TAM/SAM/SOM

TAM SAM SOM is a marketing method that allows you to quantify your market in several subsets.

This succession of acronyms with the exotic name means:

– TAM (Total Available Market): This is the entire available market in the broad sense

– SAM (Serviceable Available Market): Here, we reduce the market by segmenting the TAM in relation to the service and / or product sold

– SOM (Serviceable Obtainable Market): within the SAM, this is the maximum that the startup can achieve at the present time, given its means, its competition, the maturity of its product and the market.

This tool allows you to be realistic about the definition of your market and therefore of your sales forecasts. A startup as promising and innovative as it is, cannot in fact directly tackle too large a market. If we refer to Geoffrey Moore’s theory, a startup has every interest in gradually integrating a market and adapting based on the feedback from its Early Adopters if it does not want to fall into Moore’s Gulf by aiming too broadly. the beginning.

If we take the example of a startup wishing to offer a healthier and more responsible form of food for animals:

the TAM, the large part of this funnel represents the global PetFood market. But that would mean that this startup would have no competitor and therefore that it would have to be able to have a production and distribution capacity capable of supplying the global market on its own … unrealistic, right?
While remaining optimistic, let’s reduce this market to the scale of a region or a few large cities handpicked according to a market study on the population and their consumption behavior for their animals: we thus arrive at a much more realistic market for our small startup, it’s SAM.
However once again, in the PetFood market our startup is not alone, it has to face the historic multi-brand giants in its market, as well as other startups in the same segment who are also trying to put the hand over some market share. In the end, this startup can hope to capture a small part of SAM, which gives our SOM. In our example this catchable share can be estimated by looking at the rate of existing consumers who are willing to switch brands from PetFood, or by obtaining the number of “new PetFood consumers” each year who are ready to go through the marketing channels. set up by our start-up.
Defining the size of its market is crucial to convince an investor, because it allows him to project himself into the potential of the startup. This approach also makes it possible to show its seriousness, its credibility.

You have to see the SOM with a short-term objective: if this fraction of the market is not reached, it’s hard to believe that our startup will go further. Finally, TAM and SAM are also key factors in the investment decision, a total market of several billion will tend to inspire more confidence than a very small market of a few million.

However, we must know how to qualify, because our TAM SAM SOM does not take into account the evolution of the futures market. Furthermore, this notion is incompatible with the very notion of disruptive innovation, when supply creates demand: when the first smartphones were launched in 2007, TAM was difficult to quantify.

Finally, the market is not an independent indicator of the one who studies it. By evoking finesse and subtlety the potential of your startup, … you are talking about yourself!

Some questions to ask yourself:

– How to define the real size of my market?

– What are my sources?

– Can I use the TAM SAM SOM if I have no direct competitor?

– is the size of my market sufficient to interest a VC?