Market Sizing 101

Why It Matters and How to Do It Right

Accurately defining, estimating, and analyzing your market size can be the difference between attracting top-tier investors and missing out on critical funding opportunities.

In this guide, we'll walk you through the essentials of market sizing, from defining key concepts like TAM, SAM, and SOM, to practical methods for calculating market value:

1. The Importance of Market Sizing

2. Understanding Market Size

3. Decoding TAM: Definition and methods to calculate it

4. Defining SAM: How to determine your realistic market reach

5. Calculating SOM: Estimating your attainable market share

6. How to Determine Market Value

Source: Failory

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1. The Importance of Market Sizing

When it comes to securing investment and driving growth, startup founders must master the art of defining, estimating, and analyzing market size. A well-articulated market size is a critical component of any pitch deck—it can be the difference between attracting top-tier investors or falling short.

• The good news: Prestigious venture capital firms prioritize "large target market" as one of their investment criteria. As founders have become more attuned to this priority, discussions around market sizing have become more prevalent and transparent in the startup ecosystem.

• The challenge: As an investor, I've observed that many founders struggle with market sizing. Although certain calculations have become standard in the industry, they are often misunderstood or misapplied.

• The bigger issue: The widespread focus on the so-called "$1 billion market opportunity" has led to an anchoring effect. Many founders fixate on reaching this figure, often at the expense of a more nuanced and accurate analysis. This obsession can result in skewed assumptions and missed opportunities to evaluate the market critically.

We'll explore why market size matters for startups, define what it truly means, discuss how to estimate it accurately and highlight common pitfalls to avoid.

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2. Understanding Market Size

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