Startups and their investors like to talk about major markets and how they are going to approach them. Total Addressable Market, or TAM, refers to the dollar value of what a startup wants to sell to a particular population. If you create a widget that plugs into a browser, your TAM might be the total number of users of that browser reduced to the fraction your technology could use multiplied by the annual value of that usage.
For startups looking for a new or fast-growing market, TAM can be a very bullish indicator. A growing market will have ample scope for start-ups to attack incumbents; sometimes startups create their own market, but that’s a bit rarer. (Large TAMs don’t always lead to excessive success, and smaller TAMs can still yield large companies that can achieve strong margins with addicted customers.)
This all means that TAM matters to startups, how they pitch investors and how investors make investment decisions. It’s super critical. We’ve written a lot about it over the years on londonbusinessblog.com. And I think today it is also a little insufficient.
I argue that if the macroeconomic environment gets as bad as some fear, the TAM demand for startups will be more like reading tea leaves than making realistic projections, especially for those who are in the business of selling their product instead. of just proving that there is a market for what they are building.