Published on: 05/05/2025
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When you’re building a startup pitch deck, it’s tempting to impress investors with a massive market size “$100B industry,” “2 billion potential users,” or “if we just get 1%…” You’ve probably seen it. You might’ve even done it.
But here’s the problem: your perfect market size math might be doing more harm than good.
Investors aren’t wowed by bloated TAM slides pulled from generic industry reports. They’re skeptical. Because if your startup claims to serve a market that’s too big, too broad, or too vague, it raises a red flag: do you really know who your customer is?
In this blog, we’ll break down top-down and bottom-up market meaning and why most startup market size calculations backfire and how to fix them using more grounded, believable approaches. We’ll also explore how companies like GloWorm redefined their market size by focusing on niche B2B workflows, turning a “small” niche into a billion-dollar opportunity.
Let’s demystify TAM, SAM, and SOM, and get to the truth behind smart market sizing.
Market size is the total number of people or businesses that could potentially buy your product or service. It shows how big the opportunity is if your startup succeeds.
Think of it this way: if your product was used by everyone who needed it, how much money could you make? That’s your market size.
Market size is often divided into three parts:
TAM (Total Addressable Market) is the biggest number. It includes everyone in the world who might need your product, even if you can’t reach them right now.
SAM (Serviceable Available Market) is the part of the TAM you can actually serve. For example, if you only operate in India, then your SAM is the part of the market based in India.
SOM (Serviceable Obtainable Market) is the portion you can realistically get in the next few years. It’s based on your current team, budget, and how you plan to grow.
Knowing your market size helps you focus better. It also shows investors that you understand your business, your customers, and your growth path.
Market sizing is one of the most important steps when starting or growing a business. It helps you understand how big the opportunity really is and whether it’s worth investing your time, energy, and money.
If the market is too small, your startup may struggle to grow. If it’s big but too broad, you might waste resources trying to target everyone. Knowing your market size helps you focus on the right customers and build a smarter strategy.
For investors, market sizing shows if your startup has the potential to scale. A clear and realistic market size tells them you’ve done your homework and know where your business fits in the bigger picture.
It also helps you plan better. With good market sizing, you can set sales targets, choose pricing, and design your go-to-market approach in a way that matches the size and needs of your ideal customers.
In short, market sizing helps you make better decisions, build investor trust, and increase your chances of success.
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When it comes to estimating your market size, there are two main approaches: top-down and bottom-up. Both give you different views of your potential market, and choosing the right one can make a big difference especially when pitching to investors.
Top-down calculation for startups starts from a broad industry figure and narrows it down to your target market. You usually begin with industry reports or third-party data and apply filters to estimate your share.
For example, you might find a report stating the global fitness industry is worth $100B. You then focus on mobile fitness apps, which is 10% of that market. Next, you narrow it down to India, assuming that’s another 10% of the global market. Finally, you assume you can capture 1%, which would give you a $100M Serviceable Obtainable Market (SOM). This method is quick and easy but can often feel too optimistic or vague, particularly for early-stage startups.
Bottom-up calculation starts with your actual business data, such as your pricing, customer base, or number of users, and builds up from there. It’s grounded in real numbers and reflects your startup’s current capabilities.
For instance, you charge $500 per year for your software. You estimate there are 10,000 businesses in your niche, which gives you a potential Serviceable Available Market (SAM) of $5M. If you aim to serve 200 businesses over the next two years, your SOM would be $100K. This approach is more realistic and specific, especially for startups with limited reach.
Top-down market sizing is quick to calculate because it uses widely available industry data. It gives you a broad view of your market’s potential and helps demonstrate the overall size of the industry. This approach is useful when you want to show investors that your startup has access to a large market.
However, top-down methods often rely on broad assumptions that might not align with your specific product or business model. It can come across as overly optimistic, especially when it doesn’t reflect your startup’s actual reach or customer base, which investors may find unconvincing.
Bottom-up market sizing, on the other hand, uses real data from your business, such as customer count and pricing. It offers a more grounded and credible picture of your startup’s potential. This approach helps build investor confidence by showing that your business model and growth plans are backed by tangible data.
The main downside is that bottom-up sizing requires more effort to collect and analyze your own data. Additionally, it may lead to a smaller initial market size, which might not seem as impressive compared to the large numbers from a top-down approach. It also requires a deeper understanding of your target customers and go-to-market strategy, making it more complex and time-consuming to prepare.
