So let's define Total Addressable Market or TAM.
TAM is the amount of annual revenue expressed
in dollars per year.
The units are very important.
Dollars per year your business would
earn if you achieved 100% market share in your chosen market.
But wait a second, it sounds like we
might be creating more work than we really need to.
Does Amanda really need to know what her TAM is?
Look, there's a lot of people, a ton
of people in the world today that
use technology for scheduling and probably most them
find the process highly inefficient.
You could instinctively feel that the market
is very substantial, very big.
Shouldn't we leave it at that and focus on other things?
I mean on the fundamental level you
want to know kind of the audience you're really
broadcasting to.
What kind of product potential you have.
What kind of scale or potential scale your business might have.
That's one of the main reasons for understanding
your Total Addressable Market because you want to understand
how many customers you could potentially sell to.
So that's, I would say, it of the primary reasons
that you would want to establish what you're TAM is.
And then a layer above that, you also
have to look at it's not a question
only of can you conquer 100% of that Total Addressable Market.
Because the likelihood is that you cannot.
It's more important to focus on how much of,
or what proportion of, that market
are you going to be able to capture.
Because it's better to, in some cases depending
how the math works out, to conquer 80% of a smaller market
as opposed to 0% of a huge market.
'Cuz 0% is still 0.
That's right.
Many markets that seem very attractive, very large
at first glance, often end up being much smaller
on closer inspection.
You've got to validate your TAM assumptions
however promising the market looks at first glance.
We need to validate with real numbers.
A business built on unvalidated assumptions
is a business with clay feet.