Understanding and presenting the dimensions of the market you’re focusing on is vital to securing funding for your enterprise. Angel traders and VCs alike need to see a breakthrough services or products that scales and may purchase a major share of a large market.
At any stage of funding, be it seed or a Sequence B, it’s crucial to incorporate a slide in your pitch deck that explains the dimensions of your market from three views — TAM, SAM and SOM.
While you current your market measurement knowledge to traders, they’ll search for TAM, SAM and SOM data. These knowledge factors pack a mystique about numbers that may seem colossal and out of attain, however when you strategy market sizing methodically, you’ll understand it’s actually not that difficult.
I just lately attended a presentation by an organization that produces modern, nutrient-rich olives and peppers. As a result of their knowledge level situation is easy and straightforward to know, I’ll use it right here to clarify their TAM, SAM and SOM.
Step 1: Seize TAM
Whereas TAM (complete out there market) tends to trigger probably the most anxiousness, it’s the best of the info factors to deal with. TAM describes complete revenues inside a bigger sector. You possibly can calculate TAM three other ways.
First is the top-down strategy, usually attained by means of publicly out there market analysis experiences or extrapolated from publicly out there knowledge experiences.
Subsequent is the bottom-up strategy, which depends on a calculation of precise and projected pricing, together with the present and complete projected use of your services or products.
When you do your homework, you’ll eradicate monetary projections guesswork, present potential traders how they stand to realize from investing in your organization, and put your self in the very best place to attain your targets.
Final is the worth idea strategy. This idea applies an informed evaluation of the projected worth and complete anticipated use of your services or products, adopted by calculating how a lot of that worth will be mirrored in its pricing. Worth idea most frequently applies to thoroughly new merchandise, providers and classes. Let’s apply the idea to Airbnb.
Airbnb disrupted the lodge trade by imagining a expertise that will allow owners to match up with vacationers in search of a spot to remain. To use the worth idea, assess how a lot a traveler can be keen to pay for this new kind of lodging, how a lot the home-owner would need to be paid per evening, and what Airbnb might acquire from the home-owner for utilizing its expertise.
When a services or products class has already been well-researched, TAM is commonly calculated utilizing publicly out there market analysis experiences. If the product or product class is new and hasn’t been researched totally — which occurs usually in tech and likewise applies to different trade verticals — I like to recommend hiring a seasoned market analysis advisor to safe TAM knowledge utilizing both a bottom-up or worth idea strategy.