Evaluating Market Size: TAM, SAM, SOM

Posted on November 11, 2021

In this article, I’m going to share a methodology for evaluating the market size for a fictitious B2B SaaS product named “Geospatial Crop Intelligence” (GCI for short). This same approach can be used to evaluate the opportunity for launching a new product at an established company or for a startup that has a single product and needs to quantify the market size as part of a pitch to VC’s or Angel Investors.

Before we start, it’s crucial that I make an important point: every market-sizing exercise leads to numbers that are a wag. Nobody has a crystal ball. Successful companies usually start with a single product that, upon seeing some success, leads to an expanded product line. As that product line grows, it leads to ancillary products and services that significantly expand the market size for the company overall. Often, the follow-on products were not anticipated in the early days and would never have been taken into account when evaluating the market. A good example of this is Amazon’s expansion into web and data services, which now generates 15% of their revenue.

A second word of caution: EVERYBODY that you show this to will disagree with some aspect of it… or they’ll suggest that there’s a better way of doing it for your specific product. That may be true. Thus, it’s critical that you carefully think through and consider all of the options; compile a pros and cons list for each of the different methodologies that make sense. That way, you can decide how best to proceed. And, if you do use this approach, you explain your reasoning and why you chose it over the alternatives when the conversation inevitably comes up (usually at the worst possible time in the middle of your pitch or presentation).

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