Unraveling the 5 Ts: The Importance of TAM (Total Addressable Market)

The Founder’s Market Story is More than TAM/SAM/SOM

In prior articles, we explored Blu’s 5 Ts framework to evaluate potential investments: Team, Traction, Technology, and Terms. While Team often takes precedence (weighted 30-50% in our evaluation), I want to dive deeper into a critical yet frequently misunderstood component: Total Addressable Market (TAM).

Why Markets Sometimes Matter as Much as Teams

As angel investors, we're often told to "bet on the jockey, not the horse." There's wisdom there—exceptional founders can pivot and adapt when their initial idea hits obstacles. However, after years of angel investing, we've seen promising teams struggle in challenging markets, while sometimes less experienced founders thrive when riding powerful market tailwinds.

The reality is that extraordinary markets can compensate for team weaknesses in ways that even the most talented teams can't overcome in poor markets. Investing in massive, growing markets with clear pain points creates room for founder learning and adaptation. In contrast, even world-class execution in challenging markets too often yields modest returns.

This isn't to diminish the importance of the team—it remains paramount—but rather to elevate market analysis to its rightful place in investment decisions.

The TAM Slide: Almost Universally Problematic

Despite its importance, the market size slide is where nearly every pitch deck falls short. We've all seen the obligatory concentric circles labeled TAM, SAM, and SOM with impressive-looking numbers, but these rarely tell us what we actually need to know.

Why do founders struggle here? Because they're answering the wrong question. The market slide isn't primarily about size—it's about understanding. Size matters, certainly, but size without context, competitive analysis or a solid go-to-market strategy, is just an unjustifiable number.

Writing Is Thinking

Creating a compelling pitch deck isn't about pretty slides; it's about clear thinking. The market slide, perhaps more than any other, requires founders to deeply understand their business landscape and articulate a coherent strategy for differentiating themselves and capturing value within it.

Before designing your market/TAM slide, you need to be able to answer several critical questions that inform investors about not just the size but the nature and accessibility of your market opportunity.

Key Questions That Reveal Market Understanding

1. Competitive Landscape: Who Occupies Your Market Space?

Simply knowing your market size is insufficient. You must understand who else operates in this space and what that means for your strategy. Be prepared to describe:

Greenfield opportunities: Are you truly “first to market”,  creating a solution for an unaddressed problem where customers currently have no alternative? This often means less competition, requires customer education, and may involve longer sales cycles.

Front-running startups: These companies have already raised funding or gained meaningful traction. What advantages have they secured? How have their strategies evolved? What can you learn from their successes and failures? Why will you win against them despite their head start?

Incumbent competitors: These established players may have outdated technology or approaches but possess customer relationships, brand recognition, and resources. How entrenched are they? What switching costs protect their customer base? What percentage of the market do they control?

Peer startups: These are companies at a similar stage to yours. How do you differentiate? Is there room for multiple winners? Are you targeting different segments or geographies? Is consolidation likely in the future?

Responding thoughtfully to these questions demonstrates that you've studied the battlefield before entering the war. It shows investors you're not naive about the challenges ahead and have a realistic plan to carve out your space.

2. Source of First Revenue: You are almost always replacing “something”.

Be careful when claiming that you’ve got no competitors. Even if you’ve got a truly innovative AI solution requiring no human effort, your prospective customers are likely using “some” alternative solution (even if only some internally-built manual spreadsheet) to address this pain point. It is important to acknowledge this, and better yet to validate this with real prospective customer references.

If you truly are introducing a solution that is leaps and bounds beyond what anyone else is doing: 

Replacement of existing solutions: Are you displacing incumbents? If so, what compelling advantages justify the switching costs? Are you 10x better, faster, or cheaper in ways that matter to customers? Perhaps you are offering more than one of these competitive advantages. You’ve got to understand “what matters” to your customers and differentiate accordingly.

Where is your market going?

• Expanding: Growing markets create space for new entrants without requiring you to take share from incumbents. How fast is it growing, and why?

• Flat: Stable markets mean you must displace competitors to gain share. What weakness in incumbent offerings creates your opening?

• Contracting: Shrinking markets require exceptional value propositions or consolidation strategies. Why invest in a contracting space?

Founders must understand what they're getting into. You can succeed in any of these scenarios if your market is large enough and your strategy aligns with market realities.

3. Expansion Strategy: Beachhead to Adjacent Markets

Even the most focused startups should understand their long-term expansion potential:

Beachhead market: What specific, winnable market segment will you target first? Why is this segment ideal for initial traction? What characteristics make it accessible? This is especially important for startups that are tempted to pursue multiple potential market verticals simultaneously. The hazard in doing so is that such a multi-pronged effort will almost always require added sales & marketing and customer service investments than pursuing a single market vertical. To sort among the various options, find the one with the greatest pain point that you can solve, and that also has a low barrier to making a “buy” decision.

