Market Opportunity
Estimate Total Addressable Market (TAM) to validate scale potential
1 step
Calculate the Theoretical Total (TAM)
Use a top-down approach to identify every potential user or dollar in the global market to establish your business ceiling.
To understand the ultimate size of your opportunity, you must first calculate the Total Available Market (TAM). This represents the "Total Pie" and answers the fundamental question: "How big is the pie in theory?" Calculating your TAM is an exercise in top-down logic. You are identifying the total number of people or entities that would need, want, use, or buy your product if you had 100% market share and absolutely no competition. This figure is the absolute ceiling for your business and is typically expressed in total dollars, total units, or total volume of users.
For example, if you are entering the lighting industry, your TAM is not just "your lightbulbs," but the entire "Global lighting industry," which is valued at approximately $100 billion. To find these high-level numbers, you must look beyond your own data and consult external, professional research sources. Industry analysts such as Gartner and Forrester are essential for providing broad sector valuations and Compound Annual Growth Rates (CAGR). Furthermore, you should examine reports from Wall Street analysts at firms like Goldman Sachs or Morgan Stanley. These analysts value global industries based on long-term trends and macroeconomic factors.
The goal of this step is to determine if your startup is "venture-scale." If your TAM is too small—for example, only a few million dollars—your project may be a solid small business, but it will not be suitable for venture capital. Scalable startups typically require markets ranging from hundreds of millions to billions of dollars to justify the risk. You must document your sources with extreme clarity, as investors will scrutinize these numbers during your pitch. At this stage, your mindset should be expansive: think of "everyone in the world with a browser" or every person globally who faces the theoretical problem your product aims to solve.
2 step
Define the Serviceable Slice (SAM)
Filter the global market by those who have the money, technology, and access to use your product right now.
The Served Available Market (SAM) represents "Your Slice" of the pie. It is the specific portion of the TAM that can actually be reached by your current technology, business model, and geographical constraints. This step is a critical reality check for any operator. While the TAM describes the entire world in a theoretical state, the SAM is limited to the people who not only have the problem but possess the specific infrastructure, legal eligibility, and budget to pay for your solution today. You are moving from the world of high-level analysts to the practical world of qualified potential customers.
To calculate your SAM, you must apply a series of realistic "filters" to your theoretical total. You must answer two fundamental questions: "How many people actually need or can use this specific version of the product today?" and "How many of them have the money to buy it?" For example, in the provided lighting industry case study, while the "Global lighting industry" (TAM) is $100B, the "LED lighting" segment—which represents the serviceable technology—is only $6B. Even if that segment is growing at 40%, your business logic must be based on the $6B technology slice, not the $100B industry total.
In the medical diagnostic example, the logic becomes even more granular. If there are 300 million patients worldwide (TAM), you must filter by access. If only 50% of those people have access to a healthcare system or a home-testing environment where your specific device can be used, your serviceable patient base immediately drops to 150 million. By applying a realistic price point (e.g., $1 per test) and a required frequency (e.g., testing every 60-90 days), you arrive at a SAM of $600 million. This step bridges the gap between a massive, unachievable global number and a realistic market segment. You validate these filters by looking at your current "Start Options" and determining which customers have the confirmed budget and the technical environment to adopt your solution. This is not about who might buy in five years, but who can buy today given the current market structure.
3 step
Build the Bottom-Up Target Market
Determine exactly who you will sell to and how many units you will move in years 1, 2, and 3 based on operational capacity.
The final and most important step in market sizing is defining the Target Market (the "Bottom-Up" approach). This answers the ultimate operational question: "How much can I actually eat?" Unlike TAM and SAM, which are largely based on top-down external research and theoretical percentages, the Target Market is based on your specific sales capacity, marketing budget, and go-to-market strategy for the next 36 months. Professional operators prioritize this number because it provides the "Proof of Scale" on Day 1. You are not calculating what is "possible" in a perfect world, but what your team will realistically achieve in practice.
You must define exactly which groups you will sell to in Year 1, Year 2, and Year 3. This process requires deep Segmentation - the identification of groups most likely to buy. You must segment your audience using five critical variables:
Geographic: Where are they located physically (specific cities, airports, or online zones)?
Demographic: What are their age, income levels, or gender profiles?
Psychographic: What are their lifestyle choices, values, and motivations?
Behavioral: How often do they use similar products, and what are their current work habits?
Channel: Where do they already shop or seek solutions (e.g., online forums, retailers, or through specific partners)?
Using the medical diagnostic case study, if your SAM is $600 million, your Target Market is defined by your ability to capture a specific percentage of that slice. You might target "high-end diabetics and early adopters" in Year 1, which represents a 20% capture rate of your qualified SAM, leading to a $120 million Target Market. To find these answers, you must get "out of the building." Talk to potential customers to gauge their "willingness to use," identify and speak with channel partners to understand distribution hurdles, and analyze competitors to see their actual sales volume. If you are entering a "Niche Market," your strategy relies on a "special feature" that no one else has. You must explain how many units that specific feature will move in your first year. This bottom-up calculation provides a concrete roadmap. It turns a vague "opportunity" into a sales plan that shows exactly how many units you will sell, to which people, and via which channels.
4 step
Expected Results
Increase Market Penetration by 10% and projected Net New ARR by 20% through a defensible bottom-up model that identifies reachable revenue.
Deliverables
A completed spreadsheet (XLS/GSheet) calculating TAM, SAM, and SOM using bottom-up logic.
A list of cited sources (analyst reports, trade journals) defending your market ceiling and growth assumptions
One presentation-ready slide visualizing the 3-year growth roadmap and volume projections.