Is my TAM right?

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“Is the TAM for real?”

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Is this 'guesstimation' actually accurate?

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These are the fears that pop up for a founder entering a market with little to no research available. They have to rely upon available data, and well-educated assumptions are to be made to get the storytelling right on the investor pitch deck.

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But, are you allowed to guesstimate in the first place? 

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Of course you can, if you can do it right..  An informed founder would draw inspiration from physicist Enrico Ferm to get their TAM right. Renowned for his adeptness, 

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The Fermi Problem
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Enrico did a lot of back-of-the-envelope calculations throughout his life. 

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His estimation of the number of piano tuners in Chicago is a famous one. Fermi began by estimating the city's population and the average household size to determine the number of households. He then approximated the proportion of households owning pianos and the frequency of tunings per year. By considering the number of pianos a tuner could service annually, Fermi arrived at an estimate of approximately 150 piano tuners in Chicago. uff.

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P.s. Fermi built the world's first atomic reactor with his guesstimates. 

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So, doing back-of-the-envelope calculations on your investor pitch can be nothing to be guilty about.

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But are you doing right? 

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Common Pitfalls of guesstimating and how to avoid it? 

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Here's the thing—most of us don’t use guesstimation in our daily lives, nor do we build nuclear reactors. But can be cautious about avoiding some of the obvious traps in guestimating.
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• Thinking that what you see is all there is (a couple of market reports, or a handful of competitor analyses).
• Forgetting to check the underlying assumptions.(customer behavior, cultural barriers)
• Not paying enough attention to the scope of a question.  Sticking to a specific user group or region or feature)

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Market Research: The Bottom-up approach

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Having said, guesstimation is just for gaining confidence on your initial market sizing efforts. As you grow, it should be complemented with a professional bottom-up approach as you raise funds. 

A bottom-up analysis is favored by investors due to its reliance on primary market research and detailed customer insights.

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This entails:

• Identifying Target Customers: Determining who will benefit most from the product or service.
• Assessing Market Penetration: Estimating the number of these potential customers and their willingness to adopt the offering.
• Calculating Revenue Potential: Multiplying the number of potential customers by the expected revenue per customer.

This provides a realistic TAM but also showcases a founder's deep understanding of their market when you make your next investor pitch. 

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At Frontrunner, we collaborate closely with founders to craft research-informed pitch decks, ensuring that every TAM presented is both accurate and compelling.

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