Point One: Calculating a comprehensive market size is a good use of your time

1. Doing your due diligence to develop Market Size estimates help you to become more of an expert in your field

2. A well thought out Market Size will be a foundational assumption to build your business plan, pitch deck to investors, and customer acquisition plans.

 

Point Two:  Investors look for big numbers when it comes to Total Available Market (TAM) 

1. Investors like to see large opportunities and look for > $1 Billion TAM with predicted continuing positive trends

2. Investors must take into account that not all of their portfolio investments will be successful, so they look for opportunities that have the potential for really big wins (100 x) to help cover potential losses or modest returns

3. Each investor has a different range in what they are looking for, but anecdotally I have heard that opportunities with <$100 Million TAM may not be interesting to most   

4. If you have a great business and your TAM is valued under $100M, consider tapping into different types of funding including early revenue streams, grants, pitch competitions and angel investors

 

Point Three:  Start with a Top Down approach

1. A top down approach is a good starting point and way to quickly verify your business opportunity

2. Use this calculation in you pitch presentations and business plans

3. Use a two-part approach:

4. First, search published reports or publicly available data that cites the total available market size (aka TAM)

5. Different sources may have different TAMS.  Record all of them, and select the TAM you believe is most accurate    

6. Second, break your TAM into geographic areas, and select those geographies you can realistically service (aka SAM)

7. Third, break your SAM down by customer segments to select those segments you can realistically obtain (aka SOM)

8. Multiply your SOM by your estimated sales price to calculate total opportunity in revenues

 

Point Four: Develop a Bottoms Up approach, it’s more work but is worth it in the long run 

1. A bottom’s up approach is a good way to start thinking about the assumptions you will use to build your business plan and market strategy 

2. Use this calculation in your financial model and customer acquisition plans

3. For a bottom’s up approach, you will perform a very granular exercise starting with individual or very small groups of targeted customers by targeted cities in order to build a comprehensive large database that builds to your total targeted customers and estimates

 

Point Five:  There may be a large amount of variability between your market size estimates to start, but that is OK!

1. Generate a grid listing all publicly available sources along with your top down and bottoms up approaches 

2. Don’t get discouraged if there is a wide range in the numbers

3. As you perform these exercises, they will make you smarter about your business and assumptions used

4. Once you begin to generate revenues and your business is interacting in the real world, you can replace your “best-guess” assumptions with real facts to refine your market size and overall business assumptions used 

5. Over time your market size estimate will become more precise and accurate