Sunday, July 7, 2019

Adopt a Total Addressable Problem model instead of TAM

Adopt a Total Addressable Problem model instead of TAM.

We need a different mind-set, which runs from top to bottom. This is the difference between the Total Addressable Market model and the Total Addressable Problem model.

Let's begin with the Total Addressable Market, or TAM, model. This framework has been used for decades – it's the main religion of the corporate world. 

Established companies are hardwired to use it. It addresses the problem of how big a market is, and how big a share of that market the business can reasonably expect to command. It works with what is knowable and battles competitors for a market share, modifying their existing products or services only.

Rather than prioritizing new customer pain points, they focus mostly on their own – like stock prices and short-term financial success. And as we've seen, businesses that follow this approach in today's world can begin to stagnate. In the worst circumstances, they can become obsolete.

Of course, the TAM model isn't completely misguided. If you're in the lipstick business and you want to manufacture a new lip-gloss, you could use the TAM model to estimate how big a market you could reasonably expect to conquer. But, beyond that, it loses its authority. It's like exploring the flora of a new planet with a guidebook from earth.

By contrast, the Total Addressable Problem model is the way to achieve exponential growth. Because the TAP model is based on discovering brand-new customer problems or needs, it can uncover new markets. It is the untouched markets that will lead to growth, rather than those with lots of competition already. 

Take the mobile phone. When it first came on the market, it was a bulky device aimed almost exclusively at high-powered executives. The Total Addressable Problem area seemed small. But as they became lighter, smaller and more affordable, demand blew up. Electronics designers had sensed that mobiles were addressing a far larger problem – mobile communication for everyone. This was the untouched market that would yield enormous returns for the first mobile phone manufacturers.

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