Define Your Market Correctly
Real TAM vs fake TAM, and why redefinition changes ambition
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 3
- Confidence
- 85%
Gil distinguishes real TAM from fake TAM. Fake TAM is the pitch that 'global e-commerce is $30 trillion and if we get a tenth of a percent that's $300B' when your product is actually a small optimization engine for SMB websites — that is not your market. Your market is the thing you actually do. But market definition cuts both ways: reconceptualizing it can legitimately expand ambition. His example is Coca-Cola, roughly neck-and-neck with Pepsi in soda market share for decades until a Coke CEO reframed the target as share of liquid sold rather than share of soda — dropping Coke from 50% to 0.5% share and driving the acquisition of Dasani and entry into many other drink markets. So defining the market correctly is both a discipline against inflated numbers and a lever that can enlarge the scope of what you're trying to do.
Origin
Gil draws the fake-TAM discipline from evaluating countless pitches and the redefinition lever from the classic Coca-Cola 'share of liquid' reframing.
Core principles
- 01There is real TAM and fake TAM — a fraction of a giant number you don't actually address
- 02Your market is the thing you actually do, not the largest adjacent aggregate
- 03Reconceptualizing your market can legitimately expand your scope of ambition
- 04The right redefinition redirects strategy and acquisitions
How to run it
- 1
Reject fake TAM
Discard market sizes built as a small fraction of a giant aggregate you don't actually address.
Pro tip If the claim is 'a tenth of a percent of a trillion-dollar market,' that's a red flag, not a market.
Watch out A tiny SMB optimization tool is not in a $30 trillion e-commerce market.
- 2
Define what you actually do
State the market as the specific thing your product does for real customers.
Pro tip Be honest about the narrow reality before you reason about expansion.
- 3
Consider an honest redefinition
Ask whether a broader but truthful reframing of the market legitimately enlarges the opportunity and should redirect strategy.
Pro tip Coke reframing from 'soda' to 'liquid sold' drove Dasani and entry into new drink categories.
Watch out Redefinition must be honest — don't use it to manufacture fake TAM.
In the wild
Coke and Pepsi were roughly tied in soda share for decades until a Coke CEO reframed the goal as share of all liquid sold, dropping Coke from 50% to 0.5% share and reframing it as being in the drinks business, not the soda business.
→ The redefinition drove the Dasani acquisition and entry into many adjacent drink markets, enlarging the company's ambition.
Common mistakes
Pitching fake TAM
Claiming a fraction of a giant aggregate you don't serve overstates the opportunity and misleads strategy.
Under-scoping a real market
Defining your market too narrowly can cap ambition when an honest broader reframing was available.
Is it for you?
Best for
Founders sizing their market and investors sanity-checking TAM claims.
Not ideal for
Cases where the market is already correctly and honestly defined.
From the transcript
“there's fake TAM ... you built this little optimization engine for SMB websites or whatever. That's not a $30 trillion market”
“maybe we should be thinking about our share as share of liquid sold ... we just went from 50% market share to 0.5%”
From the episode
#863: Elad Gil, Consigliere to Empire Builders — How to Spot Billion-Dollar Companies Before Everyone Else, The Misty AI Frontier, How Coke Beat Pepsi, When Consensus Pays, and Much More