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Bill Gurley: TAM Conservatism Will Hurt You More Than It Helps You

By Bill Gurley · Investing · 1 min read

A NYU professor said Uber couldn't be worth more than $3 billion. Gurley already knew Uber was 20x bigger than the taxi market in San Francisco alone.

Key Points

Using the existing market as the upper limit is the wrong math for disruptive products
Uber in San Francisco was already 20x bigger than the taxi market there
McKinsey once calculated the global mobile phone market at 900,000 units

I have found you get into more trouble with TAM conservatism than it hurts you. If something's super disruptive, your optionality to build on top of that is going to be pretty spectacular.

How to Miss by a Mile

Gurley: There's a famous NYU professor, Aswath Damodaran. He's famous for valuation work, always on CNBC. He wrote a piece that said Uber wouldn't be worth more than two or three billion dollars. I wrote a reply called 'How to Miss by a Mile.'

It was a classic mistake. He basically took the taxi market and said that's the upper limit. And that's just the wrong math. Travis and the team made this thing so convenient and so available that it was a product 10x better than the taxi market.

He took the taxi market and said that's the upper limit. That's just the wrong math.

Already 20x the Taxi Market

Gurley: By the time I wrote that article, I already knew that Uber in San Francisco was 20x bigger than the taxi market in San Francisco. So I already knew he was wrong with that analysis. We'd already blown through it.

But he didn't know that.

Uber in San Francisco was 20x bigger than the taxi market in San Francisco. We'd already blown through it.

The McKinsey Mobile Phone Mistake

Gurley: There are a couple of classic examples. McKinsey was hired to calculate the global market for mobile phones. They came back with 900,000 as the upper limit.

I have found you get into more trouble with this kind of TAM conservatism than it hurts you. It hurts you more than it helps you as an investor. If you feel like something's super disruptive and it's unlocking things, your optionality to build on top of that is going to be pretty spectacular.

TAM conservatism hurts you more than it helps you. If something's super disruptive, your optionality is going to be spectacular.