A total addressable market, or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry. Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.
Table of Contents
Aspect
Explanation
Concept Overview
Total Addressable Market (TAM) is a business term that represents the total revenue opportunity available for a specific product or service within a defined market. It signifies the maximum potential demand for a product or service if it were to capture 100% of the market share. TAM analysis is a crucial step in market research and business planning as it helps companies understand the scope and size of the market they are targeting.
Calculation
Calculating TAM typically involves the following steps: 1. Define the Market: Clearly define the market in terms of product or service category and geographic scope. 2. Determine the Target Customer Base: Identify the total number of potential customers who might be interested in the product or service. 3. Estimate the Average Revenue per Customer: Calculate the average revenue that each customer would generate annually or over a specific period. 4. Multiply the Number of Customers by Revenue: Multiply the estimated number of potential customers by the average revenue per customer to calculate TAM.
Importance
Understanding TAM is crucial for several reasons: 1. Market Sizing: It provides a quantitative measure of the market’s size and potential. 2. Business Planning: Helps in setting realistic revenue targets and growth strategies. 3. Investment Decisions: Attracts investors by showcasing the market opportunity. 4. Competitive Analysis: Assists in evaluating market competition and differentiation strategies. 5. Product Development: Guides product development efforts based on market demand.
Addressable vs. Serviceable vs. Available Market
In addition to TAM, there are two related concepts: 1. Serviceable Addressable Market (SAM): SAM represents the portion of TAM that a business can realistically serve or target with its products or services. It takes into account factors like geographical limitations, regulatory constraints, and the company’s capacity. 2. Share of Market (SOM): SOM is the percentage of the SAM that a business can capture or currently holds. It’s a more realistic measure of market share, as companies rarely achieve 100% market penetration.
Challenges
Determining TAM can be challenging due to factors like market segmentation, changing customer preferences, and market dynamics. Overestimating TAM can lead to unrealistic business expectations, while underestimating it may result in missed opportunities for growth.
TAM, SAM, and SOM in a nutshell
When launching or running a business, at the question “who’s your target?” it often happens to hear answers like “everyone can use my product or service.”
This implies a complete misunderstanding of the market.
This can be not good for several reasons.
First, it might make it harder to prioritize and focus on a few key partners who might help the business snowball and scale.
For instance, when PayPal launched, as pointed out by Reed Hoffman in Blitzscaling the company had to shift its focus four times in a short period.
When they identified their power users on eBay, they focused on and prioritized that niche market.
Thus, PayPal first dominated that niche and then moved forward.
Second, if you need external resources, such as lending and financing, being able to present the total addressable market (TAM) is a crucial element to make the value proposition for those investing in your business compelling enough.
For that matter, a few crucial questions, such as who needs your service, how much can I charge for it, and what players are already in that market helps to find a few elements to compute the TAM.
To evaluate a business opportunity, you need to look into three metrics:
TAM or total addressable market
SAM or serviceable addressable market
SOM or serviceable obtainable market
Let’s start with a practical and straightforward example. Imagine the scenario you’re opening a barbershop in Rome.
Now your TAM might be any man in the world with a beard. However, of those, how many can you reach and service?
It would also be great to say that your total serviceable addressable market is those men’s beards.
However, this is not realistic.
Instead, to be realistic, you might start from the neighborhood where your barbershop will be located.
This means that in a population of a hypothetical thousand people in the neighborhood, only 50% are men, and of those men, only 50% have a beard.
This means your total serviceable market is now only two-hundred-fifty men (a thousand divided by two, twice).
Yet, you’re not the only barbershop in the neighborhood. It seems like another person had the same idea, and her barbershop serves already half of those men’s beards.
This means that your potential market share might be 50% of the serviceable market, or a hundred and twenty-five people. This is your SOM.
Although this is a simplified example, that is a good starting point to understand the difference between TAM, SAM, and SOM.
You don’t need to perform complicated analyses to start understanding those concepts.
