Why your market size numbers scream "I'm a rookie"
Abandon the TAM, SAM, SOM approach and adopt these alternatives instead 👇
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I'm Tomer Jakov.
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For most founders, sizing their market is a nightmare.
How do you quantify the potential of an idea of a product/service that doesn't even exist yet? As humans, we're terrible at thinking that far ahead.
So…what do most founders do instead?
They guess.
"Educated guessing," they call it.
But let's be honest about what's happening…
Founders know these numbers don't represent reality.
Investors know these numbers don't represent reality.
Yet both sides continue this elaborate dance anyway.
Last week I was reviewing the pitch deck of an early-stage startup offering a content creation scaling platform that aims to help E-retail brands connect with influencers to generate authentic content and covert more.
A marketplace…with those familiar concentric circles on their slide:
TAM: $15 billion (E-retailers)
SAM: $550 million (Health & Wellness)
SOM: $275 million (Cosmetics)
$15B → $550M → $275M. Clean. Precise. Impressive.
But when I started digging, the whole model collapsed.
A few basic questions about unit economics and competitive landscape exposed the truth…These weren't projections.
They were fantasies.
And here's the thing…
This scene plays out in boardrooms and coffee shops across the startup world every single day. A total waste of time.
Those fancy TAM, SAM, SOM slides with perfect concentric circles?
These are just pitch deck decoration.
And every investor with some milage knows it.
But here's the good news…
There are better ways.
After reviewing hundreds of pitch decks and mentoring dozens of startups through accelerator programs, I've discovered that founders who abandon these fiction-filled market sizing exercises actually gain a strategic advantage.
In this blog post you'll learn to:
Use bottom-up approaches investors actually respect
Showcase strategic thinking in market presentations
Connect market sizing to your go-to-market plan
Transform market analysis into a strategic tool
Avoid mistakes that trigger investor skepticism
Let’s dive in...
🎧Listen to the podcast version:
Why Traditional TAM/SAM/SOM Fails
Before diving into better alternatives, let's understand where the standard approach falls short:
The "Top-Down" Trap
Relying on industry reports with generalized market sizes
Using outdated data that doesn't reflect current market dynamics
Including market segments you'll never actually serve
Creating impressive-looking numbers with little practical value
The Reality Gap
Failing to account for market penetration challenges
Ignoring competitive dynamics and market saturation
Missing the crucial question: "how will we actually capture this market?"
Creating disconnects between market size claims and go-to-market strategy
This approach might impress inexperienced investors, but sophisticated VCs and angels will immediately spot the flaws.
More importantly, it robs you of insights that could strengthen your business model.
Better Approaches to Market Sizing
Instead of the traditional TAM/SAM/SOM model, consider these more practical alternatives:
1. The "Bottom-Up" Revenue Calculation
Start with what you can actually prove and build from there:
Step 1: Define your ideal customer profile in extreme detail
Step 2: Count the exact number of these customers in your target geography (use LinkedIn, industry databases, or manual research)
Step 3: Calculate average contract value
Step 4: Apply realistic conversion rates at each stage of your funnel
This approach forces you to think about your actual path to revenue rather than abstract market sizes.
Example in Action:
Rather than claiming "$50B enterprise software market," try this…
1,500 manufacturing companies with >$100M revenue in our region × 20% conversion rate × $65,000 average contract = $19.5M initial market opportunity
This calculation shows you've done your homework and that you know to name specific customers, understand your conversion capabilities, and price realistically.
Even if you want to present it in the form of the classic TAM, SAM, SOM way, you already have a great starting point to narrow down the numbers to something that makes more sense.
Want to stick to the old TAM, SAM, SOM diagram? (not recommended)
Here’s how you do it:
TAM - North‑American + European manufacturers that deploy MES‑class software
SAM - All 1,500 manufacturing firms > $100 M revenue in your region
SOM - The realistic first slice you expect to win (20 % of SAM ≈ 300 customers)
2. The "Value-Creation" Approach
Instead of focusing on market size, quantify the specific value you create:
Step 1: Calculate the value your solution delivers to a single customer
Step 2: Define your pricing as a percentage of that value (value-based pricing)
Step 3: Multiply by the number of customers for whom you can realistically deliver this value
This approach reframes the conversation from "how big is the market?"...To "how much value are we creating and capturing?"
Example in Action: "Our procurement optimization software saves mid-sized manufacturers $300,000 annually. Charging 15% of savings creates a $45,000 Annual Contract Value (ACV). With 200 target customers in year one, our initial market opportunity is $9M."
Notice how this articulates clear value creation, reasonable value capture, and specific customer targets.
3. The "Cohort Expansion" Method
This approach focuses on growth over time rather than static market size:
Step 1: Identify your initial, highly specific customer segment
Step 2: Map adjacent segments you can expand into
Step 3: Project growth rate within each segment and expansion timeline between segments
This model shows investors you understand how to begin with a beachhead market and systematically expand outward.
Example in Action: "We're starting with independent dental practices in Tel Aviv (150 potential customers, $1.5M market). After achieving 40% market share, we'll expand to orthodontists (year 2), then medical specialists (year 3), representing a $12M opportunity by year 4."
This demonstrates strategic thinking about market entry and expansion, rather than claiming an unrealistic massive market from day one.
4. "Problem Frequency × Pain Intensity" Framework
This framework quantifies market opportunity based on how often a problem occurs and how painful it is:
Step 1: Calculate how frequently your target problem occurs
Step 2: Measure the economic impact of the problem (the "pain")
Step 3: Multiply these factors to determine the value
Step 4: Apply to the number of customers experiencing this pain.
Example in Action: "Factory downtime costs manufacturers $5,000 per hour. Our target customers experience an average of 120 hours of downtime annually. By reducing downtime by 35%, we deliver $210,000 in value per customer. With 75 target customers in year one, our market opportunity is $15.75M."
This approach connects market size directly to the value of the problem you're solving.
How to Present This to Investors
When pitching to investors, replace the standard concentric circles with a more compelling narrative:
Start with a clear problem statement
Identify your specific market
Show your initial revenue calculation using bottom-up approach
Demonstrate expansion potential and how you’ll grow
Connect market size to your go-to-market strategy
This approach not only builds credibility but also demonstrates strategic thinking that extends beyond simple market sizing.
Next Steps for You
Don't let flawed market sizing hold your startup back. Take these steps today:
Review your current pitch deck - are you guilty of the "top-down" trap?
Choose one of the alternative frameworks that best fits your business
Gather the specific data needed to support this approach
Rebuild your market opportunity slides with this more credible methodology
Remember, the goal isn't to impress with big numbers…
It’s s to demonstrate that you truly understand your market and have a credible plan to capture it.
A Practical Exercise
Ready to rethink your market sizing approach?
Try this exercise:
Set aside your existing TAM/SAM/SOM calculations
Identify the 20 most promising potential customers by name
Have actual conversations with at least 5 of them about pricing and value
Calculate exactly how much revenue you could generate from just these 20 customers
Build a realistic expansion plan from this core
The insights from this exercise will likely transform your understanding of your market opportunity - and strengthen your investor pitch.
What's your experience with market sizing?
Have you found traditional TAM/SAM/SOM models helpful, or have you developed your own approach?
Share your thoughts in the comments below.
My Weekly Recommendations
Recommended Podcasts, YouTube Channels, News, and articles
🎧 Podcasts/YouTube
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🗞️ Innovation News & Articles
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