{"id":8119,"date":"2026-04-22T10:30:15","date_gmt":"2026-04-22T05:00:15","guid":{"rendered":"https:\/\/sketharaman.com\/blog\/?p=8119"},"modified":"2026-04-23T22:18:22","modified_gmt":"2026-04-23T16:48:22","slug":"like-success-tam-breeds-tam","status":"publish","type":"post","link":"https:\/\/sketharaman.com\/blog\/2026\/04\/22\/like-success-tam-breeds-tam\/","title":{"rendered":"Like Success, TAM Breeds TAM"},"content":{"rendered":"<p>According to a popular joke on X fka Twitter, the greatest fiction is written in <em>Excel<\/em>, not <em>Word<\/em>.<\/p>\n<p>This is a dig at projections of <strong>Total Addressable Market<\/strong> made by startups in their fundraising pitch decks. And also by <em>McKinsey<\/em>, <em>Gartner<\/em> and other leading consulting and research analyst firms in their research reports.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p dir=\"ltr\" lang=\"en\">I&#8217;ve started doing it. But I&#8217;ll need to wait 8 years to know the result. <a href=\"https:\/\/twitter.com\/hashtag\/McKinsey?src=hash&amp;ref_src=twsrc%5Etfw\">#McKinsey<\/a> <a href=\"https:\/\/twitter.com\/hashtag\/Metaverse?src=hash&amp;ref_src=twsrc%5Etfw\">#Metaverse<\/a> <a href=\"https:\/\/t.co\/XdKnRlfnXV\">pic.twitter.com\/XdKnRlfnXV<\/a><\/p>\n<p>\u2014 SKR (@s_ketharaman) <a href=\"https:\/\/twitter.com\/s_ketharaman\/status\/1588400796663963648?ref_src=twsrc%5Etfw\">November 4, 2022<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>There&#8217;s some truth to this. Startups are mainly funded by VC. Unlike traditional forms of capital like equity and bank loans, <a href=\"https:\/\/gtm360.com\/blog\/2018\/11\/16\/teardown-of-the-vc-investment-playbook\/\" target=\"_blank\" rel=\"noopener\">venture capital indexes on home runs<\/a> from very few portfolio companies, and backs only businesses with huge TAM (at least one billion dollars when I last checked). As they say, what matters in VC is not what percentage of your portcos become unicorns but how many unicorns are there in your portfolio.<\/p>\n<p>To appeal to VCs, there <em>is<\/em> a tendency among startup founders to be bullish about TAM.<\/p>\n<p><a href=\"https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2026\/03\/tam-cinema-theater-screens-india.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignright size-full wp-image-14236\" src=\"https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2026\/03\/tam-cinema-theater-screens-india.jpg\" alt=\"\" width=\"403\" height=\"220\" \/><\/a>The <a href=\"https:\/\/x.com\/kushkatakia\/status\/2022170049675739295?s=20\" target=\"_blank\" rel=\"noopener\">common critique<\/a> of this approach is that treating India as a market of 1.4 billion consumers is a fiction. According to the critics, the real TAM for most products\/ services is less than 150 million. The critique is grounded on the argument that India has a low per capita income ($2800), so a vast majority of Indians do not have the purchasing power to belong to the TAM of most products \/ services.<\/p>\n<p>This argument sounds sensible at first blush but it misses a key point:<\/p>\n<blockquote><p>TAM is a statement of purpose, not low hanging fruit available for plucking on Day One.<\/p><\/blockquote>\n<p>No startup claims to achieve its TAM on Day 1.<\/p>\n<p>By the time a startup projects to get there, many things happen in the world around it.<\/p>\n<p><strong>1. Technology advances<\/strong><\/p>\n<p>With the current state of technology, the startup is able to target only a subset of the full TAM. But, as technology advances, the startup can target the entire TAM.<\/p>\n<p>Sequoia partner Julien Beck offers an excellent example of this in the context of AI in his viral essay entitled <a href=\"https:\/\/sequoiacap.com\/article\/services-the-new-software\/\" target=\"_blank\" rel=\"noopener\"><strong>Services: The New Software<\/strong><\/a>.<!----------START----------><!--BLOCKQUOTE, NO LHS LINE, GRAY--><\/p>\n<blockquote class=\"skr-bq-noline\">\n<div style=\"background-color: #fafafa; padding: 15px 30px;\">The playbook: companies should start with the outsourced, intelligence-heavy task. Nail distribution. Expand toward the insourced, judgement-heavy work as the AI compounds. The outsourced task is the wedge. The insourced work is the long-term TAM.