Total Available Market – How to Build a Startup

The first word we want to think about is something called Total Available Market, and I like to think of Total Available Market as a pie. It’s the entire pie. Total Available Market says, look, how many people or companies or whatever your unit of sale is would want or need this product, and how large is the market in dollars or units if they all bought? That’s just a pretty nice calculation. And the question is, okay, how would I find out? In different industries, there are analysts that specialize in vertical markets and enterprise software, it’s Gartner and Forrester; in video games, it’s the MPD Group; in consumer research, it’s Nielsen; if you want to understand how many mobile startups there are, you go to the Mobile Startup Genome Project, et cetera. So you need to ask some questions as which industry analysts kind of follow your specific domain, and then also Wall Street analysts follow competitors in this business. That is, they follow whoever’s public; in fact, some of them write very nice research reports. If you have access to university library or a friendly broker, you can get a great free industry analyst report and I would be asking others, as well, and Google is your best friend here. I truly would be spending time trying to understand, is this a $1 billion market, and by the way, if you throw out those numbers, the first thing I’m going to ask you is, well, that’s nice, but break it down for me. Help me understand how many users, who are the players, what are the competitors, et cetera. You need to understand this total available market pie in some detail before I’ll let you get to the next step, and the next step is how big is my slice? And we tend to use a fancy word for that: What’s the served available market? The served available market means okay, well instead of the theory that there are 7 billion people in the world, how many people really can use a mobile app? Oh, well a mobile app is kind of dependent on how many people have mobile Smart Phones, and if I’m making the mobile app for, let’s say an Android platform, then the first question is how many theoretical people are going to be using Android platforms in this year and in the next 5? Oh, now I can start estimating what’s my served available market. And so many people have the money to buy the product; that is, are you a 99-cent product or are you a $99 product? Now you’re narrowing the market based on pricing or availability and you want to do some thought experiments like how large would the market be in dollars if they all bought– if everyone in the served available market bought, how large would this be, and this is kind of your first test to say, “Oh” or “Wow.” So you want to understand this before dollars and units. How do you find out? Well, this is one where you’re really out of the building and talking to customers. Then I think of this again using the pie analogy the first step was try to understand the number of people in the world, but now we can narrow it down if I have the Android app to number of Android phones–capable phones, and then down to how many would buy it at my price, but now we really want to get pretty specific. Who example am I going to sell in years 1, 2, and 3? How many customers is that? How large is the market if they all bought? That is, what we now are coming up with is the total number of dollars if you had 100% market share, your revenue isn’t going to exceed this number, and many units would that be? Again, how do I find out? Boy, this is really about getting out of the building and talking to customers and talking to potential channel partners, and talking to competitors, et cetera. You really, at the end of this exercise, now have the first pass hypothesis about is this business model canvas worth executing for the next couple of years?

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