Beyond TAM: Why Founders Should Prioritize Execution Over Market Size, According to Index Ventures' Jahanvi Sardana
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The Myth of TAM and Why It Misleads Founders
For years, startup founders have been conditioned to obsess over Total Addressable Market (TAM) when pitching to investors. The bigger the number, the better the pitch—or so the conventional wisdom goes. But according to Jahanvi Sardana, a seasoned investor at Index Ventures, this fixation on TAM is not just overrated—it can be dangerously misleading.
Why TAM Alone Doesn't Guarantee Success
Sardana argues that while TAM provides a theoretical ceiling for market potential, it says little about a startup's ability to capture that market. "A $100 billion TAM means nothing if you can't execute," she says. Many founders fall into the trap of inflating TAM estimates without considering competition, market saturation, or their own operational capabilities.
The Pitfalls of Overestimating Market Potential
History is littered with startups that boasted massive TAMs but failed to gain traction. Sardana points to industries like food delivery and e-commerce, where TAM projections often ignore logistical complexities and customer acquisition costs. "Investors care more about your path to $10 million in revenue than your theoretical $1 billion TAM," she emphasizes.
What Founders Should Focus on Instead
Sardana suggests that instead of fixating on TAM, founders should prioritize three key areas: execution, differentiation, and sustainable growth.
1. Execution Over Theory
"A mediocre idea with flawless execution beats a brilliant idea with poor execution every time," Sardana says. Founders should focus on building a lean, adaptable team that can iterate quickly based on market feedback. She cites companies like Slack and Zoom, which succeeded not because of their TAM but because of their relentless focus on product-market fit.
2. Differentiation in a Crowded Market
In today's competitive landscape, a unique value proposition is critical. Sardana advises founders to ask: "Why will customers choose you over incumbents?" Whether it's through superior technology, customer service, or pricing, differentiation is what ultimately drives adoption.
3. Sustainable Growth Metrics
Rather than chasing vanity metrics, Sardana recommends focusing on sustainable growth indicators like customer retention, lifetime value (LTV), and unit economics. "Investors want to see that you can grow without burning cash recklessly," she says.
The Investor Perspective: What Really Matters
Sardana reveals that seasoned investors like those at Index Ventures look beyond TAM when evaluating startups. "We care about the team's ability to execute, the scalability of the business model, and whether the product solves a real pain point," she explains.
Red Flags in Pitches
According to Sardana, overemphasis on TAM is often a red flag. "If a founder spends 10 minutes talking about TAM and 2 minutes on their go-to-market strategy, that's a problem," she says. Investors prefer founders who demonstrate deep market understanding and a clear path to early revenue.
The Role of Timing and Adaptability
Market timing and adaptability are equally crucial. Sardana points out that many successful startups—including Airbnb and Uber—entered markets that initially seemed small but grew exponentially due to shifting consumer behaviors.
In conclusion, Sardana's message to founders is clear: "Stop obsessing over TAM. Focus on building a great product, acquiring customers efficiently, and scaling sustainably. The market will follow."
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