James Sinclair breaks down TAM, SAM, and SOM: the total market if you owned everything, the slice you can actually reach, and the slice you'll realistically capture. The numbers matter less than showing your work and making your assumptions defensible.
Chapters
At some point you're going to come across this requirement to give you a market. Tam, total addressable market. I'll define it in a second. What you mustn't forget is your SAM or your som. I'll address what they mean in a second. I also hate all the acronyms. I think they're so unfair on entrepreneurs because people ask or talk about them to people as if they should know them. But if you explain what the concept is or if you explain what you're looking for, they know and they understand. But I want to just explain this for a second. Okay, so your TAM is your total addressable market. This is the total market demand for your product or service. If you had 100% monopoly, 100% market share, how big is this market? Your SAM is your service addressable market, also valued at dollar figure. Usually this is your geographic region, as in if, okay, the global market for this type of technology, this type of use case is this. This is what North America looks like. Serviceable addressable market then goes down into your segmented or serviceable obtainable market, which is the actual portion of your service. Addressable market you can capture. TAM is the global market, 100% market share. Sam is your geographic. You can touch them, you can reach them. Doesn't have to be geography. SOM is the ones that you actually can get to. The way you define it in terms of your output is TAM is your dollar figure. SAM is your dollar figure. SOM is usually dollar figure over time. So, like, we think we can get X million in the first year, X million the second year. Most people do like two, four, six years. We think this amount of money in two years, this rough amount of money in four years, this rough amount of money in six years. Here's what's important about it. When people talk to you about it, no one fucking knows. What's the answer? What's the answer for Uber? What's Uber's tam, or people that take taxis, or people that go to an airport, or people that commute, or people that don't want a car, or people that just travel in general? No, Uber's democratized travel, which means people who didn't own a car and never took taxis will now take an Uber because they can Uber pool. So how do you even work out the tam? My point is no one knows what your investors, what your advisors, what people are looking to understand is how did you come to those numbers. It's not about right or wrong, it's about how did you work out or how do you think about tam? How do you think about the market? Where are you comparing yourself to? What does that even mean? When you think about geographic or reachable, you know, the sam, how are you thinking? How are you dividing up or segmenting or organizing, rather your addressable market that you can actually get to? And then when it comes to your segmented, obtainable markets, what's your reality? How are you actually thinking what you think you can actually get of it? What type of penetration market aspect can you get? And I think people mistake. You don't need to have a right answer. Just have to have an answer and a reason how you got there that makes sense. And people can understand, quantify, and qualify. Good luck with all the acronyms. I hate them.
