5 Ways To Crack the TAM Game From Leading Startup Founders TAM is the total addressable market which tells us the total market demand or revenue opportunity for a product or service
By S Shanthi •
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We often hear companies talk about the importance of figuring out the total addressable market (TAM). From early-stage startups to late-stage and legacy players, TAM becomes a key metric to success. It is one of the first few things that investors invariably ask founders at their very first pitch meeting. However, understanding and figuring out TAM is easier said than done.
That is why, in this article, we share tips on cracking TAM from experts from the industry. They were talking at Entrepreneur India's flagship event Entrepreneur 2023 on August 7th and 8th in Delhi.
Look at existing customers who can be converted
According to Amit Lakhotia, founder and CEO, Park+, one should figure out how many consumers actually face the same problem to date and are using some or the other solution to solve it. "This would mean then you are just building an ecosystem to just make these consumers switch from their existing solutions to a new solution. So the customers already know what the problem is and they are already using a solution. The solution might not be perfect, might be broken, so it becomes easier," he said.
His belief system that stems from being a part of the Indian internet space in the last 10-15 years is focusing on these customers. "While India's GDP overall has been increasing, our ability to spend is not growing that fast. So, if you are in a business that requires capital, external capital, etc, you can't bank on the fact that new consumers will come up, their spending power will increase. That's not going to happen. The most important TAM to focus on is the consumers who are already using that service one way or the other," he said.
Don't use a macro funnel
There are multiple variations of TAM, such as SAM (Serviceable Addressable Market) and SOM (Serviceable Obtainable Market) via which you can measure the market, but the intent is pretty simple. It is to understand if you are solving a problem statement, that is large enough, said Aryaman Vir, CEO, Aurum WiseX.
"But, where these things tend to not be helpful is when you use a very macro funnel to sort of define what time is for you. So I'll give a simple example. I'm in the investment business. Now I could say theoretically, the TAM for my business is all of India with all its money in it because technically everyone can invest. But that's not the reality behind the market that I'm going after. I might be going after a more niche segment. I might be going after people who have above a net worth of a certain threshold so that they can invest in products. So defining that TAM is very very important," he added.
Stay agile
Experts say that businesses need to be a little bit more flexible with respect to TAM as it keeps evolving. "There are three things that are important for a business to run, one is a product, the second is a team and the third is a market. The product and team are in your control. The market is not. So you have to stay agile, you have to stay flexible. For a very successful business, it is important that you identify the customer need, and then probably you can add those value propositions to assess the TAM," said Anand Chandra, co-founder and executive Director, Arya.ag.
Use social media as an effective tool
Around 25 years ago, entrepreneurs did surveys to understand TAM. Today, its different. "With the advent of social media, the interesting thing is people are giving them a glimpse into their lives, their bathrooms in our case. People are telling you the products they use. So now fundamentally the entire equation or the entire proposition on which the industry data or top level data was collected, that paradigm is completely changing. So, I think that's the crux of all the lifestyle kind of businesses that are emerging out of India," said Vikas Lacchwani, co-founder and director, mCaffeine.
Focus on expanding and overcoming
Akhil Singhal, founder and head of R&D, Technotreon Intellectual Ventures said that one should not focus on defining the TAM, but rather focus on expanding it and overcoming it. He also spoke about how patents tend to grant you a monopoly over the set of products or ideas that you have. "This essentially enables you to stop other people from competing. And, on top of it, it allows you to create your own segment. TAM is essentially limited. Just like everything else by the imagination, and by the work that you put in when you build your own startup. So the focus should be on expanding it," he added.