<\/div>\n<\/blockquote>\n<p><!----------END----------><\/p>\n<p><strong>2. Economy expands<\/strong><\/p>\n<p>Over time economy grows. <em>Trickle down<\/em> effect takes hold. Poor become less poor and their disposable income raises. Therefore they can afford things they could not before.<\/p>\n<p>Ten years ago, my maid servant &#8211; er, household help &#8211; was not in the TAM of smartphone. Today all ABCDs (<em>Ayah Bai Cook Driver<\/em>) in my housing complex have a smartphone.<\/p>\n<p>Anybody who went by smartphone&#8217;s TAM 10 years ago would have drastically underestimated the eventual market for the device.<\/p>\n<p><strong>3. Marketing<\/strong><\/p>\n<p>Marketing creates aspiration and raises people&#8217;s desire. Middle class raises its spend on discretionary goods.<\/p>\n<p>A good example of this is the explosion in credit card market &#8211; the business has grown by <a href=\"https:\/\/gtm360.com\/blog\/2025\/11\/29\/unpacking-the-credit-card-boom-in-india\/\" target=\"_blank\" rel=\"noopener\">300% in the last five years<\/a>.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p dir=\"ltr\" lang=\"en\">&#8220;Capitalism requires the construction of needs that do not naturally occur&#8221; ~ Martin Kihn, Gartner.<\/p>\n<p>Advertising constructs needs by telling people &#8220;The Way To Be A Better Person Is To Have Better Things&#8221; ~ <a href=\"https:\/\/t.co\/WOYSVK6sgV\">https:\/\/t.co\/WOYSVK6sgV<\/a> via <a href=\"https:\/\/twitter.com\/RegaJha?ref_src=twsrc%5Etfw\">@RegaJha<\/a> .<\/p>\n<p>\u2014 SKR (@s_ketharaman) <a href=\"https:\/\/twitter.com\/s_ketharaman\/status\/1234818415413600256?ref_src=twsrc%5Etfw\">March 3, 2020<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p><strong>4. Deflation<\/strong><\/p>\n<p>Prices fall in future. This increases affordability.<\/p>\n<p>According to what is popularly called the &#8220;<em>Chart of the Century<\/em>&#8220;, goods produced by many industries that are free from government regulation have become cheaper during the two decades\u00a0 e.g. TVs, toys, mobile data, clothing, furnishings.<\/p>\n<p><a href=\"https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2026\/03\/PRICE-DEFLATION-USA-2000-2022-CHART-CENTURY-fi.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-14237\" src=\"https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2026\/03\/PRICE-DEFLATION-USA-2000-2022-CHART-CENTURY-fi.jpg\" alt=\"\" width=\"630\" height=\"344\" \/><\/a><\/p>\n<p>I can totally relate to this from my personal experience. My working lunch that cost INR 90 in 1988 costs INR 450 now (4.3% CAGR). The typical <em>Louis Philippe<\/em> shirt I used to buy for INR 1200 in 1988 costs INR 2500 now (1.95% CAGR). Both of these have risen by less than inflation during this 38 year period.<\/p>\n<p><strong>5. Jevon&#8217;s Paradox<\/strong><\/p>\n<p>According to <strong><em>Jevon&#8217;s Paradox<\/em><\/strong>, \u201cWe\u2019ll spend more on what gets more productive\u201d.<\/p>\n<p>This is an extreme case of explosion in TAM due to fall in price, and has several examples viz. transistor.<br \/>\n<!--BLOCKQUOTE, NO LHS LINE, GRAY--><\/p>\n<blockquote class=\"skr-bq-noline\">\n<div style=\"background-color: #fafafa; padding: 15px 30px;\">Today we all know Moore\u2019s Law, the best contemporary example of Jevons paradox. In 1965, a transistor cost roughly $1. Today it costs a fraction of a millionth of a cent. This extraordinary collapse in computing costs \u2013 a billionfold improvement \u2013 did not lead to modest, proportional increases in computer use. It triggered an explosion of applications that would have been unthinkable at earlier price points. At $1 per transistor, computers made sense for military calculations and corporate payroll. At a thousandth of a cent, they made sense for word processing and databases. At a millionth of a cent, they made sense in thermostats and greeting cards. At a billionth of a cent, we embed them in disposable shipping tags that transmit their location once and are thrown away. The efficiency gains haven\u2019t reduced our total computing consumption: they\u2019ve made computing so cheap that we now use trillions times more of it. &#8211; <em><a href=\"https:\/\/www.a16z.news\/p\/why-ac-is-cheap-but-ac-repair-is\" target=\"_blank\" rel=\"noopener\"><strong>Why AC is cheap, but AC repair is a luxury<\/strong><\/a>, a16z<\/em>.