How Startups Identify Total Addressable Market Amidst Growth and Expansion

August 11, 2016 Sam Laber

For startups, total addressable market (TAM) is a constantly moving target. New product releases, overseas expansion and increasing competition all have a tremendous effect on the accounts you should target and how you prioritize outreach.

Like most things, it's all about starting small. Find your niche and be ready to expand as you grow your offer. SaaStr Founder, Jason Lemkin,  puts it this way:

I know you’re gonna put together a nice “Total Addressable Market” slide.  It’s going to show us all how you’re playing in a Billion Dollar Market.  That’s great. But quickly move on.

-Jason Lemkin

Unless you're a Salesforce or IBM, billion dollar markets will take years, even decades to conquer. Most companies won't get there, but that doesn't mean you shouldn't have a plan for getting there. It just means you need to break things up a bit.

Think about your ARR goals in tiers -- $1M, $10M, $100M... $1B -- and ask yourself what the TAM looks like at each stage of growth. Start by choosing a niche that your solution is uniquely differentiated to serve, then align revenue and product around this market before expanding outwards.

 

Building An Ideal Customer Profile (ICP)

Before releasing your sales team into the wild, it's absolutely crucial that you create a framework for the type of companies and contacts you want to pursue. If you're not sure where to start, look no further than your existing customers, and find common characteristics. Sixteen Ventures has some awesome slides on this, and I'm going to call out this one in particular as it defines some great ICP criteria.
 

Source

Ready, Willing, Able:  This parallels the typical B-A-N-T qualification framework. Ask yourself: Which companies have the means and the desire to purchase my product?

Success Potential: Not every customer you have is going to be successful. Does your product perform better with larger teams? Do certainly technologies need to be in place beforehand?

Acquisition Efficiency: Get a rough estimate of your sales cycle and know your acquisition costs. Do higher paying customers require significantly more upkeep? 

Expansion Potential: Which customers have the most upside? Can you expand by selling more seats or data?

Advocacy Potential: Which customers are already raving about you? Check social media and review sites to understand who's advocating for you.

For tech startups in particular, I'll add one more criteria to the ICP list -- technographics.
 

Technographics and ICP

Technographics is a relatively new term used to define a business's current technology environment (think tech stack). For hyper-growth companies like HubSpot and KnowledgeTree, technographic data helps their sales team identify which companies would be an ideal fit for their solution based on the software products they are already using.

The great thing about technographics is that it allows you to keep up with your target market as changes occur. For example, when a company starts using a technology that makes them a perfect match for your solution, that company can be added as a fresh account without manual entry.
 

Turning ICP into a Targeted Account List

Once an ICP has been identified and agreed upon by all stakeholders, it's time to find accounts that match. A lot of startups make the mistake of letting sales reps go hunt for their own target accounts -- don't do this! It's a waste of their valuable time and you run the risk of reps pursuing things outside your ICP.

Instead, many startups are relying on third party providers to deliver target accounts for them. This is typically done in one of two ways -- by manually querying a database of companies or by using predictive analytics to generate a list of lookalikes.
 

Manually Querying A Company Database

Finding accounts through manual selection requires a deeper understanding of your ICP. For software startups, querying by both firmographic AND technographic data points produces more targeted results.

Let's say you sell software for salespeople -- in the query below, we've narrowed our search to show only companies that use Salesforce. This means that these companies are likely to have sales teams, making them an ideal fit for sales software.


Using Predictive Analytics to Generate Accounts

For companies that don't have a great grasp of their ICP (either due to not enough historical data or too complex of a sales cycle), it may be worth investing in a predictive analytics solution to generate accounts for you. Predictive analytics solutions typically works in 3 steps:

Once the initial list is generated, more accounts can be provided over time as companies continue to match the original ICP. Predictive analytics can also be used to help customer's prioritize their existing accounts by assigning scores or grades.
 

Conclusion

To sum things up, remember that TAM is a constantly moving target as you expand and grow. Make sure you're constantly checking to see that the current account list matches your ICP, and always collect feedback from sales reps as they speak with prospects and customers.

About the Author

Sam Laber

Sam is the director of marketing at Datanyze. He's a big John Hughes fan who occasionally fills the DZ office with the sweet sweet sounds of 90s rock giant, Creed.

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