The error is often not arithmetic. It is the market definition that came before it.
A total addressable market is often treated as a number to calculate. In diligence, it is first a boundary to defend. Which customers can realistically buy the product? Under what constraints? In which channels and geographies? A precise model built around the wrong boundary is still wrong.
Top-down category estimates are useful for orientation, but rarely enough for an investment decision. Industry labels contain adjacent products, incompatible customer needs, and revenue that may never be available to the target. Bottom-up work starts with observable buyers, purchase occasions, and actual spend.
The hardest question is often not how large the category is, but what portion is contestable. Switching costs, procurement rules, distribution access, and incumbent relationships narrow practical opportunity. Interviews with customers and channel participants can expose those constraints before a model turns them into assumptions.
A useful TAM is not a single confident figure. It is a range whose drivers are explicit, whose sensitivities have been tested, and whose relevance to the investment thesis is unmistakable. The aim is not to make the market look large; it is to make the decision more informed.