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Beginners and their Investors love to talk about big markets and how to deal with them. Total Addressable Market, or TAM, refers to the dollar amount a startup wants to sell to a certain demographic. If you make a widget that plugs into a browser, your TAM can be the total number of users of that browser, minus the fraction that can use your technology, multiplied by the annual value of usage.
For startups targeting new or emerging markets, TAM can be a very bullish indicator. A growing market will leave plenty of room for start-up companies to attack incumbents. Sometimes startups create their own marketplaces, but that’s a bit rare. (Big TAM doesn’t always lead to success, and small TAMs can still give big companies the ability to lose strong margins from captive customers.)
All this TAM is for startups, to talk about how to raise investors and how investors make investment decisions. It is extremely important. We’ve written about it on TechCrunch for years. And today I think it’s a little inadequate.
If the macroeconomic environment is as bad as some fear, I suspect TAM’s question will be more for beginners than reading tea leaves to make realistic predictions, especially for people who are too busy selling their products rather than proving what the market is for. They are building.
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