Imagine that you scout, train, and manage Olympic athletes. You’ve got an eye for potential and a nose for talent, so you can watch a collegiate high diver perform and know for certain that person could bring home armloads of gold medals. You come on board once the athlete has already done most of her growing and a large part of her training, and you transform her into an unbeatable, world-class competitor. You know how to predict the results you’ll get based on the effort you invest, and you know how to measure your success. You take something big, and make it bigger.
Now let’s say a trusted colleague comes to you with a gifted five-year-old and says, “Make this kid into an Olympian.” You’re completely out of your depth, and you know it. You have no clue how to motivate someone this young, even if he’s off-the-charts talented. And even if you were able to measure how fast he could run or how high he could jump right now, those metrics would be meaningless in a few short months. But your colleague has set you to a task, and you want to help. So what do you do?
You call on early childhood experts, teachers, and loving parents who have raised Olympians. You say, “Teach him and nurture him and call me when he’s graduated from college and ready to train for the Olympics.” You are simply not skilled to deal with New to Big. You can lead Big to Bigger like a world-class coach, but this? Not your expertise.
Of course, if you asked those early childhood experts, teachers, and loving parents to guide a pole vaulter for nationals and onto the world stage, they too would be useless. They’re all about New to Big, but they’d fail miserably at Big to Bigger.
Startups know how to identify, address, and fulfill customer needs. Almost every captivating startup origin story involves entrepreneurs recognizing a point of friction and thinking, There must be a better way! This fixation on problem-solving is the key to groundbreaking entrepreneurship. By starting with the customer pain point, entrepreneurs give themselves boundless permission and flexibility to dream up and experiment with solutions. The best option might be a product, or a service, or a way of merging existing products or services into an integrated solution. Regardless of how diverse the array of possible solutions may be, startups keep their options wide open, experimenting and tweaking until they land on a solution that meets customer needs in a radically new way. Instead of battling with competitors over market share, they simply create new markets. (There’s a saying in Silicon Valley that “competition is for losers.”) And because they are small and nimble, startups can experiment and change direction quickly and cheaply, with incredible learning velocity.
Established companies, on the other hand, know how to grow market share, increase profits, and refine existing processes and systems. They usually have the customer base, distribution, and supply chain to ensure their products and services reach customers reliably and with a high level of quality control. They may be old school, but they’re damned good at what they do. As a result, they see no reason to ponder ideas that fall outside their comfort zones; they view the world through a lens they’ve built themselves, and one that tends to turn ideas inward. When it comes to brainstorming new products, they typically start with their own pain points, like: “We’re losing market share; our margins are shrinking; we have a technology, now let’s go find a customer for it.” And that’s when “old school” downshifts into obsolescence.
Yet this thinking doesn’t exist in a vacuum. Legacy companies operate this way because they’re hardwired to do so: Enterprises are in the “knowable” business but are at a loss when dealing in the “unknowable.” With pressure from the street on stock prices and financial measures of success, the mere thought of investing in customer problems with unforeseeable results makes them incredibly uncomfortable. They’re running a low-variation and low-risk incremental machine, and being told by leadership and shareholders to keep that machine humming along or else.
This inside-out thinking must change. The twenty-first century’s most engrossing business success stories all stem from outside-in thinking; identifying the massive, global problems or needs that a company’s unique gifts can solve. And it’s time for the rest of us to adopt that problem-solving mind-set. If we want to catalyze exponential growth, we need to quit investigating how many people might buy our 10 percent improved widget and start identifying which big problems in the world we are perfectly positioned to solve.
We need to allow ourselves to look beyond what we’ve already done and imagine freely what we can do. The way we do this is by shifting from a Total Addressable Market (or TAM) model, which is based on planning in a known, share-based world, to a Total Addressable Problem (or TAP) model, which is based on discovering a brand-new customer problem or need.
The TAM framework is one that’s been around for decades, and countless businesses rely on it to guide their decision-making processes. It addresses the question of how big a market is, and how large a share of that market a company can reasonably command (or “address”). This worldview is effective for markets that are knowable and already exist, but it’s useless for markets that haven’t been discovered or created yet. And that’s where we’re aiming our sights.
