You’ve decided to become a problem-solver, great! However, in order to become a great problem solver, you need to establish a market for your idea.
Using the Problem Paradigm, how scalable is the market for the problem you are trying to solve? You can address this question by qualitatively and quantitatively defining the market.
Establish a Qualitative Market
The Qualitative: What characteristics or features make this product or service an inevitable fit for the marketplace? Does the product or service address a growing trend? What qualities differentiate it from anything else that exists? Is your product undeniably superior to other solutions? Do you have a compelling branding idea that would really resonate with potential consumers? You have to define these attributes to create a product-market fit.
TAM, SAM, and SOM
The Quantitative: You can use your new best friends TAM, SAM, and SOM to define the market as it exists today. The Total Addressable Market (“TAM”) is the total market demand for a product or service. This figure represents the entire universe of potential customers available, THINK BIG. The Serviceable Addressable Market (“SAM”) is the portion of the TAM that is directly served by your product or service. So maybe your product or service targets just one planet within the universe. Side note: I can hear theoretical physicists groaning about dark matter already, I’m sorry in advance. Finally, you have to be real with yourself. And I mean real real. The Serviceable Obtainable Market (“SOM”) is the percentage SAM you can realistically envision using your product or service over a set period of time.
Example: Supporting Local Business
You want more people in the United States to shop at local businesses to support their communities. Your web platform allows consumers to receive points that convert into coupons at any of their local businesses after a certain number of purchases. In exchange for driving consumers to these businesses, your company shares in the revenue created by these coupons. Now you want to establish a market for your idea. Your TAM might be the total number of annual retail sales at brick and mortar stores in the United States. Your SAM might be the total number of retail sales at independently-owned brick and mortar stores in the United States to account for local businesses. Finally, your SOM might be the total number of retail sales at independently-owned brick and mortar stores in your state to prove your test market.
Finally, you live in Michigan and want to start small, so you decide to only target businesses in Southeast Michigan in your first two years of business as your SOM to prove the model and gradually scale the platform from there. Congratulations! You have defined a market and are well on your way to becoming a successful entrepreneur.