Why Everyone Gets TAM Market Sizing WRONG: Total Addressable Market Explained by a VC

How do you estimate or calculate market size or TAM? This is one of the trickiest things to get right in startup pitches and pitch decks. As a VC, I've seen many founders miss one crucial thing when estimating TAM Total Addressable Market bottoms up based on revenue potential. But beyond that, even venture capital investors and ex consultants who specialize in market sizing can get this wrong by 100 or 1000x.
I've heard thousands of TAM market size estimations, and I share the #1 mistake I see repeatedly. In this video, I break down the basic definition of TAM Total Addressable Market, how to think about serviceable available market and serviceable obtainable market, what are the most common mistakes made while calculating total addressable market and estimating TAM for investors, and examples of how to estimate market size properly.
0:00 Intro
0:49 SAM SOM TAM - should you care?
1:00 TAM Definition most founders use: Revenue Potential
3:11 TAM Definition I recommend: Enterprise Value
5:11 5 Reasons why we get TAM Wrong!
Other related terms I cover in this video include: how to calculate market size, how to estimate market size, total addressable market, Serviceable Available Market, Serviceable Obtainable Market, SOM, SAM, TAM, startup TAM definition, total addressable market size definition, market sizing case interview, market sizing, market sizing framework, market size pitch deck, market sizing pitch deck, how to estimate the market size, total available market, how to calculate market size, TAM definition, total addressable market size definition

[@jyotisood1177]

This is incredibly well done, and goes much deeper than any of the other videos on RUclips on market size and TAM. Thank you!!

[@nogatekeepers]

Thank you!

[@w.i.thenewit903]

really awesome breakdown! Much more in depth than the other TAM videos I’ve seen on RUclips

[@nicolasbarone497]

Wow this is a wonderfully done video! We are prepping our slide deck now and this is immensely helpful. I was surprised by how many new things this video covered going over the market context not just size that most other videos didn't mention. Thank you!

[@nogatekeepers]

Thanks Nicolas! Glad it was helpful!

[@algorithems]

Wayne, please don't stop educating us! Best video to learn about TAM. I have watched all your videos. Thanks 🙏

[@nogatekeepers]

Thanks so much!! More videos to come soon…

[@OluwatobiGiwa]

Less than 2 minutes into the video. I am already loving your explanation. Been worried already on coming up with our fintech's market potential. Thank you so much. Also the fact that you said "the market potential has got to be worth our time"

[@nogatekeepers]

Thanks Oluwatobi for the kind comment, very glad it was helpful!

[@amanbasanti866]

I love your insight on its not always the size of the market but its structure - and that a highly ineffectient and undeserved market can not only be captured but expanded and grown. Thanks again for an insightful video.

[@nogatekeepers]

Absolutely, thanks for highlighting that! Glad it was helpful!

[@jonathanyu5823]

Good points. These are the cores behind the scenes light me up after being in the maze of investment for a long time. Thanks.

[@nogatekeepers]

Thanks Jonathan!

[@Keke-xp1ee]

Please keep making videos, I want such videos to keep coming. Make a series on hiring, product building and operation also. Like how to start from the very scratch....

[@nogatekeepers]

I will try! Thank you for your note!

[@alexander3845]

Wayne, thank you soooo much! ❤️ I've finally understood what to consider when assessing TAM. You've got the best content on fundraising! Hands down. 🏆
The way you explain complex topics is just something special. Thanks again!

[@nogatekeepers]

Thank you so much Alexander! Very glad you like it!

[@Edico999]

Fantastic content and expertly executed - well done

[@nogatekeepers]

Thank you!!

[@sicktastictv]

This channel is gold. You are doing amazing job Wayne!

[@nogatekeepers]

Thank you so much!!

[@kasparvongrunberg1512]

This is REALLY well done, thank you so much!

[@nogatekeepers]

Thank you! Glad you like it!

[@w.i.thenewit903]

Agreed!

[@RocketCarpenter]

Deep insight! Subscribed !

[@nogatekeepers]

Thanks so much!

[@nogatekeepers]

These are cognitive mistakes that all of us can make! Nobel prize winning economist Paul Krugman once said "By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's". Any other errors you've seen in estimating future market size?

[@jom9810]

Whenever I mentor local startups here at home catering to our local market, I constantly analyze their creativity and awareness through the ff.:
* the way they structure their business model
* their future services/market on top of their core
* spotting innovations or trends that they can ride on
* identifying their potential acquirers if they mature
This allows me to understand how they know their startup well and whether they're in for the long haul or not. As I watched this video, I could see the similarities; that's why I always thought that finding your TAM involves creativity and awareness beyond just numbers.
Also, that financing startup idea that you shared at the beginning of the video sounds like Hustle Fund's Hustle Flywheel.

[@nogatekeepers]

@@jom9810 I love that comment - I agree market sizing may come across as a purely analytical one, but actually requires some creativity (esp as you point out to see around corners). Thanks!

[@w.i.thenewit903]

I think your list is great!

[@olumideadeniyi641]

I love your content man👍🏾👍🏾

[@nogatekeepers]

Thank you!!

[@seanight8]

Succinctly clear 👌🏻

[@nogatekeepers]

Thank you!!

[@mkmenon5772]

Seen a lot of videos on TAM - Hands down this is the best. Question though, with respect to TAM do you only scope based on funding size requested (i.e with 5 million I can reach the whole of NA but not the world kinda thing even though there are plans to actually expand worldwide as there is no limitation) or should TAM just be your maximum potential regardless of your funding size and the SOM is where the capability of the requested funding round is articulated.

[@nogatekeepers]

Thanks so much! If there’s no reason you can’t expand internationally, I’d include Global as TAM. However, there are often good reasons why this isn’t realistic. The edtech market in India for example is very different from that in the US, and consumers behave a lot differently

[@Keke-xp1ee]

@3:52, the value of the enterprise 1.5B is more than that of the TAM, 1B. How is that possible, is it because TAM is calculated on the basis of current potential and enterprise value is taking future's market size into consideration (for eg. for e-commerce start up, more consumers will prefer online once the customer behaviour adapts to the online market)?

[@nogatekeepers]

Good clarification question - the issue is some define TAM as the amount of annual revenue available to make in a market, but that’s not equal to enterprise value for a company. You can’t capture all of that yourself most likely, but the company also is worth more than just the revenue (as you point out, it’s actually the discounted value of all future cash flows over time)

[@SophyYan]

The video is 🤩

[@nogatekeepers]

Thank you Sophy!!

[@Kingofking45]

Can you do e-commerce market size video

[@nogatekeepers]

Thanks for the request! Maybe I can answer any questions you have on it here? I’m working on a few other projects right now so not sure when I’d be able to put a video out on that

[@AbhishekGhoshTheSwagKing]

don't forget about SAM and SOM bro pls bro pls

[@nogatekeepers]

Lol I’m not a fan!