All you need is to start thinking in realistic terms about who’s that you’re trying to serve!
Case study
Defining the total addressable market is important, especially for companies attracting investors.
In short, in many cases, investors don’t look for the company’s potential growth.
But rather to the company’s potential growth in a growing market and industry.
Thus, guessing the potential market size, especially in growing or rising industries, is critical for most investors.
For instance, this is how Pinterest defined its total addressable market in its S-1:
The global advertising market is projected to grow to $826 billion in 2022 from $693 billion in 2018, representing a 5% compound annual growth rate (“CAGR”), according to IDC. The digital advertising market alone is projected to grow to $423 billion in 2022 from $272 billion in 2018, representing a 12% CAGR, according to IDC. In 2018, the consumer packaged goods (“CPG”) and retail industries accounted for $64 billion of this digital advertising spend, and the travel, technology (includes computing, consumer electronics and telecom), automotive, media & entertainment and financial services industries accounted for an additional $144 billion. The United States continues to represent the largest digital advertising market in the world. The U.S. digital advertising market is projected to grow to $166 billion in 2022 from $104 billion in 2018, representing a 12% CAGR, according to IDC.
Then the company defined its total addressable market and its market opportunity by highlighting the various advertising formats the company delivers (online brand advertising and performance-based advertising).
Your TAM is the BHAG
The notion of a big hairy audacious goal was first introduced by Jim Collins and Jerry Porras in their book Built to Last: Successful Habits of Visionary Companies. A big hairy audacious goal (BHAG) is a clear and compelling long-term goal guided by a company’s values and purpose.
No company will be able to reach its TAM in the short term.
And to be fair, no company should be trying to achieve that.
A company, if adequately reaching scale, ‘ll be able to get close to its TAM or even pass it (there are many assumptions in computing the TAM which might be underestimating it).
For instance, as the story goes, recounted in the book Measure What Matters, author and venture capitalist John Doerr asked Brin and Page, “how big do you think this could be?”
He was referring to Google. This was the fall of 1999.
John Doerr had thought that if everything worked, Google would have reached a market cap of $1 billion.
Yet, when Larry Page responded, “ten billion dollars,” Doerr replied, “you mean a market cap, right?”
Larry Page replied, “no, I don’t mean market cap; I mean revenue.”
At the time, assuming that sort of revenue generation meant reaching the size of companies like Microsoft or IBM, who were the dominant players.
While Doerr was impressed, he was also skeptical about it.
Yet, Google (Alphabet) today is an over trillion-dollar company, with $257.6 billion in revenues!
So both Doerr and Page, two incredibly smart people, were completely off about the TAM.
What does that mean?
Computing TAM is a great exercise to improve your business acumen, but it’s just that, an exercise.
Thus, it’ll be extremely hard to know, over time, how big an industry might get, let alone be able to tackle it all with limited resources.
It’s not just about the product; it’s about the business model and whether that is able to sustain a product to reach its SAM.
So also here, before you can tackle the SAM, you want to start to creating options to scale.
How? From the SOM!
Your SOM is your niche
Any company with restrained resources, but in general, any startup trying to tackle a new market, should start with a niche, and better yet, a micro-niche.
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.
From there, you want to start tackling your minimum viable audience.
When you tackle a small niche, you enable valuable feedback loops while trying to answer simple questions about the market and from there, create options to scale!
Key Highlights
TAM, SAM, and SOM Defined:
TAM (Total Addressable Market): Represents the total potential market size for a product or service if it were to capture the entire market demand.
SAM (Serviceable Addressable Market): Refers to the portion of the TAM that a company can realistically target and serve with its resources and capabilities.
SOM (Serviceable Obtainable Market): Indicates the specific portion of the SAM that a company can reasonably capture and secure as its market share.
Importance of Target Market Definition:
Avoiding the misconception that “everyone” is the target market is crucial for effective business focus and growth.
