Bella & Mark discovering TAM, SAM and SOM

Ext — Mark’s Kitchen — Day

Mark and Bella are sitting around a laptops-&-notes adorned metal garden table.

Mark
Hello and Welcome. You’ve joined us at the perfect time; Bella and I were just throwing Product-Market ideas at each other, seeing what sticks and what stinks.

Bella
Most of his stink.

Mark
Oh yeah, as per my doctor’s orders, I’m also now ignoring 90% of what Bella says.

Bella sticks out her tongue and makes a childish face at Mark.

Mark
But what I’m not ignoring is viable Product-Market ideas. The process is pretty much identical as the one we used to figure out who our customer segment is, only now with the aim to establish a single profitable market where we can sell our product.

Mark
For those who don’t know already, a Product Market is the market where you aim to sell your service or product, so your ‘where’, as supposed to your Customer Segment, ‘who’. Think geographical location, like a specific city, country, or continent.

Mark (CONT’D)
First, we’re throwing our initial ideas out there in a brainstorm, then, we need to do a little bit of lite research, mix that research together with some juicy market formulas, then bish-bash-bosh, we’ve got our TAM, SAM, and SOM

Bella
I’ll break down TAM, SAM, and SOM a bit later…

Mark
So far, from our spitballing and research we’ve come up with San Francisco, Detroit, and New York, as according to what we’ve read these cities have the most singles out of all American cities.

Bella
All that took was a little Google Search.

Mark
Once we’ve got our initial markets, we need to look into a few key factors about them; digital readiness, trading rules, and ease of doing business.

Bella
The good thing here is that we can quickly open Epiprodux and find the answers. The software has a pretty useful ‘Market’ function which automatically gives you the digital readiness, trading rules, and ease of doing business, of any country.

Bella pulls a laptop towards her and begins to demonstrate. We can see a screencast of her on-screen movements.

Bella
So, as you can see here I’ve already entered San Francisco and marked it as being in the US which comes back to tell me that their Digital Readiness is ‘High’, their trading rules are ‘comfortable’, and their ease of doing business is pretty ‘low effort’, meaning the US is a pretty good location.

Mark
Lucky us, ehy?

Bella
Life isn’t all sunshine and lollipops though, once we’ve nailed down how inviting the market is, we need to do a little bit of what the stoics like to call, ‘premeditatio malorum’, or in English, think of everything that could go wrong. What do our barriers look like?

Mark
Well, normally they’re about yay-high, grey, or sometimes white depending on what they’re made out of really…

Bella
No, our metaphorical business barriers… I obviously know what a real barrier looks like.

Bella
Once we’re able to identify our barriers we can start thinking about how difficult it is to get over them and get a chunk of our market pie.

Bella
As you can see here, we’ve come up with two barriers getting in the way of going into business in the American market, advertising and copycats.

Mark
The first, advertising. Competitors usually violently invest in advertising here in America. With such huge amounts of potential profits to be carved out of the huge pie that is the American market, many companies vie for market exposure, with some spending millions on adverts just to get their name’s into the public’s mouths.

Bella
The second, copycats. As is the nature of the world, nothing is original. In all likelihood, someone will copy our idea just the same as we’re kinda copying Tinder, or Bunble, or any one of the dating apps already on the market. This only becomes an issue when the copycats begin to do it better than you.

Mark
Pretty much like Reddit is pretty much full of Copypasta as soon as some new meme template starts doing the circuits.

Bella
Exactly.

Bella
One last barrier I’d like to mention is a ‘cultural barrier’. This can sometimes prove to be a huge problem when entering a new market, but luckily one we don’t have to worry about here. That gets me thinking though, maybe we should look up some cities outside the US, you know, broaden our Product Market.

Mark
Yeah, alright. Not a bad idea.

Bella
All we need here is another quick little Google Search. ‘Cities with most single people’…

Bella writes ‘Cities with most single people’ into Google.

Bella
Cool, here we are. According to some site I found through Google, London and Paris are the best cities in the world for dating. Pretty good product markets if you’re looking to create a dating app. Don’t you think, Mark?

Mark
I think that sounds like an amazing idea.

Bella
Fantastic. After we’ve zoomed in a bit we still need to analyse the market’s access, size, and competition.

Bella
Right now, we’re only working off assumptions, so we’ll come back to this later on once we’ve validated our info. But for now, we’re going to assume that both London and San Francisco are on the upper end of the spectrum for all aspects.

Mark
Cool, so moving on we’re going to stick with London and San Francisco for the rest of this as they’re our biggest markets.

Bella
But what about…

Mark
Our biggest markets, ooo yeah.

Bella
Alright then…

Mark
So before we move on, remember to think about your revenue model. Making the right decision here could make or break a start-up.

Bella
Initially we wanted a subscription based revenue model, but after running some numbers we found it to be more lucrative settling on an advertising-centric model instead.

Mark
I’m not going to go through them all, but here’s a brief list of some of the revenue models you can pick from.

