Essay · ~15 min read

Market Sizing Guide

Ian Taylor · Pear VC Free Intermediate

Most market sizing advice online is generic TAM SAM SOM filler. This one is written by an investor, backed by a survey of 30 VCs, and it is honest about the thing that matters: a big number pulled from an industry report proves nothing. It walks you through building the number bottom up (customers times what they pay you per year), which forces you to confront whether real people will actually pay, and that is the honest test of whether an idea can grow past a niche.

  • Size the market bottom up (count of real customers times annual revenue per customer), not by claiming a percent of some giant top down figure.
  • TAM, SAM, and SOM are used loosely across the industry, so state your assumptions plainly instead of hiding behind the acronyms.
  • Project the market out five or more years and include how you would actually reach and acquire customers, since a market you cannot serve is not your market.
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It answers 13 questions

  1. How big does my market need to be for this to be a real business?
  2. What are TAM, SAM, and SOM and how do I actually calculate them?
  3. My market is small right now but growing fast. Is that a problem?
  4. How do I size a market for India specifically when data is messy?
  5. How do I estimate a market size when the product I'm building doesn't have a category yet?
  6. Investors keep asking for a top-down TAM slide, but I built my number bottoms-up. Which do I show?
  7. How do I evaluate whether an idea is big enough to be worth years of my life?
  8. How do I size a market I want to sell to businesses outside the big Indian startup hubs?
  9. How do I research a market in India where reliable data and analyst reports basically don't exist?
  10. How do I know if a trend is big enough to build a company on, or just a small niche?
  11. How much of the market do I realistically need to capture for this to be a real business?
  12. Everyone says my market is too niche to be venture-scale. When are they right, and when are they wrong?

And 1 more across the hub.

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  4. The definitive essay on where good ideas come from: notice problems you personally have, don't force it. Use it as the lens for... paulgraham.com Essay · ~20 min read How to Get Startup Ideas Paul Graham
  5. The essay that put 'product-market fit' into the startup vocabulary. Read it for the gut-level description of what PMF feels... pmarchive.com Essay · ~15 min read The Only Thing That Matters Marc Andreessen
  6. When there is no category report to point at, you have to build the number yourself, and this is the essay that teaches you... Andreessen Horowitz Essay · ~20 min read 16 More Startup Metrics Anu Hariharan, Frank Chen, Jeff Jordan
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