TAM Explained: Jahanvi Sardana’s Advice for Founders
In the competitive landscape of early-stage startups, understanding and articulating your market is paramount.Nisa Sardana,a prominent investor,recently shared invaluable insights on how founders can effectively navigate this crucial aspect of their pitches,distinguishing between existing,emerging,and invisible markets. Her advice,delivered at an All Stage event,emphasized the importance of deep market understanding and founder ambition.
Decoding market Types: Beyond the Obvious
Sardana began by challenging a common misconception: “Everyone brushes their teeth,” she stated, posing a critical question to founders, “You have to tell me why you’re building a better toothbrush.” This highlights the need to move beyond saturated markets and identify genuine innovation opportunities.
The Emerging Market: The Next Big Thing
The emerging market, Sardana explained, is characterized by a sector of the market already using a product, with significant potential for mainstream adoption. “Think about non-alcoholic beer before it became cool,” she offered as an exmaple.This segment represents a growing trend where early adopters pave the way for broader acceptance.Founders in this space need to demonstrate how their product or service will capture this expanding audience and accelerate its mainstream appeal.
The Invisible Market: Creating the Future
Perhaps the most challenging, yet potentially most rewarding, is the invisible market. Sardana described it as “the biggest trap,” and “also a little bit of a dark art.” In this scenario, the market doesn’t yet exist, and the founder’s primary task is to create it. This requires a compelling vision and the ability to provide investors with concrete evidence of innovation.
“Think about smartphones in 2006; nobody knew they wanted them and they changed the world,” Sardana recalled. She further elaborated, “people don’t know what they’re looking for and sometimes you have to show them what’s possible.” For founders targeting an invisible market, the focus must be on educating the market, demonstrating the problem, and showcasing the transformative solution.
investor Expectations: What Really Matters
The audience, comprised largely of early-stage founders, was keen to understand what investors look for, particularly regarding market sizing.A common question revolved around the necessity of a Total Addressable Market (TAM) slide in a pitch deck.Sardana acknowledged the utility of such slides: “It’s OK to create that slide and talk about the math behind your TAM.” However, she cautioned against over-reliance on generic industry metrics. “Sometimes investors get annoyed when founders rely too much on industry metrics rather than having their own unique insight,” she noted. Dependence on external reports can signal a lack of deep, original thought about the market the founder aims to build within.
Tackling Marketplace TAMs: A Tricky Proposition
A particularly insightful question from the audience addressed the challenge of sizing TAMs in marketplaces, especially large ones. Sardana’s response, “well, that question hurts,” was met with a knowing chuckle, referencing Index’s past decision to pass on Airbnb due to perceived small TAM.
“The reality is Airbnb created a whole new inventory, which is now bigger than some of the largest hotel brands, and that led to a big change in behavior on how people travel,” she explained. This underscores the complexity of marketplace TAMs. Sardana advised founders to focus on “what is unlocking supply, and once you unlock the supply, how will behavior change?” The key is to identify the latent potential and the behavioral shifts that will drive market growth.
Standing Out: The Founder as the Differentiator
When asked what makes a company stand out to investors, Sardana emphasized the foundational importance of the founder. “We’re in the business of evaluating founders more than markets or products or anything else,” she stated.
Ultimately, if a founder can deeply understand their customer and the compelling reasons why they will purchase their product, the company will naturally resonate with investors. “When you talk about your market, it’s really a lens on your ambition,” Sardana concluded. This viewpoint shifts the focus from mere market size to the founder’s vision, understanding, and ability to execute, proving that in the world of venture capital, the founder’s insight and ambition are frequently enough the most critical market indicators.