{"id":586,"date":"2019-05-09T00:21:33","date_gmt":"2019-05-09T07:21:33","guid":{"rendered":"http:\/\/www.ghosh.com\/blog\/?p=586"},"modified":"2024-11-22T09:02:19","modified_gmt":"2024-11-22T16:02:19","slug":"tamonion","status":"publish","type":"post","link":"https:\/\/www.ghosh.com\/blog\/tamonion\/","title":{"rendered":"The TAM Onion"},"content":{"rendered":"<div class=\"fusion-fullwidth fullwidth-box fusion-builder-row-1 nonhundred-percent-fullwidth non-hundred-percent-height-scrolling\" style=\"--awb-border-radius-top-left:0px;--awb-border-radius-top-right:0px;--awb-border-radius-bottom-right:0px;--awb-border-radius-bottom-left:0px;--awb-flex-wrap:wrap;\" ><div class=\"fusion-builder-row fusion-row\"><div class=\"fusion-layout-column fusion_builder_column fusion-builder-column-0 fusion_builder_column_1_1 1_1 fusion-one-full fusion-column-first fusion-column-last\" style=\"--awb-bg-size:cover;\"><div class=\"fusion-column-wrapper fusion-column-has-shadow fusion-flex-column-wrapper-legacy\"><div class=\"fusion-text fusion-text-1\"><p><iframe src=\"https:\/\/play.ht\/embed\/?article_url=https:\/\/play.ht\/drafts\/4JugKmj8VHVyKDGJRhL1m4eTfvp2\/q_Elgm87o&#038;voice=Noah\" scrolling=\"no\" height=\"90px\" width=\"100%\" frameborder=\"0\" allowfullscreen><\/iframe><\/p>\n<\/div><div class=\"fusion-text fusion-text-2\"><h1>The Large Market \/ Targeted Niche Paradox<\/h1>\n<p><span class=\"fusion-dropcap dropcap dropcap-boxed\">W<\/span>hen I tried raising money for my first startup, I was perplexed\u2026<\/p>\n<p>Investors, especially larger venture capitalists, wanted to see an enormous opportunity (in fact, it&#8217;s still commonly understood today that you need to show at least a $1 Billion market).\u00a0 But at the same time, investors prefer to see a startup tackle a small targeted niche, so the startup can better meet the specific needs of that market that also has fewer competitors, thereby increasing chances for success.<\/p>\n<p>But how can you have a targeted niche and a big opportunity?\u00a0 Aren&#8217;t those trade-offs?<\/p>\n<h1>Problems with TAM \/ SAM \/ SOM<\/h1>\n<p>A common approach for pitching to investors is to show <strong>TAM<\/strong> (Total Available Market), a smaller SAM (Serviceable Available Market), and smaller still SOM (Serviceable Obtainable Market).\u00a0 You\u2019ll see many early-stage startup investor pitches with a diagram something like this:<\/p>\n<p><a href=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/TAM-SAM-SOM.png\"><img decoding=\"async\" class=\"lazyload wp-image-595 aligncenter\" src=\"data:image\/svg+xml,%3Csvg%20xmlns%3D%27http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%27%20width%3D%27396%27%20height%3D%27262%27%20viewBox%3D%270%200%20396%20262%27%3E%3Crect%20width%3D%27396%27%20height%3D%27262%27%20fill-opacity%3D%220%22%2F%3E%3C%2Fsvg%3E\" data-orig-src=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/TAM-SAM-SOM.png\" alt=\"\" width=\"396\" height=\"262\" \/><\/a><\/p>\n<p>These are typically \u201ctop-down\u201d estimates, looking at overall market sizes and market share.\u00a0 This approach comes across as academic.\u00a0 To make matters worse, the definitions are vague.\u00a0 Just do a web search for \u201cTAM SAM SOM\u201d and you\u2019ll get results with different meanings.\u00a0\u00a0This leads to incorrect or at least inconsistent usage.\u00a0\u00a0 For example, if a startup were making a new side-view-mirror for cars, they might be tempted to list the size of the entire auto industry (or total car sales) to convey a large TAM.\u00a0 However, unless they intend to sell all the products that make up the auto industry, that is not the relevant TAM to use.\u00a0\u00a0The result is that many audiences discount these imprecise, often exaggerated or inaccurate numbers\u2026if they even consider them at all.