How big is the addressable market that your startup is looking to serve?

Posted by Ventures Online on Fri Oct 09 2020
The whole elephant analogy maintains that if you stand too close to an elephant, you will fail to see that it is an elephant. Therefore, to gain a better perspective of what it is you are looking at, sometimes you have to take a few steps back and look again. Most startups are borne from what seems to be a great idea to its founders. They envision their product or service as being a solution to a problem experienced by some consumers in the market. But, when raising capital, what investors will want to know is, “How many other people are interested?”

I have said it before, investors take a chance on a prospect with the hopes of generating a return. As such, they will necessarily want to know how much growth potential is on the horizon for any given prospect they appraise. They will want you to show them the whole elephant. An excellent metric to use when gauging your startup’s growth potential is the Total Addressable Market, which is defined as the total revenue opportunity available for a product or service if a 100% market share was achieved.

To rephrase the question posed earlier, irrespective of how great your idea may seem to be to you, what investors will want to know is “How big is the addressable market that your startup is looking to serve?” Your consideration of this market should also account for your expectation of its size in the future. If it is a market with an already existing solution, investors will focus on what it is that makes your product or service different and/or superior to the competition. If it is a new market, the focus will be on its future size and the aspects driving its growth.