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What TAM should actually tell you

It’s not about the number - it’s about your assumptions

William Quist

Jan 30, 2026

3 min read

Most founders have no idea how many speculative theses they’re betting on simultaneously. They can articulate their vision. They can explain why their solution is better. But they can’t list the underlying assumptions that all need to be true for their business to work—or explain how risky each one is.

This isn’t because founders are sloppy thinkers.

It’s because the frameworks we encourage tend to use let us avoid the work. The best example of that is the infamous TAM slide.

Founders and VCs have a love-hate relationship with TAM analyses. TAM is a required part of any pitch or analysis, yet everyone discounts it. That tension makes sense. Everyone should want to understand the revenue opportunity in solving a problem better than anyone else—but the way TAM is usually calculated doesn’t tell you anything helpful.

Potential customers times potential price obviously has its perks. You can use it to fit any narrative you want. But it rarely helps with better decision-making. More importantly, it lets you avoid surfacing your actual assumptions.

The better way: figure out what the world spends each year solving the problem you solve. That is your actual market today. Everything beyond that isn’t market size—it’s a thesis about why that market will grow, or what adjacent problems you might solve later.

This shift matters—not because the number is more accurate, but because the process forces you to be honest. When you start with current spend, every assumption about growth has to be stated outright. You can’t hide behind “potential market size.” You have to articulate: what has to change for this market to grow 10x? 50x?

Each answer is a thesis. And most founders are stacking 3-5 of them without realizing it.

By stating your growth assumptions outright, you can see how speculative they actually are—and test your conviction. Most founders don’t have a clear sense of how many theses they are relying on, how speculative those theses are, or how to explain their conviction on each.

Founders often conflate understanding their thesis with understanding how validated it is. Being novel AND correct is really hard. Stacking multiple novel theses isn’t incrementally riskier—it’s exponentially riskier. If you need three unlikely things to happen, your odds are 30% × 30% × 30%. Understanding this can dramatically help you invest your time and opportunity cost better.

The real value here isn’t a better TAM slide. It’s seeing your actual risk. When you list your theses, you see how many dominoes need to fall—and which ones are speculative versus structural.

This is the work VCs used to do with founders during diligence, but in the rush to deploy capital into great founders, they’ve been forced to skip this step. It’s up to founders to find investors who will do it with them (Hi!) or do it themselves.

Most founders skip this work because they are trained to sell the vision, not deeply understand all the moving parts. But the highest odds founders know exactly which theses they are betting on—and they know how speculative each one is.

That difference separates a well-reasoned bet from a story that sounds good in a pitch deck.