Who is Your Customer?
This is one of the discussions I have most with clients, entrepreneurs and executives. There are two steps… Who will use your product/service long-term and who will/can utilize it today?
The more focused you can be about reaching and understanding the customers with the product of today, the better your path of success you will create for the future.
There are three Market frameworks and each is important as you build your company so you can focus your resources and your teams to “Win Today” while building the company, product, and team you need to “Win the Future.,”
Years ago, Sequoia Capital created a framework for marketers and entrepreneurs to communicate to the venture community.; it’s a prerequisite for any company seeking funding from them and over the last 10 years has become a standard in the startup world. It is a framework every marketer should use to define their audience (who will and can use their product/service). The framework is three acronyms: TAM/SAM/SOM.
Let’s explore what they are and why this matters.
Total Addressable Market (TAM) – “Every Flippin’ Future Buyer out there.”
The key question to ask about your TAM is: who could buy in our category? This takes into account more the size of the category as it assumes you have a fully built out product/service. It also assumes you can afford to reach them.
For Instance – If you are selling Cat Slippers. Anyone with a Cat is your TAM
If you are creating an App for dating. Anyone who is single or looking for a date now and in the future is your TAM.
Why does this matter:
- You will never reach everyone here, so if the TAM is not big enough, then it may not be worth doing.
- If you are going after a big market, it will help you raise $, increase valuation, etc. as solving the problem has great value.
- It will guide Architecture and Development (is this a local or global problem?)
You can find some of the needed data at:
Serviceable Addressable Market (Short-Term Addressable)
What portion of this total market can use your product as it exists today? With the Features/limitations. This is about the product and company and where you are currently.
If your slippers are only in pink, you will only get the portion that likes pink Kitten Slippers.
If your app is in English or US only, that is a limiter.
Why does this Matter?
The importance is as you prioritize the next features, you can just how what does this do to the SAM?
If we add Blue Slippers, how much do we increase the market vs making Red ones?
If we make the site available online, do we add more market or should we support more languages, other countries?
If you are taking investment, how much money will it take to open up the additional market?
Think of your TAM being made up of multiple SAMs
SOM – Serviceable Obtainable Market (Target)
What part of this market can we turn into revenue, today?
This takes into account, not just the product, but also your ability to sell, service. Who can you Afford to Reach…
If you are 5 people, then you cannot reach everyone. Your market might be to start in your city.
If your product takes a lot of effort to onboard, then you are limited by that.
Success is found by understanding, who is going to buy our product/service now and focusing effort here to Win Today and not waste time or money trying to see to a group that won’t buy but is happy to take your time and hang out false hope.
Think of your SAM as being made up of a bunch of SOMs
This need to be where you focus your front-line team. Of course, you will be looking at the bigger picture. Of course, you will be planning for the next mountain to conquer.
That level of strategy is needed. That level of focus on short-term focus on the SOM is also needed to get to the next mountain. Get Focused and Get Building.