Why You Need To Know What Your TAM & SAM Are

Just to be clear, I was really presenting to an audience of one, Gifford. The others would add information if needed.

Jack had a very systematic way of analyzing business opportunities. It was always the Total Available Market, or TAM, as a starting point.

 

You need to know the TAM, so you can explain why you are focused on a particular Served Available Market (SAM).

 

Over the years of working with Jack, I had seen others make the mistake of starting with the SAM. “It’s a $100M/year market,” an unsuspecting GM would say to Jack.

Jack would always reorient them to explaining how big the whole market was.

So, I explained how big the TAM for the business I was running at the time was. Then I broke down the TAM into the various sub-markets that existed.

“Go on,” Gifford said.

From Gifford’s perspective, he could see the whole landscape of opportunities now. And, more importantly, Jack could ask whatever relevant questions about why we were pursuing one opportunity versus another opportunity.

 

You always want to make it easy for your potential investors to understand why you are making a given decision.

 

I showed Gifford a pie chart of the size of the various sub-markets. I showed him the estimated size of each sub-market today and the size of each sub-market five years from now.

Gifford asked me how I came up with the data, and I explained my methodology to him. I always tried to give him a top down view based on market research data, and I tried to give a bottoms up view based on customer input.

This is a key point. You’re not looking for an exact match in the data. You are looking for reasonable accuracy. If the numbers matched reasonably, then we felt comfortable that had a good gauge of the opportunity.

“Why aren’t you going after the largest market instead of the this market?” Gifford asked me.

It was a good question. Gifford was paranoid that we were going to miss opportunities by myopically focusing on the wrong market.

That was part of his genius as a marketer and CEO. You don’t need to worry about the products or the competition if the market doesn’t make sense.

“The larger market has become a commodity market,” I said. We have a better chance of growing by focusing here.”

Ziya, Dave, and Len concurred with my explanation.

Jack was satisfied. So we kept going forward with the presentation.

 

You need to become dominant in the SAM you’re focusing on.

 

Jack asked me, “How do we get to 20% share of the market?”

Gifford believed that only the top one or two players in any given market would survive. And by top he meant the largest market share.

Second place in any given market usually means you need to achieve 20% market share or more.

We had come from zero share the previous year to gaining 6% share now. I walked him through the competitors, our competitive advantages, and our plan to grow to over 20% share in two years.

If I had shown Gifford a plan where we were only going to get 5% share in a few years, he would have told me to go back and rethink the plan.

After a long discussion about the competition, Gifford only had one more question, “What do you need from me?”

The plan was approved. Now I had the resources I needed to succeed.

 

You may start in one SAM, but you may end up attacking multiple SAMs over time.

 

Nine months later, I was back at the Peppermill again presenting Jack a plan for attacking the largest SAM of that market. It was the one that was a commodity market.

We had come up with a way to completely disrupt the market and hopefully dominate it. As always, Gifford started with the same question, “Tell me about the whole market first.”

 

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