The TAP framework, on the other hand, takes a totally different approach: identifying a significant customer problem, working backward from the outside in to define a solution, and crafting a business model for that solution. Shifting from TAM to TAP helps us discover the big problems we can solve and uncover the new markets we can create.
Let’s take a look at an example: mobile phones.
When they first came onto the consumer market, it seemed like the only people who’d want mobile phones were lawyers and high-powered executives. The perceived TAM was relatively small: “People in high-pressure jobs with time-sensitive communications needs who can afford a mobile office.” But as the technology became lighter, faster, smaller, and more affordable, demand grew exponentially. Electronics designers recognized that mobile phones were addressing a much larger customer need—allowing all people to communicate on the go—and shifted gears to accommodate this new market. Very few people foresaw that future generations of these devices would eventually replace pagers, then replace landlines, and then become primary modes of connectivity for whole populations. It turns out that the TAP was literally the potential market size of “mobile communication.”
Here’s a more recent example: If you were a VC with the opportunity to invest in Facebook in 2003 and were convinced their TAM was “college students at Ivy League schools who want to stay connected,” you would certainly have passed on the deal. That market size just wasn’t big enough for the kind of returns you needed in your fund. But, of course, you’d be kicking yourself today. Because the site’s phenomenal growth stemmed from its founders’ understanding that the platform they’d built could do more and be more to a much broader population. They knew that people outside of college campuses wanted to know what their friends, colleagues, and family members were up to; that phone calls and emails weren’t sufficiently keeping people connected; and that human curiosity was a powerful driver of online behavior. They had stumbled upon a previously unaddressed need, and they built a market around it. What was initially seen as “Friendster for college kids” grew to become a social media colossus. It turns out that the TAP was “staying connected with your extended personal network, asynchronously.”
Neither of these ideas was conceived to steal market share from a competitor. Both of these ideas started out addressing a small and specialized audience, but grew to serve a much larger one. It wasn’t “We made this thing. Who needs it?” It was “How could we meet the needs of a larger group of potential customers?” And that’s how we all need to start thinking.
Now that we’ve trash-talked TAM, let’s take a step back and discuss how it is still useful to anyone within our companies engaged in growth work. The TAM worldview isn’t inherently wrong; in fact, TAM makes sense for existing markets, existing customers, and existing behaviors. It functions within the domain of the knowable: how much do customers currently spend for solutions in this market? For example, if we were in the lip gloss business and wanted to expand into lipstick, we could use TAM to estimate how big the market is and how much of it we might reasonably be able to address.
But once we head into the unknown, TAM loses its authority. Since we’re in brand-new territory, the questions we would ask to determine TAM become impossible to answer, and we’re forced to consider new questions: Is this a new customer behavior or point of friction? Are customers currently solving the problem or just now noticing the pain point? How many customers might need to solve this problem someday? If a solution that is better, faster, or cheaper were available, how might that change who can and will solve this problem? Looking at it from this perspective, we’re able to see the size of the opportunity (TAP) instead of the market size of existing solutions (TAM). And by starting with problems, we don’t confine ourselves to products; we open ourselves up to a whole universe of potential solutions.
To look strategically toward 2030 and beyond, we have to acknowledge that future markets, business models, and technologies are largely unknowable. This means any attempt at a planning strategy will fail, because the target is undefined. Instead we need to use a discovery strategy to uncover new customer behaviors, new needs, and emerging or nonexistent markets: new areas of opportunity (or Opportunity Areas—OAs—as we call them).
When we choose to shift focus from products to problems, the magnitude and variety of potential solutions skyrockets. And when we consider which new business enablers can be brought to bear against those problems at the places where problems and enablers intersect, then we can find OAs. (More on the nuts and bolts of this process in chapter 5.)
For an OA to be viable, it must encompass both a widespread need and a technology or solution that addresses that need in a radically different, substantially better way. The need should be something that never changes, but the products or services or solutions that address that need will change over time. And when we position our companies at the intersections of those needs and those new enabling solutions, we position ourselves for innovation. Standing at that crossroads, we can choose to move our businesses in new directions, create and conquer new markets, and pioneer world-changing solutions to vast and persistent problems.
But to get to that crossroads, we can’t start with an existing market. We have to force ourselves to get comfortable with the unknowable, with markets that don’t exist yet. We have to start with a need, gauge how many people currently use solution proxies, consider viable enablers, and unlock a whole set of possible solutions.
