The market size question is one that entrepreneurs often get wrong. This is a critical shortcoming, given that accurately defining the total addressable market (TAM) is a central piece of the puzzle investors look at when assessing an opportunity.
The biggest mistake people make is using a top-down model that makes gross generalizations such as assuming you’re looking at a $50 billion dollar market, and then further assuming you can capture 1% of that market. The problem with this approach is that there’s nothing to back it up, and no way to reality check those assumptions.
Luckily for entrepreneurs, the team at Scalepath is helping companies replace sketchy, black-box market research tactics with a new solution that pairs powerful software with massive public data sets to accurately identify and better understand market opportunities based on size, growth, fit, and the unique aspects of each organization and their best customers.
Ryan Detwiller, Founder and CEO of Scalepath, joined us on The Blindspots Podcast to share helpful insights about how to look at market sizing levels, why accuracy matters in the short and long term, and how Scalepath is eliminating the need for unwieldy spreadsheets and a grueling months-long process.
The 4 Levels of Market Size
Ryan first tangled with the challenge of defining market size while working at an early-stage startup. The complicated and tedious process inspired him to develop a more efficient, accurate, and replicable way to do market sizing. “When I first started, it was a pretty big mess,” he recalls. “We were using any data we could find, and didn’t really have a framework to pull it all together. It wasn’t until we started working with some good consultants and refining the model that we could really start to understand the opportunity and break it down by country, product, company size, and so forth.”
Later, Ryan started his own market intelligence company, and he found that market sizing projects kept coming up again and again. He realized that entrepreneurs really needed help wrapping their heads around how to define market size in a useful and reliable way.
Over the course of three years, Ryan refined his definitions of the four key levels of market size. He thinks of them like four concentric circles that help a company drill down to increasingly specific layers of detail:
Total Addressable Market (TAM) —Includes all the different kinds of customers around the world who have the type of problem you can solve 🌎
The TAM represents the global opportunity. It’s an important number for investors because it helps quantify the potential win if you hit a home run. It’s generally a really big number that gets people excited, but it’s not particularly useful for the people doing the work in the trenches because it doesn’t represent the set of customers you can actually service in the present. It’s a future-looking number that’s more of a wow factor than a strategic asset.
Serviceable Available Market (SAM) —Includes customers you could service, but who might not always be the best fit 🎭
The SAM gets a little closer to home because it represents the group of customers you could serve today if they found your solution organically. The catch is that you have to acknowledge that not every potential customer is going to be the right fit; and—if you’re not careful—you can waste a lot of time and money pursuing the wrong customers.
Serviceable Obtainable Market (SOM) –Includes only customers in your target market ⛳
The SOM more accurately represents your actual target market, or your ideal customer—the kind that gets your sales reps really excited.
Market Share –Customers you service today 👌
Finally, market share represents the customers you already have on the books.
Only by carefully defining and considering each of these market levels can an organization gain a clear and accurate picture of not only the ultimate opportunity, but also the path to reach that opportunity.
Why Accurate Market Sizing Matters – Use Cases
“Most companies have a notion of where they do well and where they want to go next,” Ryan says. “But there’s tremendous value in having data to back up those notions, and share in your investor deck.”
Just as important as being able to provide a data-driven road map for investors is the ability to provide your internal team with strategy specifics. “You want to be able to share with your team not only where you’re going directionally,” Ryan says. “But also to be able to get specific on where you need to go in terms of marketing or sales. Having strong data supporting your strategy makes it much easier to translate big ideas into tactical action.”
For example, an accurate TAM model that helps you drill down to the more granular market levels provides invaluable guidance on everything from territory planning to pitch deck development to your road show strategy. Using data to define your best growth opportunity allows you to refine your messaging and your outreach to target a very specific customer in a very specific way. In other words, knowing exactly who you need to reach keeps you from spreading your marketing dollars too thin by creating more generic marketing designed to appeal to a wider (but not necessarily more lucrative) audience.
