Looking for Development? First, define your market

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There is a common saying that you need at least a billion dollar market to build an exciting business. This isn’t necessary for all businesses — it’s perfectly fine to own and run a small, cash flow-positive company. However, this sentiment is certainly true if you want to be a venture capital-based business or any business that has “increased” long-term growth potential—which typically means a business with a potential of $100 million or more. Is. This is because you need to ensure that you have sufficient clearance in your market to increase market share and support long-term growth. If you are looking for capital with investors, they will want to make sure the market is strong enough to support your valuation so that they can get reasonable returns.

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So, to reiterate, a total addressable market (TAM) of over $1 billion is important because you need a high enough threshold to operate in the market. If your market is small and congested, you are going to have compression. The market can be lucrative, but that compression essentially means you’ll have all the new and existing entrants competing for your customers, suppliers, leads, etc. For example, if you rely on paid installs or paid traffic for customer acquisition, your costs will continue to rise as competition intensifies. I’ve seen it over and over again, from shopping marketplaces to travel. I once ran a gaming business and there we saw that having size and scale ensured that our company had better margins and could beat the competition.

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In all these cases, the short market makes the situation worse. Your upside is capped (because it is short), and the market becomes inefficient over time. It is very easy to operate in a large market with many different types of serviceable, addressable markets – a topic we will get into in the next chapter.

Big tam but where are you serving it?

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So you need a large total addressable market, but you also need a large and growing serviceable market. SAM—Serviceable Addressable Market—is where your company or products are addressed to a group of customers. It is rare to have a SAM as big as your TAM. Identifying an addressable market where you can have some competitive advantage, especially if you can find a SAM that is growing faster than the overall market. This is a great opportunity to gain an edge in the market. This is a good place to drop your first proverbial bowling pin.

Understanding your SAM allows you to stay focused and enter the market. This is a great place to start. There are many ways to look at the market. You can see how you are growing relative to the overall size of the market, which could be in terms of unit market share or revenue leader. Or you can compare your performance with TAM and SAM to see how your relative performance is tracking.

I am always surprised to see entrepreneurs talk about their total addressable market without realizing who they are targeting in that market. In the B2B sector, you are usually targeting through Firmographics to split your TAM and SAM. In the consumer space, it’s usually both the demographics and psychology to determine your target.

In fact, when I worked at IAC (InteractiveCorp, a holding company that masterminds media and e-commerce mogul Barry Diller), we literally spoke to a version of the following diagram. You need to look at TAM, SAM, and what percentage of each market you can get. Those three numbers mapped out over time should give you a strong sense of whether you’ve got a compelling business proposition with a large enough operating pond.

I really want to stress the importance of starting your analysis by being very clear on your TAM and your SAM. Use the diagrams above to help you. The following is an example that better illustrates the point from an operator’s point of view.

B2B Case Study: Building a Big Business at Expedia

An example of seeing TAM and SAM is my experience at Expedia. Today, Expedia is a more than $22 billion publicly traded online travel e-commerce juggernaut. I joined the company just after September 11, 2001. I was coming out of a difficult startup experience and wanted to do something from the ground floor but in a bigger company.

Travel is one of those monster categories that never stops innovating. The global category is over $9 trillion, and online travel alone exceeds $300 billion. Just when you thought there was no more innovation, another new startup brings a new twist to this Mongo market. It reminds me of the Patent Office quote that “Everything can be invented.”

I started out at Expedia as a single employee, tasked with building a B2B business. Expedia was and still is primarily a consumer business. They had made a few unsuccessful attempts at the corporate travel location before I arrived. One of these was a partnership with American Express, which is not only one of the largest credit card companies, but also the largest seller of travel (especially corporate travel) in the world at the time.

That partnership went horribly wrong, in a way that reminded me that Microsoft tried to work with IBM. IBM wanted Microsoft to produce a graphics-based operating system called OS/2. Microsoft created its own system called Windows as an upgrade to DOS. Windows became the focus, and OS/2 became useless because of Microsoft’s focus on its own OS. That’s how it went down in Expedia. American Express wanted to white label Expedia for its corporate needs, but Expedia was really putting its energies into playing a direct-to-consumer versus a white label (where the customer doesn’t realize that Expedia is powering the experience). Or wanted to focus on OEM play. (an “original equipment manufacturer,” where one company produces a product to be marketed by another company).

