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On the Macro Market View
Ziya G. Boyacigiller
This presentation was created and given by Ziya
Boyacigiller who was leading...
Macro Market View
TAM - SAM – SOM - TAD
Sizing the Market Potential
Before you do a lot of work on a business
plan,
first, you should “stop and think”:
“Is it wor...
Sizing the Market Potential
You need to agree that there is nothing better
you want to do with your time and money,
that t...
What is Your Market?
• First, define who your target customer will be.
• Write down the key characteristics that will defi...
What is TAM, SAM, SOM?
Scenario –
You market a widget for the cellphone
camera market. Your widget is only
used in phones ...
WTH is TAM, SAM, SOM? *
Scenario - You market a widget for the
cellphone market.
TAM - Total Available Market
Who is your ...
WTH is TAM, SAM, SOM? *
Scenario - You market a widget for the cellphone
camera market. Your widget is only used in phones...
WTH is TAM, SAM, SOM? *
Scenario - You market a widget for the cellphone camera
market. Your widget is only used in phones...
How are we doing?
Widget 2004 2005 2006 2007
Unit Sales 100 125 180 220
AGR 25% 44% 22%
SOM
(vs TAM)
15% 17% 23% 25%
TAM/SAM breakdown for
cellphone cameras:
15%
7% 10%
23%
39%
50%
60%
Not good…
Widget 2004 2005 2006 2007
Unit Sales 100 125 180 220
AGR 25% 44% 22%
SOM
(vs TAM)
15% 17% 23% 25%
SOM
(vs SAM)
...
SOM vs SAM & TAM
SOM - Share of Market - this is just the
market share you have in your SAM, or in
this case your total vo...
One Word of Caution…
You can gather data in multiple forms:
• Units (Adet) : 5 each, 20 units, etc.
• Currency (Para) : $5...
ENTRY INTO AN EMERGING MARKET
TOP DOWN ESTIMATE
TAM 100 units
SAM 20 %
100 x 20% = 20 units
SOM Target 50% 20 x 50% = 10 u...
Drivers for Growth
• It is important to understand the underlying reasons for
growth (trends).
– Ex: cell phones  telecom...
Total Addressable Market
Paul Wiefels – The Chasm Companion
Question:
You are starting a web based business.
Your target customers are pet owners.
In USA there is $32B a year revenue...
Available  Addressable
Total Available Pet Owners in USA… 100% $32.0 B/year(*)
….with PC (% of PC/population USA) X 36% 1...
For Online Pet Stores,
It's Dog-Eat-Dog
Slim margins and a crowded market
point to a brutal shakeout
http://www.businesswe...
Example from Turkey
Kodalfa – Green House Condition
Monitoring System
TAM, SAM, TAD, SOM
TAM
world-wide, vehicle market
SAM
Turkey, sport utility
vehicle market
TAD
25%
SOM
TAD = SAM X 20%  “...
Now You Can Ask Yourself:
Is It Worth It?
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New 7 tam, sam, tad, som explained

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New 7 tam, sam, tad, som explained

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New 7 tam, sam, tad, som explained