To see this process in action, let’s unpack a case study.
TD Ameritrade is a brokerage firm with a forty-year legacy of providing investing services and education to individuals and custodial services to independent registered investment advisors. In 2017, company leadership made a push to increase their innovation capacity. They ran a series of innovation sprints that granted participants wide-open boundaries to explore how TD Ameritrade could deliver on its purpose to “transform lives and investing for the better.”
One idea at their first innovation sprint rose to the top; everyone agreed it was a game-changer. The team that came up with the idea explored possible solutions and created a data-driven digital tool that, when pitched to senior leaders, received unanimous support from the executive team. At one point during the pitch the CEO, Tim Hockey, asked everyone in the room, “Who would want to use this tool?” Nearly every hand shot up. Some market research following the sprint confirmed the viability of this project; when potential customers were asked if they wanted (and would pay for) the tool, the answer was a resounding yes!
When the sprint concluded, TD Ameritrade leadership decided to use this potential game changer as a test case for an Opportunity Area. A three-person team was formed to focus on it, keeping one of the sprint participants and adding two new cofounders with fresh perspectives.
With new minds and permission to pursue the idea “for real,” the cofounders took a step back from the solution itself and examined the underlying assumptions: Who was the customer, and what problem did they need to solve? How big was this problem, and what other solutions were these customers using currently? Was this problem growing or shrinking? And what were the new enablers (technologies, trends, etc.) that could be applied to solve the problem?
They started with the largest, most obvious customer persona and employed several rounds of experiments to refine their understanding of the need at hand. But their initial customer profile wasn’t panning out; the customers they sought out were happy with the tools they were already using. So the team looked at adjacent personas. After all, the customers in the initial experiments kept saying, “I don’t need this, but I know someone else who does,” usually a close friend or family member.
But these adjacent customers didn’t feel they had a problem and weren’t seeking a solution. Perhaps the tool would be “nice to have,” but when it came down to demonstrating how they would use it, they balked at the effort required. Over the course of five or six rounds of experiments that touched more than fifty potential customers, the three cofounders came to realize “there was no there there.”
One of the cofounders, Matt, came from a data analytics background and was initially skeptical that they could invalidate an entire Opportunity Area with only a few dozen data points. “With my background, I typically want to collect thousands of data points to be sure of something. But I learned that you can talk to ten people and invalidate something. By talking with customers directly, I realized we could learn the answer fast and feel comfortable invalidating it and moving forward.”
It took the team less than two weeks from kicking off the work to invalidating the Opportunity Area with confidence. But they also knew the CEO and entire senior leadership had raised their hands in support of the project back at the innovation sprint. So they kept looking. What if they had missed something? They couldn’t go back with their findings until they knew with certainty.
To be sure they covered all the potential customer personas that might be attracted to this tool, they devised a quantitative survey. Maybe the problem wasn’t the obvious one they initially identified; maybe the tool could meet a more niche need. They pivoted several times, eliminating some needs that were too small to be viable and others that were already being well served by a crowded marketplace of solutions. After five weeks, the cofounders were certain: The Opportunity Area was invalidated. Now they just had to tell the CEO. Cofounder Sarah commented, “We were confident in our findings, but nervous about telling the story.”
The team gathered the evidence and learnings they had collected along the way. They had invalidated this particular tool and the broader customer problem it aimed to solve, but in the process, the team had uncovered a handful of new customer problems that looked promising. Cofounder Susan shared, “One of the things we did really well in that storytelling was talk about the unexpected needs we found. We uncovered needs that were really compelling and that we could address.”
Tim Hockey and the entire executive team accepted the team’s evidence, even though it directly contradicted their gut reaction during the initial pitch, and celebrated how quickly and cheaply the team had invalidated the Opportunity Area. If the team had explored the viability of this tool using a market analysis to calculate TAM, the executive team could easily have decided to make a big investment and built a product nobody would actually buy or use. By choosing to focus on the problem, they averted this spend in favor of something more viable.
Addressing the broader company just a few weeks later, Hockey shared the team’s invalidation of the original idea as a win. “Folks approached us after hearing that story and said, ‘Wow, you really told the CEO that this was a bad idea?’ It seems to be changing how people think about sharing findings like that,” cofounder Matt recalled.