Identifying a specific target audience helps prioritize efforts and resources.
Example: Opening a Barbershop:
A practical example of a barbershop in a neighborhood illustrates the concepts of TAM, SAM, and SOM.
TAM: All men with beards globally.
SAM: Men with beards in the local neighborhood.
SOM: The subset of men with beards who haven’t already chosen a competing barbershop.
Case Study and Investor Perspective:
Investors look at potential growth within a growing market.
Pinterest’s example demonstrates how the company defined its TAM based on projected market growth.
BHAG and TAM:
The concept of a “Big Hairy Audacious Goal” (BHAG) is introduced, suggesting a long-term ambitious goal guided by company values.
Companies aim to approach or exceed their TAM with sustained growth.
Scale and SAM:
Scaling a business involves the interplay of the product, businessmodel, and the ability to reach the SAM.
Creating options to scale requires leveraging insights from the SOM.
Niche and SOM:
Startups and businesses with limited resources should begin with a niche, even a micro-niche, to focus their efforts effectively.
A micro-niche can grow into a niche, then a market, enabling scalability.
Minimum Viable Audience (MVA):
Tackling a small niche allows for valuable feedback loops and understanding market dynamics.
Building from an MVA provides insights and options for future scaling.
Case Studies
Company
Industry
Total Addressable Market (TAM) Breakdown
Analysis
Amazon
E-commerce
Amazon’s TAM includes online retail, third-party seller transactions, and cloud computing services (AWS).
Amazon’s TAM is vast, covering online retail, marketplace services, and cloud infrastructure.
Google
Online Advertising
Google’s TAM encompasses the digital advertising space, including search ads, display ads, and YouTube ads.
Google dominates the digital advertising market, benefiting from its search and video platforms.
Tesla
Electric Vehicles
Tesla’s TAM involves the global market for electric vehicles, including passenger cars, trucks, and sustainable energy solutions.
Tesla aims to capture a share of the growing electric vehicle market, driven by environmental concerns.
Microsoft
Cloud Computing
Microsoft’s TAM includes cloud services like Azure, productivity software (Office 365), and enterprise solutions.
Microsoft competes in the expanding cloud computing market, serving businesses’ digital transformation needs.
Netflix
Streaming Entertainment
Netflix’s TAM comprises the global streaming entertainment sector, covering movies, TV series, and original content.
Netflix focuses on providing a wide range of streaming entertainment options to a global audience.
Airbnb
Accommodation Rental
Airbnb’s TAM spans the worldwide lodging industry, including vacation rentals, short-term stays, and unique accommodations.
Airbnb offers a platform for travelers to find unique accommodations, disrupting the traditional hotel industry.
Uber
Ride-Hailing and Delivery
Uber’s TAM covers ride-hailing services for passengers and food delivery services, targeting urban transportation and convenience.
Uber aims to provide accessible transportation and delivery services to a wide range of customers.
Facebook (Meta)
Social Media
Facebook’s TAM includes the social media landscape, offering a platform for users to connect and share content, supported by advertising.
Facebook’s primary revenue source is advertising, leveraging its large user base for ad targeting.
Zoom Video
Video Conferencing
Zoom’s TAM expanded rapidly with the surge in remote work and virtual meetings, catering to businesses and individuals needing video communication.
Zoom Video became essential for remote communication during the COVID-19 pandemic, contributing to its growth.
Salesforce
Customer Relationship Management
Salesforce’s TAM focuses on businesses seeking CRM and cloud solutions to manage customer relationships and drive growth.
Salesforce offers a suite of CRM tools and cloud services to support businesses’ sales and customer management efforts.
Alibaba Group
E-commerce and Technology
Alibaba’s TAM includes e-commerce, cloud computing, digital payments, and various technology services, primarily targeting the Asian market.
Alibaba has a diverse range of businesses, serving both consumers and enterprises across multiple sectors.
