, 18 tweets, 4 min read
My Authors
Read all threads
Happy new year! Back at it with the tweet storms. Today's thoughts on TAM & go-to-market:

1)IMHO, investors pay a lot of attn to TAM (total addressable market). Founders, some attn to TAM. But most ppl pay TOO LITTLE attn to go-to-market / market pull - what I care about most
2) First, let's talk about TAM. Let's say you're doing a travel startup.

You cannot just read a Gartner's report synopsis that says "The travel market is a $100B market" and then write on a slide that your TAM is $100B. That's the wrong way to assess TAM.
3) A good way to calc TAM is w/ a "bottom's up" approach. E.g. You are a mkt place for hover board guided tours worldwide. Your *take* is $10 per tour. You think you can reach 10m ppl / yr at scale worldwide. so $10 * 10m ppl = $100m. Note: what is your take? Not total cust spend
4) TAM is ok. But the more impt q is your go-to-market thoughts. How are you going to get hoverboard tour customers? And how much will that cost? These will of course be experiments and assumptions that need testing, but these should be thought of early and tested often.
5) One of the biggest issues in early stage startups is being able to acquire customers profitably. In this case, what could we do here? We could run ads on niche travel sites for ppl going to a certain city. We could write articles / SEO on activities. etc.
6) But we only have $10 to spend to break even on our mktg costs. This is such a SMALL AMOUNT of mktg budget to make this work. And we need to breakeven on this first sale, because repeat business here is near 0. How many ppl will ride one again? And when will that next trip be?
7) For other businesses where there's strong repeat business such as SaaS or recurring consumer purchases, you may not need to breakeven on the first sale. This should be a consideration when you think through your startup.
8)Not to mention you not only need to cover your marketing costs in the $10 (in this example) but all the operational costs of serving the customer must also fit into this too.
9) So let's change the example slightly. Let's say that instead of a hoverboard tour mktplace, we decide to compete with hotels.com and offer hotels. Much bigger TAM. But you see we still have a problem w/ getting the cust acq to work.
10) If let's say we get $10 per night on a booking and ppl book an ave of 3 nights, then we make $30 per transaction, But our cust acq costs + operational costs still need to fit into the $30. You can argue we have more leeway here because ppl will come back and be repeat buyers.
11) But my pt is, even though the TAM can be super big, the go-to-market to compete with hotels.com will be challenging (can be done but challenging). This is why thinking through go-to-market >> TAM. If you can't get customers profitably, who cares about the TAM.
12) This is where things get really interesting. Let's take a new fake company: Hippo Co. Let's say there are 100k hippo pet owners. And let's say we offer a marketplace of hippo grooming services where we make $100 per groom and hippos need to be groomed 1 time per yr.
13) The TAM is not that interesting. 100k ppl * 100 per groom = $10m. But we can spend up to $100 to acquire an owner and serve them, because the groom is expensive and we make $100.
14) So let's say we can acquire these hippo owners for really cheap, because no one wants to serve them, because the TAM is so small. The cust acq is great and now we have a large audience of hippo owners. We're not making a lot of money BUT we have an audience to upsell.
15) So now we can upsell these ppl on all kinds of other services. Hippo food. Hippo vet visits. Hippo playdates. Hippositting. And since these are upsells to existing customers, we just need to pay for ops to serve these addl sales. The LTV of our customers has increased!
16) So with all these new services we can go from $10m per year in revenue 10x or even 100x that from there even though the initial TAM was small of the hippo grooming idea.
17) This is where TAM can be misleading, because we didn't see what the actual TAM was until later. And, the cust acq was cheap because the initial market was so small. And, the market pull was fast, because we could pour all our profits back into getting more customers quickly.
18) tl;dr: How easy / hard & fast / slow & cheap / expensive will it be to get an initial customer audience? And what can we upsell them on later? These are the 2 qs I want to understand first when I look at any company.
Missing some Tweet in this thread? You can try to force a refresh.

Enjoying this thread?

Keep Current with Elizabeth Yin

Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

Twitter may remove this content at anytime, convert it as a PDF, save and print for later use!

Try unrolling a thread yourself!

how to unroll video

1) Follow Thread Reader App on Twitter so you can easily mention us!

2) Go to a Twitter thread (series of Tweets by the same owner) and mention us with a keyword "unroll" @threadreaderapp unroll

You can practice here first or read more on our help page!

Follow Us on Twitter!

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just three indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3.00/month or $30.00/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!