Get more out of this interactive strategy with insights from the podcast episode Future Proof Business Design

Market size insights drive strategic decision making. Know when to innovate with new products, explore new markets, diversify or pivot your offerings.

Step One → TAM

Total Addressable Market

Imagine a vast ocean of opportunity, shimmering with the promise of untapped potential. This is your Total Addressable Market (TAM) – the boundless expanse where your product or service can reign supreme, capturing the hearts and minds of customers worldwide.

If you could sell your product everywhere in the world, with absolutely no competition and 100% market share. You would have realised your TAM. It’s the total revenue possible in a space. If you have no intentions of globalisation you can keep this focused on your country or region.

Considerations:

• What is the industry your offering is a part of?
• What is the category your offering fits into?
• What consumers are buying these products and how many are there?
• Is your buyer an individual acting on their own interests, their families interests, or the interests of a company?
• Each year, is this market growing, staying the same size or reducing in number?
• Are there any new regulations or policies that could affect your market?
• Are there any environmental or sustainability trends affecting your market?
• Are there any new entrants or startups disrupting the market?
• How could my offering win more of this market from the existing businesses?
• If a service, how often do people seek solutions on average in a given year?
• If a product, how many practitioners or individuals use that device? or perform the type of activity this advice is relevant for?
• If software, how many people perform that task?
• If event, how many times would this event be reasonably held in a year?
• What is average annual spend on this type of solution?
• How many people/organisations is this spend relevant to?

Optional. If you wish to calculate your TAM use the formula: TAM = Total Industry Revenue x Your Relevant Market Segment Percentage (the segment of the total industry your offering would penetrate, as a percentage of the total industry size).

You can use my article on tracking trends, particularly IBISWorld and other general trends links to find great data on total industry or category revenues.

Why are these calculations optional? TAM SAM SOM are typically expressed in numbers so this might seem odd! From my perspective, for businesses not looking to use TAM SAM SOM as part of an investor, business, or mergers and acquisitions process, the specific number isn’t very meaningful. It doesn’t change your strategy, the insights you discover when working out that number are what matter.

Step Two → SAM

Service Available Market

Imagine holding a powerful lens that focuses your vision on the precise segment of opportunity within the vast expanse of the market. This lens is your Serviceable Addressable Market (SAM) – the realm where your company's current offerings, distribution channels, and target market intersect to create a realistic estimate of your potential market size.

Your SAM provides a glimpse into the future, showing you how your SOM can expand as you refine your offerings and reach new customers. Your insights here will guide your growth strategy, showing you where to concentrate your resources for maximum impact. By understanding your SAM, you can avoid the pitfalls of overestimation and focus your efforts on the areas where you can seize the most attractive growth opportunities.

Your SAM is not just about your business; it's also about your competitors. It represents the battleground where competition and alternatives vie for market share, highlighting the importance of differentiation and innovation in your strategy.

Considerations:

• Thinking of your product category. What portion of this total category is relevant to your product? Is there a subset that is more accurately an expression of your total size?
• What factors make someone in your TAM market more likely to say yes than another person in that same market?
• If a company who is the decision-making job role? How many people are in this job role within the locale you are targeting?
• What problem does your offering solve for your target market?
• How urgently does someone need a solution like yours when they experience their problem?
• Thinking of your customer need, how many products fill that need today? It is valuable to consider competitors in the market here. This includes other businesses selling similar or alternative solutions, and also customer behaviours like DIYing their own solution. This does not change the size of any of the markets, but it demonstrates how likely / how challenging it may be to gain market share.
• Who are competitors and alternatives targeting and why do you think this is?
• What are your competitors doing to adapt to emerging trends?
• How are customer preferences and behaviors changing?
• What emerging technologies are being adopted in your industry?
• What marketing reach can you expect to have over a given year? (For Turning Points members, watch the video on Exposure)
• Are there any advancements in manufacturing or production processes?
• Do you have exclusive partnerships or access to resources?
• Does your offering serve a customer in a way no other business can? (Such as a trade secret or similar competitive advantage)
• Do you offer better prices, superior quality, or innovative features? This helps determine how appealing your target market will find you
• Does your offering provide buyers with a 10x more impactful outcome compared to how they currently meet their need? (10x is a useful indicator for switching buyers from their existing behaviour to a new solution, like yours)
• What costs might increase in your business to access more of the market than you currently can (than your SOM)? Do these change your profit margins providing a roadblock to scaling?
• Does your market have seasonality in buying patterns over a year? (Think ice-cream sales in winter vs summer)
• What is your churn? Not only is this how many customers you lose, but also thinking about if there’s a typical time when customers stop having the need you satisfy in their journey? This is an area where your SOM contracts and is a different way of viewing seasonality and how big your SAM might be.
• For product, what is the scalability of your supply chain? What is the potential for outsourcing production? What is the scalability of your packaging and shipping?
• For service, what is the potential for hiring additional service providers? What is the scalability of your service pricing model?
• For software, what is the potential for automation in your software or tech stack?
• For events, what is the scalability of your ticket and registration system? The potential for virtual or hybrid events (if in person) or the potential for physical or hybrid events (if virtual)?
• What does your offerings life cycle suggest about the frequency the same person will buy again? How often does someone need to buy a new one? or, how often does an individual use a solution for this problem in a year/month/day?

