How well do you know your TAM, SAM, and SOM? And does it matter?
The short answer is, yes. And here's how to think about each.
TAM stands for Total Addressable Market. It’s how you define the total size of the potential market.
SAM stands for Serviceable Addressable Market. It’s how you define the market today given your product's features and capabilities.
SOM stands for Serviceable Obtainable Market. It’s how you define the size of the market you could capture today given your current resources.
Some say this is a useless or unnecessary exercise. I disagree because it forces you to think holistically and specifically about your ICP and go-to-market strategy and investments. It forces you to think about your competition, your buyers, and how you want to build and grow your business.
Here are some questions to ask for each market stage.
TAM
Where's the whitespace in the TAM?
How does the TAM evolve as our company and product roadmap changes?
What might be limiting our TAM today?
SAM
How mature is the market?
How well will they understand our value prop and thesis?
What geographies are we playing in now and which could we unlock?
SOM
What portion of the SAM are we committed to going after this year?
Which accounts fit into our SOM definition?
What's the potential revenue value of the SOM?
What demand strategies do we need to use to unlock the SOM?
Doing this every 6-12 months is a valuable and necessary exercise. Do it with your executive team and board if you have one. Or do it on your own or with your small team.
This exercise will help your growth rate, it will help you to keep innovating, and it will help you to not get sucked into the status quo of what you're doing. Don't make the wrong assumption that what you are doing now will keep working for many years to come. Because it won’t.