When looking at the feasibility of a new idea you have to break down the market. There are a few ways to slice and dice your market. Market sizes are usually conveyed annually in one of three ways – dollars, units, or customers. Total Available Market (TAM) is a great starting point, which is the total size of a market opportunity – customers multiplied by average sales price. Other than knowing that you build a substantial company, TAM is pretty much useless. Much more useful are the Serviceable Available Market (SAM) and Serviceable Obtainable Market (SOM) metrics. SAM shows how much of the market your product has the potential to reach, and SOM is the percentage of the SAM that you will land as customers, factoring in the competition.
Once you have a holistic view of the market, segment it into groups of distinct customers. There are a hundreds of ways to segment a market, making this much more an art than a science. Hopefully, your product is different than the competition, so it will appeal more to certain segments of the market. Pick your target market based on which segment sees the most value in your offering. Breaking down your market helps to guide a lot of essential business building activities, so take your time and get it right.
