“Total Addressable Markets” (TAMs) are typically something you see investors and other “money people” obsess over, and for good reason. Obviously, big market problems are more lucrative to solve than little ones. But TAMs are also relevant for product managers, albeit in different ways. This is something I’ve been thinking a lot about recently, and I thought I’d put down into words (and pictures!) how I apply my TAM in managing my products.
(A warning, though – this is all very enterprise-heavy, and I’m not sure how, or even if, it applies to consumer products. Could be wrong. And please excuse the crappy graphs here – I’m on an airplane!)
What is your TAM?
Imagine that this is your TAM. Tantalizing, right?
That’s a big market! Great start. But hang on – let’s rejigger this in terms of your “Total Approachable Market.”
The companies that make up your market are all in different industries, which have meaningfully different use cases, needs, software procurement procedures, business functions, job roles/responsibilities and all that stuff. All of that directly impacts not only how likely (or even capable) they are of buying your product, but your ability to sell to them.
Software, particularly enterprise software, that sells itself is mostly a fantasy. VCs and scrappy founders love the idea, because it offers the promise of selling high-margin solutions without the heavy investment of a sales force, but it’s basically El Dorado for most of us.
So not only do you have a given sales force, but they’re going to be able to sell to some prospects in certain industries more easily than others. For example, retailers and travel companies “buy easier” than banks or governments do (but are often lower deal-size and faster to cancel). As product managers, this matters a lot, because it determines who our customers and users are.
If you know the sectors where you’re strongest/most competitive, that can really start to make your “Total Approachable Market” look quite different. Imagine each of these colors represents a different industry of your TAM:
Cool. There’s still a ton of opportunity there. But how much of that new TAM could we even plausibly sell into?
Selling to your TAM
Whether your sales force is 5 people or 500, there’s a certain finite horizon of the number of customers you can theoretically sell to, close, implement and onboard in a given year. Imagine you’ve got 5 sales people, and the best case scenario is that each one can source, sell, close and onboard 4 or 5 deals per 6 month period. In the software markets I’ve worked in, that is an extremely aggressive target. We call this our “sales productivity” – deals per salesperson, per unit time.
Is your product able to successfully scale up to 25 new customers (5 salespeople, 5 deals each) every six months? Some Product Managers would look at that and not even blink. Others would get extremely nervous. (Ask me how I feel about a single customer with >1 billion web sessions a month.) It all depends on what you’re doing, obviously.
This prompts a really big consideration for Product Managers: where are our efforts best spent?
If our sales productivity is high – meaning that our sales force has demonstrated that it’s capable of closing a lot more deals per unit time – then my first area of focus is my platform. Can we successfully onboard and service a lot of customers, more often? If so, and our platform is scaling successfully, then heck, I want to help our sellers go swing for the fences. I want to design and build new features that deepen our use cases with existing users, and others that expand us into adjacent, and perhaps even more lucrative industries, so that we can diversify the customer base.
If our sales productivity is lower – meaning that deal cycles, implementation and onboarding are still relatively time intensive – then a logical area of focus for the PM is how we can improve all of the above. Adding cool new user features isn’t going to help if the bottleneck is just getting new customers using our product. There are almost always ways to make implementation, onboarding and other “customer success” areas like this faster, more effective and (often) automated. They aren’t always as sexy as new feature growth, but can be 10x as important to the business.
Lots of Product Managers seem to overlook or downplay this step, which I think is a mistake. As PMs, we love to “imagineeer” cool new stuff our products could do, but in software as in sports, fundamentals always come first. Our “product” really begins the moment a prospect touches our software (arguably, it begins the first time they meet our seller). Getting them up and running isn’t just a good thing for our sales productivity. It also usually leads to a much more pleasant customer experience, which is critical to anyone selling SaaS.
Some ways PMs can help increase sales productivity that I’ve seen work are:
- Creating more elaborate, role-based or industry-based product demos that help sellers “make their case” faster and more effectively
- Implementation “templates” for customers with specific local environments, like certain data warehouse platforms, corporate identity servers, CRM systems, geographic/business unit organizations, etc etc. In other words, minimize the amount of bespoke implementation details your sales engineers need to work through.
- Data descriptors/integrations with adjacent systems that your product needs to interact with.
- Sample code, scripts, video walk-thrus and tutorials which are easy to find and search
- Documentation, documentation, documentation. I know – it’s boring! But it’s so critical to making anything work.
Collecting market feedback from your TAM
Like any good Product Manager, you take every opportunity to collect product feedback from your customers and prospects. But how does that feedback relate to what your larger market thinks?
When we rely primarily on our customers for insight into our market, we’re committing a first-order sample error. In a TAM of any significant size, our sample will never be anywhere close to representative, so we need to contextualize what we hear as qualitative – effectively, anecdotes. To be sure, anecdotes can be useful! But they’re necessarily influenced by the size, industry and local idiosyncrasies of the customer, and difficult to generalize across the market. It’s a lot like the analogy of the three blind men trying to describe an elephant by the part (trunk; leg; tail) that each of them is feeling.
One important channel for market feedback like this comes from our sales force. This makes perfect sense, of course – they’re the ones in the field, talking with prospects and customers every single day. But PMs need to step back and think about what types of companies our sales force is talking to as well:
- if sellers are strongly incentivized to land big deals at large companies, then naturally, they’ll be talking with a lot of large companies, meaning that we’ll get comparatively less market feedback from the SMB segment
- many/most sales forces are geographically organized. Who’s to say that prospects in the southeast are going to have the same needs and expectations as those on the west coast? Or in EMEA?
- in many/most companies, “celebrity sellers” often appear. These are sellers who develop a reputation for being particularly effective or compelling, and who close lots of deals. Obviously, as a PM, you should get to know these sellers well – they often have extremely valuable feedback about what resonates in the market. Nevertheless, overweighting their perspective risks overlooking another important one. (Note: the best sellers often get placed into the territories with the biggest pool of prospects, making this a self-reinforcing cycle.)
- it can sometimes be the case that the customers you have are not the ones you really want – perhaps because they’re too small, too difficult to deal with, or their needs aren’t aligned with your desired product strategy. In these cases, deciding how to balance immediate customer needs against your longer-term strategy is a tricky problem. It usually requires a lot of corporate discipline and trust between Product Management and leadership.
In looking at this TAM, it’s hard to say how feedback from customers A, B, C and D will apply to what customers in different industries, market segments or even geographies. Some of it will probably be generalizable, and other parts, less. The extent to which you can make that determination is a pretty good proxy for your effectiveness as a Product Manager.
TAMs are for PMs too
I honestly don’t know how you’d do long-term product planning without a pretty good feel for both your traditional TAM as well as your Total Approachable Market. Understanding both, and how they differ in the organization I’m a part of, is critical for me to prioritize what Product and Engineering should be designing, planning and building. That said, I don’t really have any magic tricks for figuring them out.
I approach figuring out my traditional TAM in a number of standard ways. Analyst reports can be useful, though they’re always incomplete. Competitor intelligence (and financials, if they’re available) is a great input as well. Good Product Managers embed themselves deeply in the community of users they’re serving, and getting a gut feel for how large and diverse that community is provides arguably the best feel for how large the total market could actually be.
Determining my Total Approachable Market is a function of going to talk to the right people in my own organization. The best sales organizations know their productivity and velocity stats right off the tops of their heads; the others, if you’re lucky, might send you an Excel file and tell you to go figure it out. (Or, worse – tell you it’s confidential and you’re not allowed to know. That’s a big, red, blinking warning sign.)
Incorporating your TAMs into your product planning process? That much is up to you. More on that later, maybe. 😄