Total Addressable Market and the Importance of Scale
- Failure to comprehend the scale of an addressable market can lead to revenue engine failures
- Goals that are not created within the context of the available opportunity may be unrealistic or even impossible to achieve
- Using the varieties of addressable markets appropriately allows organizations to effectively plan, set goals and measure progress
In 1996, the deadpan-hilarious Anglo-American writer Bill Bryson attempted to walk the famous/infamous Appalachian trail. Walking this trail involves more than 2,000 miles of winding, climbing, declining, unpaved and critter-ridden nature, and most people who attempt to walk the length of it do not finish. Bryson’s playful title of his book about that attempt, A Walk in the Woods, is the reader’s first tongue-in-cheek hint that Bryson vastly misunderstood the scope of this undertaking. It’s true that hiking the Appalachian Trail involves walking in the woods – lots of walking in the woods. And that is what makes the title funny, because the walk involves day after day of walks in the woods – usually for several months.
Spoiler alert: Like most Appalachian trail hikers, Bryson didn’t make it the whole way. He failed despite – or, I would argue, partly because – he was an avid hiker in the mountains around his New Hampshire home. That experience gave him a notion of what a walk in the woods was like and the (over-)confidence that he could handle this particular walk. He made the mistake of extending what he was familiar with to a much larger-scale mission. As he learned, the resources of stamina, optimism, perseverance and social support required for a leisurely afternoon’s walk in the woods were not nearly adequate for a grueling 2,000-mile slog.
Bryson started his Appalachian Trail journey with too little training under his belt and too little advanced research on the task ahead. And he chose – or allowed himself to be chosen by – a traveling companion who was even less prepared, and less capable of finishing – and who was not even good company. Again, this brings us to the question of scale. Personality foibles that are survivable over a couple of pints on a Friday night may threaten one’s sanity and sunny disposition when scaled to the months it takes to traverse the Appalachian Trail.
B2B organizations frequently fail to comprehend the scale of the markets they sell into. Sometimes that results in setting goals that are impossible to meet given the addressable market of prospects. We frequently encounter organizations whose new business goals exceed what’s available and serviceable in the market. Other times, failing to account effectively for the limitations of internal resources causes those resources to be spread too thin to produce a desirable outcome.
Keep in mind that Bryson’s ultimate goal – getting book material – did not require that he finish the trail. In the end, even though he didn’t really come close to completing the trail, he still succeeded (wildly in my opinion) in getting material for his book. Unfortunately in B2B, this type of attempt may not end as well, when organizations attempt to address a market segment that is substantially larger than what would be required to meet revenue goals and cause resources to be needlessly wasted.
At SiriusDecisions Summit this year, my session “Target Demand: Open the Floodgates to Power Your Demand Unit Waterfall” will address the question of how to think about the scale of the markets B2B organizations want to address. Do you need to account for every potential opportunity when planning and setting goals? Or should you focus instead on a part of that addressable market? Should you think of the addressable market in terms of potential revenue or the number of potential accounts (or even opportunities)? We’ll answer all those questions and provide a methodology for determining how to derive a measure of the addressable market best suited for the most common use cases.
If you’re flying to Austin to join us at Summit, A Walk in the Woods would make a great travel read! (By the way, the movie has a great cast, but is a very poor rendition of a very good book.)