🐏 TAM is a Sham. Look at RAM Instead.

The total addressable market (TAM) concept is a sham. It’s a mechanism for founders to raise money based on numbers that will never be attained.

It’s also the cause of many of the recent layoffs.

Every company starts with a small reachable addressable market (RAM) and zero sales people. RAM consists of ideal prospects who are in a position to buy your product right now — not 3 years from now.

RAM expands as the product improves, awareness grows, and the company matures.

Then the company starts hiring sales people.

Everything is going well and investors pour more money in while sales capacity is still smaller than RAM.

Then the sales team grows faster. Maybe it’s now growing 2x–3x the pace of RAM growth. Then sales capacity catches up and passes the RAM. Now there are too many sales people.

It will happen literally every time. To every start-up. Sometimes it may not happen until billions in revenue. Sometimes much much sooner.

Now think about what might happen if RAM suddenly has a sharp decline and shrinks, say, 40%. After your sales team size is way too big already…

Welcome to the past two years.

Will execs learn a long-term lesson — or will the cycle repeat itself in 2024 or 2025? Who knows?

That’s why every rep needs to understand how the mechanism works and evaluate this when evaluating companies.

— Ryan Walsh, CEO & Founder

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