What Are TAM, SAM, SOM And Why Do They Matter?

If you have been fundraising lately, chances are you heard about these acronyms.
 
Usually in the form of a question from a business angel or venture capitalist — which is not always good news, as you should probably have addressed the issue first.

“Great pitch, but I want to understand the market opportunity now. What is your SOM?” – VC Investor

Simply put, this is the way investors look at the market you’re in. They are trying to assess whether you will make it big, or remain in a niche segment of the market.
 
So what do the acronyms stand for?
 
TAM = Total Available Market
SAM = Serviceable Available Market
SOM = Serviceable Obtainable Market
 
Think of it as a target: TAM is the larger periphery, while SOM is the bull’s eye.
Hopefully, your SOM is bigger than the typical target’s bull’s eye.

Let’s Take An Example

If you are developing an app helping drivers locate available parking slots, then TAM are all the drivers in the world.
 
SAM are the drivers in the areas you are servicing, i.e., the cities for which you have information on parking availability.
 
SOM is the share of that market that you will eventually capture, taking into account market structure (you may not have information on all the parking spaces in town), competition, and customer usage (some drivers may not use public parking slots).

The Airbnb Illustration

Original pitch decks Airbnb founders used to raise their first round have been published a few years ago. 

As you can see, the page is very easy to understand. Airbnb is saying that they hoped to capture 84 million trips over three years, or 15% of the serviceable available market (defined as “Budget & Online Trips”).

No doubt the startup’s founders had to explain why they felt so confident to financial investors they pitched this page to.

Yet, the visually clear rendering, coupled to the efficient research, makes VCs want to know more.

Why Do VCs Care So Much?

Venture capitalists are going after 10x to 100x returns. While they need great teams to execute on brilliant products, one critical element is to build large companies.

We have a whole online module dedicated to the Market page in pitch decks, including a video by legendary Sequoia Capital founder Don Valentine.

Click here to view the course. 

Conclusion

You will most likely find different definitions of TAM-SAM-SOM on the web, but the ultimate goal is the same: educate VCs on your market opportunity, and convince them they should spend more time studying it with you.

Most founders don’t spend enough time researching and analysing their market, let alone craft a clear and concise Market page for their pitch decks.

The TAM-SAM-SOM grid is a good way to communicate the market opportunity to VCs, and hopefully get a second meeting to go further.

Like this article? Share it!

Share on linkedin
Share on twitter
Share on facebook
Share on whatsapp
Share on email

Leave a comment

Responses

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Copy link
Powered by Social Snap