There is a number near the front of almost every deck we have ever opened, ours included, and it is always the biggest one on the slide. Ours was a hundred and thirty-four billion dollars. It is the total addressable market, and it does a very specific job in a pitch: it tells the room that the prize is enormous, that nobody could possibly accuse you of chasing a niche, and that even a rounding error of this market would make everyone rich. It is also, on its own, close to meaningless as a guide to running the company, and the gap between how seriously the number is presented and how lightly it should be planned against is the subject of this post.
We want to be specific rather than pious about it, so we are going to use our own figures. When we sized the market for a vertical well-log software business, the chain ran from that 134 billion dollar total, down to a 6.7 billion dollar slice we could actually sell software into, down to a 3 percent obtainable share we thought we could win by the end of year five, which came out to 180 million dollars of revenue priced at 1,200 dollars a seat. Three numbers, each smaller than the last, and only the smallest one is something a founder can act on Monday morning. The honest work of market sizing is the walk between them, and most decks sprint past it.
The headline number is a stage prop, not a plan
Start by being clear about what a total addressable market actually measures, because the confusion begins there. A TAM is the entire annual revenue you would earn if every single buyer who could conceivably want your category bought from you and only you, at your price, forever. It is a ceiling computed under an assumption that never holds: total victory, instant, permanent, uncontested. The 134 billion dollar figure in our deck was the size of the global oil and gas transactions market, sourced from a third party, and there is nothing wrong with the number itself. What is wrong is treating it as anything other than the height of the room. You cannot stand on the ceiling.
The reason it survives in deck after deck is that it is doing a rhetorical job, not an analytical one. The customer-development literature made this point early and bluntly: a startup's actual task is not to capture a market but to search for a repeatable, scalable business model, which means the large market is a hypothesis you have not yet tested, not an asset you already hold [1]. A founder who confuses the two has skipped the only part of the exercise that matters. The TAM tells an investor the category is worth caring about. It tells the founder almost nothing about what to build, who to call, or what to expect in the bank account at the end of the year.
A total market measures the room, not your share of it
A TAM is the revenue available if you won everyone, instantly and permanently, with no competitor and no friction. No company has ever lived there. The number is useful for establishing that a category is large enough to be worth entering and useless for predicting what you will actually earn. The discipline is to quote it once, to clear the bar of seriousness, and then to leave it behind and never plan against it.
Walking the number down until it can be sold
The walk from the headline to something bookable happens in two cuts, and each cut is an admission about what you cannot do, which is exactly why founders dislike making them out loud.
The first cut is from total to serviceable. The 134 billion dollar transactions market includes enormous swathes of activity that no software product of ours would ever touch: physical commodity trades, the value of the assets changing hands, services entirely outside our category. The slice we could realistically sell software into, the serviceable addressable market, was 6.7 billion dollars. That is the oil and gas technology market, and it is roughly five percent of the headline. The first honest sentence in any market-sizing exercise is therefore that ninety-five percent of the number on the title slide is not a market you serve at all. It is adjacent activity that makes the category large without making your opportunity large.
The second cut is from serviceable to obtainable, and this is where most decks go quiet. Even inside the 6.7 billion dollar software market you are not alone, you will not win every account, and you will not win the ones you do win all at once. The obtainable slice, the serviceable obtainable market, is the share you actually believe you can take in a defined window against real competitors with a real sales motion. We set ours at 3 percent of the serviceable market by the end of year five, which is 180 million dollars of annual revenue. The operator framing of these three nested circles is decades old and the warning attached to it is always the same: only the innermost circle, the obtainable one, has any business driving a financial model [2]. The two outer circles are context. The inner circle is the plan.
The instrument above is the whole argument in one frame. Drag the obtainable-share lever and watch the orange bar, the only revenue you can book, grow and shrink while the two teal bars behind it sit fixed and vast. At the 3 percent anchor the obtainable bar is so thin against the 134 billion dollar total that you have to look for it, and that thinness is the point: 180 million dollars is a serious software business and a rounding error against the headline at the same time. Both things are true, and a founder who only ever says the first half of that sentence is the one who gets caught out when the plan meets the pipeline.
The test that tells you whether the slice is real
A market-share percentage is dangerously abstract, and the danger is that 3 percent sounds modest, almost conservative, when stated as a fraction. Three out of a hundred. Who could object to that. The number stays comfortable right up until you divide it by something a salesperson has to actually do, and then it stops being a percentage and becomes a workload.
So divide it. At 1,200 dollars a seat, 180 million dollars of annual revenue is 150,000 paid seats. That is the real shape of the 3 percent target: not a sliver of a pie chart but a hundred and fifty thousand individual users, each one of whom had to be found, sold, onboarded, and kept. The moment you make that conversion, the question changes from "is 3 percent reasonable" to "do we have a motion that lands 150,000 seats in five years," and the second question is the only one with an answer you can check. The valuation literature has long argued that young companies get mispriced precisely here, when a large total market is silently treated as an achievable revenue path and the discount for everything between the two is never taken [3]. The seat-count conversion is how a founder takes that discount honestly, before an investor takes it for them.
