Market Sizing

---
name: market-sizing
description: "Estimates TAM, SAM, and SOM with top-down and bottom-up methodologies, assumptions documentation, and presentation-ready outputs. Use for business plans or investor pitches."
allowed-tools: Read Write Glob
metadata:
  author: matthewhitcham
  version: "1.0"
---

# Market Sizing

## When to Use This Skill

Use this skill when you need to:
- Estimate Total Addressable Market (TAM), Serviceable Addressable Market (SAM), and Serviceable Obtainable Market (SOM)
- Prepare market size estimates for an investor pitch or business plan
- Evaluate a new market opportunity before entering
- Validate whether a business idea has sufficient market potential

**DO NOT** use this skill for competitive analysis, go-to-market strategy, or financial projections. This is for market size estimation specifically.

---

## Core Principle

MARKET SIZING IS ABOUT DEFENDABLE ASSUMPTIONS, NOT PRECISE NUMBERS — SHOW YOUR MATH, CITE YOUR SOURCES, AND TRIANGULATE WITH MULTIPLE METHODS.

---

## Phase 1: Brief

### Required Inputs

| Input | What to Ask | Default |
|-------|------------|---------|
| **Product/service** | "What are you selling? Describe it in one sentence." | Must be provided |
| **Target customer** | "Who is your ideal buyer? (demographics, company size, industry)" | Must be provided |
| **Geography** | "What market? (US, North America, global, specific country)" | United States |
| **Pricing** | "What is your price point or expected annual revenue per customer?" | Must be provided |
| **Purpose** | "What is this for? (pitch deck, internal planning, go/no-go decision)" | Pitch deck |
| **Known data** | "Do you have any existing market research, competitor revenue data, or industry reports?" | None — will research |

**GATE: Confirm brief before proceeding.**

---

## Phase 2: Estimate

### Dual Methodology

Always use BOTH approaches and compare:

**Top-Down (TAM → SAM → SOM):**
1. Start with total industry revenue or total potential buyers
2. Narrow by geography, segment, and product fit
3. Apply realistic market share assumptions

**Bottom-Up (Unit Economics → Scale):**
1. Start with your price per customer
2. Multiply by the number of realistic customers you can reach
3. Scale by year with growth assumptions

### Definitions

- **TAM:** Total revenue if you captured 100% of the market globally
- **SAM:** The segment of TAM you can realistically serve (geography, segment, product fit)
- **SOM:** The portion of SAM you can realistically capture in 1-3 years

**GATE: Present the preliminary estimates with assumptions and wait for feedback.**

---

## Phase 3: Build

### Deliverables

**1. Market Sizing Document**
- TAM, SAM, SOM with dollar values
- Top-down and bottom-up calculations shown step by step
- All assumptions listed and sourced
- Confidence level for each estimate (high, medium, low)

**2. Assumptions Table**
| Assumption | Value | Source | Confidence |
|-----------|-------|--------|------------|
| Total US small businesses | 33.2 million | SBA 2024 | High |
| % that use AI tools | 15% | Industry report | Medium |
| Willingness to pay $X/year | 5% of addressable | Comparable products | Low |

**3. Visual Market Map**
- Concentric circles showing TAM → SAM → SOM
- Dollar values labeled at each level
- Key assumptions annotated

**4. Sensitivity Analysis**
- How the SOM changes with different assumptions (optimistic, base, conservative)
- Which assumptions have the biggest impact on the final number

---

## Phase 4: Polish

### Pitch-Ready Output

Format the market sizing for the intended audience:
- **Investor pitch:** One slide with concentric circles, big numbers, and 2-3 key assumptions
- **Internal planning:** Detailed document with full methodology
- **Go/no-go decision:** Summary table with risk assessment

### Credibility Checklist

- [ ] All assumptions sourced (government data, industry reports, comparable companies)
- [ ] Top-down and bottom-up estimates are within 2x of each other
- [ ] SOM is realistic (under 5% of SAM for most startups)
- [ ] No obviously inflated numbers designed to impress rather than inform

---

## Example 1: B2B SaaS Tool for Freelancers (US market)

**TAM:** 73M freelancers globally x $200/year = $14.6B
**SAM:** 20M US freelancers in knowledge work x $200/year = $4B
**SOM:** 0.1% in Year 1 = 20,000 customers x $200 = $4M

## Example 2: Local Service Business (city-level market)

**TAM:** 500,000 households in metro area x $500/year avg spend on service = $250M
**SAM:** 50,000 target-income households x $500 = $25M
**SOM:** 2% market share in Year 1 = 1,000 customers x $500 = $500K

---

## Anti-Patterns

- **"Trillion-dollar market" claims** — if your TAM is the entire global economy, you have not narrowed enough. Be specific.
- **Only top-down** — top-down without bottom-up validation produces fantasy numbers. Always triangulate.
- **Unsourced assumptions** — "We assume 10% adoption" without justification is guessing. Cite comparable products or research.
- **SOM equals SAM** — claiming you will capture your entire serviceable market is not credible. Be realistic about market share.
- **Static sizing** — markets grow, shrink, and shift. Note the growth rate and direction.

---

## Recovery

- **No industry data available:** Use proxy industries, comparable company revenues, or first-principles calculation from census/demographic data.
- **Top-down and bottom-up estimates diverge wildly:** Investigate which assumptions drive the gap. The truth is usually between the two.
- **Market looks too small:** Consider: is the market growing? Can you expand the product to adjacent segments? Is this a niche worth owning?
- **Market looks too big:** Narrow the SAM further. A $100B TAM with a realistic $500K SOM is a better story than an unrealistic $10B claim.