John Hart, the Opportunity Area team’s executive sponsor during the work, shared why this was so important to the company’s growth, “We absolutely see this as a critical element in creating the environment to do meaningful innovation.”
Cofounder Sarah agreed, “We know that we have a culture that is willing to take a risk. But actually experiencing it on this scale was really cool.”
The shift from TAM to TAP is transformative for three reasons:
It steers our focus away from our own problems (“We want to gain share!”) and toward the customer’s problems (“They want to get from point A to point B as safely, quickly, and seamlessly as possible”).
It shifts our attention from what exists today (corporate-owned assets like hotels and rental cars) to what could exist in the future (the sharing economy enabled by Airbnb and Lyft).
It relies not on what customers say they want (access to organic produce), but on what they actually do (buy more affordable, often inorganic produce). In other words, it reveals the commercial truth.
The classic marketing adage to give customers “what they want, when they want it, in the form they want it in” is exasperating when your focus is on new problems or needs; customers may not yet know what they want, when they want it, or what form they want it in.
Old-school tools like Voice of Customer research encourage customers to give feedback within the framework of what they already know. That is, when asked about a problem or need, they often reverse-engineer ideas based on current solutions. And when asked direct questions about their preferences and behaviors, they’re socialized to project who they want to be and to tell us what we want to hear.
So instead of putting our faith in Voice of Customer research and other similar tools born out of the TAM mind-set, we must learn to observe what customers do and extrapolate how their behaviors reveal new opportunities. And no, we don’t need to haul out the Magic 8-Ball to pull this off. We’ve simply got to think like entrepreneurs and do the legwork ourselves: Get out of the building and interact with customers, watch them in action, and draw our own conclusions. The evidence we’re looking for is behavior. Discovery of new problems and needs lives in the realm of active, unreported, authentic customer choices.
We enter that realm by sending teams out to interview two populations:
PEOPLE WHO ARE ALREADY USING A GIVEN KIND OF PRODUCT OR SERVICE IN AN ATTEMPT TO SOLVE THEIR PROBLEM: We speak with them about where, when, why, and how often they use it. We ask why they choose it over similar solutions. We ask all the typical consumer research questions, then push beyond them into contextual information. We ask how the solution makes them feel, what it reminds them of, and what positive and negative associations the solution conjures.
PEOPLE SUFFERING THE SAME PROBLEM BUT WHO ARE DEFINITELY NOT USING THAT SAME PRODUCT OR SERVICE: These folks provide a vital counterpoint to the existing user base. We want to know what they’re avoiding or pushing back against by not using this solution. We ask what about it turns them off, how does it make them feel, and what are they doing or using instead.
Here’s an example: Say you make candy bars, but realize that people are starting to see processed sugar as Public Enemy Number One and want to explore alternatives for your company. As you consider a new TAP to address, you begin the research process. You talk to candy fanatics, candy store owners, specialty candy makers. But you also talk to Blue Zone diet folks who haven’t had sugar in ten years, and really try to understand what needs, problems, and behaviors they’re displaying.
As you speak with more and more people, your OA starts coming into focus. You learn that both die-hard fans and occasional consumers alike associate eating candy bars with “treating themselves” to something. Which allows you to focus on a new subset of questions: What triggers the urge to treat yourself? Is it accentuating a positive, or overcoming a negative? When do people treat themselves? How often? How does doing it make them feel? And you circle back with the outliers, too: What does somebody on a sugar-free diet do when they’re feeling a little peckish and don’t need to satiate hunger but want to treat themselves?
You’re not in the sugar-peddling business anymore; you’re in the “treat yourself” business. Which blows the doors off the candy factory and brings you out into a whole new world of ways to “treat” your potential customers. Depending on how bold you want to be, you could end up launching a new business unit that manufactures delicious yet healthful carob-based snacks; you could buy a small cosmetics firm that is gaining a fan base for their inexpensive yet lush lipsticks; or you could open a chain of retail stores that sell affordable succulent plants, perfect for that impulse purchase and sure to deliver a burst of clean air and brighter mood to any room.
This study and observation process will lead you directly to uncover previously untapped OAs, new worlds yet to be explored and conquered. But before you plunge into the jungle, torch ablaze, you’ll want to evaluate if these OAs are worth your time, energy, and resources.