<\/p>\n<h1>The TAM Onion<\/h1>\n<p>Instead, I suggest creating a \u201c<strong>TAM Onion<\/strong>\u201d&#8230;<\/p>\n<p><a href=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/TAM-Onion-by-Samir-Adams-Ghosh-1.png\"><img decoding=\"async\" class=\"lazyload  wp-image-609 aligncenter\" src=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/TAM-Onion-by-Samir-Adams-Ghosh-1.png\" data-orig-src=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/TAM-Onion-by-Samir-Adams-Ghosh-1.png\" alt=\"\" width=\"697\" height=\"700\" srcset=\"data:image\/svg+xml,%3Csvg%20xmlns%3D%27http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%27%20width%3D%27697%27%20height%3D%27700%27%20viewBox%3D%270%200%20697%20700%27%3E%3Crect%20width%3D%27697%27%20height%3D%27700%27%20fill-opacity%3D%220%22%2F%3E%3C%2Fsvg%3E\" data-srcset=\"https:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/TAM-Onion-by-Samir-Adams-Ghosh-1-66x66.png 66w, https:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/TAM-Onion-by-Samir-Adams-Ghosh-1-150x150.png 150w, https:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/TAM-Onion-by-Samir-Adams-Ghosh-1.png 1241w\" data-sizes=\"auto\" data-orig-sizes=\"(max-width: 697px) 100vw, 697px\" \/><\/a><\/p>\n<h2>Your TAM Segments Are\u00a0The Onion&#8217;s Rings<\/h2>\n<p>Think of an onion with many rings.\u00a0 The center ring is small, but all the rings combined can make a large onion.\u00a0 So, the center ring is your smaller, targeted spearhead or beachhead market.\u00a0 (If you don\u2019t know how to identify your initial spearhead market, <a href=\"https:\/\/www.ghosh.com\/contact\/\" target=\"_blank\" rel=\"noopener noreferrer\">subscribe<\/a> to my newsletter for future blog post to help with this.)\u00a0 The subsequent concentric rings represent the markets you will pursue next.\u00a0 Collectively, these markets aggregate to create your overall TAM, or larger market opportunity.<\/p>\n<h2>Your Spearhead Market Is The Center Of The Onion<\/h2>\n<p>You need a good reason for picking your spearhead market, your first target segment.\u00a0 Typically, you prioritize the &#8220;low hanging fruit&#8221; &#8211; which segment can you win the easiest or fastest.\u00a0 Besides ease and speed, you might consider strategic value.\u00a0 For example, if there is a segment in which traction will most likely get you funded, and funding is your goal, then you might prioritize that segment.<\/p>\n<h2>Sequence Your Segments From Center Outward<\/h2>\n<p>Logically sequence the next target market segments.\u00a0 The sequencing logic is critical.\u00a0 Do not randomly slap niches together.\u00a0 Each subsequent ring should build on the previous.\u00a0 Something you accomplish in a previous ring should give you an edge for winning in the next niche ring.\u00a0 Make sure you explain your rationale.<\/p>\n<p>Show that your sequential niches are intentional rather than just opportunistic.\u00a0 Remember, you want to build a predictable, scalable business.\u00a0 Don&#8217;t confuse the TAM Onion as a TAM\/SAM\/SOM model with more rings.\u00a0 The TAM Onion provides both a planned sequence for growth and an accumulation of layers to build a larger TAM that the TAM\/SAM\/SOM model does not.<\/p>\n<h2>Example<\/h2>\n<p>If I\u2019m selling side-view-mirrors, rather than say, \u201cI\u2019m targeting the automotive industry,\u201d you can start with say \u201c2-seater sport convertibles in the US.\u201d\u00a0 This would allow you to focus on the specific needs of that niche and beat a smaller field of competitors.\u00a0 And you&#8217;re picking this segment perhaps because (and I&#8217;m making this up) 2-seater sport convertibles have unique requirements of side view mirrors, and their owners are likely to be early adopters, and\/or less price sensitive.\u00a0 From there, you might expand to 2-seaters in other geographies, or you might expand to 4-seater sport convertibles in the US, or you might expand to 2-seater sport sedans depending on the strengths you build in the previous ring.\u00a0 Whichever, pick the next sequential ring (niche) that is the most important where you also have the greatest chances of success (e.g., by leveraging the assets such as technology, learnings, relationships that you built in the previous ring).