?? Market sizing in biotech startups: defining TAM, SAM, and SOM for strategic growth

In the biotech startup ecosystem, defining your market size isn’t just a formality for pitching—it’s the backbone of your growth strategy. Investors frequently ask, “What’s your TAM?” (Total Addressable Market), but it’s crucial to remember that market sizing isn’t just about impressing with a big number. It’s about demonstrating your understanding of market opportunities and the path you envision to capture real value. In biotech, where the journey from lab to market is both resource-intensive and time-consuming, accurate market sizing becomes key.

Let’s dive into why market sizing is critical for biotech, how to break down TAM, SAM, and SOM, and why the bottom-up approach is your best friend. ????

?? Why market size matters more than ever for biotech

If you’re building a biotech company, you know the stakes are high: the journey from lab discovery to product launch demands substantial time, funding, and persistence. Investors want confidence that your target market is large enough to support the journey. In biotech, pivoting to a new problem often isn’t easy or feasible without extensive reengineering, so your focus on a viable, sizable market from the start becomes even more crucial.

• From the founder’s perspective: Market size insights align your mission with real, data-backed projections. You’re in biotech to make a difference, which means aiming at a significant market where you can create impact.
• From the investor’s perspective: They’re looking for a strong return on investment. If your business plan revolves around a realistic TAM with a roadmap to gain traction, you’re signaling a higher potential for success.

Simply put, big markets enable big outcomes—and in biotech, your market size reflects your startup’s potential and your strategic ambition.

?? Breaking down TAM, SAM, and SOM: key market sizing layers

Each layer—TAM, SAM, and SOM—adds specificity to your market potential, helping founders and investors align on the scale and reach of the opportunity.

1. TAM (Total Addressable Market): This is your broadest view. Think of TAM as the total revenue potential if you could capture every customer. In biotech, TAM might include the entire global patient population for a specific treatment or service. However, TAM is just the top layer—capturing every possible customer is rarely feasible.
2. SAM (Serviceable Available Market): SAM refines TAM, focusing on the portion of the market your product can realistically target based on current capabilities and regulatory constraints. For example, if your product is only licensed in North America, your SAM excludes regions where you lack distribution rights.
3. SOM (Serviceable Obtainable Market): SOM is the market share you realistically aim to capture within SAM. It reflects what’s attainable given budget, competition, and market entry strategies. In biotech, this could be the specific percentage of healthcare facilities or age demographics where you can generate traction first.

Each step down from TAM to SOM brings a sharper, more actionable focus to your market, creating a roadmap for scaling your business.

?? Why bottom-up beats top-down: getting grounded with market sizing

For early-stage biotech startups, a bottom-up approach to market sizing is far more credible than top-down. The top-down approach often lacks the real-world grounding investors look for. By contrast, bottom-up market sizing shows specifics around your customer acquisition and revenue strategy.

• Step 1: Define your customer segment. Who will buy your product? In biotech, this is rarely “everyone.” It’s essential to specify customer personas—like hospitals, health systems, research labs, or specific age demographics—versus using overly broad categories.
• Step 2: Estimate your number of customers in the next five years. This means building a path for capturing customers over time, considering how many new users you’ll be able to acquire and retain each year. For example, if you’re targeting 10% of key healthcare facilities in the U.S. over five years, base your estimates on realistic adoption rates for similar products.
• Step 3: Calculate average revenue per customer. Revenue per customer can vary significantly in biotech. If your product is a one-time treatment or an ongoing subscription, this will affect your ARPC. In biotech, factors like treatment cost, frequency, and reimbursement rates shape this crucial metric.

Using these specific data points, you can develop a more grounded view of TAM, SAM, and SOM, giving investors confidence in your projections.

?? Crafting the narrative: TAM, SAM, SOM as a growth story

While market size numbers are important, storytelling around these figures helps investors see your vision clearly. Don’t just throw three circles with big numbers on a slide; illustrate how TAM, SAM, and SOM connect to your growth strategy.

Example: Let’s say you’re building a solution for infectious diseases. Your TAM could represent every possible infection globally. SAM might narrow this down to the U.S. due to regulatory approvals, while SOM could highlight specific metro areas with high demand and viable partnerships.

This kind of progression tells a powerful story—showing investors not only the opportunity but your strategic path to growth.

?? Avoiding common pitfalls in market sizing

When it comes to market sizing, some mistakes are common but avoidable with a more grounded approach:

• Relying on top-down estimates. Saying, “we’ll capture 5% of a billion-dollar market” may sound promising, but lacks depth. Bottom-up is more credible.
• Overlooking clear pricing models. If your solution is premium-priced, explain how it creates enough value to justify that price.
• Overestimating early market share. Tech IPOs typically capture 0.1% to 2% of TAM initially, so biotech startups should be conservative about early-stage market share.

Presenting TAM, SAM, and SOM with specific assumptions and realistic goals helps keep investor expectations grounded and your narrative believable.

?? Aligning market size with each growth stage

Market size also has different implications depending on your growth stage:

1. Seed stage: Investors focus on TAM to validate your vision and market opportunity.
2. Series A: They start looking at SAM, wanting to see initial traction and market validation.
3. Growth stage: Investors turn attention to revenue growth over TAM. Your track record of scaling becomes a top priority.

For biotech, the TAM and SAM layers are crucial early on, while SOM takes precedence as you scale and prove traction. This shifting focus reflects both your strategy’s success and your ability to capture market share.

?? Final thoughts: dream big but structure realistically

Market size is about more than just big numbers—it’s about defining impact and creating a roadmap to get there. A thoughtful, bottom-up approach to TAM, SAM, and SOM builds a realistic picture of your potential and the steps you’ll take to succeed.

In biotech, where every step from discovery to market is complex, a solid market sizing strategy can make the difference between an inspiring vision and a viable business. As you grow, your grounded approach to TAM, SAM, and SOM will guide both your team and your investors through each phase of scaling.

For more information, you can read this guide from Pear VC.