You Don’t Need a Mount TAM Size Market to Be Successful, but….
Like Snitches, Ultra-Niches get Stitches
<<<You’ll have to forgive me because in addition to having a blog habit, I find alliteration sometimes too tempting, and I have a gene for bad puns that I got from my father. It gets better and decidedly more serious if you read on.>>>
The first rule of Fight Club is you do not talk about Fight Club. This is also kind of an unwritten rule in startup addressable markets too. After the big number with a T behind it appears in the pitch for the series A, B, or C this discussion is rarely had again, but it should be. After the risk has been taken and the money transferred, there is rarely ever a discussion of whether or not the company is on a trajectory to achieve a meaningful product-market fit. Sometimes you hear an “if only we had this feature” discussion, but all too rarely. What you hear more often is that “we just need to get the word out.” “We have a marketing problem.”
But if the vast majority of startups fail and the number one and two reasons they fail is there is no market need or they run out of money, then they have either have to be building the wrong thing or spending too much money “getting the word out.” The only other possibility is that they have horrible efficiency in building “it” or marketing and selling “it”. Having now worked with 5 different startups in multiple different spaces, while I have seen this problem, I have never seen it amount to more than 10–20% of the total problem, even though it is probably 90% of the musings of why a company is struggling. I also rarely see the “spent too much money getting the word out” problem. Sure, some companies over-hire in sales and some B-to-C companies bet the farm of Super Bowl Ads or Billboards, but most to B-to-B marketing orgs are struggling to field a team and budget large enough to keep the lights on, especially given conquer the world objectives.
Do we have a strategy to achieve a meaningful product-market fit in a large enough market?
The subject we don’t talk about seemingly at all, or at least certainly not enough, is do we have a strategy to achieve a meaningful product-market fit in a large enough market? I talk about business strategy vs. marketing strategy in another post. Here I’d like to address market size. I think this is particularly relevant in the global pandemic the world is experiencing right now because once very frothy predictions of market size have come crashing back to earth in like a Russian space capsule landing in the Kazakh desert.
While I was completing project managing a home remodel as COVID-19 took hold, I engaged in a lengthy conversation about full-time CMO role. This sporadic, six-month conversation culminated in a competitive shoot out with two weeks of elbows-deep research on the space, the company’s current position, its current commercial efforts, and a fix to its “marketing problem.” When I dug in, I found that the company spent very little on “getting the word out” and planned to spend very little. It turned out the company was serving a niche of a niche in a sub 2 billion-dollar market. They were already on a path that would potentially begin to correct this, but it was probably 100M dollars and 24 months away. Having decided to position themselves as a premium offering solving a very specific need, they had stepped away from most of the addressable portion of their small TAM which dramatically increased the cost of customer acquisition and capped total possible results. I had to do the right thing here and try to explain why marketing was not their problem as well as offer some aggressive marketing techniques they could use to get their unfair share of the market in the meantime, a message they weren’t ready to hear. The bigger problem that would persist, though, was the niche.
TAM Meet SAM & SOM
Alex Graham, a British financial analyst, did a nice treatment of TAM, SAM, & SOM. Despite his now dated and rosy predictions for WeWork, he breaks these concepts down in a way that even the least financially literate Product Manager or Marketer can understand. You’ve certainly heard of TAM, but what the heck are SAM and SOM? SAM stands for Serviceable Addressable Market or the portion of the TAM you could possibly reach. SOM stands for Serviceable Obtainable Market or what you could hope to achieve given your skills, resources, and competitors. To break this down with an example, I joined a Financial Services Company that had a strategy to address the top 5000 banks. This was effectively their TAM. What they could do immediately with their combination of technology and service, however, was provide a service for the top 100 banks. The plans to achieve the technical innovations to service the top 5000 banks never materialized. 100 banks were effectively their SAM. When you look at 100 banks though, some will do what you do in house, some have austerity measures in place due to other factors, and some are distracted with other strategic matters in any given period of time. The SAM is thus far less than the SOM. In this case and the case of WeWork, the SAM was approximately 20%-25% of the SOM.
When considering strategy, I believe TAM as well as SAM & SOM deserve a seat at the table. If your opportunity is just too small to make your company a viable venture in the end, most of your energy should be devoted to finding product-market fit in a larger space. This means really doing the homework and building what a larger market needs, sadly a task I’ve seen get less attention in the era of Agile. I’ve written a piece on why I believe this is happening. It is my belief that every Product Manager should think like and be accountable like an entrepreneur for their business and if what they currently have represents too small of an opportunity, they should wake up most nights in a cold sweat until this is corrected.
With regards to SAM, companies need to be ever vigilant when considering opportunities. You often see companies considering going too early to Europe or Asia without the capabilities to do so effectively. This is almost always a violation of their SAM as with no boots on the ground or experience in that market, their chances of successfully serving that customer, especially over time, is bleak. In a personal example, we once had a company approach us very seriously about using our solution in their refineries. This company drove about 80% of the oil business in Kazakhstan (I think I just achieved Buzzword Bingo for probably the first time ever Kazakhstan has appeared twice in a blog). We had no one in Eastern Europe or Central Asia. We had just a couple of US folks knowledgeable about the Oil Industry. We had exactly 1 fluent Russian speaker who we rolled out in 4–5 expensive meetings that required a fair bit of preparation. We had a Borat’s chance of pulling this off. It was an easy “NO” from the start if we objectively reviewed what our “happy eyes” saw, which would have saved us time and money. They clearly weren’t in our SAM.
Summarizing, I implore the C-suite to create a strategy well beyond “getting the word out” and leverage SAM and SOM in your thinking. Even if you tell the whole village about some new technology only the blacksmith can buy, it is still a village with only 1 or 2 blacksmiths. It should be everyone’s business to ensure that your offering goes farther and wider and you shouldn’t have to rely on aggressive or expensive techniques to “get the word out” in an attempt to bend reality of a tiny SAM. In the end, my title may be misleading. It’s not the ultra-niches that get the stitches. It’s the people that toil in them.
