Index Ventures’ Jahanvi Sardana shares the truth about TAM and what founders should focus on instead

For early-stage entrepreneurs, the quest for a total addressable market (TAM) often feels like a daunting task. However, Jahanvi Sardana, a partner at Index Ventures, emphasizes that many successful startups have thrived in markets that were virtually non-existent at their inception. During the recent TechCrunch All Stage event in Boston, she posed thought-provoking questions: "What was the market for search before Google? What about operating systems before Microsoft or cloud computing before Amazon?" Sardana likens navigating market dynamics to surfing, noting that every few years, new waves of opportunity emerge. She highlighted significant shifts such as the advent of the internet, the mobile revolution, and the rise of cloud computing, culminating in today's most significant wave: artificial intelligence. "Have you crafted the right product to ride this wave?" she asked, referring to the essential concept of product-market fit. When discussing TAM, Sardana categorized it into three distinct types: known market, emerging market, and invisible market. The known market refers to existing sectors where startups aim to replace established players. As she put it, "Everyone brushes their teeth. You need to explain why your toothbrush is superior." In contrast, the emerging market indicates a sector where a product is gaining traction but hasn't yet become mainstream, such as non-alcoholic beer's rise to popularity. The invisible market, however, poses the greatest challenge. Sardana described it as "the biggest trap" and a “dark art,” where founders must innovate to create a market that doesn't yet exist. She cited the example of smartphones in 2006, a concept that many didn't realize they wanted until it transformed their lives. At the event, many founders sought Sardana's advice on what investors seek in presentations. One common question was whether including a TAM slide in a pitch deck is necessary. Sardana affirmed that while it’s acceptable to present that information, it’s crucial not to overly rely on industry metrics at the expense of unique insights. She warned that excessive dependence on external reports might signal a lack of deep market understanding. An audience member inquired about sizing the TAM in large marketplaces. Sardana humorously acknowledged the complexity of this question, recalling how Index once underestimated Airbnb's potential, believing its TAM to be too small. "Airbnb created an entirely new inventory, which has now surpassed some of the largest hotel chains," she explained, underlining the transformative power of unlocking supply and changing consumer behavior. When asked what distinguishes a company to an investor, Sardana stressed the importance of understanding the customer and their motivations for purchasing a product. She remarked, "We focus on evaluating founders more than markets or products. When discussing your market, it reflects your ambition."