Go After Really Big Markets… The Target Addressable Market (TAM) Conundrum

For my inaugural, post, I thought I’d share a bit of wisdom from Brad Feld, of the Foundry.  I’ve had the good fortune to have met him once or twice, and I occasionally seek his opinion on items of import.

I’ve been recently engaged in the venture funding process, and as usual, the notion of the Target Addressable Market (TAM) comes into play.  The concept is simple…  if you could win 100% of the potential business out there for your product offering, how much is there to be had?

From my experience, investors want to know that there’s at least $1B in TAM…  not because they think you will capture 100% of it, but because any hot market will attract competitors, and they are looking for a well-reasoned and logical explanation as to why the market for what you are doing is big enough for you and the 75 other entrants that are going to try to make money with their solutions to the problem you are try to solve for your target market.

My research indicates that there is well over $250B of global ecommerce happening right now, and its growing at 10%-20% per annum.  It’s a big market.  Ironically, it turns out that the very simple question of “how many online retailers are there” is very difficult to answer.  The publication that most of us turn to is the Internet Retailer Top 500 and Second 500 Guide.  Logical, right?  The problem is that it is significantly underreported.  Scot Wingo, CEO and Founder of ChannelAdvisor (and a Windsor Circle advisory board member) estimates that it’s off by at least a factor of 2, and probably more, primarily because retailers must choose to self report in most instances, and many do not do so.

So, I asked Brad Feld….  can you help me with data points on this?  He was willing to do so.  But his first response was:

” I’m not a fan of TAM analyses. My view is simply ‘go after really big markets and if you can’t assert that your market is big, widen it.'”

(I’ll spare you the full email discussion, but suffice it to say that we’re in agreement that the market for automation and personalization for retailers is quite large).

But the bigger thing here as the entrepreneur is to think broadly about the problem:

  • Are we going after a big enough market?
  • Are we on top of a really big trend?
  • What are 3-5 logical extensions of our market that could widen it?