Initial commit

skills/market-sizing-frameworks/SKILL.md

@@ -0,0 +1,425 @@
+---
+name: market-sizing-frameworks
+description: Master TAM/SAM/SOM calculations, market sizing methodologies, and validation frameworks. Use when assessing market opportunity, validating business viability, planning market entry, estimating revenue potential, or determining if a market is worth pursuing. Covers bottom-up, top-down, and value theory sizing methods, competitive analysis, and systematic validation approaches.
+---
+
+# Market Sizing Frameworks
+
+Frameworks and methodologies for estimating market size and validating market opportunity.
+
+## Overview
+
+Market sizing answers the critical question: "Is this opportunity large enough to pursue?" It provides the foundation for strategic decisions, resource allocation, and investment prioritization.
+
+**Core Principle:** Market sizing is educated guessing with documented assumptions. The goal is reasonable estimates and order-of-magnitude accuracy (is it $1M, $10M, or $100M?), not false precision.
+
+**Key Insight:** Always use multiple methods (bottom-up, top-down, value theory) to triangulate and validate estimates. If methods disagree by more than 2-3x, your assumptions need scrutiny.
+
+---
+
+## When to Use This Skill
+
+**Auto-loaded by agents**:
+- `market-analyst` - For TAM/SAM/SOM calculation and market validation
+
+**Use when you need to**:
+- Assess if a market opportunity is worth pursuing
+- Calculate TAM, SAM, and SOM for business planning
+- Validate market assumptions before building
+- Support fundraising or strategic planning
+- Evaluate competitive landscape impact on opportunity
+- Determine realistic revenue projections
+
+---
+
+## The Three-Tier Framework
+
+### TAM (Total Addressable Market)
+
+**Definition:** Total revenue opportunity if you achieved 100% market share globally.
+
+**Purpose:** Understand the absolute ceiling of opportunity.
+
+**Typical Range:**
+- Side project: $1M+ TAM minimum
+- Full-time business: $10M+ TAM minimum
+- VC-backed startup: $100M+ TAM minimum
+
+**Calculation:** See three methods below.
+
+---
+
+### SAM (Serviceable Addressable Market)
+
+**Definition:** Portion of TAM you can realistically serve given your business model, geography, and product capabilities.
+
+**Purpose:** Your realistic target market after applying real-world constraints.
+
+**Filters to Apply:**
+1. **Geographic reach:** Where can you operate?
+2. **Customer segment:** Which types of customers fit your solution?
+3. **Product capabilities:** Who can your product actually serve?
+4. **Distribution channels:** Who can you reach?
+
+**Typical Range:** SAM is usually 10-40% of TAM for focused products.
+
+**Formula:**
+```
+SAM = TAM × Geographic % × Segment % × Product Fit % × Distribution %
+```
+
+---
+
+### SOM (Serviceable Obtainable Market)
+
+**Definition:** Portion of SAM you can realistically capture in the near term (1-3 years).
+
+**Purpose:** Your achievable revenue target given resources, competition, and time constraints.
+
+**Realistic Benchmarks:**
+- Year 1: 0.1-0.5% of SAM (new products)
+- Year 3: 1-5% of SAM (if successful)
+- Year 5: 5-15% of SAM (market leader position)
+
+**Formula:**
+```
+SOM = SAM × Realistic Market Share %
+```
+
+**Reality Check:** Convert SOM to customer count. Is that number achievable per month/week?
+
+---
+
+## Three Market Sizing Methods
+
+Always use all three methods for robust validation. If they disagree significantly, investigate your assumptions.
+
+### Method 1: Bottom-Up (Most Reliable)
+
+**Approach:** Count actual customers and multiply by revenue per customer.
+
+**Formula:**
+```
+TAM = Total Potential Customers × Average Revenue per Customer
+```
+
+**Process:**
+1. Define who is a potential customer (be specific!)
+2. Count them using reliable data sources
+3. Apply realistic adoption/penetration filters
+4. Estimate average annual revenue per customer
+5. Multiply to get TAM
+
+**Strengths:**
+- Most grounded in reality
+- Easy to validate assumptions
+- Can name actual customers
+
+**When to Use:** Always start here as your primary method.
+
+**Complete methodology:** See `references/market-sizing-methodologies.md` for detailed step-by-step process with examples.
+
+---
+
+### Method 2: Top-Down (For Validation)
+
+**Approach:** Start with total market size and estimate your segment percentage.