Next logical markets: Where will you expand next once you've established your beachhead? What new segments or geographies represent natural growth opportunities?

Adjacent markets: What related markets could you eventually enter? How will your initial success create advantages for entering these markets? What additional capabilities will you need to develop?

This progression demonstrates strategic thinking beyond immediate opportunities and helps investors envision your path to becoming a category-defining company rather than a niche player.

A Practical Example: MedSecure's Market Story

To illustrate how these questions inform a compelling market narrative, let's consider a hypothetical healthcare security startup called MedSecure.

MedSecure's Market Answers

Competitive Landscape:

• Incumbents: Legacy security firms like CyberGuard and MedDefend control 60% of the market but use outdated rule-based systems requiring extensive manual customization.

• Front-runners: HealthShield raised $40M for their ML-based solution but focuses exclusively on large hospital systems, leaving smaller providers underserved.

• Peers: Three pre-seed startups targeting healthcare security, but all focus on telehealth rather than in-facility systems.

First Revenue Source:

• Primarily replacement, targeting mid-sized healthcare providers (100-500 beds) currently using inadequate (or in some cases none!) general security solutions.

• Market is rapidly expanding (18% CAGR) due to increasing regulatory requirements and rising cyberattack frequency.

• First customers will be those who experienced security incidents in the past 12 months and recognize the inadequacy of their current solutions.

Expansion Strategy:

• Beachhead: Small and mid-sized hospitals in the Northeastern US (estimated $120M market).

• Next markets: Nationwide expansion to all mid-sized providers, then moving to outpatient surgical centers ($650M market).

• Adjacent markets: Medical device security, pharmacy security systems, and healthcare data compliance management software ($2.8B combined market).

• Find one or more channel partners: Consider partnering with a well-known and synergistic health care consultancy that healthcare providers rely on to help them improve their operations in a number of areas.

  
  

MedSecure's Market Slide Script

"Healthcare cybersecurity represents a $4.5 billion market growing at 18% annually due to increasing regulatory requirements and the rising sophistication of attacks targeting patient data.

The market has three distinct segments: Legacy providers like CyberGuard, who control 60% of the market with outdated rule-based systems. Second, well-funded startups like HealthShield that exclusively target large hospital systems. And third, early-stage companies like us focusing on underserved segments.

We're targeting the 4,200 small to mid-sized healthcare providers who struggle with inadequate security—too small for enterprise solutions but too complex for generic tools. These providers face the exact compliance requirements and threats as larger institutions but lack specialized security resources.

Our initial $120M beachhead market in the Northeast provides the perfect testing ground due to its stringent state regulations. As we establish our technology advantage, we'll expand nationwide and into adjacent healthcare facilities like surgical centers—a $650M opportunity.

Long-term, our platform capabilities position us to address the broader $2.8B market encompassing medical device security and compliance management software, creating a clear path to becoming the comprehensive security solution for the entire healthcare ecosystem."

Visualizing the MedSecure Market Slide

Rather than three generic circles, MedSecure's market slide would feature:

• A healthcare security market overview showing the $4.5B market with 18% CAGR

• A competitive landscape diagram showing the positioning of incumbents, front-runners, and peers

• A visualization of the mid-sized provider gap they're targeting

• A timeline showing their expansion strategy from beachhead to adjacent markets

• Testimonial quotes from prospective customers highlighting the inadequacy of current solutions

This comprehensive approach demonstrates deep market understanding rather than just market size.

Beyond the Numbers: Market Wisdom

The best market slides reveal more than numbers—they demonstrate a founder's strategic clarity and market insight. They answer the fundamental question: "Why will you win in this space?" A slide that demonstrates nuanced understanding of markets, submarkets, and the competitive landscape, and where you’ll fit into all of this can be compelling to investors if you’ve done your homework.

As investors, we're not just buying into market size; we're investing in your understanding of market dynamics and your strategic approach to capturing value within them. An expert and compelling market analysis signals you've done the hard thinking required to navigate the inevitable challenges ahead.

While team is always crucial, never underestimate the power of selecting and understanding the right market. As the venture capitalist Andy Rachleff famously said, "When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens."

Make sure your market slide tells that "something special" story.

Your Turn: Crafting Your Market Slide

Based on the framework above, draft your answers to these key questions:

1. Who are your incumbent competitors, front-running startups, and peer startups?

2. Will your first million in revenue come from greenfield opportunities or replacing existing solutions?

3. What is your beachhead market, next market, and adjacent market expansion strategy?

Then use this prompt to develop your market slide:

"Based on my market analysis where [summarize competitive landscape], my strategy to capture [describe specific customer segment] who currently [greenfield or replacement situation], starting with [beachhead market] and expanding to [growth markets], create a market narrative that communicates both the market opportunity and our strategic approach to capturing it."

Remember, the best market slides don't just impress with big numbers—they demonstrate your deep understanding of market realities and a clear strategy for success within them.