How to size a market bottom-up so the number means something, instead of the '1% of a $50B market' slide everyone has seen.
TAM — everyone in the world who could conceivably buy this. SAM — the portion you could actually serve, given your product, geography and model. SOM — what you could realistically win in the next few years with your actual resources.
TAM is the least useful and the most quoted. SOM is the one that affects your plan.
Because investors use market size to judge whether the outcome could be large enough, and because a badly-sized market signals that you have not thought carefully about anything else either.
A credible bottom-up number also tells you something: if the honest SOM is $4M a year, that is a fine business and a bad venture bet, and better to know now.
A scheduling tool for logistics firms at $400/month.
Top-down (weak): 'The logistics software market is $18B. If we capture 1%, that is $180M.' Nobody believes this, because 1% is an assumption disguised as modesty.
Bottom-up (credible):
Every number is arguable, which is exactly why it is credible. An investor can push on the 60% figure and you can defend it or revise it. Nobody can argue with '1%'.
First-time founders often inflate the market to seem more attractive, and it has the opposite effect — an experienced investor spots a top-down number instantly and discounts everything else in the deck.
The second mistake: sizing the market for the product you might build in five years rather than the one you are selling now. Size what you actually sell; mention the expansion separately.
How many organisations or people fit your ICP? Use registries, census data, industry bodies, LinkedIn filters — real sources.
Remove those too small, too large, in the wrong geography, or already locked into something. This gives SAM.
Your actual price, not an aspirational enterprise one.
Based on your real channels and capacity. This is SOM and it is the honest number.
Every assumption visible and sourced. The credibility comes from being arguable, not from being large.
Before raising, and when deciding which segment to focus on first.
Do not spend a week on this pre-revenue. A rough bottom-up estimate is enough until you are actually pitching; precision on an unvalidated idea is false comfort.
Apply this to your own startup in My Full Journey (free account).