Total Addressable Market (TAM)vsCompetitive Moat

Total Addressable Market is the total revenue opportunity for your product if you achieved 100% market share. It's broken into three layers: TAM (total market), SAM (Serviceable Addressable Market — the segment you can reach), and SOM (Serviceable Obtainable Market — what you can realistically capture). Investors use TAM to assess if a market is worth entering. VCs typically want a $1B+ TAM to justify their fund economics.

A competitive moat is a durable advantage that protects your business from competitors, just like a castle moat keeps invaders out. Warren Buffett popularized the term: he only invests in companies with 'wide moats.' The 5 types are: network effects, switching costs, brand, cost advantages, and proprietary technology. Companies with strong moats earn 20%+ returns on capital vs 8-10% for those without.

The most common TAM mistake is 'top-down' sizing that inflates the number. Saying 'the global CRM market is $80B, so our TAM is $80B' is nonsensical if you only sell to 500-person tech companies in North America. This 'TAM fantasy' is the #1 reason investor pitches fail — it signals the founder doesn't understand their actual market.

The biggest trap is confusing a head start with a moat. Being first to market is NOT a moat — 47% of first movers fail because followers learn from their mistakes and execute better. A real moat gets STRONGER over time, not weaker. If a well-funded competitor could replicate your advantage in 18 months, you don't have a moat.

Use bottom-up TAM calculation: count the number of potential customers you could serve × what they'd pay annually. Start with SOM (what you can realistically get in 3 years), then SAM, then TAM. Be specific: '12,000 mid-market SaaS companies × $30K/year ACV = $360M SAM.' VCs respect founders who demonstrate precise market understanding over inflated claims.

Identify which of the 5 moat types your business can build. For network effects: measure how much harder it gets for competitors as you grow. For switching costs: calculate the total cost for a customer to switch (data migration + retraining + downtime + opportunity cost). Aim for switching costs that exceed 6 months of your subscription price.