Travel is a game of size and scale. There are a lot of middlemen and a lot of services: hotels, cars, air, destination services, etc. Expedia focused only on consumers, which is about half the market. The other half is corporate travel. I helped launch Expedia Corporate Travel, now known as Egencia, an online corporate travel business.

Considering that it is half the travel business, expect to see more innovation in this space. Large travel management companies handle most business travel expenses; When we launched Expedia Corporate Travel twenty years ago, the top six agencies (American Express, Carlson Wagonlight Travel, etc.) controlled three-quarters of the gross booking market. Such was the view of the market. At the time, it was worth around $260 billion in the US, and much larger worldwide.

Then the main features were:

• Fortune 2000 (staff size more than twenty thousand) accounts for about 35 percent of travel expenses.

• Large enterprises (employee size between fourteen thousand and twenty thousand) made up about 30 percent of travel expenses; It is more than ten thousand companies.

• Medium-sized businesses (employees size between one hundred and two thousand) account for about 25 percent of travel expenses; That’s about 100,000 companies.

• Small-sized businesses (employees size between one and ninety-nine) account for about 10 percent of travel expenses; That’s about seven million companies.

It’s easy, isn’t it? Follow top enterprises and close them like a consumer business. Going back to our previous work on TAM and SAM, we can break down an approach that fits us into the initial “successful” product/market. It’s all too easy for a budding entrepreneur to look at a large market and say, “Why don’t we target everyone in the market?”

When you look at TAM and SAM, it is also important to look at your entry points. For consumer businesses, this can be demographic and psychological information. Let’s say you want to target female health and wellness lovers between the ages of 25 and 45 and who have a college degree and care about social issues. If you were targeting stay-at-home moms then you would go to the market with different offers and positioning. Every market has an entry point, and each individual and firm has different wants and needs.

For this case study we are talking about B2B. B2B requires you to think about the firm’s size (which drives the type of buyer and budget) as well as the firmographic. Firmographics are distinctive features that enable you to target companies. It can be the size of the firm (by revenue and employees), vertical (called SIC (Standard Industrial Classification) code) and even geography.

Bringing it back to this example, we realized that we had some constraints. One, Expedia was known as a consumer brand, not an enterprise brand. We knew that the big companies would not take us very seriously. We also knew that large enterprises wanted a lot of customization for their product. Online booking was also very new at the time, and most corporations were still using off-line travel agents.

Our plan was to build a product that had company-specific content (their own negotiated rates) as well as Expedia’s own significant arsenal of content. We wanted to be a market maker with suppliers by pooling our scale to negotiate better rates on behalf of thousands of small businesses. We looked at all the market conditions and realized that the largest corporate clients would hit us with custom requirements and their low-margin existing clients, traditional corporate travel companies. “Low-margin-minded” means fee-based, usage compensation- and low profit margins.

After much analysis and testing with clients, we found that our offer actually worked for companies that were technology-focused (such as tech and software companies) but were not large enough to negotiate very high rates. Can you They needed Expedia’s content to change their shape. This enabled us to focus on multiple verticals in the mid-market, and we were able to receive feedback on our business without having to focus on the needs and requirements of each customer. This enabled us to focus our efforts on a clear value proposition while avoiding an expensive battle against the big players that have been in the market for over 30 years.

So our analysis went from a large total TAM in the corporate travel space to a SAM in mid-market, and then to a more focused strategy of zooming in on certain verticals. Making this clear in your market entry enables you to define a clear product and proposition on which to focus and be successful. You can then expand to other verticals and firmographics over time. This strategy is clearly defined in one of my favorite business books, Crossing the Gap. The author, Geoffrey A. Moore discusses the importance of a bowling pin strategy: focusing on your initial customer and then expanding from there to knock down the rest of the bowling pins. This is the only way to strike the market. You can knock down all the bowling pins on the market by focusing only on the front row.

adapted with permission from

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