Total Addressable Market

Business plans used to say the market was large and stop there. Large meant something different to everyone reading, so the sentence carried no information. It was common for the team writing the plan to put down $2.3 billion while the person evaluating it calculated $37 million for the same product, because neither side wrote down what had been counted.

So market size got split into three nested layers, each with its own name, and the outermost layer is the total addressable market (TAM). Pulling this number out separately makes it obvious when two people in the same room are talking about different layers.

There are two directions to count in, and the procedure is to do both and then look at the gap.

1. Build it up from the bottom. Count the customers in scope and multiply by what one of them pays in a year. If there are 8,000 software companies with 30 or more employees in your country and each spends $4,600 a year on a collaborative document tool, that's $37 million. Write down the source of each of those two figures, or you won't be able to find which one was wrong later.
2. Work down from the top. Take the total size printed in a market research report and multiply by the share your category represents. It's fast, and it leans entirely on where somebody else drew the category line, so the figure inflates or shrinks depending on what the report bundled in.
3. Put the two values side by side. A factor of two apart is normal; a factor of ten means one of them counted a different market. Usually it's the top-down figure, with the category drawn too wide.

What gets counted is money, not people, and the unit is one year. No constraints are applied either: the figure assumes no competitors, every region reachable, and features you haven't built already shipped. Stripping those assumptions away one at a time is the job of the two inner layers.

"If TAM is $37 million, the plan we've drawn doesn't fit inside it."

The ceiling on the market is low relative to the revenue being targeted.

"Is that top-down? If it's just a share applied to a report, the basis is thin."

Asking which direction produced the number and to reconcile it with a bottom-up count.

"We widened the category to all document collaboration to grow the figure, but our product is one slice of that."

The definition was stretched to inflate the value, and it should be pulled back.

Pagedeck recounts this number every time it prepares investor material. Grace estimates it top-down first, and Mia rebuilds it from the customer count and the annual figure per customer. Last time the two values sat four times apart, and the cause was the report Grace used, which had folded internal messaging tools into the same market. The material now records the direction and the sources alongside the number.