The growing obsession of Venture capitalists with total addressable market (TAM) is doing more harm than good to the startup ecosystem, said Anand Deshpande, founder and chairman of Persistent Systems. He was speaking at the TiE Global Summit 2024 in Bengaluru and highlighted the way such fixation is steering startups in the wrong direction.
Deshpande explained that many VCs push founders to chase large markets without considering the challenges of competing in such spaces. He added that one is not going to win if the TAM is too large. One is only fighting on price by being an undifferentiated software business.
He notably said that clarity matters founders lacking clarity and aim for massive TAMs often spread themselves too thin. They risk becoming generic players in an overcrowded market instead of building focused as well as high-quality solutions. Deshpande rightly added that the market size should align with goals and strengths of startups.
The obsession with TAM may seem logical at first. Investors want assurance that their funding will drive growth. The focus for early-stage startups can be damaging. It forces founders to think big before they have figured out what they do best.
Speakers like Radhika Gupta of Edelweiss Mutual Fund and BV Jagadeesh of SVQuad simultaneously said that the importance of balancing logic and emotion in leadership. Gupta spoke about connecting with teams emotionally and especially during tough times. Jagadeesh highlighted data-driven accountability.
The views of Deshpande offer a timely reminder that startups should focus on building value and not chasing metrics like TAM. Differentiation. Clarity is far more critical to success than trying to be everything for everyone.