<\/p>\n<h2>Group Logical Segments<\/h2>\n<p>These rings can also be grouped.\u00a0 Market segments can be grouped to show a convincing path towards the larger TAM.\u00a0 The sequencing should be done first.\u00a0 Then logical groupings may surface.\u00a0 Perhaps the next segments are logical because of similar needs, or similar go-to-market (GTM), or solution.\u00a0 In my example, I might group my segments into cars, then trucks, then buses because of similar needs and GTM within the groups.<\/p>\n<p><a href=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/TAM-Onion-example.png\"><img decoding=\"async\" class=\"lazyload wp-image-599 aligncenter\" src=\"data:image\/svg+xml,%3Csvg%20xmlns%3D%27http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%27%20width%3D%27731%27%20height%3D%27579%27%20viewBox%3D%270%200%20731%20579%27%3E%3Crect%20width%3D%27731%27%20height%3D%27579%27%20fill-opacity%3D%220%22%2F%3E%3C%2Fsvg%3E\" data-orig-src=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/TAM-Onion-example.png\" alt=\"\" width=\"731\" height=\"579\" \/><\/a><\/p>\n<h2>Caution Pursuing Multiple Segments Simultaneously<\/h2>\n<p>I find that frequently, pre-market\/fit entrepreneurs are unsure of their spearhead market, so they attempt to go after multiple segments at once.\u00a0 This is almost always a mistake [but that\u2019s for another blog post].\u00a0 However, sometimes, it is legitimate to go after a couple spearhead markets at once.\u00a0 For example, opportunities may have pulled you into two reasonably adjacent segments at the same time.\u00a0 Real onions sometimes have multiple inner rings but eventually merge at some level with common outer rings.<\/p>\n<p><a href=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/Red-onion-with-multiple-centers.png\"><img decoding=\"async\" class=\"lazyload  wp-image-600 aligncenter\" src=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/Red-onion-with-multiple-centers.png\" data-orig-src=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/Red-onion-with-multiple-centers.png\" alt=\"\" width=\"284\" height=\"286\" srcset=\"data:image\/svg+xml,%3Csvg%20xmlns%3D%27http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%27%20width%3D%27284%27%20height%3D%27286%27%20viewBox%3D%270%200%20284%20286%27%3E%3Crect%20width%3D%27284%27%20height%3D%27286%27%20fill-opacity%3D%220%22%2F%3E%3C%2Fsvg%3E\" data-srcset=\"https:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/Red-onion-with-multiple-centers-66x66.png 66w, https:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/Red-onion-with-multiple-centers-150x150.png 150w, https:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/Red-onion-with-multiple-centers.png 1000w\" data-sizes=\"auto\" data-orig-sizes=\"(max-width: 284px) 100vw, 284px\" \/><\/a><\/p>\n<h2>Amazon (NASDAQ:AMZN)<\/h2>\n<p>Consider Amazon.\u00a0 Did Jeff Bezos initially pitch or plan to be just the biggest bookstore online?\u00a0 I seriously doubt it.\u00a0 He probably pitched that he\u2019d start with books (because they\u2019re easy to evaluate online, have high global demand, huge selection, easy to inventory\/ship, etc.).\u00a0 Once be built the e-commerce platform for books, he could leverage that technology and learnings to sell the next obvious products like CDs, videos, software, etc., etc.\u00a0 Eventuality, selling \u201ceverything\u201d online&#8230;an enormous TAM.<\/p>\n<p><a href=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/TAM-Onion-Amazon-example.png\"><img decoding=\"async\" class=\"lazyload  wp-image-602 aligncenter\" src=\"data:image\/svg+xml,%3Csvg%20xmlns%3D%27http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%27%20width%3D%27719%27%20height%3D%27351%27%20viewBox%3D%270%200%20719%20351%27%3E%3Crect%20width%3D%27719%27%20height%3D%27351%27%20fill-opacity%3D%220%22%2F%3E%3C%2Fsvg%3E\" data-orig-src=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/TAM-Onion-Amazon-example.png\" alt=\"\" width=\"719\" height=\"351\" \/><\/a><\/p>\n<h1>Summary<\/h1>\n<p>The <em>TAM Onion<\/em> solves the investor pitch quandary by showing a) that you have a large total opportunity, <span style=\"text-decoration: underline;\">and<\/span> b) that you have identified a spearhead market niche that is targeted enough for you to understand the requirements intimately and to beat competitors at servicing customers.