Before starting a business, first ask yourself: How big is your total addressable market (TAM)?

If you start a pie shop in a small town with 5,000 residents (80% of whom are over the age of 4*), then your maximum TAM will be 4,000.

Unless you decide to ship pies to supermarkets servicing 500,000 people, in which case your TAM is 500,000.

Or you may decide to sell pies online to everyone in your country, of which 80% of the 40,000,000 population is over the age of 4, then your TAM is 32,000,000.

TAM determines your total possible profit.

TAM determines your return on effort.

You want to maximise your return on effort, so you want to maximise your TAM.

Before you start, ask yourself: What is your TAM?

* Assume all people over the age of 4 eat pies.