Why Startup Total Addressable Market Isn’t Everything
Early-stage founders often feel pressured to define their startup total addressable market (TAM) as part of investor pitches. It's one of the first metrics founders include when mapping their business potential—how big the opportunity is, how much money could be made, and how disruptive their product could become. But according to Jahanvi Sardana, a partner at Index Ventures, the obsession with TAM can sometimes steer entrepreneurs in the wrong direction.
Redefining the Role of Startup Total Addressable Market
Jahanvi Sardana compared TAM to riding a wave—suggesting that TAM can be misleading if the timing or the wave itself is misunderstood. She posed a powerful question: What was the TAM for search before Google? By conventional measures, it was almost nonexistent. The same goes for cloud computing before Amazon Web Services or operating systems before Microsoft. These examples show that some of the most successful companies created markets rather than competed in existing ones. In Sardana’s view, rather than building a business around a predefined TAM, founders should focus on identifying the right wave—such as the current wave of artificial intelligence—and building a product that fits seamlessly into the evolving market landscape.
The Three Types of TAM Founders Must Understand
To provide clarity, Sardana grouped startup TAM into three categories: known market, emerging market, and invisible market.
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Known market: This is where legacy players already exist. Startups entering this bucket must prove they can outperform incumbents. It’s competitive and often capital-intensive.
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Emerging market: Here, new trends or technologies create a growing demand. Companies in this space need to move fast, take calculated risks, and iterate quickly.
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Invisible market: Perhaps the most exciting and unpredictable, this category refers to opportunities that don’t yet exist in the eyes of the public or investors. These are the Googles, the Amazons, the Ubers of their time. Sardana suggests that invisible markets offer the highest upside—but require visionary thinking and a deep understanding of timing, technology, and behavior shifts.
Why Product-Market Fit Should Come Before TAM Calculations
Instead of getting tangled in calculations and spreadsheets that attempt to justify a startup total addressable market, Sardana urges founders to ask: Are we solving a real problem for real users right now? That's the essence of product-market fit. Many early-stage investors care less about whether you’re targeting a $1 billion market and more about whether customers are deeply engaged with your solution. Are they returning? Are they telling others? Are they willing to pay or switch from an existing solution? Product-market fit, Sardana argues, is a more reliable early signal than TAM, especially in markets being shaped by transformative trends like generative AI, machine learning, and decentralized finance. TAM becomes more relevant later—when growth, expansion, and market capture become priorities.
Founders who focus too early on startup total addressable market risk overlooking what makes their product truly valuable: relevance, timing, and user love. Jahanvi Sardana’s insights remind us that every revolutionary startup once faced a “nonexistent” market. What mattered most was their ability to ride the right wave with the right product. Founders looking to succeed in 2025 and beyond should follow suit—lean into product-market fit first, and let the market size reveal itself over time.
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