When I write this, I feel like the script writer of the soap operas that come in TV’s. They do not how to end it
Please bear with me for another two weeks and I will put an end to this journey business.
This week I will talk about my very little understanding on TAM and possibly illustrate how a bottom up estimating would make better sense.
Some years back , I came across something called the pasta logic which said capturing just 4 % of the market will make a company profitable. This assumed that we are a market of 1.2 Billion people and 4 % of it is a lot of people eating pasta.
Most market sizing methods are like this and when we initially did our market sizing it was something like that.
However the total addressable market for pasta could be viewed differently.
Just as an example
- Still many in India cannot afford a breakfast
- The food habits are so fixed and many will consider it as personal insult, if you serve pasta to them as breakfast
- There are so many days in which people fast for one reason or the other
and this list will go on and you will find the 1.2 Billion rapidly shrinking.
Let me take an example of Amuz for bus and illustrate
A typical bus has 40 seats and has an average of 75% occupancy. So our potential addressable market is around 30 people in a trip. Right ?
Let us break it down a bit
People who will carry smart phones – 80%
So now the count is 24. (80% of 30)
Out of this potentially addressable 24,
People who will doze off – 20%
Count becomes 19 (20% of 24 ~= 5)
People who plan and bring their own content stored on the phone – 10%
Count becomes 17 (10% of 19 ~= 2)
We can even have other categories and break down this 17 but from 40 we are seeing a Total Addressable Market of 17 per bus which tends to be more realistic than the initial 40.
I would like you to make your own inferences on if this model is viable for a break even. Assume that the device cost is 10000 rupees per bus and the loaded content cost would be around two lakhs annually per bus, figure out for yourself, when we can break even , if we could break even at all.
You can refer to the following article for a more clear explanation.
My intention of putting this out here, while you need to have a view of top down understanding of the market , it is wise to do planning for yourself and potential investors with a bottom up approach. The bottom up approach is tougher to do , but more realistic.
All the best with your market sizing efforts.
I am running out of steam.
I have managed to capture my crawl of last ten months and I hope it would serve as a place of reference for your journeys.
Next week, I shall reflect on my leadership, specific to my Journey and the following week , I shall wind up my soap opera with a summary.
Enjoy Maadi (Have Fun)