Calculating Market Size

As you survey the landscape, you’ll need an idea of your startup’s market opportunity size. Don’t obsess too much; startups seldom fail because the market wasn’t big enough. Conversely, don’t think that a huge market size guarantees success. Many startups have failed despite a pitch deck touting the “500-billion-dollar available market!” You’ll want a general idea of your market’s size, if for no other reason than to have a good answer for investors. 

In measuring and expressing market size, three terms are typically used:

TAM (Total Addressable Market): This is the total market demand for your product or service. It’s usually a ridiculously large number that sounds very impressive but is relatively meaningless because your applesauce startup is never going to get one hundred percent of the worldwide applesauce market. 

SAM (Serviceable Addressable Market): This is the amount of the TAM you could potentially reach, given your geography and business model. Maybe our applesauce startup is targeting just the direct-to-consumer applesauce market in the United States. That’s our SAM. 

SOM (Serviceable Obtainable Market):  Unless you’re a monopoly, you’re never going to get one hundred percent of the SAM. Given the benefits your applesauce offers customers, what percentage of the total available customers could potentially become yours, and how much would they buy?

When it comes to finding market size data for your startup, Dr. Google is your friend. A few minutes of searching will usually turn up some data from reputable sources. Industry associations typically have market size data available, as do research firms such as Gartner and CB Insights. Find some data, and then cite your sources. 

Your startup will operate within a landscape where customers spend a certain amount of money, in the aggregate, to solve the problem your startup solves. Be realistic about this fact. Don’t claim that you have no competition, and don’t suggest that you can get one hundred percent of the market. Instead, do some research on the size of the market you could potentially reach, and think about how your startup will be positioned within that landscape.