Right Customer, Right Time, Right Message

Understanding your addressable market is critical at every stage of a startups life, whether just starting out and convincing a VC to make an investment, building books of business for the year ahead, or even in evaluating the revenue potential for new opportunities.

Despite this, truly mapping the market is something we all find challenging.In this article, and associated webinars and presentation, Harrison Rose, Notion Expert (CEO of GoodFit and co-Founder of Paddle) outlines the why’s and how’s of market mapping.

Setting the scene‍

Our addressable market is critical to the startup journey. Whether that’s in go-to-market planning, evaluating new business opportunities or convincing investors we’re operating in a space worth investing in.

Despite this — it’s something people really struggle with - investors included.

So in this article we are going to simplify what we mean, why it's important and how to go about it.

• We’ll start with some definitions
• Why we map the market
• Common pitfalls - what goes wrong?
• How you can go away and more effectively map the market and what that unlocks for your business
• How to avoid the many mistakes I’ve made in relation to this topic over the past 10 years.
  

What do we mean by mapping the market?

‍When we founded Paddle back in 2012 people only really talked about the concept of your “total addressable market” your TAM.  In more recent times, people are increasingly talking about TAM, SAM & SOM.

The biggest circle is your “total addressable market.” This is the total possible market demand for a product.

The SAM or Serviceable Addressable Market is a subset of the TAM that the company has a product fit for today, who can use their product immediately, and who they are able to sell to and service.

The SOM or Service Obtainable Market is the proportion of the SAM that a company can realistically achieve, or they are prioritising …. typically given your limitations of resources, presence of competition, etc.

1. TAM is a measure of the size of the market you operate in
2. SAM is who within that market you have a product for today
3. SOM is who within the SAM you want to target first based on current understanding

I recommend people spend their time on the SAM, within that you should prioritise further, but the SAM is the most important.

Why? If you’re operating in a massive TAM but none of them can use your product -  it doesn’t really matter. Now, while it’s important to share a TAM with the investment community, we don’t actually have a product for these folks right now, don’t intend to target them for the foreseeable, etc. So our understanding of them can be limited.

Folks often think of market mapping as finite, but it’s a spectrum. Different levels of detail, confidence, depths of insight, even investment vary and influence how close you get to truly mapping your market.

An understanding of the TAM, market and industry you’re working in is important, but a high-level understanding of this is appropriate in my opinion. Whereas a focus on the SAM, i.e those who can use your product today, are those we want a deep understanding of.

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So why do we map the market?

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We map the market to understand the size of the business opportunity you have ahead of you, i.e. how much revenue potential is there in the SAM you operate in today. This is critical and something never to lose sight of and ask yourselves, if we achieve a significant market share, maybe 10%, or in applying some historic funnel performance, where do you end up in terms of revenue?  Is this high enough to sustain the company over the next X years? Or until your next milestone?

I often work with early stage companies, who build a great product for a narrow audience and see them freak out that there are only 2000 companies globally that meet this narrow criteria, when in reality, they have 3 customers today, and 20 months of runway!

In this instance I say, “that’s great, go out and win 10, 15, 30 of them and then raise your next round!”

Take comfort in the knowledge your market is big enough for your mid term needs, but may need to broaden this in future.  Express that intention to existing and future investors, the SAM doesn’t need to be the biggest number in the world, right away, it just needs to be enough to sustain growth in the mid-term, provided you have coherent plans to expand it over-time.

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The second reason we map the market is to understand the number of companies that are out there our team can sell too.

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This directly influences our GTM approach, as we discussed a few months ago in our workshop on PLG vs SLG, which you can read about here.

If there are only 500 companies out there. It will inform how we choose to approach or attract these companies, potentially even how we price our product.  If there are only 500, we might determine the best ROI for GTM efforts, or the most cost-effective way to target them is sales-led.

On the other hand, if there are tens of thousands, who understand our proposition and are actively seeking it. Perhaps PLG makes sense for us.It can even influence pricing.  If I’m selling a contract management tool to big banks and there are only 500 of them and I’m charging them $10,000 each, then I’m going to struggle to build a big business. So I need to either find a way to increase the addressable market or increase the value of the problem I solve in order to be able to charge much more.

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The third reason we want to map the market is to be able effectively prioritise who is most likely to buy.

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This is something we ran a webinar on a month or so ago, that you can see here:  Maximising Sales & Marketing ROI through propensity to buy scoring.

A thorough understanding of the SAM is critical for prioritisation. For example, if there are 10,000 companies in my SAM, but I only have visibility into 3,000 of them. Then even if I am prioritising those 3000 companies really effectively, chances are that there are companies within the 7000 I don’t have visibility into, which are demonstrating a higher propensity to buy than the 3000 I have visibility into today.

Last but not least - we want to map the market to align our teams around a common set of accounts & contacts to target.

1. We want to map the market of accounts we can sell to
2. Ensure there are enough of them to meet our growth ambitions
3. Prioritise those most likely to buy
4. We then want to align our GTM teams around these accounts & contacts

This last point is critical - If sales & marketing are clear on who we’re targeting and are pointed at the same accounts & contacts, you should see the greatest results.

At Paddle whilst I was running sales there, we had BDRs running email at a set of accounts & contacts, the same contacts we followed around on paid social with the same messaging. Those accounts & contacts which engaged with a marketing touchpoint, were 2x as likely to reply to a sales rep’s email.  This shows the real power of alignment.

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What founders think investors want. And what they actually want…
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This issue is normally driven from founders, and is a misunderstanding between what founders think the investors want, and what they actually want.

Founders often feel they need to put a huge $$$ figure in front of investors with regards to their addressable market for them to consider investing in their company.  This is not strictly true, or at least not that simple.

Sure - the investor needs to believe your business is capable of growing into a very large business for them to get a return on their money. But a reasonable level of TAM understanding will deliver this.

In my experience, what really gets investors excited is an incredibly deep understanding of the profile and number of companies you plan to sell to between now and your next fundraise.

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For example…

• Paddle sells payments to software companies
• Paddle’s strongest value proposition is helping software companies sell internationally

If I can demonstrate to an investor that within the huge TAM that is software or SaaS, there are 20,000 software companies globally with a self-serve checkout, >20k MRR and we believe that 4,000 are those who have the highest likely to buy right now, as they have non homogenous web traffic above 30%, while operating in a single language and currency.

We can then list each and everyone one of those companies, where they’re based, and articulate the team we plan to build (with their investment) to capture them. In my experience, VCs will be delighted.

Better yet, I can say these 4000 companies are our focus initially, getting us to point X in revenue.  Following this, there’s a further 8,000 companies who are selling self-serve checkouts + invoicing customers.  These customers have pains A, B, C.  We’ll be ready to serve them in Quarter D. Product dev is at point E, and will be ready by F. Here’s our planned GTM approach to capture these companies starting point G.

This level of clarity and execution is what excites folks. It shows a deep understanding of the customers you’ll target today, how you’re going to win them, why you’re going to win them, and how those plans are going to evolve over-time.
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A couple of examples…‍
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Our addressable market is critical to the startup journey. Whether that’s in go-to-market planning, evaluating new business opportunities or convincing investors we’re operating in a space worth investing in.

Despite this — it’s something people really struggle with - investors included.

So in this article we are going to simplify what we mean, why it's important and how to go about it.

• We’ll start with some definitions
• Why we map the market
• Common pitfalls - what goes wrong?
• How you can go away and more effectively map the market and what that unlocks for your business
• How to avoid the many mistakes I’ve made in relation to this topic over the past 10 years