Understanding Serviceable Obtainable Market (SOM)
In the context of
Entrepreneurship, understanding your market is crucial for the success of your
startup. One critical component is the Serviceable Obtainable Market (SOM). SOM represents the portion of the market that you can realistically capture, considering your resources, competition, and market dynamics.
Investment Attraction: Investors are interested in realistic and achievable market sizes. A well-defined SOM shows that you have a clear, executable plan.
Resource Allocation: It helps you allocate your resources effectively, focusing on the most profitable segments of the market.
Strategic Planning: It provides a clear target for your
marketing and sales strategies, ensuring you do not spread yourself too thin.
Identify the Broad Market: Start with the TAM, which is the total potential market for your product or service.
Narrow Down to SAM: Filter the TAM to focus on the specific portion of the market that your product or service can serve.
Determine SOM: Assess your competition, resources, and market conditions to estimate the realistic portion of SAM you can capture. Consider factors like your
value proposition, existing customer base, and distribution channels.
Factors Influencing SOM
Several factors can influence your SOM, including: Competition: The number and strength of competitors in your target market can significantly impact your SOM.
Market Penetration: Your ability to penetrate the market depends on your marketing and sales strategies, brand recognition, and customer loyalty.
Distribution Channels: The efficiency and reach of your distribution channels play a critical role in determining your SOM.
Regulatory Environment: Regulations and compliance requirements can also impact the size of your obtainable market.
Examples of SOM
Let's consider a couple of examples to illustrate the concept: Example 1: Tech Startup
A tech startup developing a new SaaS product identifies the TAM as $10 billion globally. The SAM, focusing on small to medium-sized enterprises (SMEs) in the U.S., is $2 billion. Considering their current capabilities, competition, and market dynamics, they estimate their SOM to be $50 million in the first five years.
Example 2: Food Delivery Service
A local food delivery service identifies the TAM as $1 billion within their city. The SAM, focusing on urban areas with a high density of restaurants and potential customers, is $300 million. Given their current resources and competition, they estimate their SOM to be $5 million annually.
Challenges in Estimating SOM
Estimating SOM is not without challenges: Data Accuracy: Reliable data is crucial for accurate calculations. Inaccurate or outdated data can lead to incorrect estimates.
Market Dynamics: Rapid changes in market conditions, such as new competitors or technological advancements, can affect your SOM.
Assumptions: Estimations often involve assumptions that may not hold true. It’s important to regularly review and adjust your SOM based on actual market performance.
Conclusion
The Serviceable Obtainable Market (SOM) is a critical metric in
entrepreneurial strategy. It provides a realistic target for market capture, helping entrepreneurs make informed decisions about resource allocation, investment, and strategic planning. By understanding and accurately estimating your SOM, you can set achievable goals and build a solid foundation for your business growth.