Positioning and small TAM fears

If positioning is about getting as specific as possible about who your project or product is for… what does that mean for your TAM?

TAM anxiety is one of the most frequent issues that comes up when I talk with startups about positioning. Will I be able to build a billion dollar company if I get this specific? Am I boxing myself in too much, too soon?

When this issue arises, I encourage founders to take a step back. We’re not usually having this conversation when they’re at $500 million ARR; it’s usually much, much lower than that. We might be discussing a project without any commercial customers yet. So the question really is: How many customers do you need to sign in the next year? In the next two years?

If you’re goal is to sign 10 customers over the next year, you’re more likely to do so if you’re speaking directly to a pool of 1,000 — or even 100 — companies with extremely specific needs, who have a particularly urgent need to solve the problem you’re good at solving. When you focus your message, focus your outreach and ensure your project/product actually delivers something amazing for that specific group, you’ll be able to land those customers faster, expending fewer resources to get there.

But what if that universe is only 100 customers? Are you setting yourself up for being a ‘lifestyle business’ and making all your investors livid?

Nope.

Positioning is not a forever strategy. It’s something you should reevaluate regularly — yearly, or whenever you reach an important growth milestone. In our example above, if your goal was to land 10 paying customers, and you did — well, then take a look at your positioning to see if now is a good time to adjust it. If the entire market you’re targeting is 100 companies, once you’ve signed 50 of them as customers you should definitely think about changing your positioning to expand your market size.

Your expanded focus should be strategic, too. Ideally, it should be adjacent to the type of company you were originally focused on, so if you’ve expanded to a market of 1000 from 100, the original 100 companies in your sights should be part of the 1,000, too. Then, when you’ve gotten 500 customers, you can expand again, each time expanding your focus to adjacent areas.

When you’re a 10 person startup, your TAM is entirely theoretical. You know you’re not going to sign up $7 billion in ARR in the next year, even if your TAM is $20 billion. Positioning allows you to gradually expand your focus, so you’re not wasting resources trying to talk to everyone when you can least afford to. By focusing on achieving the next step on your growth ladder, you increase the chances that your company will still be around in 5 years, and will actually grow to the size your investors think /hope it will.

Don’t get hung up on how small the TAM might be that you’re addressing right now. It’s a stepping stone to larger things.