Sunday, March 21, 2010

Wham Bam, what's a YAM?

I'm currently working with some student venture teams on market analysis and marketing plans. Sometimes there is some confusion with terms such as Target Available* Market (TAM) and Served Available Market (SAM). While these are useful concepts, the one that really matters to startups is what I call YAM.

Let me share what I hope is a "sticky" example. I have developed a wonderfully fresh, local, healthy, sweet potato pie. It is awesome. It has yummy yam filling. I want to go sell these pies through grocery stores, starting in Northern Colorado. But one of my advisors, who thinks he's a marketing wiz, has asked me about my TAM and SAM. He asserts I must know them before I go into the pie business.

Here is what I'd tell him. My TAM is "baked goods" and I need to go research national sales levels and trends in this segment. My SAM is "pies," since I am not selling cakes or breads, and I would want to look into grocery store sales, in particular those in Colorado. But this is still pretty abstract, and TAM and SAM are likely to be big numbers. Such big numbers might tempt me to take the easy way out, saying "well, if I get 3% of the pie market I will sell thousands of pies and be able to supplement my professor's income over the upcoming lean summer months." TAM and SAM will fuel my dreams of becoming the Bill Gates of pies. They will show the potential of my business in the long run. But they won't get me started selling those first 10 or 100 pies. They count a lot of people who won't really be my customer in the early days, and may never be.**

See, for my sweet potato pies, I really need to know my YAM. "Your Available Market." How many pies get sold in Northern Colorado grocery stores? How many grocery stores are there in Fort Collins that sell pies? How many pies do they sell per week? Who buys them? When? How much do they pay? Important info, and hard to get. I am going to have to go hang out in some stores. Watch who is buying pies. Ask them if they would prefer sweet potato pie to that cherry pie they just bought. Figure out what stores I'd like to be in, and how many pies I might sell in each. See if I can do some in store demos.

Then I will be able to estimate the YAM for my sweet potato pie business. And build a bottom up strategy to sell my pies. First 10. Then 100. Then 1000. It's gonna be awesome...
* some prefer "addressable" to "available" for their "A" word.
** for an interesting look at the odds of finding matches out of large numbers, listen to this This American Life podcast (prologue on dating in Boston). Or see the calculations for DC dating on this blog. See, while there may be a lot of people "available" they may not really be possible dates, or sweet potato pie customers.
*** if I were selling pies over the internet, I'd try to figure out what other food sites were doing, and try to find other means of drilling down (non-geographic) to find out who really was a potential customer. Or just start a site called and see who orders.

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