Council Post: TAM SAM SOM - The Holy Trinity

In the fast-paced world of business, capturing the attention of investors requires more than just a run-of-the-mill presentation. You need a fantastic pitch deck that persuades them your early-stage start-up has a clear path to success and is worthy of their investment. But beyond the captivating story you have to tell and your passion, investors closely scrutinize the viability of your product concept, and that's where TAM, SAM, and SOM come into play. These terms are crucial metrics used to evaluate your business model and understand the potential for your product. Their utility go beyond impressing investors - TAM SAM SOM are metrics that are used constantly to make informed business decisions in areas such as growth, new product innovation, market expansion, and segmenting the target audience.

What are TAM/SAM/SOM?

All right, let's dive into these concepts. Total Addressable Market (TAM) represents the total potential market for your product or service. It's the entire audience you could reach if all the stars aligned perfectly. Your TAM is influenced by the type of market you are operating in, whether it's an existing market, a re-segmented market, or a completely new market. For example, entering an established market means competing with current rivals, while re-segmenting a market involves addressing unmet demands from adjacent opportunities. Creating a new market requires introducing an innovative offering to a fresh set of customers. TAM is ever-changing, and as companies evolve and expand, their TAM also grows. A classic example is Amazon, whose TAM in the mid 90s when they started off, would have been related to buyers of books but has exploded exponentially since then, as their product offering has expanded manifold.

Next, we have the Serviceable Addressable Market (SAM), which is a subset of TAM. SAM narrows down the potential market to the portion that is relevant to your product or solution. It represents the market you can target that is likely to be receptive to your product. For instance, if you are in the Snacks space but specifically you provide healthy snacks suited for tea time, you may define your SAM as the audience that snacks during tea time.

Finally, there's the Share of Market (SOM), which represents your company's current market share within the SAM. It's what you've actually managed to capture in terms of market demand. Or if you are a new entrant, SOM is what you can realistically hope to gain in terms of the share. The initial SOM of a new business depends on various factors, such as the competitive landscape, marketing strategies, product differentiation, pricing, and overall market demand. It is essential for new businesses to set realistic expectations regarding their initial SOM. For an established product, the SOM is essential for gauging how well you're performing against your competitors and monitoring it is critical to assess whether you are gaining or losing ground.