\u00a0 In addition, it shows a logical path, and thus a believable plan, from growing your initial market to building a large business.<\/p>\n<p>When initially presenting to investors, you probably do not have time to get into execution details for every segment.\u00a0 Besides, you probably won\u2019t understand those segments well enough until you get experience in them.\u00a0 So, present your <em>TAM Onion<\/em> early to demonstrate the big opportunity.\u00a0 Provide the rationale for picking your spearhead and subsequent sequential markets.\u00a0 Then focus the rest of your pitch on the details for that spearhead market such as value props (use my &#8220;<a href=\"http:\/\/www.ghosh.com\/blog\/marketing\/business-value-quadarrow\/\" target=\"_blank\" rel=\"noopener noreferrer\">Business Value QuadArrow<\/a>&#8221; to build a comprehensive list of value props), solution, GTM, traction, etc.\u00a0 [More on investor pitches in future post.]<\/p>\n<p>Most importantly, the <em>TAM Onion<\/em> is not just about convincing investors.\u00a0 Entrepreneurs should use it as a plan for your business.\u00a0 Creating your own <em>TAM Onion<\/em> forces you to finely segment and sequence your markets, which is a prerequisite to building an effective go-to-market (GTM) strategy.\u00a0 And of course, it helps you articulate a convincing bottom-up TAM to investors.\u00a0 Your goals and investors goals are mostly well aligned.\u00a0 But an entrepreneur\u2019s biggest cost is usually his\/her opportunity cost.\u00a0 So, make sure you convince yourself first.\u00a0 Done correctly, a <em>TAM Onion<\/em> can be sweet.<\/p>\n<p><a href=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/Sweet-Onions.png\"><img decoding=\"async\" class=\"lazyload wp-image-605 alignright\" src=\"data:image\/svg+xml,%3Csvg%20xmlns%3D%27http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%27%20width%3D%27246%27%20height%3D%27238%27%20viewBox%3D%270%200%20246%20238%27%3E%3Crect%20width%3D%27246%27%20height%3D%27238%27%20fill-opacity%3D%220%22%2F%3E%3C%2Fsvg%3E\" data-orig-src=\"http:\/\/www.ghosh.com\/blog\/wp-content\/uploads\/2019\/05\/Sweet-Onions.png\" alt=\"\" width=\"246\" height=\"238\" \/><\/a><\/p>\n<\/div><div class=\"fusion-clearfix\"><\/div><\/div><\/div><\/div><\/div>\n","protected":false},"excerpt":{"rendered":"","protected":false},"author":2,"featured_media":609,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,12,29,24],"tags":[],"class_list":["post-586","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-fundraising","category-salesandmarketing","category-startups","category-strategy"],"_links":{"self":[{"href":"https:\/\/www.ghosh.com\/blog\/wp-json\/wp\/v2\/posts\/586","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ghosh.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ghosh.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ghosh.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ghosh.com\/blog\/wp-json\/wp\/v2\/comments?post=586"}],"version-history":[{"count":6,"href":"https:\/\/www.ghosh.com\/blog\/wp-json\/wp\/v2\/posts\/586\/revisions"}],"predecessor-version":[{"id":1485,"href":"https:\/\/www.ghosh.com\/blog\/wp-json\/wp\/v2\/posts\/586\/revisions\/1485"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.ghosh.com\/blog\/wp-json\/wp\/v2\/media\/609"}],"wp:attachment":[{"href":"https:\/\/www.ghosh.com\/blog\/wp-json\/wp\/v2\/media?parent=586"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ghosh.com\/blog\/wp-json\/wp\/v2\/categories?post=586"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ghosh.com\/blog\/wp-json\/wp\/v2\/tags?post=586"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}