Market

Lazy TAM vs. Bottom-Up TAM

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Early-stage investors typically don't need to see a TAM slide. But if you include one, make sure it's credible — a bad TAM slide can destroy your pitch instantly.

Lazy TAM

"Lazy TAM" is quoting a large, uncorrelated industry number (often from Gartner or a similar research firm) as your addressable market.

Example: A startup building an IT setup marketplace for startups and SMBs opens with: "Worldwide IT spending is expected to reach $4.4T in 2022."

That number has almost nothing to do with their actual market. Using it signals to investors that you haven't thought carefully about your business. Don't do this — it instantly loses you credibility.

What great early-stage investors actually care about:

  • A great product
  • A great team
  • Obsessed customers

Bottom-Up TAM

Bottom-up TAM starts with reality and builds upward. You identify the specific customer segment you're going after and calculate from there.

Example — Acme Corp (SaaS for dentist offices, $1,000/month per office):

  1. Find your actual addressable pool: there are ~187K dental offices in the US (IBISWorld, 2021)
  2. Estimate realistic penetration: if you capture 10% over ten years, that's 18,700 offices
  3. Calculate revenue: 18,700 × $1,000/month = $18.7M/month or $224M/year

$224M in annual revenue is a great business. And walking investors through that logic makes you look prepared and credible — far better than citing $139B in total dental spending.

Key rules:

  • Only count the customer segment that actually fits your product. Acme Corp doesn't care about toothbrush revenue.
  • A "looking ahead" slide can show markets you could expand into later — but keep it separate from your core TAM calculation.

Expansion can make great companies go supernova

Companies that expand their addressable market correctly can multiply their value:

  • Amazon / AWS — through the first 9 months of 2021, AWS was 13% of Amazon's revenue but ~70% of Amazon's profits ($13B out of $19B total)
  • Uber — expanded from black cars → UberX (creating the gig economy) → delivery (which kept the business growing when rides collapsed during the pandemic)