Startup 101 - Convince VCs with TAM, SAM, and SOM, in your Pitch Decks
An important but sometimes overlooked set of tools, when pitching to investors are TAM, SAM & SOM. What are those peculiar acronyms?
When delivering your pitch deck, you will get to the section where you discuss your proposed market opportunity, and in doing so, you will need to segment your market into three distinct groups: Total Addressable Market (TAM), Serviceable Addressable Market (SAM) and Servicable Obtainable Market (SOM).
These groups help explain to your potential investors what your potential market opportunity is, estimated true size, rather than just some vague numbers you plug from thin air.
TAM refers to your total available/addressable market, such as everyone who uses a smartphone, in the U.S, within a specific age group.
SAM is your segmented addressable market, the portion of TAM that is segmented to what you would be targeting. An example would be, users that play sports PC games.
And finally, SOM is your share of the market, a further subset of TAM and SAM, the market segment that you can realistically say you could reach in the next couple of years. Say, 20% or 15% ballpark estimate of the Sports PC Gamers market.
Discovering each of these segmented groups takes some time and R&D to accomplish, but conducting market research allows you to formulate more accurate numbers for the market you can potentially reach. Once you do that, you can then attach numbers and figures to your SOMs, and say you will charge $9.99 for the 15% of users, and estimate figures from a bottom-up perspective.