Why founders shouldn’t chase massive TAMs

Brigid O’Brien, a partner at RA Capital Planetary Health, highlights the common misconception among founders that pitching large total addressable markets will impress investors. She advises that the first step should be identifying where there is a high probability of successful market entry for revenue generation and later focusing on larger markets with accumulated capital.

Gurinder Nagra, co-founder of Furno Materials, illustrates this approach by focusing on creating smaller, modular kilns for cement production, rather than competing directly against the industry standard of massive kilns. By seeking markets underserved by current cement producers, Furno positions itself to take advantage of new opportunities and avoid direct confrontation with established incumbents.

Nagra notes that many smaller customers frequently experience unavailability of cement due to their lower priority status with large producers. Through establishing their presence in these underserved markets, Furno can later pursue customers who currently have contracts with incumbent producers, leveraging the general low loyalty in the cement business.