Eric Siu and Neil Patel discuss when to build a huge audience versus when to focus on revenue. They use Facebook, WhatsApp, Salesforce, Gary Vee, and Alex Hormozi as examples of different approaches to audience TAM versus revenue TAM.
It's important to understand when it's time to build reach versus when it's time to convert. They're often looking at the total addressable market.
It's not about how big is your audience, it's about how big is your revenue TAM.
All right, so we're going to talk about the difference between audience TAM versus revenue TAM. But first, let me explain what TAM means. TAM stands for total addressable market. Usually when you have venture capitalists, they're looking to invest in a company. They're often looking at the total addressable market, which is why when they invest in a company like Facebook, for example, or like WhatsApp, for example, it's a very, very, very large audience. And they, because it's a very, very large audience, they're more likely, the market caps of these companies are more likely to be a lot higher. But Neil and I were talking on the phone and we're just talking about how there's a difference between audience TAM versus revenue TAM. And I'm pretty sure We are the ones to coin this. So you want to start? Give them context in this conversation.
Yeah. So we were talking about social media. And if you look at a lot of the information Eric and I produce on social media, we don't get as many likes. It's not that we don't know how to create content that generates a lot of likes. Both him and I have done tons of experiments on so many different social profiles. We know the type of content to create to get millions of views. The issue is, though, And I'll give you a prime example of this. We both have a really good friend. His name is Alex Hormozi. He has amazing content. And one of his pieces of content talks about different types of shoes to wear depending on if you're going to a gym or you can go to a beach or you go business meeting. And he says all different types of shoes and outfits. And he's just like, mine works for a business meeting. I go outside on a run. I can go to the gym. I can do whatever, really versatile. Has a massive audience TAM, everyone's interested in that. And what I was telling Eric is, you know, there's nothing wrong with massive audience TAMs, those are great. If your goal is to get more brand awareness, build up your personal brand, et cetera, the bigger the audience TAM, the better off you are. On the flip side, in business, if you're just trying to generate revenue from something specific, you don't have to worry about audience TAM, you have to worry about revenue TAM. How big is the total addressable market from a spending standpoint? In business, when you're creating a startup, It's not about how big is your audience, it's about how big is your revenue TAM. In social media marketing, and generally speaking, if you're trying to build up a personal brand, you want a massive audience TAM. If you want to focus on revenue, then you want to focus on a big revenue TAM. A great example of this is Salesforce. Salesforce has a massive TAM in the CRM space, but it's not sexy where they're going to create a video and get 5 million likes or a million likes or even 100,000 likes. Unless they spend tons of money on ads.
Yep. So there's a couple of ways to look at this. One, you can look at the— you can make an argument for Gary Vee where he does talk a lot about patience, gratitude, and these ideas have a very large audience TAM, right? And that's how he's built his audience to millions. Now, the argument on his side would be he likes to create that content, one, because he's being authentic, but two, people like to do business with people. And then because they see his stuff, eventually they want to work with VaynerMedia which is his ad agency or do something else or partner up with him, right? You can certainly do that. Now, on the other side, I've seen content like back in the day, maybe 13 years ago, Neil would write stuff around how he spent X amount of dollars on clothes or how he did this and that. And a lot of these experiments, they would get a lot of views at the end of the day, but would they drive traffic to— would they drive more users for Kissmetrics, which is his analytics tool back in the day? Would they drive more business for Crazy Egg?
No, they didn't do any of that. But what was interesting is, you know, I know a lot of people say if you target a big audience, a portion of them will be interested in your core offering, whatever it is that you're selling. And I believe that is true. But what I found in business and in marketing is typically easier to grow a business if you just focus on a massive revenue TAM and you don't pay attention to the audience TAM. Yep.
And here's what we'll say. Like when you look at like the ad agency business, which Neil and I are both in, there are multi-billion dollar corporations, Or like you can look at professional services overall. When you look at like an Ernst Young, for example, or you can look at like a Bain, or you can look at a McKinsey, like which are more secretive operations. Or Accenture.
I think Accenture has $100 or $200 billion market cap. I haven't checked their stock in a while. What's Accenture at? Accenture, $217 billion market cap.
Yeah, so look, that is where you have a large revenue TAM. And so the things we talk about on this podcast for the most part tie in with the higher revenue TAM. Now, the things I talk about on my separate podcast where I interview people, that's maybe a higher audience TAM, right? So it just, I think it's important to understand when it's time to build a reach versus when it's time to convert. And then as long as you understand that dichotomy, you're going to be in a better spot. Because if you just keep doing audience TAM forever, sure, you can do that, but does it lead to business outcomes if that's what you're actually looking for? And if it doesn't, then the audience TAM thing might actually be a distraction. Yeah.
Yep. No, look, the audience TAM is massive and I think people, you know, you can't take it for granted, but if you're just trying to grow a business, then your goal shouldn't be too much to focus on the audience. Focus more on just having a massive revenue TAM. That's really where the money is. All right.
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