+
+**Formula:**
+```
+TAM = Total Market Size × Your Segment %
+```
+
+**Process:**
+1. Find comparable market size data (Gartner, IDC, etc.)
+2. Identify what percentage is your specific segment
+3. Apply multiple filters to narrow down
+4. Compare to bottom-up calculation
+
+**Strengths:**
+- Quick sanity check
+- Uses industry research
+- Good for validation
+
+**Weaknesses:**
+- Often produces inflated numbers
+- Hard to validate percentages
+- Can feel like guesswork
+
+**When to Use:** As secondary validation, never as primary method.
+
+**Complete methodology:** See `references/market-sizing-methodologies.md` for examples and industry applications.
+
+---
+
+### Method 3: Value Theory
+
+**Approach:** Calculate value created for customers, then estimate capture rate.
+
+**Formula:**
+```
+TAM = (Value Created per Customer × Potential Customers) × Capture Rate %
+```
+
+**Process:**
+1. Quantify value delivered (time saved, cost reduced, revenue increased)
+2. Calculate dollar value of that benefit
+3. Determine what percentage you can capture in pricing (typically 10-30%)
+4. Multiply by potential customer base
+
+**Strengths:**
+- Tests pricing assumptions
+- Grounds estimates in customer value
+- Helps justify pricing strategy
+
+**When to Use:** To validate pricing is reasonable relative to value created.
+
+**Complete methodology:** See `references/market-sizing-methodologies.md` for value calculation frameworks.
+
+---
+
+## Validation Framework
+
+### The Reality Check Questions
+
+Before trusting your market sizing, validate with these critical tests:
+
+**1. Can you name 10 specific potential customers?**
+- If no: Market may be too narrow or unclear
+- If yes: Proceed with confidence
+
+**2. Are there existing competitors making money?**
+- If yes: Market is validated (good!)
+- If no: Either no market exists OR huge greenfield (risky)
+
+**3. Does TAM > SAM > SOM make sense?**
+- Progression should be logical
+- SAM typically 10-40% of TAM
+- SOM Year 1 typically 0.1-1% of SAM
+
+**4. Is Year 1 SOM achievable with your resources?**
+- Convert to customer count per month
+- Is that acquisition rate realistic?
+- Do you have budget/capacity?
+
+**5. Is the market big enough to justify effort?**
+- Minimum thresholds matter
+- Compare to your goals (bootstrap vs VC)
+
+**Complete validation checklist:** See `assets/market-validation-checklist.md` for comprehensive 100+ point validation framework.
+
+---
+
+## Common Mistakes to Avoid
+
+1. **Confusing TAM with SAM** - Be explicit which number you're discussing
+2. **Top-down only sizing** - Always validate with bottom-up
+3. **Ignoring competition** - Available market is smaller than total market
+4. **Assuming linear growth** - Use S-curves, not straight lines
+5. **No customer names** - If you can't name 10 customers, market may not exist
+6. **One-and-done sizing** - Update assumptions quarterly as you learn
+
+**Detailed guide:** See `references/market-sizing-best-practices.md` for:
+- How to avoid each mistake
+- Industry-specific considerations
+- Competitive landscape analysis
+- Assumption management frameworks
+- Sensitivity analysis approaches
+- Case studies (Superhuman, Quibi, Figma, Slack)
+
+---
+
+## Recommended Workflow
+
+### Step 1: Bottom-Up Calculation (Primary)
+
+Use this as your primary estimate:
+
+1. Define universe of potential customers (be specific)
+2. Count them using reliable data sources
+3. Estimate realistic adoption/penetration percentage
+4. Determine average annual revenue per customer
+5. Calculate: TAM = Customers × Adoption % × Price
+
+**Tool:** Use `assets/market-sizing-calculator.md` for step-by-step worksheet with formulas.
+
+---
+
+### Step 2: Top-Down Validation (Secondary)
+
+Validate your bottom-up with industry data:
+
+1. Find comparable market size from research firms
+2. Estimate what percentage is your segment
+3. Compare to bottom-up calculation
+4. If within 2-3x: Good confidence
+5. If >5x difference: Investigate assumptions
+
+---
+
+### Step 3: Value Theory Check
+
+Test pricing reasonableness:
+
+1. Quantify value delivered to customers
+2. Calculate dollar value of benefits
+3. Determine capture rate (10-30% typical)
+4. Validate pricing is within reasonable range
+
+---
+
+### Step 4: Apply SAM Filters
+
+Narrow TAM to realistic serviceable market:
+
+```
+Starting TAM: $__________
+
+Geographic filter: × ____% = $__________
+Segment filter: × ____% = $__________
+Product fit filter: × ____% = $__________
+Distribution filter: × ____% = $__________
+
+Final SAM: $__________
+```
+
+**Template:** Use `assets/tam-sam-som-template.md` for complete calculation template.
