TAM — total addressable market — is the theoretical annual revenue if every possible buyer on earth bought from you. SAM — serviceable addressable market — narrows to those you can actually serve given your geography, language, pricing and channel. SOM — serviceable obtainable market — is the share of that you could plausibly capture in a defined period given your competitors, budget and capacity. Each layer should be built bottom-up from real counts and prices, not by taking a percentage of an industry report.
Investors ask for these to test whether the business can become large and whether you think clearly about evidence. Founders should care for a more immediate reason: SOM is a sanity check on your own plan. If the honest obtainable market in three years is $400,000 a year, that tells you what kind of business this is and what it can support — which may be entirely fine, but should be a decision rather than a surprise. Enormous TAM figures are usually a sign nobody did the arithmetic.
A concrete example: you sell scheduling software to dental practices at $150 a month. Globally there are perhaps 1,200,000 practices, so TAM is around $2.2bn a year. You only sell in the UK and integrate with two local record systems, covering about 6,000 practices — a SAM of roughly $10.8m. With your team and channel, winning 3% in three years is credible: a SOM of about $324,000 a year. Three numbers, three very different conversations.