The Startup Velocity Question: Segmentation Matters

An acute lack of understanding of Ideal Customer Profile (ICP) and an inadequate Market Segmentation result in artificially bloated TAM.

Often, Segmentation is too broad.

Let’s look at an example.

The ICP is a mid-sized company in the $100M to $1B revenue range.

You can calculate your Bottom-up TAM on the basis of that range, and say, it amounts to a billion dollars.

In reality, however, the pain point you are addressing is only relevant to enterprise customers that have over 1000 employees. 

In the AI age, we’re seeing extensive automation, and the size of the workforce is shrinking, while productivity is increasing. 

So in reality, your TAM is only 25% of the initial estimate.

Going from 0 to $100M ARR in 5-7 years with a $250M TAM would be a hard sell to investors.

Key Takeaways:

• Accurate market segmentation is crucial for accurate TAM estimation.
• Understanding the Ideal Customer Profile (ICP) is essential for proper segmentation.
• Inaccurate segmentation can lead to TAM overestimation by as much as 75% or even more.
• Accurate TAM is critical for determining appropriate funding and growth strategies.

My Question to You:

Is your segmentation accurate?

If you think you need help, consider 1-on-1 Private Consulting with me. I will fix your Segmentation error in an hour.

Photo Credit: Chris from Pixabay

This segment is a part in the series : The Startup Velocity Question