We did a case study in class on Biopure. For blood transfusions, we typically use other people’s blood, our own blood, or not at all. Biopure developed an alternative that was developed from cow’s blood, which can be stored without refrigeration and for a longer time relative to actual blood. It could be used by animals (i.e. pets) or humans. We had to decide which of those two markets to go after.
The first question we need to answer is the total addressable market (TAM) for each. The professor did a survey of us students. A class of relatively intelligent MBA and engineering students had answers that ranged from tens of millions to tens of billions for the human market, and answers that ranged from millions to billions for the animal market.
It just reinforces to me the sad reality that behind every pretty go-to-market powerpoint that declares an aspirational TAM is a bunch of MBA students with guesses that differ by a factor of 100x. What does one do?
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What is the threshold TAM I need to see to make a decision? Is it 100M? If so, it does not matter to me to debate whether it’s 200M versus 1B TAM. Let’s talk to the person who suggested 10M to understand why they are not convinced. Underlying this is the need to have diversity of thoughts and options.
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How can I stage-gate my TAM calculations? What assumptions do did I test out that narrows my TAM range? I think of this in the context of startups trying to raise the next series of funding from VC’s. I.e. we demonstrated sales to this set of customers; ok, now our valuation of your company goes up because we have more faith in your TAM.