  1. 1. On the Macro Market View Ziya G. Boyacigiller This presentation was created and given by Ziya Boyacigiller who was leading Angel Investor and a loved mentor to many young entrepreneurs in Turkey. We have shared it on the web for everyone’s benefit. It is free to use but please cite Ziya Boyacigiller as the source when you use any part of this presentation. For more about Ziya Boyacigiller’s contributions to the start-up Ecosystem of Turkey, please go to www.ziyaboyacigiller.com
  2. 2. Macro Market View TAM - SAM – SOM - TAD
  3. 3. Sizing the Market Potential Before you do a lot of work on a business plan, first, you should “stop and think”: “Is it worth it?”
  4. 4. Sizing the Market Potential You need to agree that there is nothing better you want to do with your time and money, that the size of the opportunity fits your expectations. (i.e. “opportunity cost”) This leads you to estimate the market size.
  5. 5. What is Your Market? • First, define who your target customer will be. • Write down the key characteristics that will define your target customers. (If you do it right, you should be able to hand this list to someone else, and s/he should be able to find them successfully for you.) • Your customer is the one who will “hire” your product/service to do a specific “job” for her/him.
  6. 6. What is TAM, SAM, SOM? Scenario – You market a widget for the cellphone camera market. Your widget is only used in phones that have cameras embedded in them. * Taken from Internet and modified...
  7. 7. WTH is TAM, SAM, SOM? * Scenario - You market a widget for the cellphone market. TAM - Total Available Market Who is your TAM in this scenario?
  8. 8. WTH is TAM, SAM, SOM? * Scenario - You market a widget for the cellphone camera market. Your widget is only used in phones that have cameras embedded in them. SAM - Served Available Market – Who is your SAM in this scenario?
  9. 9. WTH is TAM, SAM, SOM? * Scenario - You market a widget for the cellphone camera market. Your widget is only used in phones that have cameras embedded in them. TAM - Total Available Market - In this example this would be the total cellphone market. SAM - Served Available Market - This would be cellphones with cameras since your product is only used in them. Obviously, TAM and SAM are a result of definition… But, what is the need driving businesses to define them?
  10. 10. How are we doing? Widget 2004 2005 2006 2007 Unit Sales 100 125 180 220 AGR 25% 44% 22% SOM (vs TAM) 15% 17% 23% 25%
  11. 11. TAM/SAM breakdown for cellphone cameras: 15% 7% 10% 23% 39% 50% 60%
  12. 12. Not good… Widget 2004 2005 2006 2007 Unit Sales 100 125 180 220 AGR 25% 44% 22% SOM (vs TAM) 15% 17% 23% 25% SOM (vs SAM) 50% 45% 45% 44% AGR (5%) 0% (1%)
  13. 13. SOM vs SAM & TAM SOM - Share of Market - this is just the market share you have in your SAM, or in this case your total volume versus the total SAM volume. As noted above, by comparing your SOM to both your SAM and your TAM, you can get a feel if you are really growing market share, or just increasing volume along with the total market growth.
  14. 14. One Word of Caution… You can gather data in multiple forms: • Units (Adet) : 5 each, 20 units, etc. • Currency (Para) : $5, 20TL, etc. • ASP (Average Selling Price) : Total Revenue : 2.5 TL/unit Total Units You need to look at all, to make a healthy assessment of your business trends…
  15. 15. ENTRY INTO AN EMERGING MARKET TOP DOWN ESTIMATE TAM 100 units SAM 20 % 100 x 20% = 20 units SOM Target 50% 20 x 50% = 10 units (1st Year) BOTTOM UP ESTIMATE CUST A 2 units CUST B 1 units CUST C 3 units CUST D 1 units ….. ….. units Total 10 units Estimating TAM, SAM, SOM 1 2
  16. 16. Drivers for Growth • It is important to understand the underlying reasons for growth (trends). – Ex: cell phones  telecom deregulation – Ex: Instant messaging  real time, low cost communication • These should be taken to the limit they will reach in the future to explain the economic tradeoffs behind the buying decision when compared to substitute products. – Ex: Will Internet access over satellite or cable win over time? • Only then, can you be sure that the market will exist (not disappear) when you are ready with your product/service. – Ex: networking / dark fiber capacity • You should also estimate the TAM and SAM growth rates over time, when estimating your market size.
  17. 17. Total Addressable Market Paul Wiefels – The Chasm Companion
  18. 18. Question: You are starting a web based business. Your target customers are pet owners. In USA there is $32B a year revenue in pet business -by 58 million Americans, 212 million pets. What would you forecast your 1st and 5th year sales to be?
  19. 19. Available  Addressable Total Available Pet Owners in USA… 100% $32.0 B/year(*) ….with PC (% of PC/population USA) X 36% 11.5 … and with home PC X 50 % 5.8 … and with Internet X 70% 4.1 … and surfing www X 10% $400 M/year … and over 18 years of age X 60% 200 … and with broadband X 43% 100 … and will shop on www X 20%? 20 … and will shop for pet on www X 10%? 2 … and will be repeat customers X 50%? 1 … and will be site loyal X 50%? $500 K/year … and reachable within first year X 50%? $250 K/year (+) Total Addressable … and will try your service/products X 25%? 62 (*) Spending for 58 million Americans – 60% of households – own 212 million pets (+) About 110 people, based on numbers shown on this slide. (?) Estimated
  20. 20. For Online Pet Stores, It's Dog-Eat-Dog Slim margins and a crowded market point to a brutal shakeout http://www.businessweek.com/index.html “…But Fido should have chewed up a few of these online pet store business plans. Because so many pet stores are rushing to the Web, the market is almost certainly headed for a messy shakeout. Pet supplies have never been a lucrative business. Operating margins are a razor-thin 2% at leading retailer PETsMART and 4.5% at rival Petco. And the prospect of competitors willing to lose millions to grab market share has investors skittish. “
  21. 21. Example from Turkey Kodalfa – Green House Condition Monitoring System
  22. 22. TAM, SAM, TAD, SOM TAM world-wide, vehicle market SAM Turkey, sport utility vehicle market TAD 25% SOM TAD = SAM X 20%  “A class” people X 67%  Car owner X 80%  Non-commercial use X 30%  Reads magazines = SAM X 0.032 % Total Addressable Market (TAD) is the portion of the SAM that your product/service can address. Start with the definition (key characteristics - so you can sort a mailing list using these characteristics to develop an address list) of your target customers and estimate the portion (percent) of such customers in the SAM. These key characteristics are like a filter that will let through only those who are qualified to be your customers. SOM Share of Market (SOM) commonly known as “market-share” is the portion of TAD you will own. This is meaningful when a time is specified together with the percentage such as 25% within 1st year… SAM Served Available Market is the portion (segment) of TAM that you decide to sell into, at least initially. You do so, because you do not have sufficient resources to sell into TAM, or your product fits this segment only. TAM Total Available Market is the complete universe of all customers. This is the market you can grow into in time. Note that SAM can be the same as TAD if you can reach (i.e. your “filter” addresses) everyone in SAM
  23. 23. Now You Can Ask Yourself: Is It Worth It?

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