Many companies have attempted to impress investors with massive total addressable markets (TAMs), but Brigid O’Brien, a partner at RA Capital Planetary Health, says that isn’t necessarily the best strategy. While a big TAM can offer the possibility of significant rewards, O’Brien pointed out that it isn’t always the most strategic initial emphasis for firms in his remarks at TechCrunch Disrupt 2024.
O’Brien clarified that while pursuing large TAMs makes sense because venture capital seeks disproportionate returns, it shouldn’t be the sole factor taken into account. She regularly comes across pitch decks that boast trillion-dollar TAMs, which, although impressive, can occasionally mislead startups.
Founders are advised by O’Brien to focus on manageable market entry points instead of immediately attempting to seize large markets. “Consider where your chances of success in entering the market are the highest,” she suggested. Businesses can create early revenue streams, use that money to finance expansion, and progressively aim for a bigger market share by focusing on attainable market segments first. Additionally, by using this technique, founders can lower risk and obtain the resources they need to grow.
For instance, O’Brien cited Gurinder Nagra’s co-founded company Furno Materials as an example of a smart market entry. Furno has created compact, modular kilns that lessen the impact of cement production on the environment. Furno’s kilns are more flexible and can be deployed more quickly than the conventional billion-dollar kilns used by industrial titans. Furno offers a solution for people who struggle with erratic cement deliveries by focusing on smaller, underserved clients rather than going up against big cement manufacturers directly.
Furno can eventually grow to draw in bigger clients by demonstrating its worth in niche areas without directly competing with more established rivals. Nagra went on to say, “There’s little loyalty in the cement business,” implying that Furno would be able to take a larger market share as the company grows.
Source: Brigid O’Brien, Gurinder Nagra.