Sizing it up — It’s important to know your market size (potential customers) and value (what is the total spend per year?) inside and out. Familiarize yourself with 3 terms — TAM = Your Total Available or Addressable Market (everyone in the world who could potentially use your product), SAM = Your Segmented Addressable Market or Served Available Market (Your target market within the TAM), SOM = Your Share of the Market (what chunk of the SAM you will realistically reach within a few years). To get an investment, these numbers must be pretty big so even if you capture a very modest share, you still are giving them a large ROI.
Who’s Your Market? — How do you know your TAM/SAM/SOM? Here’s an example: One of my clients is in the travel deals industry. So their TAM is all travelers — let’s say we take travelers in the US, and what the spend is in the travel market. Their SAM — last minute travelers — anyone booking travel under 2 weeks before a trip and there SOM — People booking lodging under 2 weeks before a trip, looking for a deal. Each one should have a number and value attached.
Finding the Data — So how on earth do you figure out these numbers? Well if you can’t afford to hire a consultant, the first obvious place is Google. If you can find data from reports by Gartner, Forrester, IDC, CBC Insights or any noteworthy Market Research firm, that’s great! Not all reports are free but see if you can get access through a friend studying at college — they often get free access to databases. Another fairly inexpensive way to “DIY” — Fivver is an amazing marketplace that from $5 (and up) you can hire someone to do research for you. Be VERY specific what you’re looking for and you’re bound to get better results.
Feed the FOMO — Numbers are just dandy. But as Reid Hoffman says:
“Frequently, young entrepreneurs put in slides that show their business’ total addressable market (TAM) to establish some credibility. Problem is, most investors don’t trust the sources of that information, so entrepreneurs aren’t establishing huge credibility by saying they’ve claimed a market with a huge TAM.”
So what should you be talking about? Trends and opportunities! Why are you a hot investment opportunity now and what backs that up? Look at your competitors — has anyone just been acquired or raised massive funding? That’s great! It can signal to Investors that you are the next hot thing. Is there a quote from a major source like Gartner or Forrester saying that this is the year for a startup like yours? Grab the quote! I recently worked with a company raising their Series B and they had such a quote from one of the big names — it was definitely a nice stamp of approval for investors to see. Investors often suffer from FOMO so this serves to push their triggers.
Don’t Fudge the Numbers — Find real numbers and their sources — don’t make things up because that can seriously harm your credibility. Try to get as precise numbers as possible, but it’s better not to have them all than to make things up.
The market will be one of the main things that investors grill you on — so make sure you know the basics and get them excited about the things that might not be so obvious.