Know Your Tam

At Tidemark, we are trying to open-source our thinking to help founders win; however, as investors, we can't give everything away publicly. This essay is part of a series of content written specifically for founders and operators. If that's you, you can request access to the full essay here or at the end of the preview below.

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Let's dive in!

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Founders tend to think about their TAM at exactly two points in their company’s journey: when they are in the midst of a funding round and when they hit the saturation point. 

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One minute, you’re pounding out locations, adding sales reps, and winning more locations—rinse and repeat. The next minute, the number of at-bats (opportunities to win deals) begins to decline, and your CAC (customer acquisition cost) skyrockets as you exhaust your market. You may need to stop hiring sales reps in your core market. You may even need to reduce reps. More broadly, you need to start thinking about your core business differently. 

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As we’ve argued previously, your market structure drives your strategy. TAM is relative to your scale; thus, TAM headroom is one of the biggest drivers of market structure. When your location TAM starts to run out, you need to focus on expanding (e.g., increasing ARPU) to sustain growth while you try to find the next S-curve of location growth in a segment, an adjacency, an overseas market, or extending into other stakeholders.

You must also get operating leverage from your core business to fund this new S-curve. This transition can be painful. Your core business goes from the hero who gets all the resources to the savior who needs to contribute all the profits. You may need to slow down to speed up. By knowing your market structure, you know when you will likely hit saturation and can work backwards to prepare for these pivots.

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It’s a combination of balancing your growth story with the hard realities of your spreadsheet. Those new initiatives are no longer fun, optional projects when you hit that wall. They need to deliver real, meaningful revenue that can keep up your growth rate. This is a fundamental evolution in a company’s capabilities and is never, ever easy. 

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A company must maintain an early-stage approach to picking the correct initiatives. You can’t move 100 things an inch, so you need to select one or two things to run hard at. This simultaneously means that you’ll have to defund or cull all the other good but not great things. Your company will likely struggle to accept these changes as the change from a growth-at-all-costs mentality to a more measured approach to management stretches the culture. 

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And keep in mind this is all because of your TAM. 

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If you’ve done your math properly, you’ll move from hand-wavy PowerPoint TAM to something we call “operational TAM.”

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At Tidemark, we try to open-source our thinking as much as possible to help founders win; however, as investors, we can't give everything away in public. If you're an operator or founder, you can request access to the rest of this piece here or below.