How to Use Market Size Measures to Secure Funding and Grow Your Business

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This article was contributed by Marjorie Radlo-Zandi

When founders seek pre-seed, seed, Series A, or Series B funding, angel investors and venture capitalists want to see a revolutionary product or service that evolves and can gain market share. important in a large market.

What are investors waiting for during a roundtable? Investors need you to understand the data when using market size metrics to project market size and future growth for your business.

To meet investor expectations for the estimated size of your market, include a realistic set of percentages and dollar values ​​in every slideshow you present to potential funders. While no investor expects penny accuracy, be especially careful to present realistic measures of market size based on independent external studies where possible.

TAM, SAM and SOM: acronyms and real market sizing data

When presenting your market size data, investors look for the acronyms TAM, SAM, and SOM. Using them will prove that you fully understand what each means and why they are essential to your product or service.

Even as you scale your business, TAM, SAM, and SOM numbers are essential for P&L projections and business goals. Use TAM, SAM, and SOM when selecting projects and geographic market areas to fund from working capital, and to compare your business goals.

TAM (total addressable market)

Also known as the total available market, the TAM is the total revenue possible if a product or service achieved 100% market share. TAM answers the question, who theoretically in the world could buy your product or service. It describes the total revenue that a business could theoretically generate if it had a general monopoly or full market share with its product or service. When calculating the TAM, eliminate any factors that could prevent the business from achieving this full market state. Ignore real-world constraints such as competition, production and logistics capacity limits, language barriers and geographic distances, as well as other uncontrollable factors such as climate change.

Taking non-alcoholic beverage companies as an example, the TAM for this market takes into account the total global soft drink market, looks at all revenue from beverage purchases, imagines sales in all countries in the world, and does not assume no competition except tap water. .

According to research site Statista, the global soft drink market was $ 1.2 trillion in 2021; the MAR for the non-carbonated carbonated drink segment, which includes the gut health / herbal tea category, was $ 334.6 billion in 2021.

SAM (addressable service market or available market served)

SAM is the TAM segment with geographic reach that you can target with your products or services. Many companies in the beverage industry are starting to target only the US market and have distribution capabilities only for the US

Waku is a drink from the gut health / herbal tea category, which also includes Kombucha. According to Statista, gut health / herbal tea is considered a non-carbonated soft drink – a category with a market of $ 83 billion in 2021 in the United States.

For Waku, the geographic SAM would be the US market in the category of gut health drinks and herbal teas, within the larger category of non-carbonated non-alcoholic drinks. Note that angel investors typically invest when the SAM is $ 100 million or more, while venture capitalists look for an even higher minimum SAM.

SOM (available market or usable market share)

Think of SOM as the part of SAM that you can realistically capture. Waku would need to research and estimate their SOM, this is a realistic percentage and dollar value of the gut health and herbal tea market in the soft drink category they will capture.

Spending time understanding and communicating TAM, SAM, and SOM is essential to attracting investors to the business, growing the business, and achieving the goals we’ve set for ourselves. The TAM, SAM and SOM market sizing data points where operational funds would give the best results. Using the data, you could envision a range of new products and geographies in which to expand.

Warning: Ignoring the data will fly blindly instead of strategically deploying resources where they matter most to your business. Use the data and you will put the business on the path to optimal ROI.

Take market size measurements and find your friend

There are a number of publicly available sources of market research that will help you understand existing and future markets. The data from these research reports was essential for setting goals, measuring progress, driving business, and seeing future opportunities.

Even free research reports are full of valuable market data. Look around and you will find information rich summaries that cost nothing. For a fee, it’s a good idea to tap into market research companies Frost & Sullivan, Nielsen, Statista, and Gartner. For the non-alcoholic beverage example, Statista is a good choice because of its specialized research in the beverage category. You can also hire a market research organization to perform personalized market research specializing in the beverage category. You can use this data to plan your product roadmap, scale, and establish distribution.

It is important to note that with TAM, SAM and SOM data, you can make clear market projections over several years. If you are not used to creating projections that cover longer time frames, you may want to consider enlisting professional assistance. A personalized market researcher can provide critical information and give you the numbers you need to make the right choices.

You might be wondering how market data works if you work in a highly specialized industry or if your technology is new and you are not sure how to identify relevant market trends. This is a scenario that shows that it pays to hire a market research consultant who specializes in your market. An expert will be worth more than his weight in gold.

When you envisioned your product or service, you focused on SAM, the segment within a defined geographic area of ​​your total addressable market. As a business seeking targeted funding and operating capital to grow and scale, chart your way with a deep understanding of your TAM and SOM – the percentage of the SAM market segment that you can realistically capture.

By understanding key TAM, SAM and SOM market data and market size metrics, you will take the guesswork out of financial projections, show potential investors what they have to gain from investing in your business, and place yourself in the best possible position to achieve your goal. goals.

Marjorie Radlo-Zandi is an Entrepreneur, Board Member, Startup Advisor and Angel Investor who shows start-ups how to successfully build and grow their businesses.

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