[Market] 1. Why companies focusing on TAM lose: 'Visible markets' and 'capturable markets' are different things
1. Is that 1 trillion yen really accurate?
'This market is worth 1 trillion yen.'
With that one sentence, the meeting moves forward.
However,
there is one thing you must do at that moment.
Doubt it.
That number:
Who calculated it?
What assumptions were used to derive it?
Is it within a range we can actually capture?
In most cases, the answer is this:
'It's unclear, but it's big.'
TAM is beautiful.
That is precisely why it is dangerous.
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2. What is TAM?
Let's organize this first.
TAM (Total Addressable Market):
The theoretical maximum market size.
The definition is as follows:
The maximum value if you were to capture 'all demand' in that market.
The assumptions are simple:
No competitors exist,
there are no regional constraints,
and there are no price constraints.
A world where all constraints are ignored.
Example:
Global English learning needs × 10,000 yen per year
In other words,
TAM is
the 'maximum value of a dream' = the upper limit of potential
So far, so good.
The problem starts here.
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3. TAM 'cannot be used as is'
Many companies use this TAM directly in their strategy.
But that
assumes a market that does not exist in reality
Why?
TAM is created based on these assumptions:
You can reach all customers
All customers feel the same value
All customers buy at the same price
But reality is different.
There are customers you cannot reach
There are customers who do not feel the value
There are customers who cannot pay
Furthermore,
Competitors exist
Existing habits exist
Decision-making takes time
In short,
TAM assumes a 'world where all conditions are met'
But in reality,
it is a world where those conditions are almost never met
Therefore,
TAM does not exist
To be precise,
'they cannot coexist'
Some conditions may be met.
However, they will never all be met at once.
The moment you ignore that gap,
your strategy will collapse
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4. Bringing the ideal TAM down to reality
TAM is not something to be discarded.
It is something to be refined
This is how you bring the ideal TAM down to the realistic TAM.
(1) Ideal TAM (no constraints)
Customer x Problem x Price
Pure maximum value
(2) Value fulfillment conditions
Can it even be used?
Skills, behavior, environment
(3) Technology/Infrastructure
Internet environment
Devices
Payment
(4) Regulations
Laws
Permits and licenses
Data constraints
(5) Economic rationality (most important)
Ability to pay
Price validity
ROI
This is where it gets cut down significantly
(6) Behavior/Habits
Can it be sustained?
Alternative means
Switching costs
(7) Competition
Existing players
Brand
Barriers to entry
And what remains is,
Realistic TAM
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5. The correct way to use TAM
What is important is not the number.
What remains 'after' it has been trimmed down?
Many companies think this way when they trim TAM.
'The market has become smaller'
Wrong.
The market has not disappeared. It has been broken down.
In the trimmed-away parts, there exist:
Customers whose conditions do not match
Customers whose price points do not match
Customers whose behaviors do not match
exist.
However, even within those, niche demand definitely remains.
In other words,
The act of trimming TAM is not 'discarding' the market.
It is 'structurally breaking down' the market.
Only here does choice emerge.
Choice (1): Go after the main market
The scale is large
Competition is intense
Requirements are strict
Capital, time, and organizational strength are required
Option 2: Go after a niche market
The scale is small
Competition is limited
It is powerful when it hits the mark
You can win with speed and focus
What is important is
to look at the 'percentage' that was shaved off
Where was it significantly shaved off?
Why was it shaved off?
The way it was shaved off is exactly what
indicates the path to victory
A market is not something
you find. It is something you carve out
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Conclusion
TAM is not a 'market'.
It is just a hypothesis.
Many companies build their strategies based on this hypothesis.
However, what is truly important is
deciding where to capture
When thinking about a new business from scratch,
Market-in
Product-out
Regardless of which perspective you take,
the first thing you should do is 'carve out the market'
A market is not something that exists; it is something you design
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Next time
How to select a market based on TAM
[Market Series]
(1) TAM (Illusion) ← This time
(2) Market selection (Where to capture)
(3) SAM / SOM (How to capture)
(4) Product (What to capture with)
(5) Game change (Changing the rules)
(6) Summary (What is a market?)
Management is not about talking about market size.
It is about deciding where to capture.