Apple
Consumer Electronics
Apple’s TAM encompasses the global market for smartphones, tablets, computers, wearables, and services like the App Store and Apple Music.
Apple aims to provide a seamless ecosystem of products and services, fostering brand loyalty.
LinkedIn
Professional Networking
LinkedIn’s TAM targets professionals, businesses, and recruiters seeking networking, job opportunities, and talent solutions.
LinkedIn is a valuable platform for professionals to connect, build their careers, and explore job opportunities.
SpaceX
Space Exploration
SpaceX’s TAM spans satellite deployment, space travel, and future exploration missions, focusing on the commercialization of space and reducing launch costs.
SpaceX aims to make space more accessible and cost-effective for various applications, including satellite internet.
Robinhood
Stock Trading
Robinhood’s TAM includes retail investors seeking easy access to stock trading, cryptocurrencies, and investment opportunities.
Robinhood introduced commission-free stock trading, attracting a new generation of retail investors.
DoorDash
Food Delivery
DoorDash’s TAM comprises the food delivery services sector, catering to customers looking for convenient meal delivery options from local restaurants.
DoorDash operates in a competitive food delivery market, offering a range of dining options to consumers.
Airbnb Experiences
Travel Experiences
Airbnb Experiences’ TAM focuses on travelers seeking unique activities and experiences, ranging from tours and workshops to cultural events.
Airbnb Experiences aims to provide travelers with memorable and immersive activities hosted by local experts.
Coursera
Online Education
Coursera’s TAM targets learners seeking online courses, certifications, and skill development opportunities in various fields and industries.
Coursera offers a platform for online education, partnering with universities and institutions to provide quality courses.
Yelp
Business Reviews
Yelp’s TAM includes consumers looking for business reviews and recommendations, as well as businesses seeking online presence and marketing solutions.
Yelp provides a platform for businesses to engage with customers and for users to discover local businesses and services.
LinkedIn Talent Solutions
Recruitment and Talent
LinkedIn Talent Solutions’ TAM focuses on businesses seeking recruitment tools and solutions to attract and hire talent effectively.
LinkedIn Talent Solutions offers tools to connect businesses with potential candidates and streamline the hiring process.
Square
Payment Processing
Square’s TAM covers payment processing solutions for small businesses, including point-of-sale hardware, online payments, and financial services.
Square simplifies payment processing for small businesses, offering a range of tools to manage transactions and finances.
Salesforce Marketing Cloud
Marketing Automation
Salesforce Marketing Cloud’s TAM includes businesses looking for marketing automation, analytics, and customer engagement solutions to enhance their digital marketing efforts.
Salesforce Marketing Cloud aims to help businesses create personalized marketing campaigns and improve customer engagement.
Booking.com
Travel Booking
Booking.com’s TAM focuses on travelers seeking accommodations, flights, car rentals, and travel packages through its online travel agency platform.
Booking.com offers a one-stop platform for travelers to plan and book various travel-related services.
Adobe
Creative Software
Adobe’s TAM targets creative professionals and businesses seeking digital media, design, and marketing software solutions for content creation and management.
Adobe’s suite of creative software and digital marketing tools is widely used for content creation and marketing campaigns.
Expedia
Online Travel Booking
Expedia’s TAM includes travelers looking to book hotels, flights, vacation packages, and other travel-related services through its online travel agency platform.
Expedia simplifies the process of planning and booking trips by offering a wide range of travel options.
HubSpot
Inbound Marketing
HubSpot’s TAM focuses on businesses seeking inbound marketing, sales automation, and customer relationship management (CRM) solutions.
HubSpot offers a suite of tools to attract, engage, and delight customers, driving inbound marketing efforts.
HomeAway (Vrbo)
Vacation Rental
HomeAway (Vrbo) serves travelers seeking vacation rental accommodations worldwide, including cabins, beach houses, and apartments.
HomeAway (Vrbo) provides a platform for travelers to find unique and spacious vacation rentals.
