Big TAM Founders, Small TAM Startups

Theory #19 | So what’s your founder TAM? Your startup's TAM? And the delta?

What's one way to maximize your startup's chance of success? Be a big TAM founder working on a smaller TAM startup.¹

This probably sounds unsavory. We're so used to talking about maximizing everything: Pick the biggest market. Tackle the largest problem. Chase the greatest outcome.

Investors definitely want you to do this. You want to do it too. It's brave. And if it works, you're brilliant. But it's also the most risky. You have less control in engineering its success.

So what's the polar opposite? Pick the smallest market. Tackle the smallest problem. Chase the smallest outcome. (Go ahead, you can cringe a little. But then actually think about it.)

Here's an example of this very idea in action: newsletters.² You've seen the jokes about the smartest people in the Valley starting a Substack instead of an ambitious VC-backed startup.

Who are they? Big TAM founders. People who have the experience and skills to tackle something with huge potential. What are they doing? Working on a small TAM startup (at least a noticeably small-er TAM than they're believed to be capable of tackling). And why? Because they see a higher chance of success, even if the potential outcome is smaller.

To drill down more, they see less market risk. And even the execution risk seems manageable. Execution is largely a matter of operational consistency (e.g. sticking to a newsletter format and schedule) rather than niche expertise (e.g. retail supply chain management). As a result, a smart generalist can run the business, and it can just hire more smart generalists to help. A newsletter is also what I’d consider a positive-sum product, making it easier to succeed without strictly competing. Podcasts and other relatively low-budget, media-focused projects have similar attributes and appeal.

There's broader career and lifestyle appeal too. One thing many people will agree on is that "banking" a success, at any scale, is incredibly validating. Not only that, it's pragmatically valuable. Make a bit of money, free up some financial constraints, bank some level of respect for the "win," then pick the next challenge.

Newsletters and podcasts aren't the only example of course. There are other ideas and categories where the delta between "founder TAM" and "startup TAM" still exists but is perhaps less obvious.

For example, an early employee of a successful, high-growth B2B SaaS startup leaves to start a company. The "new" problem they want to solve is actually a subset of the problems faced by customers of the first startup. Inherently then, the TAM they want to chase is smaller than the TAM they were previously tackling.

In this example, choosing to focus on a smaller TAM could be interpreted one of two ways: like a smart "wedge" to enter the same or an even larger competitive market, or like a deliberately smaller TAM business (one that the founder expects to have a higher chance of success). It's hard to nail down which.

In cases like this, we've gotten used to looking at other factors to make the judgment from afar. What is their vision? Are they raising money? How much? From who? Are they hiring? How big is the team? The "bigger" some of these answers seem, the more we assume the founder is building a big TAM startup.³

The truth is, the answer doesn't really matter to anyone but VCs trying to forecast your future in service of theirs (as they should). But even for yourself, as a builder, it's smart to know who you are, what you're capable of, and what you want to accomplish.

We’re going to start seeing more and more big TAM founders taking on small-er TAM projects — for their intrinsic appeal and also in light of the increasingly tough environment in which to build, grow, and exit traditional Silicon Valley style startups.

So what’s your founder TAM? What your startup's TAM? And what's the delta? This is much more an art than a science, but generally speaking, here's the theory:

If your founder TAM is greater than your startup's TAM, you have a higher chance of engineering its success. You can trade TAM for control. How much is up to you.

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1. The phrase "TAM" has become a proxy for "potential." I could re-define TAM for this use case because the traditional "TAM" isn't the only thing correlated with risk and likelihood of startup success of course. A "small TAM" startup could still be incredibly challenging for a founder with irrelevant knowledge and skills. Here's the more traditional definition for reference: "TAM (Total Addressable Market) is the total possible market for your company's product or service. It's a great tool for investors as it allows them to estimate the maximum possible revenue a startup could generate in a given market and its potential scalability." Source: The Power MBA.

2. Newsletters don't have be "small TAM" of course; they too can be a wedge, for a network of newsletters, a media conglomerate, a bigger product or service category, etc. However, we have to acknowledge that pitching a newsletter to a venture capitalist, notorious big-TAM chasers, would be met with heavy TAM-skepticism upfront.

3. In January, I wrote about the rise of the Silicon Valley Small Business (SVSB) — a hybrid startup type that combines small business values & discipline with big-tech know-how & ambition. SVSBs turn the typical impression of a "small TAM startup" on its head. "Big TAM founders" look like they're building "small TAM startups" when in reality many of them are just taking a different approach to building big TAM startups.