Determining how much money can be made from a market that does not yet exist is…tricky. With no measurable variables or existing statistics, attaching an earnings estimate to a bleeding-edge innovation can feel like guesswork. And honestly, some of it is. But we can ensure it’s educated guesswork. (Remember, this is how VCs work day in and day out. They calculate the size of bleeding-edge opportunities as part of their due diligence of an investment, and we’ve incorporated their best tools into the Growth OS.)
What is the goal of calculating TAP? To get a plausible understanding of how big an opportunity could be. Not to get an accurate understanding of what it currently is.
When we first started, Bionic used to tell our partners, “Don’t even think about Total Addressable Market anymore! It’s Total Addressable Problem only from here on in.” But we got some vigorous pushback, especially when it came to sizing. Sinking time, money, personnel, research, and development into a market that could be minuscule is just plain foolish. You need some yardstick to measure how large and lucrative it could be, at least in theory. And so we’ve circled back to our old friend TAM. While TAM should not be the launchpad for new business ideas, it’s valuable as a reference point for sizing OAs and TAP.
There are three back-of-the-envelope calculations to make when sizing up an OA:
Calculate the size of the existing market where people are using proxy solutions to solve their problem
Estimate the number of people who need to solve this problem if a radically better solution were available (and roughly what they might spend on that solution)
Estimate the number of people who would want to solve this problem if a radically better solution were available (and roughly what they might spend on that solution)
The first calculation is the TAM. The second is the “low end” or conservative size of the TAP, while the third is the “high end” or optimistic size of the TAP.
In the case of mobile phones, the TAM was the amount of money lawyers and physicians were spending on answering services and pagers so they could always be reached while on the go. The conservative TAP would include all professionals who would like to be able to communicate when they were away from their desks (multiplied by the amount they would be willing to spend for mobile access). The optimistic TAP grows to include literally anyone who speaks, even before they can type.
Ask yourself, “What do I know about the market today?” Then, “How big is the problem I want to solve?” Look at your answers in tandem, and think in terms of orders of magnitude. Is it 10x, 100x, or 1,000x bigger?
Current market knowledge can be helpful, but not in isolation. NYU finance professor Aswath Damodaran can attest to this: In a now famous exchange, he wrote a 2014 blog post saying that, based on the existing global taxi and livery market of roughly $100 billion, rideshare company Uber was overvaluing itself by a factor of 25.1 (His analysis assumed Uber could command 10 percent of the fragmented global market for a TAM of $10 billion.) Bill Gurley, an Uber investor and board member, responded by saying, “In choosing to use the historical size of the taxi and limousine market, Damodaran is making an implicit assumption that the future will look quite like the past. In other words, the arrival of a product or service like Uber will have zero impact on the overall market size of the car-for-hire transportation market.”2 Just three years later, Uber reported 2017 gross bookings of $37 billion. Uber and Lyft triumphed by recognizing that the current solutions addressing the problem were inadequate, and by creating a solution that directly addressed shortfalls, the TAP was larger than the TAM.
It can be intimidating to calculate TAP under the assumption that your solution will create a new market or explode the current one, but we need to do it anyway. We need to allow ourselves to contemplate the likely, the possible, and the extraordinary all at once if we want to enable the creation of revolutionary solutions.
We’ve spent this chapter digging into the approach that entrepreneurs and investors use to evaluate opportunities. The startup ecosystem is more than just entrepreneurs; it’s also made up of angel and venture capital investors, and they all think this way.
Everyone embracing the Growth OS will need to shift from TAM to TAP mind-set. But how they apply it will vary. In the enterprise New to Big machine, the role of entrepreneur will be played by employees, while the investor role is filled by executive leadership. And the latter group’s job isn’t just handing out money. Both groups must be prepared to think and work in new ways, through different mind-sets of their own, ultimately challenging themselves to become ambidextrous leaders: operators in the core as well as creators of new growth.
That first step toward becoming an ambidextrous leader? Setting the permissions and boundaries for their entrepreneurial teams to work differently. Giving them permission to be wrong. Permission to question established wisdom. Permission to disrupt core businesses. Permission to run experiments and invalidate assumptions and move fast. Permission to behave like a startup even while they’re embedded in a mammoth, hundred-year-old enterprise.
It sounds crazy, but it can be done.