Market Sizing

Triggered when the user says ‘estimate our TAM’ or ‘size the market’ or ‘what’s our addressable market’.

Goal: Build a defensible estimate of the Total Addressable Market (TAM), Serviceable Addressable Market (SAM), and Serviceable Obtainable Market (SOM) to inform business strategy and investment decisions.

Tools Required

This skill runs using CORE memory only. No integrations required.

Step 1: Define the Market Scope

Ask:

• What problem are you solving? — Be specific (e.g., “helping teams collaborate on design” not “improving productivity”)
• What customer type? — B2B, B2C, B2B2C? What industry/role?
• What geography? — US only or global?
• Time horizon — TAM in year 1, year 3, or year 5?

Step 2: Build TAM Using Top-Down Approach

Start with industry benchmarks:

1. Define the total addressable population — How many people/companies have this problem?
   • Example: “There are [X] software companies globally”
   • Source: Industry reports (Gartner, Forrester), government data (census, labor stats), analyst databases
2. Estimate what % have your specific problem — Not everyone needs this solution
   • Example: “Assume 30% of those have [specific problem]”
   • Research: Customer surveys, interviews, market analysis, competitor data
3. Estimate what % can afford your solution — Price matters
   • Example: “Of those, 80% have sufficient budget for a $[price/year] spend”
   • Data: Revenue/headcount data, industry spending benchmarks
4. Multiply: Population × % with problem × % can afford = TAM

Sanity checks:

• Does this TAM make sense vs. your competition’s TAM?
• Is it bigger than your current market (good) but not implausibly bigger (red flag)?

Step 3: Build TAM Using Bottom-Up Approach

Start with your current success:

1. Current revenue or customer count — What’s your baseline?
2. Estimate total available customers at that same penetration — If you serve [X]% of your target segment, what’s 100%?
   • Example: “We’ve sold to 100 customers. If those represent 1% of the market, TAM = 10,000 customers”
3. Estimate average revenue per customer — What’s your ASP or LTV?
4. Multiply: Total available customers × ASP = TAM

Compare to top-down: Do they align? If not, investigate the gap.

Step 4: Define SAM (Serviceable Addressable Market)

SAM is the portion of TAM you can realistically reach with your go-to-market strategy.

Ask:

• What customer segments are you targeting? (not all of TAM)
• What geographies can you serve? (not all regions)
• What sales model? (self-serve, sales, partnerships → each reaches different % of TAM)

Calculate SAM: TAM × (% of segments you target) × (% of geographies you cover) = SAM

Example:

• TAM: $10B globally
• You target SMBs in North America only: $10B × 15$375M SAM

Step 5: Define SOM (Serviceable Obtainable Market)

SOM is what you realistically capture in a given timeframe (usually 3-5 years).

Ask:

• What market share target is realistic? (1%, 5%, 10%?)
• What’s your go-to-market strategy? (inbound, sales, partnerships, network effects)
• How fast can you scale? (bottleneck: team, product, capital)

Calculate SOM: SAM × (realistic market share target) = SOM

Example:

• SAM: $375M
• Target 5% market share by year 3: $375M × 5$18.75M revenue opportunity

Step 6: Validate and Stress-Test

Ask:

• What assumptions could be wrong? — Which have the biggest impact on the number?
• How confident are you in each input? (High / Medium / Low confidence)
• What would need to happen for SAM to be 2x bigger? 0.5x smaller?
• How does your SOM target compare to similar companies at this stage?

Create ranges (conservative, base case, optimistic) instead of point estimates.

Step 7: Present Market Sizing Analysis

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Market Sizing: [Problem/Product Name]

TAM (Total Addressable Market)

Top-Down Approach

• Total addressable population: [X] [companies/users/roles globally]
  • Source: [Gartner / Census / Analyst report]
• % with [specific problem]: [Y]%
  • Source: [Customer research / Industry surveys / Market analysis]
• Population with problem: [X × Y]
• % with sufficient budget for $[price]/year solution: [Z]%
• TAM: [X × Y × Z] = $[Dollar amount]

Bottom-Up Approach

• Current customers: [X]
• Estimated market penetration: [Y]%
• Total addressable customers: [X / Y]
• Average Revenue Per Customer (ARPC): $[Amount]
• TAM: [Total customers × ARPC] = $[Dollar amount]

Top-Down vs. Bottom-Up Variance

• Top-Down TAM: $[X]
• Bottom-Up TAM: $[Y]
• Variance: [+/- Z%]
• [If significant]: Most confident in [approach] due to [reason]

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SAM (Serviceable Addressable Market)

Market Segmentation

• Total TAM: $[X]
• Target segments: [List 2-3 segments you’ll focus on]
  • [Segment 1]: [% of TAM]
  • [Segment 2]: [% of TAM]
• Geographic focus: [Region(s)]
  • [Region]: [% of global market]
• SAM: $[X] × [Combined$[Dollar amount]**

Go-to-Market Approach

• Sales model: [Self-serve / Sales-led / Hybrid]
• Customer acquisition channel: [Inbound / Sales / Partnerships / Other]
• Estimated reach within SAM: [Z]%

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SOM (Serviceable Obtainable Market)

Market Share Target

• Year 1 share: [X]%
• Year 3 share: [Y]%
• Year 5 share: [Z]%
• SOM (Year 3): $[SAM] × [Y]$[Dollar amount]**

Growth Drivers

• Market growth rate (CAGR): [X]%
• Share gain from competitors: [Y]%
• New use case expansion: [Z]%

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Sensitivity Analysis

Assumption	Base Case	Conservative	Optimistic	Impact
% population with problem	[X]%	[Y]%	[Z]%	TAM shifts by [±]$
Average selling price	$[X]	$[Y]	$[Z]	TAM shifts by [±]$
Market penetration (SOM)	[X]%	[Y]%	[Z]%	SOM shifts by [±]$

Key Risks to Estimates

• [Assumption 1] — If wrong, TAM could be [X]% smaller. Mitigation: [Action]
• [Assumption 2] — If wrong, TAM could be [X]% smaller. Mitigation: [Action]

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Edge Cases

• **TAM is too big (>$100B):** Ask: "Are you really addressable to all of that?" Define SAM more tightly. Most early-stage companies should target SAM \<$1B.
• **TAM is too small (<$100M):** Ask: "Is this the right problem? Should we expand to adjacent problems?" A venture-scale business needs >$100M opportunity minimum.
• Approaches diverge significantly: Something’s wrong. Ask: “Which assumption is most questionable?” Dig into the gap.
• Market is shrinking or flat: Ask: “Is this the right market, or should we pivot?” A declining TAM is a strategic red flag.
• You can’t find data: Use triangulation. Combine customer surveys, competitor financial data, industry reports, and analogous markets. Document confidence level clearly.