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This article was contributed by Marjorie Redlow-Zandi
When founders seek pre-seed, seed, category A, or category B funding, angel investors and venture capitalists want to see a progressive product or service that can gain significant market share within a large market.
What do investors expect to get into the funding round? Investors need you to understand the data because you use market size metrics to project market size and your company’s future growth.
To meet investor expectations about your estimated market size, include a percentage and a real set of dollar values in each slide deck you present to potential funders. When an investor does not expect accuracy up to a penny, take extra care to present real market size metrics based on independent outside studies whenever possible.
TAM, SAM and SOM: market resizing acronyms and actual data points
When you present your market size data, investors will see the acronyms TAM, SAM and SOM. By using it you will be able to prove what each one means and why it is important to your product or service.
Even when you are measuring your business, TAM, SAM and SOM numbers are important to the company’s P&L estimates and goals. Use TAM, SAM, and SOM when selecting a benchmark against which projects and geographic market areas to fund from the operating capital and the goals you set for the company.
TAM (total addressable market)
Also known as total available market, TAM is the total revenue possible if a product or service achieves 100% market share. TAM answers the question, who in the world can buy your product or service in principle. It describes the total revenue that a company can theoretically make if it has an overall monopoly or total market share with its product or service. When you calculate the TAM, exclude any factors that may prevent the company from achieving this total market position. Ignore real-world barriers such as competition, production and logistical capabilities, language barriers and other uncontrolled factors such as geographical distance and climate change.
Using non-alcoholic beverage companies for example, TAM includes the total global non-alcoholic beverage market for this market, looks at all revenue from the purchase of the beverage, envisions sales in all countries of the world, and assumes no competition except tap water. Is. .
The global non-alcoholic beverage market was 1.2 trillion in 2021, according to research site Statista; TAM for the non-carbonated soft drinks segment, which includes the Gut Health / Herbal Tea category, was $ 334.6 billion in 2021.
SAM (service addressable market or service available market)
SAM is a TAM segment within geographic reach that you can target with your products or services. Many beverage companies are just beginning to target the US market and have distribution capabilities for the US only.
Waku is a drink in the Gut Health / Herbal Tea category, including Kombucha. According to Statista, Gut Health / Herbal Tea is considered a non-carbonated soft drink – a category with a market size of 21 83 billion in the US in 2021.
For Waku, Geographic SAM will be the US market for a large range of non-carbonated soft drinks in the Gut Health and Herbal Tea Beverage category. Note that angel investors typically invest when the SAM is $ 100 million or more, while venture capitalists seek an even lower minimum SAM.
SOM (marketable market or market share)
Think of SOM as a part of SAM that you can actually capture. Waku will need to research and estimate their SOM, the actual percentage of the gut health and herbal tea market in this non-alcoholic soft drink category and the dollar value they will receive.
Spending time understanding and communicating TAM, SAM and SOM is important for attracting investors to the company, growing the business and achieving the goals we set. TAM, SAM and SOM market size data points where operational funds will give the best results. Using the data, you will be able to consider a range of new products and geographic areas to expand.
Caution Note: If you ignore the data, you will be blinded instead of strategically deploying the resources where they are most important in your business. Use the data, and you’ll set the company on the path to achieving optimal ROI.
Create market size metrics and research your friend
There are many publicly available market research resources that will help you understand both current and future markets. The data in these research reports was needed to set goals, measure progress, run a business and look to future opportunities.
Free research reports are also packed with valuable market data. Look around, and you’ll find information abstract that has no value. For a fee, it’s a good idea to tap into market research firms Frost & Sullivan, Nielsen, Statista and Gartner. For example, non-alcoholic beverages are a good choice due to their specialized research into the Statista drink range. You can also maintain a market research institute that specializes in the beverage range for doing custom market research. You can use this data to establish your product roadmap, scale and distribution.
It is important to note that with TAM, SAM and SOM data you can specify market year estimates. If you are unaware of making estimates that cover a long period of time, you may want to consider hiring professional help. Custom market navigation can provide critical insights and give you the numbers you need to make the right choice.
You may be wondering if you are in a highly specialized industry, or if your technology is new, and you are not clear about how to determine relevant market trends, then how market data works. It’s a scenario that shows you pay to hire a market research consultant who specializes in your market. An expert would value gold more than their weight.
When you envisioned your product or service, your focus was on SAM – a segment within a defined geographic area of your total addressable market. As a business seeking funding and targeted operating capital to grow and scale, go your own way with a deeper understanding of your TAM and SOM – the percentage of the SAM market segment you can actually get.
By understanding the TAM, SAM, and SOM key market data and market size metrics, you will be able to eliminate predictions of financial estimates, show potential investors how they can benefit from investing in your company, and put yourself in the best possible position to achieve. Goals
Marjorie Radlo-Zandi is an entrepreneur, board member, consultant for startups and angel investor who shows start-up businesses how to build and scale their businesses successfully.
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