SurveyMonkey
Survey and Data Insights
SurveyMonkey’s TAM includes businesses, researchers, and organizations seeking survey creation and data analysis tools to gather insights and make data-driven decisions.
SurveyMonkey simplifies the process of conducting surveys and analyzing data to gain valuable insights.
Dropbox
Cloud Storage and Sharing
Dropbox’s TAM targets individuals, teams, and businesses looking for cloud storage and file-sharing solutions to collaborate and access files from anywhere.
Dropbox offers a user-friendly platform for storing, sharing, and syncing files, enhancing collaboration.
Slack
Team Collaboration
Slack’s TAM focuses on businesses and teams seeking efficient team collaboration, messaging, and communication tools to streamline workflows.
Slack enhances team communication and collaboration by providing a centralized platform for messages and file sharing.
Airbnb for Work
Corporate Travel
Airbnb for Work’s TAM includes businesses looking for accommodations and experiences for corporate travel, team-building, and meetings.
Airbnb for Work caters to the needs of businesses seeking alternative accommodation options for employees.
Udemy
Online Learning
Udemy’s TAM targets learners and professionals seeking online courses and skill development opportunities across a wide range of subjects and industries.
Udemy offers a vast marketplace of courses taught by instructors worldwide, catering to diverse learning needs.
Yelp for Business
Business Advertising
Yelp for Business’ TAM includes local businesses seeking online advertising, marketing, and customer engagement solutions to reach and attract customers.
Yelp for Business helps local businesses enhance their online presence and connect with potential customers.
StockX
Sneaker and Collectibles
StockX’s TAM focuses on collectors and enthusiasts looking to buy and sell authenticated sneakers, streetwear, electronics, and collectible items.
StockX provides a platform for individuals to engage in the resale market for highly sought-after items.
Poshmark
Fashion Resale
Poshmark’s TAM includes fashion enthusiasts looking to buy and sell gently used clothing, accessories, and fashion items in various styles.
Poshmark offers a community-driven marketplace for fashion resale, promoting sustainability and style.
Thumbtack
Local Services
Thumbtack’s TAM targets individuals and businesses seeking local service professionals for various tasks and projects, from home improvement to event planning.
Thumbtack simplifies the process of finding and hiring local service professionals for diverse needs.
Turo
Peer-to-Peer Car Rental
Turo’s TAM includes travelers and car owners looking for peer-to-peer car rentals, enabling individuals to rent their vehicles or book unique cars.
Turo offers a platform for individuals to share and rent vehicles, creating a peer-to-peer car rental marketplace.
99designs
Design Services
99designs’ TAM focuses on businesses and individuals seeking design services through crowdsourcing, including logo design, graphic design, and web design.
99designs hosts design contests, allowing businesses to receive custom designs from a global community of designers.
Salesforce Commerce Cloud
E-commerce Solutions
Salesforce Commerce Cloud’s TAM targets businesses looking for e-commerce solutions, including online storefronts, digital marketing, and order management capabilities.
Salesforce Commerce Cloud provides a comprehensive e-commerce platform to support businesses in their online retail efforts.
TaskRabbit
On-Demand Task Services
TaskRabbit’s TAM includes individuals and businesses looking for on-demand taskers to complete various tasks and projects, from home repairs to deliveries.
TaskRabbit simplifies the process of finding skilled taskers to handle a wide range of tasks efficiently.
Upwork
Freelance Talent Marketplace
Upwork’s TAM focuses on businesses and individuals seeking freelance talent for a variety of projects and services, spanning from web development to content creation.
Upwork connects freelancers with clients seeking specific skills, offering a diverse marketplace for freelance work.
Facebook Marketplace
Online Marketplace
Facebook Marketplace’s TAM includes individuals and businesses looking to buy and sell a wide range of new and used items, from electronics to furniture.
Facebook Marketplace provides a convenient platform for local and online buying and selling within communities.
Additional Case Studies for TAM, SAM, SOM
Tech Company
TAM
SAM
SOM
Apple Inc.
