In the SmartUp methodology, the traditional use of TAM is viewed with skepticism and is often described as the “Chinese Dilemma.” Yonatan Stern illustrates this fallacy with a common narrative: China has 1.4 billion people, all of them eat rice, and selling one kilo of rice per person per year appears to create a massive market. While the mathematical TAM is enormous, the reality is that markets are not uniform. The challenge is not demand, but execution details such as distribution channels, local preferences, and logistics. As a result, a large TAM quickly breaks down into many small, disconnected market segments that are difficult to serve at the same time.
Instead of attempting to conquer a massive TAM from the outset, SmartUp advocates identifying a Market Beachhead. A beachhead is a small, uniform segment of the market that is easier to penetrate. By concentrating all resources on this focused segment, a company can dominate it and reach profitability before expanding further.
SmartUp contrasts profitability with exit-driven thinking. Venture Capitalists require a huge TAM because they need massive exits to return their funds. Founders, however, do not need to capture an entire global market to build a successful business. Serving a small, well-defined market segment is often sufficient to create a profitable and sustainable company.
Yonatan Stern also warns about the “anywhere” trap, where founders define their TAM as “anybody who has X,” such as anyone with a smartphone. If founders cannot list the specific names of potential customers, they do not truly understand their market. A vague and oversized TAM often blocks sales by preventing the focused messaging needed to reach real buyers.