Mark
Once that’s out the way, it’s time to calculate our TAM, SAM, and SOM. Yayy

Mark is ironically-enthusiastic.

Bella
When Mark first mentioned these I didn’t have a clue, so don’t worry too much if you don’t already know.

Bella
I’ve done my research now though, so let me quickly and easily break it down for you.

Mark
The floor is yours.

Bella
Alright, go the get go the whole point of working these out is to avoid developing a small market. Why do we want to avoid developing small markets?

Mark
Moneyyyyyy!

Bella
Small markets, unless they’re top end niches, like mega yachts, simply don’t have the funds for starting business to grow.

Bella

What a profitable market does have, is a particular set of skills, skills they’ve acquired over a very long history of population growth. Skills that make me a nightmare for markets like them…

‘Profitable Market’ appears on-screen.

Mark
Bella, you’re not Liam Neeson.

Bella
But…

Mark
No buts, now keep explaining these concepts or it’ll be off to bed with you without any tea.

Bella
Since when are we a family in Victorian England?

Bella
A profitable market has a large amount of potential customers…

Mark
Think 100K + B2B or 10K+ B2C.

Bella (CONT’D)
Frequent purchases…

Mark
Anywhere between 12 to 50 annual purchases per customer.

Bella (CONT’D)
And a high average product unit purchase value.

Mark
Mo dollars per transaction, yo.

Bella
What?

Mark
What?

Bella
So how do we work out how big a market is? That’s where TAM, Total Addressable Market, SAM, Serviceable Market, and SOM, Share of Market, come in to play.

Bella
First , TAM, total Addressable Market. Basically the total number of customers.

Bella
So, in San Francisco that’s 44% of the city, roughly 40,000 people.

Bella
The TAM then leads us into the SAM, Serviceable Available Market. This is typically between 5 and 30% of the market.

Mark
Let’s take 20%, which then makes our SAM 7,200 people. Cool.

Bella
Nice maths, Mark. Then finally, we need to find our SOM, our Share of Market. This is done typically by taking 20% off our SAM.

Mark
Which brings our SOM to 5,760 people.

Bella
Again, Mark with the quick Maths. Nice. With these numbers you should be able to understand how big your market is, enabling you to make a better, more informed decision, when it comes to deciding which product market you want to set sail on.

-SEQU 2 — MARK’S CALL-

We cut-in to Mark on his laptop trying to make a Zoom call and Bella standing over his shoulder smiling enthusiastically. Both have an air of nervousness about them as Mark waits for the other person to answer.

Mark
It’s ringing…

Bella
Mark still wasn’t quite comfortable after our research and calculations, so he decided to get in touch with some expert he met at that start-up event we met at.

Bella
Maybe they’re closed.

Mark
It’s ringing…

Bella
Maybe they’re avoiding us…

Mark
They’re answering… Hello?

Bella
Hello?

Bella tries to push her head as close to the laptop as physically possible, shoving Mark’s head out the way as she does. Mark pushes back and they have a little pushing match.

Mark

Yes, hello? I can hear… Wait just a moment…

Mark suddenly stands up with the laptop causing Bella to fall to the floor. Mark continues with his call as if nothing happened.

Mark

Yes, hello, is this… the Expert?

Intro to mentor — John Buch, Business Expert, Product owner at Amazon

Expert
I’ve been through what you sent over and I’d first like to say good work on your TAM, SAM, and SOM calculations, but you still need to validate your segment size for your total market, your segment competition, and demand. So, I’m going to recommend doing a little experiment, where you’re going to want to set goals, customer jobs, and what metrics we’re going to be using, just like you did in your last experiment. I will send you some frameworks that will help you to do experiments faster.

Mark
Cool.Thank you so much!

Bella
Defo. Can do. So, first let’s try to validate our Market Size.

Mark
Alright, so first things first, what goals are we working with?

Bella
Well, a good first goal to set will be to have a look online for CPC data.

Then, at the same time, if we look to collect data on our competitor’s website traffic, we’ll have a nice couple of goals both giving us a good deal of info about our market size.

Bella
Next, the metrics we’ll be using to access this data should be split between the number of customers in our segment and the annual sale revenue for other products similar to ours.

Bella
The next experiment we need to do is some about our competition.

Bella
So the goals we’re going to set here need to help us understand how competitive the market is right now. A good way to do this is by collecting SEO data for products similar to ours.

Bella
The metrics we’re going to use are pretty standard SEO stuff, average cost per click according to Google Adwords. Keyword difficulty, and estimated visits of our competitor’s websites per month.

Expert
Guys! It is so nice to see that you are so excited. I have to go back to work, but if you get stuck somewhere, let me know.

Bella
Thank you so much for your time! It was super helpful.

Expert
Bye! Good luck!

Mark
Goodbye

-SEQU 3-

Mark is sitting in a chair and in a catatonic state. Bella is trying to comfort him.

Bella
Mark. Mark? Can you hear me? Mark? Mark!

Bella grabs a glass of water and throws it in his face.