Global market for consumer electronics
Consumers and businesses in developed and developing countries
Customers who purchase Apple products and services
Amazon.com Inc.
Global e-commerce and cloud computing
Online shoppers, businesses, and organizations
Amazon Prime subscribers, AWS customers, and marketplace sellers
Google LLC
Global internet search, advertising, and cloud services
Internet users and businesses seeking digital advertising
Google Ads advertisers, G Suite users, and Cloud Platform customers
Microsoft Corporation
Global software, hardware, and cloud services
Enterprises, governments, and individual consumers
Windows OS users, Office 365 subscribers, Azure cloud customers
Facebook, Inc.
Global social media and digital advertising
Social media users, businesses, and advertisers
Facebook, Instagram, WhatsApp, and Messenger users
Alphabet Inc. (Google’s Parent)
Global internet-related services
Internet users, businesses, and advertisers
Google search users, YouTube viewers, and GCP clients
Tesla, Inc.
Global electric vehicle and clean energy markets
Car buyers interested in electric vehicles
Tesla car owners and solar energy customers
Netflix, Inc.
Global streaming entertainment market
Internet users seeking on-demand video content
Netflix subscribers
Uber Technologies, Inc.
Global ride-sharing and food delivery market
Urban and suburban commuters, restaurant-goers
Uber riders and Uber Eats customers
Salesforce.com, Inc.
Global customer relationship management (CRM) market
Businesses and organizations of all sizes
Salesforce CRM and cloud service subscribers
Airbnb, Inc.
Global short-term lodging and vacation rental market
Travelers and property owners
Airbnb hosts and guests
Adobe Inc.
Global software for creativity, marketing, and documents
Creative professionals, marketers, and enterprises
Adobe Creative Cloud and Document Cloud users
PayPal Holdings, Inc.
Global digital payments and financial services
Online shoppers, businesses, and freelancers
PayPal and Venmo users
Twitter, Inc.
Global social media and microblogging market
Individuals, businesses, and advertisers
Twitter users and advertisers
Snap Inc. (Snapchat)
Global multimedia messaging and AR technology
Social media users, advertisers, and AR enthusiasts
Snapchat users and Discover content consumers
Spotify Technology S.A.
Global music streaming and podcast market
Music lovers and podcast enthusiasts
Spotify Premium and Free users
Alibaba Group Holding Limited
Global e-commerce, cloud computing, and fintech
Online shoppers, businesses, and financial services
Alibaba.com, Taobao, and Tmall users
Tencent Holdings Limited
Global internet services, gaming, and social media
Gamers, social media users, and online shoppers
WeChat, QQ, and Honor of Kings players
Square, Inc.
Global financial services, mobile payments, and POS systems
Small businesses, retailers, and service providers
Square payment and hardware users
Zoom Video Communications, Inc.
Global video conferencing and virtual collaboration
Businesses, educational institutions, and remote workers
A total addressable market or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry. Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.
In simple terms, market validation is the process of showing a concept to a prospective buyer and collecting feedback to determine whether it is worth persisting with. To that end, market validation requires the business to conduct multiple customer interviews before it has made a significant investment of time or money. A transitional business model is an example of market validation that helps the company secure the needed capital while having a market reality check. It helps shape the long-term vision and a scalable businessmodel.
Market orientation is an approach to business where the company focuses more on the behaviors, wants, and needs of customers in its market. A company will first target a niche market to prove a commercial use case. And from there, it will create options to scale.
In a tech-driven business world, companies can move toward market expansion by creating options to scale via niches. Thus leveraging transitional business models to scale further and take advantage of non-linear competition, where today’s niches become tomorrow’s legacy players.
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable businessmodel. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
Developing a successful business strategy is about finding the proper niche, where to launch an initial version of your product to create a feedback loop and improve fast while making sure not to run out of money. And from there create options to scale to adjacent niches.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
