High TAM does give confidence to investors but without understanding the underpinning rationale it will be just a number on PowerPoint slide. In fact this falls in the epicentre and should be the starting point. If your story on how you arrived at the numbers don’t add up, chances are your venture may be badly timed or your story is not right or your assumption are not stacking up. You may want to watch Bill Gross’s TED talk on timing of venture(https://www.ted.com/talks/bill_gross_the_single_biggest_reason_why_start_ups_succeed). Your personal story should be equally coherent and credible as you are the one creating the story of your venture. You should strengthen your story and your story should strengthen you underpinned by strength of purpose. Else the numbers will neither be credible nor coherent.
Reminds me of an old story of a wise wazir who was famous for his wittiness. King was always trying to test him and wazir always excelled. Once the king stumbled across a question wazir may not be able to answer. King asked his wazir to find out the number of birds in his kingdom.
Wazir obliged by coming up with a number promptly.
Amazed, the King asked what if there are more ..they must be visiting from neighbouring kingdoms the wise wazir replied. What if they are less, King asked. then they have must gone visiting their relatives in the neighbouring kingdom. Hmm! king smiled and accepted the answer.
Sometimes it is hard to get the perfect answer. Should that be the case make sure your assumptions stack up. Perhaps that in an AirBnb story for some other time. **
Please do share this if you like the discussion and I welcome your thoughts and reflections
I am running a 3.5 hour workshop on 22nd November on storytelling with data. Details to follow.
This will be the only event on this topic that I will be running in 2022. If you are interested please drop me a note so that I can keep you posted.
Later will talk about serviceable available market and target market
**Reference: If this question was asked now I will refer them to Douglas W. Hubbard’s book on How to Measure Anything. Finding the Value of "Intangibles" in Business
© Sameer Babbar
sbabbar@sameerbabbar.com
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