Market Potential Analysis

Understanding your market potential is really important for your startup strategy.

Let’s break down three key ideas:

• Total Addressable Market (TAM)
• Serviceable Available Market (SAM)
• Serviceable Obtainable Market (SOM)

Imagine a lemonade stand that wants to sell lemonade to everyone in the world.

If the stand could sell a cup of lemonade to every person on the planet, the TAM would be the total money they could make from selling lemonade to 8 billion people.

That’s a lot of lemonade!

Now, let’s say our lemonade stand is located at a busy park and can only sell to people who walk by.

If the park has 1,000 people on a sunny day, the SAM would be the total money the stand could make by selling lemonade to just those 1,000 visitors, not everyone in the world.

Finally, let’s say the lemonade stand owner thinks they can convince about 20% of those park visitors to buy a cup of lemonade on that sunny day.

So, if the stand believes it can sell to 200 people, that’s the SOM.

It's the realistic number of customers they expect to serve right away!

It's important for a few reasons:

• Using Resources Wisely Knowing the SOM helps startups spend money and time smartly. For example, a new restaurant can focus on attracting local customers instead of trying to reach people too far away.

• Getting Investment Investors want to see the market size before funding a startup. A clear SOM shows the business idea can work, helping attract investors.

• Planning for Success These numbers help startups set realistic sales goals and create effective marketing plans. Regularly checking them allows startups to adapt if the market changes.

• Identifying Opportunities Understanding these metrics helps startups find gaps in the market, allowing them to tailor their products or services to meet specific customer needs.

• Measuring Growth Tracking TAM, SAM, and SOM can help startups monitor their growth over time, showing progress and informing future strategies.

To use TAM, SAM, and SOM you should:

• Identify the Business Idea Clearly describe the product or service you want to offer.
• Research TAM Use industry reports and market data to figure out the total size of the market.
• Determine SAM Look at the specific group of customers your business can realistically reach.
• Establish SOM Estimate the market share you can realistically capture in a certain time period.

To get the most out of understanding your market potential, keep these points in mind:

• Regularly ask for feedback from potential customers to improve what you offer and meet their needs better.
• Look at what your competitors are doing to understand what customers like and what makes your startup stand out.
• Stay aware of trends in your industry so you can see how customer needs might change and adjust your plans accordingly.

• Build relationships with other businesses, mentors, or experts in your field to get helpful advice and find ways to work together.
• Be open to changing your strategies based on feedback from the market and how well you're doing.
• Think about your startup's long-term goals and growth, not just short-term sales.
• Use tools and technology that can help you analyze market data more easily and effectively.

1. Malhotra, N. K. (2010). Marketing research: An applied orientation. Pearson Education.
2. Babbie, E. (2013). The basics of social research. Cengage Learning.
3. Wikipedia. (n.d.). Market research Total Addressable Market.