+
+---
+
+### Step 5: Calculate Realistic SOM
+
+Project achievable market capture:
+
+**Conservative Approach:**
+- Year 1: 0.1-0.3% of SAM
+- Year 2: 0.5-1% of SAM
+- Year 3: 1-3% of SAM
+
+**Consider:**
+- Competitive intensity (high = lower %)
+- Switching costs (high = lower %)
+- Your differentiation (strong = higher %)
+- Distribution advantage (strong = higher %)
+
+---
+
+### Step 6: Validate Thoroughly
+
+Run through comprehensive validation:
+
+1. Complete all reality checks
+2. Verify unit economics work (LTV:CAC ratio)
+3. Check competitive landscape math
+4. Model three scenarios (pessimistic, base, optimistic)
+5. Conduct sensitivity analysis on key assumptions
+
+**Validation tool:** Use `assets/market-validation-checklist.md` for systematic validation.
+
+---
+
+### Step 7: Document Assumptions
+
+Critical for updating as you learn:
+
+```markdown
+## Key Assumptions
+
+1. Customer count: [number]
+   - Source: [where this came from]
+   - Confidence: [High/Medium/Low]
+   - Impact if wrong: [+/- X% on TAM]
+
+2. Pricing: $[amount]/year
+   - Basis: [competitive analysis, value-based, etc.]
+   - Confidence: [High/Medium/Low]
+   - Impact if wrong: [direct 1:1 impact]
+
+3. Adoption rate: [%]
+   - Basis: [customer interviews, analogies, etc.]
+   - Confidence: [High/Medium/Low]
+   - Impact if wrong: [+/- X% on TAM]
+```
+
+---
+
+## Templates and Tools
+
+### Calculation Tools
+
+**Complete TAM/SAM/SOM Template:**
+- `assets/tam-sam-som-template.md`
+- Full calculation framework with all filters
+- Includes validation checklist
+- Assumption documentation section
+- Sensitivity analysis worksheet
+
+**Step-by-Step Calculator:**
+- `assets/market-sizing-calculator.md`
+- All three methods with formulas
+- Worked examples
+- Comparison framework
+- Confidence scoring
+
+**Validation Checklist:**
+- `assets/market-validation-checklist.md`
+- 100+ validation points
+- Reality checks and red flags
+- Customer count validation
+- Pricing validation
+- Competitive validation
+
+---
+
+## Reference Guides
+
+### Comprehensive Methodologies
+
+**Complete Methods Guide:**
+- `references/market-sizing-methodologies.md`
+- Detailed bottom-up, top-down, and value theory processes
+- Industry-specific approaches (B2B SaaS, Consumer, Enterprise, Marketplace, Dev Tools)
+- Method comparison and triangulation
+- Data source recommendations
+
+**Best Practices Guide:**
+- `references/market-sizing-best-practices.md`
+- Common mistakes and how to avoid them
+- Validation frameworks
+- Competitive landscape analysis
+- Assumption management
+- Sensitivity analysis
+- Case studies: Superhuman, Quibi, Figma, Slack
+- Advanced considerations (timing, geographic expansion, platform effects)
+
+---
+
+## Summary
+
+**Market sizing is educated guessing** - the goal is reasonable estimates with documented assumptions, not precision.
+
+**The Three-Step Approach:**
+1. **Calculate:** Use all three methods (bottom-up, top-down, value theory)
+2. **Validate:** Reality-check with customers, competition, and economics
+3. **Document:** Track assumptions and update quarterly
+
+**Key Principles:**
+- Always start with bottom-up (most reliable)
+- Use top-down only for validation
+- Can you name 10 customers? (Critical test)
+- Update assumptions as you learn
+- Model three scenarios (pessimistic, base, optimistic)
+
+**Decision Framework:**
+- If SAM < $10M: Too small for most ventures
+- If Year 1 SOM < $50K: Question if worth effort
+- If methods disagree >5x: Assumptions need work
+- If no competitors exist: Either no market OR huge opportunity (validate carefully)
+
+---
+
+## Related Skills
+
+- `product-positioning` - Position against competitive landscape
+- `product-market-fit` - Validate market demand exists
+- `competitive-analysis-templates` - Analyze market attractiveness and competitive dynamics