Eric Partaker Breaks Down TAM, SAM, and SOM for Startup Success

In a recent LinkedIn post, Eric Partaker offers a concise guide to understanding Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM), emphasizing their critical role in startup strategy and investor relations. Partaker frames these concepts through relatable analogies and real-world examples, aiming to demystify market sizing for founders.

Partaker begins by illustrating the vastness of TAM with a simple analogy: “TAM = Everyone on Earth who could buy pizza.” He then narrows the scope to SAM, explaining it as “People in cities where you can deliver,” and finally SOM as “Houses you’ll actually reach this year.” This progression, he argues, mirrors the reality of scaling a business.

Understanding the Market Hierarchy

The post highlights how major companies have navigated these market tiers. For instance, Partaker details Uber’s market approach:

“TAM: $5.7 trillion (all transportation)
SAM: $1.5 trillion (legal rideshare cities)
SOM: $150 billion (their 5-year target)”

Similarly, Partaker outlines Netflix’s journey, with a TAM of $2.8 trillion (all entertainment) and a SAM of $500 billion (streaming-ready countries), ultimately focusing on a more attainable SOM.

The Strategic Importance of SOM

A core message from Partaker is the critical importance of a well-defined SOM. He points out that while TAM represents the grand vision, SOM represents tangible execution and achievable goals. “Investors need all three numbers,” Partaker writes, further elaborating that TAM shows the dream, SAM demonstrates realism, and SOM proves execution capability.

Partaker identifies several common pitfalls startups encounter when assessing their markets. These include:

• Using TAM for revenue projections
• Ignoring competition within the SOM
• Defining SAM too broadly
• Forgetting regulatory hurdles

He emphasizes that most startups realistically capture only 1-5% of their SAM over a period of 5-10 years, a reality often constrained by competition and customer inertia. According to Eric Partaker, “Knowing your real SOM is a superpower.” This focused understanding, he argues, enables founders to set honest goals, attract the right funding, build effective teams, and choose appropriate strategies.

Actionable Advice for Founders

Partaker’s advice for entrepreneurs is to “Start with SOM and work backwards. Not the other way around.” He reassures founders that a smaller, well-defined SOM can be the foundation for significant success, noting that “A $10M business changes lives. A $100M business creates dynasties.” The ultimate call to action is for founders to focus on building their achievable market rather than chasing an aspirational TAM.

This breakdown, Eric Partaker suggests, is a vital tool for founders when developing pitches, setting objectives, and managing their ventures effectively.