D2C Series 1.2 - The 3 Idiots!
Keep it simple. Talk to a friend, not a boardroom!
The 3 Idiots - Size Matters?
In our last post, we mentioned a $100 billion D2C market opportunity, which probably sounded huge to most readers. But, is it as simple as just diving in and making a fortune? Not quite.
Now you might be wondering what 3 Idiots has got to do anything business. Well, this to make it easier for us to remember we are referring to something business folks love to toss around: TAM, SAM, SOM! Lets dive in now.
This is what understanding the 3 would do for you, as a founder.
Breaking Down TAM—The Basics
TAM—or Total Addressable Market. You’ve likely heard the term before, but what does it really mean? And more importantly, why does it matter?
Think of TAM as the total universe of people who could use your product if everything lined up perfectly. It’s an idealized version of how big your opportunity is if there were no constraints—kind of like saying, “If I could sell to everyone in the world who could use my product, this is how big my market would be.” For founders and investors, TAM gives a sense of how massive an opportunity really is. But there’s a catch—TAM is more of a dream scenario.
In reality, TAM is just the starting point. It doesn’t tell you how much of the pie you can actually grab right now or in the near future.
For that, we need to dig into SAM and SOM.
Peeling Back the Layers: SAM and SOM
Serviceable Available Market (SAM)
SAM looks at the portion of your TAM that’s realistically within your reach. It’s about figuring out where your business operates, who your target audience is, and how far your product or service can stretch. In simple terms, SAM answers: “Out of the global market, who can we actually serve right now with the resources and reach we have?”
Serviceable Obtainable Market (SOM)
SOM narrows it down even more to what’s achievable today—who is most likely to actually buy from you, given your current capabilities. This is where reality sets in. SOM helps you define what chunk of the market you can realistically capture soon, based on where you are right now.
Why It Matters
When founders or startups throw around market size numbers, investors want to see if you really understand the opportunity and how achievable it is. It’s easy to get lost in the dream of TAM, but investors care about whether you have a realistic plan for getting to SOM.
Here’s the key takeaway:
TAM helps you see the full potential of the market.
SAM gives you an actionable plan.
SOM tells you what’s realistic in the short term.
My Take on TAM
One thing TAM numbers often miss? Market inflection points. These are shifts that can drastically change the landscape, often beyond a founder’s control. Not discussed enough, and projected without risks.
For example, regulatory changes, technological breakthroughs, or societal shifts can drive massive growth in ways no one expected. India has seen this firsthand with the rollout of Aadhar and online payments—these changes unlocked new opportunities and drastically reduced the cost of doing business for many companies.
Inflection points are unpredictable, but they can open doors you didn’t see coming. They’re like wildcards in the business world. You can't create them, but you can ride the wave when they happen. We will try to build multiple use cases to help understand this, and how we could draw some relevant inflexion points.
Let’s Make This Real: A Case Study on Online Yoga
Let’s say you’re building an app for online yoga classes. Given how health and wellness are gaining traction, this feels like a promising space. But how do TAM, SAM, and SOM come into play here?
TAM: The total number of people in India with internet access who might care about fitness. Let’s say there are 600 million internet users, and around 20% of them might be interested in staying fit or exploring yoga. That gives you a TAM of 120 million potential users.
SAM: Of those 120 million, how many can you realistically serve? Maybe your classes are priced at ₹500 per month, and your infrastructure can only handle certain regions. Now you’ve trimmed down the number of people you can reach, based on where you operate and what you offer.
SOM: Now, how many of those people are likely to sign up right now? You’ll also have to consider competition, customer preferences, and your current marketing efforts. SOM gives you a realistic number of paying customers you could secure in the short term.
Lets see how an inflexion point could have changed the numbers for online yoga classes. After Covid, behaviours on fitness changed. People were forced to start practising online with their trainers, and once they were used to the comfort and the flexibility, many did not want to go back offline. Could we have predicted this expanding of TAM earlier? Probably not.
Case Study 2: The Rise of Mid-Market Luxury Fashion in India
Until 2018-19, the mid-market luxury fashion segment in India was relatively small, with a market size under $2-3 billion. However, over the past five years, the market has expanded fourfold, reaching an impressive $8-10 billion by 2024.
What drove this rapid growth? A single factor didn’t fuel this shift; rather, a convergence of trends transformed this industry. A significant boost in Instagram users, with a 150% CAGR from 2018 to 2024, combined with the influence of social media personalities, YouTube vloggers from Tier II cities, and an increase in disposable income, collectively propelled this market.
Perhaps the most impactful change, though, was the launch of Jio and subsequent internet penetration, which acted as an inflection point. This broader digital access opened doors to a larger audience, ultimately contributing to the Total Addressable Market (TAM) in mid-market luxury fashion in India.
Examples of mid-market? A growing list of 200 brands and more. A sample here:
Case Study 3: The Amul Scoop
We talked about Amul in our last post. Now continuing on the same brand – Amul is India’s diary giant. Their TAM started with everyone drinking milk in India. Then they moved into ice cream, and SAM became the folks who could afford ice cream in cities. But SOM? Well, that was limited to who had access to cold storage back in the day.
Then came an inflection point: the premium ice cream boom. As Gen Z craved fancier flavors, Amul shifted to luxe products like Jamaican Toto and Persian Peach. Boom—new TAM, SAM, and SOM! 🎉
Why This Matters - Not 3 Idiots Probably
TAM is exciting—it shows the full scope of what’s possible. But it’s important to keep in mind that TAM is the dream scenario, not what you’ll achieve right away. You start by chipping away at SAM and SOM to reach that bigger vision.
Founders love to dream big, but investors want to know what’s achievable now. TAM = dream, SAM = plan, SOM = reality check.
Do you have an instance of how TAM shrunk or probably expanded? Comment and talk about it. It would help our readers too to hear from diverse viewpoints. We also plan to do a deep dive session with industry experts on this very topic. Stay tuned as we bring you more learning around this.
Wishing all our friends and readers a very Happy Diwali! May this season bring you light, joy, and inspiration for the year ahead. Looking forward to sharing more insights and stories with you soon!
Team LetsUNBOX