Chapter 6: Your Market
Obtainable, Reachable, Realistic
serviceable obtainable market, SOM, market segmentation, TAM SAM SOM, market sizing, conservative estimates
One of the best products I ever worked on captured about ninety percent of its addressable market. I was genuinely proud of that. It never happened again, and I never expected it to. But here is the thing: even then, even with that result sitting right in front of us, we did not write the business plan around ninety percent. We wrote it around sixty. Because we knew customers had other options, and honest planning means you account for that.
That tension — between what you hope is true and what the data actually support — is the whole story of market sizing. Get it right, and you are building on solid ground. Get it wrong, and you are building on sand that looks like concrete right up until the moment it gives way.
The Funnel Has Three Levels
Most people have heard of TAM, SAM, and SOM. Fewer people do the work to make these numbers mean something real.
The total addressable market is everyone who could conceivably buy what you are selling. It is the top of the funnel, the universe of potential customers. It is also a number you will never capture entirely, so you should not spend too long admiring it.
The serviceable addressable market is where you start shrinking. Some portion of the TAM is simply not reachable — not because your product is bad, but because it does not fit their situation, their geography, their price point, their regulation, or a dozen other reasons. You may also choose to shrink this number deliberately: not every customer you could serve is a customer you should serve. That distinction matters, and I will come back to it.
The serviceable obtainable market is the number you actually build your revenue model on. This is what you put in the business plan. This is what you promise investors. This is the number that, if you miss it, someone is going to sit across a table from you and ask why.
The funnel works in one direction only: each step is smaller than the one before it. Entrepreneurs who try to reverse that gravity — who let their SOM creep back toward their TAM because the smaller number feels discouraging — are setting themselves up for a very uncomfortable conversation later.
Be More Conservative Than You Think You Need to Be
Last summer I finished an engagement — the same five-year consulting relationship I mentioned in the last chapter, with the client who had let the market define them — and while we were working through the positioning problem, the CFO and I disagreed pretty sharply on the SOM. He wanted a bigger number. He was getting ready to pitch to venture capitalists, and a bigger market makes for a better slide. I understood the impulse. I have seen it a hundred times.
I told him no. The market is not as big as you think it is, and if you walk into that room with an inflated number, you are not protecting yourself — you are exposing yourself. VCs are not naive. They will stress-test your assumptions. If your SOM is built on wishful thinking, they will find it, and you will have spent your credibility on a number you cannot defend.
He was not happy with me. But here is the math that does not lie: if you are conservative with your SOM and you beat it, you go back to your investors and say, we thought it was this, and it turned out to be ten percent bigger. That is the direction you want surprises to go. The alternative — missing a number you oversold — is a much harder conversation, with much higher stakes.
There is also a version of this that has nothing to do with investors. If you go through the market sizing exercise honestly and you end up with two customers who might spend ten dollars each, that is not a business. The exercise is painful for a reason: it tells you whether you have something worth building. Finding out early that the market is thin is a gift. Finding out after you have hired a team and signed a lease is a crisis.
Not All Customers Are Customers You Want
Once you have a realistic SOM, the next step is to look inside it. Who specifically are these customers, and which of them do you actually want?
I find it useful to think about customers along two axes: revenue and commitment. How much will they spend with you, and how deeply are they invested in your product?
That grid produces four types of customers, and they are not all equal.
The best customers are high on both dimensions — high revenue and high commitment. They spend a lot, and they are not going anywhere. In B-to-B especially, switching costs are real. Once a customer has integrated your product into their operations, trained their people on it, and built workflows around it, leaving is expensive for them. They tend to stay as long as you keep them reasonably happy. These are the customers you build a business on. They are also the customers your competitors will pursue relentlessly, so you have to work to keep them.
The second type — low revenue, high commitment — might seem less attractive, but do not dismiss them. A portfolio of small, loyal customers provides something the big accounts cannot: diversification. If you have ten customers and your largest represents eight percent of revenue, you can lose one and absorb it. That resilience has real value. A healthy customer mix includes both the large accounts and the steady base of smaller committed ones.
Low revenue and low commitment? You can skip that conversation entirely. The economics do not work. You will spend more serving them than you will ever recover.
The Big Lender
The dangerous quadrant is high revenue, low commitment — and I learned this the hard way.
We were close to signing one of the largest mortgage lenders in the country. I remember the energy in the room. People were excited. This was a name-brand customer, a flagship account, a number that would completely transform our revenue picture. They were going to represent about forty percent of our total.
I was the only one saying no.
I want to be careful here — I was not right because I am particularly clever. I was right because I had done the analysis and followed it honestly. A customer representing forty percent of your revenue, with low commitment to your product, is not a win. It is a dependency. They can leave whenever it suits them, and when they do, they take forty percent of your business with them. In the meantime, their demands are going to be constant and expensive. You will reshape your product roadmap around them. You will staff to their specifications. You will, in effect, become a vendor who works for one client — and that client has no particular reason to stick around.
One no against many yeses. Yes won.
The customer signed. The demands came — constant, costly, and escalating. We were spending more to service that account than the economics of the relationship could justify. The best outcome would have been for them to leave. But by then, we had built so much of the business around their revenue that losing them would have been devastating anyway.
That is how the trap works. The money is real. The celebration at signing is genuine. But the commitment was never there, and without commitment, high revenue is just high exposure.
If you have done the segmentation work and a customer lands in that quadrant, you are allowed to walk away from them. People will ask why. You tell them: we did the analysis, we know where this customer falls, and the math says no. That is a defensible position. Signing a forty-percent customer with low commitment and no contingency plan is not.
The Work Is the Point
I will be direct with you: this is a lot of work. Market sizing, customer segmentation, running the data, stress-testing your assumptions, talking to people who know the space — none of it is fast, and none of it is easy.
But this is where the money comes from. Literally. Your revenue model is built on your SOM. Your SOM is built on your assumptions about who will buy from you and how much. If those assumptions are wrong, everything downstream is wrong — your hiring plan, your cost structure, your runway, your pitch.
Do the data work. We have more market data available today than at any point in history, which is both an advantage and a problem — you have to be disciplined about what you trust. Then go talk to people who have actually operated in your market. Check your assumptions against their experience. Be willing to hear things that shrink your number.
If you put the time in now, you will save yourself an enormous amount of grief later. The entrepreneurs who skip this step do not avoid the reckoning — they just postpone it to a moment when it is much more expensive.
Build on solid ground. Know your market before you build your business on it.
Once you know who you’re selling to and what they’re worth to you, the next question is how you talk to them. That’s where we’re going next: the value proposition.