TAM takedown: Investors are looking for market opportunity, not just size
Every pitch deck needs to have a “Market” slide. Unfortunately, most entrepreneurs get the market slide wrong.
That’s not necessarily their fault. The fault lies in the pitch coaching industry that insists that every deck include a slide with TAM, SAM and SOM. (total addressable market, serviceable addressable market, serviceable obtainable market or variations on these terms.)
You can find templates for this slide all over the internet. Almost always, the template has three bubbles. Sometimes they appear side by side, like the porridge bowls of the three bears, and sometimes they are elegantly nested within one another, like a matryoshka doll.
The mythical market size claim
It’s amazing how this three-bubble market size slide has spread. It seems that everywhere I go on the planet, from Stockholm to Shenzhen, entrepreneurs are using a similar slide.
Typically, entrepreneurs claim, “Our global TAM is $X billion, but we are going to start out in a certain part of the world, where our SAM is $Y billion. And we conservatively project that our SOM is $Z billion.”
At times, they also show a very precise compound annual growth rate (“with a CAGR of 17.65%”) to demonstrate their analytical rigor.
The typical market-size slide is obsolete.
It’s clear why entrepreneurs try to pump up their market size. They’ve been told that venture capital investors are only interested in unicorns, and so they assume that the best way to become a unicorn is to go after the largest market possible.
Presumably, the thinking is that it is easier to get 2% of a very large market than it is to get 20% of a smaller market. So, they earnestly search for market data that allow them to claim that their TAM is perhaps $56 billion, or $256 billion, or even better, $2.5 trillion.
When this slide appears, most investors chuckle (or weep). Not only are the numbers always exaggerated, they are also irrelevant.
