The Tyranny of the TAM

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You've got customers.

You've got some level of validation.

You've got, perhaps, a reasonable degree of product market fit.

Now should you charge to the VCs for funding?

Wait a minute. There's a major issue that needs assessment first and foremost.

Market Size.

What is TAM? Perhaps, the biggest factor in whether a VC funds you or not. TAM = Total Available Market.

Note: Top Down TAM doesn't matter. You need to present a Bottom-Up TAM Analysis.

And to get funded, that TAM needs to be very large. Billion. Two billion. Ten billion.

Few businesses have that kind of TAM.

So most likely, you are going to be turned down because VCs don't think you have a large enough TAM.

Consider this.

There are many more $5 million, $10 million, $20 million business opportunities out there than billion dollar ones. Those don't fit the VC model, but if you build a $10 million a year business that generates 30% profit year-over-year, what's wrong with that picture?

Remember: Entrepreneurship = Customers + Revenues + Profits; Financing and Exit are Optional.

Photo credit:  James Cridland/Flickr.com.

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