<\/div>\n<\/blockquote>\n<p><!----------END----------><\/p>\n<p><strong>6. Credit<\/strong><\/p>\n<p>Finally, there&#8217;s the mother of all factors: Credit.<\/p>\n<p>BNPL has expanded the TAM of consumer goods by many times. Mortgage has expanded the TAM of home buyers by 10X or more.<\/p>\n<p>All of these factors boost the TAM for startups. Most of them require no specific action by startups (other than to spot them and position themselves in their slipstream).<\/p>\n<p><a href=\"https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2026\/03\/INTERNET-FAX-DOOMER-PAUL-KRUGMAN.jpg\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" class=\"alignright wp-image-14261\" src=\"https:\/\/gtm360.com\/blog\/wp-content\/uploads\/2026\/03\/INTERNET-FAX-DOOMER-PAUL-KRUGMAN.jpg\" alt=\"\" width=\"250\" height=\"339\" \/><\/a><\/p>\n<p>Failure to consider these stimulants leads to hilarious underestimations of TAM like:<\/p>\n<ul>\n<li><em>UPI:<\/em> An ex government official predicted that the TAM of UPI wouldn&#8217;t exceed 10 million users probably because there were fewer than 5M smartphones at the time. UPI now has 450 million users.<\/li>\n<li><em>Internet<\/em>: An Economics Nobel Laureate once likened the Internet to fax machine and predicted that it wouldn&#8217;t have a TAM of more than 100 million. Enough said.<\/li>\n<\/ul>\n<p>Another important thing is how the startup views TAM.<\/p>\n<p>There&#8217;s an old story of a shoe manufacturer who sends two salesmen to a remote island to estimate the TAM for its shoes. One guy comes back saying there&#8217;s no market for shoes since everybody is barefoot. The other guy comes back saying there&#8217;s a huge market for shoes since everybody is barefoot.<\/p>\n<p>The first guy treated barefoot as the end state. The second guy treated barefoot as the start state. So they projected wildly different TAMs.<\/p>\n<p>That said, not all factors need to be TAM-accretive. Some of them could also depress TAM e.g.<\/p>\n<ul>\n<li>The TAM for business travel fell due to COVID-imposed lockdowns for a couple of years (before it started ticking back up due to &#8220;revenge travel&#8221;).<\/li>\n<li>According to <a href=\"https:\/\/gtm360.com\/blog\/2026\/02\/10\/will-ai-kill-saas-is-the-wrong-question\/\" target=\"_blank\" rel=\"noopener\">SAASpocalypse Maxis,<\/a> AI will kill software and slash the TAM for SAAS.<\/li>\n<\/ul>\n<p>The point is, whether it rises or falls with time, TAM is not fiction. It&#8217;s prediction. As the famous baseball player Yogi Berra once said, &#8220;It&#8217;s hard to make predictions, especially about the future&#8221;!<\/p>\n<p>Some startups achieve the projected TAM. Some startups don&#8217;t. That&#8217;s how business works. There&#8217;s no need for conspiracy theories.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>According to a popular joke on X fka Twitter, the greatest fiction is written in Excel, not Word. This is a dig at projections of Total Addressable Market made by&hellip;<\/p>\n","protected":false},"author":1,"featured_media":8119,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5,1],"tags":[],"class_list":["post-8119","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-b1-integrated-marketing","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/posts\/8119","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/comments?post=8119"}],"version-history":[{"count":2,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/posts\/8119\/revisions"}],"predecessor-version":[{"id":8122,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/posts\/8119\/revisions\/8122"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/posts\/8119"}],"wp:attachment":[{"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/media?parent=8119"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/categories?post=8119"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/tags?post=8119"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}