Investors prefer bottom-up market sizing for early-stage startups because it demonstrates that you truly understand your product, pricing, customers, and go-to-market strategy. It’s based on real numbers and logical assumptions, rather than generalized industry figures. By using bottom-up sizing, you’re telling a clear story that connects your vision with a realistic path for execution.
Top-down calculations can still be useful to show the long-term potential of your market, but they should always be backed up with a solid bottom-up case to make it more credible and actionable.
GloWorm initially made a common mistake when they began by targeting a massive industry, logistics. They used broad top-down market estimates, assuming that because the logistics market was worth billions, they could capture a significant share. However, this approach left their pitch feeling vague and unrealistic. Investors were unsure of how GloWorm would fit into this huge market, and their numbers didn’t seem grounded in reality.
Realizing the need for a more practical approach, GloWorm pivoted to a bottom-up market sizing strategy. They stopped trying to appeal to the entire logistics industry and instead focused on a specific, underserved workflow within the sector. This was a niche that had been largely ignored by larger competitors, and it presented an opportunity to create something highly valuable with fewer competitors.
By analyzing their actual business data, customer needs, the pricing model, and specific logistics pain points, GloWorm was able to build a much more detailed picture of their target market. Instead of relying on industry reports, they understood exactly how many potential customers they could realistically serve and how their solution would fit into the current market dynamics.
This shift in strategy allowed GloWorm to redefine their Serviceable Available Market and make their pitch far more compelling to investors. They were no longer making broad claims about dominating a multi-billion-dollar market but instead telling a focused story of how they could provide a tailored solution to a niche that was desperate for innovation.
With this approach, GloWorm not only made their pitch more believable but also much more exciting. Investors saw a clear path to success, a focused target market, a unique value proposition, and a solid execution plan. The outcome was a much clearer go-to-market strategy, which ultimately attracted greater investor interest. GloWorm proved that by targeting a specific niche, they could dominate a smaller but lucrative segment before expanding to other areas.
If your market size calculations seem too vague or too optimistic, it’s time to make them more realistic. Here are some simple tips to fix your market math:
Instead of focusing on the huge Total Addressable Market (TAM) right away, begin with your Serviceable Obtainable Market (SOM). SOM is a smaller, more achievable target that shows the market you can realistically reach right now. This approach gives investors a clearer view of your immediate opportunity.
Base your market size calculations on real data, like conversion rates, customer spending, and user growth. Even if you’re early-stage, you can use data from your first customers to estimate future growth. This shows investors you understand your business and can back up your claims.
Rather than trying to estimate millions of users, start by looking at your first 100 paying customers. Calculate how much revenue you can generate from them. Once you have that, you can show how you’ll grow from there. This makes your market size more believable.
Once you’ve defined your smaller target market, show how you plan to expand. Investors want to see how you can grow over time. By demonstrating a clear path to a larger market, you’ll make your startup more attractive.
Market sizing is not about showing huge numbers, but about giving realistic and achievable figures that demonstrate your growth potential. For early-stage startups, focusing on your Serviceable Obtainable Market (SOM) rather than an inflated Total Addressable Market (TAM) will make your projections more credible.
By using real data, focusing on smaller segments, and showing a clear growth plan, you’ll have a stronger case with investors. Investors want to see that you understand your customers, your product, and the practical steps to reach your target market. Presenting a realistic market size helps build investor trust and positions your startup for future success.
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TAM (Total Addressable Market) is the entire potential market for a product. SAM (Serviceable Available Market) is the portion of TAM you can target. SOM (Serviceable Obtainable Market) is the realistic market share you can capture, based on your current resources and data.
Bottom-up market sizing is based on real data, like how much your current customers are spending and your conversion rates. This gives investors a clearer, more accurate picture of your startup’s potential, making your projections more trustworthy.
Yes, but use it carefully. Top-down market sizing can show the long-term potential of your market, but it should be backed up by bottom-up data. Combining both gives investors a more complete and realistic view of your growth opportunity.
Eximius Capital Ventures Private Limited is the investment manager of the funds licensed by SEBI under AIF categories CAT I – Eximius Trust I (IN/AIF1/20-21/0855) and CAT II – Eximius Fund (IN/AIF2/24-25/1566).
Eximius Capital Ventures Private Limited is the investment manager of the funds licensed by SEBI under AIF categories CAT I – Eximius Trust I (IN/AIF1/20-21/0855) and CAT II – Eximius Fund (IN/AIF2/24-25/1566).