Optional. If you wish to calculate your SAM use the formula: SAM = TAM x Your Target Market Percentage (what percentage your target market is within this total relevant segment).

You can use my article on tracking trends, particularly WGSN and other general trends links to find great data on buyer spending behaviour in different markets.

Step Three → SOM

Service Obtainable Market

Imagine your business as a garden, with your Service Obtainable Market (SOM) representing the ripe fruits ready for harvest and the realistic yield of quality produce you can expect to capture in a short term time frame.

Your SOM is not just a target; it's a reflection of your strategic cultivation. It is the most conservative estimate of what your garden can produce, guiding you to set achievable revenue goals and make informed decisions about expansion and diversification.

Just as a gardener aims to harvest all or most of the ripe fruits, you should aim to reach your SOM in the natural course of how you do business.

Considerations:

• TAM and SAM are calculated over a year. SOM is calculated over a shorter time frame and you can choose what that time frame is. Pick a time frame that isn’t so short that the same time frame over any part of the year would give you wildly different results. But not such a long time frame that you’d be repeating the same marketing activities over and over. 3 months is a great ballpark that I like to use as it captures the life cycle of many typical business activities and accounting requirements. It’s also easy to multiply it by four to compare it to your SAM and TAM.
• What is the typical buying cycle for your product or service?
• What is the duration of your sales and marketing campaigns?
• What is the duration of competitor marketing or sales activities?
• Is there a subset of your target market more likely to say yes? One that needs your solution as a priority for them and will adopt it quickly? (Turning Points members refer to your Signals & Customer Lifetime Value Notion)
• How long does it take to onboard a new customer?
• If every customer you reached out to said yes, would you be capable of delivering to 100% of them? If not, what would the constraining factors be? Experiment with hypothetically increasing the number you reached, at what point does your system break down and what parts break?
• Are their weaknesses in your current capacity you could improve to access more?
• Is your current marketing approach scalable to accommodate growth?
• If product, what are the upper limits of your current manufacturing and distribution capabilities?
• If service, what are the upper limits of your personnel, calendar availability or physical space availabilities? What is the lead time for manufacturing and delivery?
• If software, what is the scalability of your software infrastructure / tech stack? The bandwidth of your servers? The availability of your software developers and/or customer service teams? The scalability of your software licensing?
• If events, what is the capacity of your venues? Availability of event staff and equipment? Duration of your events?
• Are there any knowledge gaps or assumptions you’ve made about your ability to access 100% or close to your SOM with your current business model?

Optional. If you wish to calculate your SOM use the formula: SOM = SAM x Market Share Percentage (How much you will access based on your current business model within your chosen SOM timeframe).

3 Key Strategic Initiatives

What it looks like: 3 clear, simple, effective plans to reach a large portion of your target customers (market penetration) and move that metric forward (business growth).

Turning Points members, refer to your Magic Flywheel and Value Disciplines videos for more specific insights and strategies on market penetration. As well as your Customer Alchemy Funnel Notion and North Star Notion to compare your insights here with your current strategic initiatives. Use this TAM SAM SOM tool as a brainstorming technique to increase the quality and effectiveness of your decisions there!

Considerations:

• What are your revenue targets or even the minimum viable revenue you need to sustain the business and income you desire? Now imagine this metric at different sizes – what would your business look like at those sizes? What about your day to day efforts? Do you like the way this looks?
• What are the different ways businesses within your industry move this metric forward?
• What are the ways businesses in a different industry move this same type of metric forward?
• Of these different strategies, what are the benefits, drawbacks and capabilities needed to effectively benefit from them?
• Which strategies have the strongest relationship between the steps to follow and the outcomes it promises?