Brigid O'Brien has visualized numerous entrepreneurial pitches and explains: not all investors will be impressed by the considerable size of your TAM (total addressable market).
“People are often chasing large total market opportunities, which makes perfect sense because we’re investing in venture capital and looking for exceptional returns,” said O’Brien, a partner at RA Capital Planetary Health. It requires a market that can provide financial support.
“That slide is often a favorite for many people when presenting on a platform,” he said. “I’ve seen numerous presentations that have a $1 billion total addressable market (TAM) and sometimes they see markets in excess of $100 billion.”
But that way of thinking can also lead founders astray, O'Brien said.
I often advise founders to be very deliberate about what their go-to-market strategy will be. Sometimes, looking for the broadest target market is not necessarily the initial step in the process of establishing a business. You need to think about where you have the greatest opportunity and likelihood of accessing the market to generate revenue. You can also consider purchasing a larger Medium-Term Savings Bond in the future, once you have the resources to contribute to the company's capital and reduce technological risk.
As an example, O'Brien pointed to the strategy pursued by a colleague, Gurinder Nagra, who is co-founder and CEO of Furno Materials. The startup is developing modular, small-footprint kilns that make cement with significantly lower climate impact. They're a marked departure from the large, billion-dollar kilns that have established themselves as the standard among industry leaders.
“Owners have been successful in creating large, capital-intensive assets, which has been their competitive advantage for the past century,” Nagra said. But in an environment where adaptability is required, that characteristic suddenly becomes a weakness. So how can you take advantage of that opportunity as a startup? Speed is your advantage.
Rather than directly confronting major competitors, however, Furno is starting by identifying customers in markets that are currently not served by cement manufacturers.
“We made multiple field visits and met with some of the cement manufacturers. And indeed, it is stated: I continue to receive cement that has not been allocated. I received some last week, but I have not received it this week. Because they are not given priority. They are a smaller customer,” Nagra said.
Over time, once the company is established, it is likely to start attracting customers who already have cement supply contracts with traditional suppliers. “There is not a great deal of loyalty in the cement industry,” he said.