Bella
Mark! Wake up!

Mark doesn’t move an inch after the water is thrown in his face.

Mark
There’s just so much to do.

Bella
It’s ok, we’ll get through it.

Mark
It’ll never finish. There’s always more to do.

Bella
Always so much more. Mark, snap out of it.

Bella grabs another glass of water and throws it in Mark’s face. This time, Mark seems to wake up.

Bella
Look, we’ll split the work, ok?

Mark
Ok.

Bella
We’ll come up with a plan, ok?

Mark
Ok.

Bella
Alright, what was the last experiment you ran?

Mark
Think it was that Tinder one, remember?

Bella
Yes, of course. And what happened?

Mark
Well, I wanted to see how competitive our market is, if it’s big enough for us to get into. But I gotta point out that I was only able to validate the San Francisco market demand.

Bella
Better than nothing.

Mark
Exactly. Basically, using the tool *_expert name_* suggested, I had a look into the search terms used locally to the San Fran area.

Mark
The first term, online dating, a pretty central search term if you’re getting into the online dating industry. This term gets 30,000 searches per year with a CPC of $4.54, slightly on the pricey side, and with a keyword difficulty of 80.

Bella
Keyword difficulty is about how hard it’ll be to compete using a certain keyword or phrase. Anything over 60 is considered too difficult.

Mark
Meaning, this key search term is too competitive for us to get involved in. The next term was, ‘Dating app’. That achieved roughly 135k searches per year, has a CPC of $3.06, and a kd of 48.

Mark
Then the last terms were ‘Best dating app’ and ‘Free dating app’. Search volumes hit 85 thousand and 38 thousand, respectively. ‘Best dating app’ came in with a CPC of 2 dollars 63, a good 80 odd cents cheaper than ‘free dating app’, which totaled in at a CPC of 3.20. And finally, going against the grain again, ‘best dating app’, despite having almost 50 thousand more searches per year, has a keyword difficulty of 48, a good chunk lower than ‘free dating app’, which hits in a KD of 56.

Mark
So, if these are anything to go by, 3 out of 4 seem possible.

-SEQU 4-

Intr — Marks’ sitting room — Day

Mark has just finished presenting his spiel as Bella steps up to the plate.

Bella
My turn… Go, presentation powers.

We sit back as Bella does a ‘superhero’ transformation (think Sailor Moon/Power Rangers) where she gets armoured up to give a presentation. By the end of the transformation, Bella is weighed down with the heavy armour she’s now wearing. She struggles to see the papers now in her hands and falls over.

We come back to Bella struggling to stand up, leaning against Mark’s chair for help.

Bella Mark
It’s probably easier Yeahh, probably.
to do it without the whole…

Bella is back in normal clothes.

Bella

Ok, so I did some research into our competition. As Mark’s keyword research showed there are still some key search terms available, even though there is definitely some stiff competition out there, especially with Tinder and Mingle2.

Bella
Although saying that, Mingle2 has done a lot more with their SEO than Tinder.

Bella
So, the cost per click is quite high. The average cost per click in Google Ads is between $1 and $2 on the Search Network. The most expensive keywords in Google Ads and Bing Ads cost $50 or more per click. So our average of 3 bucks isn’t too bad.

Bella
As part of my research, I started looking into download numbers for Tinder.

Bella
Unfortunately, I couldn’t track down any download numbers for any cities or states, but they do have national numbers.

Bella
According to those, in 2020 Tinder had a huge 7.86 million users in the US, making it the most popular dating app in the US, nothing particularly surposing.

Bella
Basically then, to finish up, while I kinda guessed that there’s some pretty big competition in this industry, what surprised me was how little effort these Dating App giants have put into their SEO. Surprising yeah, but a pleasant surprise at that. We’ve now got an in giving us the potential to steal some of their spotlight.

Bella
Then, last but not least, market size. I wasn’t exactly sure how to go about this, and even Googling the number of single people in San Fran didn’t come back with anything useful. Even their census info doesn’t account for single people; to be fair it doesn’t account for married people neither.

Bella (CONT’D)
I did find an article though that said San Francisco had the highest Tinder download rate out of all US cities

Bella (CONT’D)
And, as we’ve read from other articles, we already know San Fran is one the best cities for singles in the US, so, I think it’s pretty safe to say the market is big enough for us to hustle in on. Once we’ve established ourselves as a go-to app for singles in San Fran, we can expand across the county.

Mark
So, according to our research and experiments, it looks like we’re happy to set up in San Francisco. London was a nice idea but considering we’re in America, we need to start a bit closer to home.

Bella
Exactly.

Mark
So, I’ve been thinking about product features, what if our app installed itself.

Bella (TO CAMERA)
Here we go again.

Bella
If you’re interested to see how our product features turn out, or simply enjoy watching us make a mess of the startup process, subscribe and tune in for our next video.

Mark
Thanks, y’all. Remember to give us a ‘like’.

Bella Mark
Byeeeeee! Bye, guys!