The Scalepath Solution: More Data – Less Mystery
“Scalepath is essentially a bridge between companies and massive data sources like the U.S. Census Bureau and the U.S. Bureau of Labor Statistics,” Ryan explains. “We help companies bring together two critical pieces—organizational information and external data—to gain a really clear understanding of the total opportunity, and what that looks like when you drill down by geo or vertical or product line or some other segmentation.”
The data is out there. The challenge for most companies is that it’s really difficult to work effectively and efficiently with such enormous data sets, or to apply them to a specific business context in a meaningful way.
Scalepath is beginning this market-sizing revolution with a focus on the U.S. market, but will be expanding to include data from all around the world. Scalepath’s bottom-up approach to market sizing helps companies get really specific about their target market. Having this kind of detail makes it much easier to get useful information out of a list provider.
Based on Ryan’s years of experience, Scalepath is designed to help both early-stage and more mature companies avoid some of the most common market sizing pitfalls:
- Going after the wrong data set—To avoid the “garbage in—garbage out” dilemma, you want to make sure you start with good primary data. This means sourcing data from a reputable organization that can provide a comprehensive data set without any of their own filtering applied.
- Failing to use a replicable framework—When you reinvent the process each time you do it for a product or a vertical or some other segment, it not only creates major inefficiency, it also makes it nearly impossible to compare one TAM to another and get the whole picture.
- Relying on a static PDF report—While this type of report may initially seem like a shortcut, it doesn’t allow for the necessary level of specificity. Reports for which someone else has already done the analysis will very rarely apply to any specific business.
- Relying on a lead database—Lead databases have their place, but the filtering and duplication that’s usually present makes it difficult to get a holistic view of a market or a clear count of how many customers might fit your TAM.
“Overall, you want to look at the different segments, and be able to understand who is most likely to buy, who has a higher willingness to pay, what are the sizes of different segments, and so forth,” says Ryan. “From there, if you have a horizontal application that sells to different verticals, you can start to identify things like which use cases you want to focus on, which events you want to attend, and which communities you want to join based on where your best growth opportunities are.”
Using the available data to inform these kinds of strategic decisions is critical to both short- and long-term success. It removes the guesswork that can lead a business astray. And it ensures the highest level of efficiency when it comes to targeting your absolute best prospects.
How Scalepath Is Helping B2B Leaders See Their Futures
At the end of the day, the work Scalepath does helps organizations make better decisions—decisions that are backed up by data, and which provide a clear and actionable path to greater growth. They are on a mission to minimize the mystery around market sizing so that companies can move forward with confidence.
“My hope is that the people who work with me will feel like they did their best work,” says Ryan. “And that they accomplished things they didn’t think were possible.”
If Scalepath’s successes are any indication, Ryan and his team are well on their way to fulfilling this vision. Ryan helped one of his first clients, a company in the MarTech space, understand not only who their customers are, but also what those customers are willing to spend. The resulting report was part of the investor deck that helped the company raise $30 million.
In addition to these kinds of startup wins, Scalepath consistently helps companies develop solid, data-based growth plans. “One customer started out building their growth story around a very particular core market, but they wanted to identify what their growth story should be going forward,” Ryan says. “We helped them look at adjacent verticals not only in terms of size, but also in terms of the competitive dynamics, customer fit, and other aspects of the opportunity. We were able to help them craft a data-based growth plan that will take them through the next three to five years.”
So much of B2B business success depends on how a company uses data to plan, execute, and measure everything from product launches to marketing campaigns to sales strategies. It only makes sense that data should also play a central role in defining a company’s market size and actual opportunity. Scalepath is helping B2B companies take the massive amount of public data that is readily available but difficult to manipulate, and put it to good use.
To hear more about how Scalepath is changing the way companies do market sizing, tune in to the full episode on The Blindspots Podcast.
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