“A market share is an abstraction a founder can hide inside; a seat count is a workload a sales team has to deliver. Three percent of a 6.7 billion dollar market at 1,200 dollars a seat is 150,000 individual users to find, close, and keep. Until the percentage is divided into people, it has not been stress-tested at all.
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This is also why the seat price is load-bearing in a way that is easy to miss. The 1,200 dollar figure does not just set revenue per customer; it sets the exchange rate between the abstract target and the concrete pipeline. Halve the price and the same 180 million dollar target now demands 300,000 seats, which may be a different company than the one you are pitching. Double it and you need 75,000, which puts you in a smaller, higher-touch motion. The obtainable revenue does not move when you change the seat price, but the number of human decisions required to earn it does, and that count is the truest stress test of whether the slice you drew is a plan or a wish.
Why the small number is the honest one
It would be easy to read all of this as an argument against ever quoting a TAM, and that is not the claim. The 134 billion dollar number earned its single slide. It cleared the threshold question every investor is entitled to ask, which is whether the category is large enough that a well-run company could become large inside it, and the answer is plainly yes. A founder who refuses to size the total market looks like one who is afraid of the answer. The number belongs in the deck. It simply does not belong in the model.
What we keep coming back to, having walked this exact ladder for our own business, is that the credibility of a plan is inversely proportional to how high up the ladder its load-bearing number sits. A company built on its TAM is built on a ceiling. A company built on its serviceable market is built on a market it has named but not yet entered. A company built on its obtainable slice, expressed not as a percentage but as 150,000 seats at 1,200 dollars that a specific motion is supposed to produce, is built on something you can hold a team accountable to and correct when it drifts. The headline is what gets you the meeting. The seat count is what survives the meeting, and a founder who can move fluently between the two, quoting the big number once and then living entirely inside the small one, is the one who has actually done the sizing rather than just decorated the deck with it.
What to carry out of the deck math
- A total addressable market measures the revenue available if you won every possible buyer instantly and permanently with no competition. Our headline was 134 billion dollars, the global oil and gas transactions market. It is a ceiling for establishing that the category is serious, not a forecast, and it should be quoted once and then left out of the financial model entirely.
- The honest walk-down happens in two cuts, each an admission. From the 134 billion dollar total to a 6.7 billion dollar serviceable software market is a roughly 95 percent cut, meaning most of the headline is adjacent activity you do not serve. From serviceable to a 3 percent obtainable share by end of year five is the second cut, and only that innermost slice should drive the plan.
- The 3 percent obtainable target converts to 180 million dollars of annual revenue at a 1,200 dollar per-seat price. Only this number is something a founder can act on, because it is the only one tied to a real motion against real competitors over a defined window.
- A market-share percentage hides a workload. Dividing the 180 million dollar target by the 1,200 dollar seat price yields 150,000 paid seats, each of which must be found, closed, onboarded, and retained. That seat count, not the percentage, is the true stress test of whether the obtainable slice is a plan or a wish.
- The seat price is the exchange rate between the abstract target and the concrete pipeline. Revenue stays fixed when you change it, but the seat count does not: halve the price and 180 million dollars demands 300,000 seats, a different company than the one being pitched. The credibility of a plan falls the higher up the TAM-SAM-SOM ladder its load-bearing number sits.
The deck opens with the biggest number we could honestly write and the plan runs on the smallest one we could honestly defend, and the distance between those two figures is not a flaw in the pitch to be smoothed over. It is the actual work of building the company, made visible. The founders who get this right are not the ones with the largest TAM on the title slide. They are the ones who can tell you, without reaching for a percentage, how many seats they have to sell on Tuesday.
References
[1] Blank, S. The Four Steps to the Epiphany: Successful Strategies for Products that Win. K&S Ranch (2005, 2013 edition). The customer-development case that a startup's job is to search for a repeatable, scalable business model, which reframes a total market as a hypothesis to be tested rather than a number to be banked. https://web.stanford.edu/group/e145/cgi-bin/winter/drupal/upload/handouts/Four_Steps.pdf
[2] Skok, D. How to Calculate Your TAM, SAM and SOM. For Entrepreneurs / Matrix Partners (accessed 2022). The operator framing of the three nested markets and the warning that only the obtainable slice should drive a financial plan. https://www.forentrepreneurs.com/
[3] Damodaran, A. Valuing Young, Start-up and Growth Companies: Estimation Issues and Valuation Challenges. Stern School of Business, NYU (2009). The valuation-side account of why young companies are mispriced when a large total market is mistaken for an achievable revenue path. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1418687
