The Success Stories of Temu and the Importance of TAM

The Success Stories of Temu and the Importance of TAM

Introduction:

In the fast-paced world of technology and startups, success can often be found in the most unexpected places. Two such success stories are Temu, the U.S. version of the Chinese social commerce app Pinduoduo, and TikTok, the popular video-sharing platform. These companies have defied conventional wisdom and shown that the Total Addressable Market (TAM) is not always the deciding factor in their success. In this article, we will explore the unique strategies and approaches taken by these companies, shedding light on the importance of TAM and why it doesn't always matter.

Temu: A Shopping App Making Waves:

Temu has taken the iOS market by storm, consistently holding the 1 spot for 75% of the year. This momentum is derived from its parent company, Pinduoduo, which has achieved a remarkable $18 billion USD in revenue over the past 12 months. The core concept behind Pinduoduo's success lies in group buying, where users can unlock discounts on specific items by recruiting a team to join their order. This innovative approach to shopping has captured the attention of users who are willing to put in extra effort to obtain discounts on products.

Unique Referral System:

One of the key features that sets Temu apart is its referral system. Unlike most apps that offer in-app purchase credits as referral bonuses, Temu allows users to withdraw the cash they earn through referrals. This has led to an interesting phenomenon known as "click for click" behavior, where users on platforms like Reddit click on each other's referral codes as many times as possible across devices. This behavior has further fueled the growth of Temu and created a sense of community among its users.

Economic Instability and the Value Proposition:

In times of economic instability, the value proposition of Temu becomes even more compelling. Users are willing to invest additional effort to secure discounts on products, making Temu an attractive option for cost-conscious consumers. This aligns with the success story of TikTok, which also capitalized on the changing market dynamics and achieved widespread popularity.

The Role of Deep-Pocketed Parent Companies:

Both Temu and TikTok share a common thread in their success stories - the backing of deep-pocketed Chinese parent companies. Just as TikTok was supported by Bytedance, Temu benefits from the resources and financial strength of Pinduoduo. These parent companies were able to invest heavily in early advertising, creating a critical mass of users that propelled the companies to new heights.

The Danger of Overemphasizing TAM:

The success of Temu and TikTok challenges the conventional notion that TAM is the ultimate determining factor for a startup's success. In the early stages, many successful venture investments had relatively small or undefined TAMs. The best companies have the power to fundamentally change the markets in which they operate, and TAM should not be the sole criterion for evaluating their potential.

Credible Adjacencies and Nascent Market Potential:

In some cases, a startup's initial product or service serves as an entry wedge into a larger opportunity. This is known as credible adjacencies, where the startup can expand its offerings and tap into new markets. Additionally, successful startups often ride the wave of a new market that may be small initially but has the potential to grow exponentially in the future. This highlights the importance of recognizing nascent market potential and not letting a TAM number hinder the pursuit of building something great.

Actionable Advice:

• 1. Look beyond TAM: While TAM is an important factor to consider, it should not be the sole determinant of a startup's potential. Focus on the unique value proposition, market dynamics, and the ability to fundamentally change the industry.

• 2. Embrace credible adjacencies: Explore opportunities to expand your product or service offerings into related markets. This can open up new avenues for growth and tap into previously untapped customer segments.

• 3. Identify nascent markets: Keep an eye on emerging trends and industries that may be small today but have the potential for significant growth in the future. Being an early player in such markets can provide a competitive advantage and position your startup for success.

Conclusion:

The success stories of Temu and TikTok demonstrate that TAM is not the be-all and end-all when it comes to evaluating a startup's potential. By focusing on unique strategies, leveraging the support of deep-pocketed parent companies, and recognizing nascent market potential, these companies have achieved remarkable success. As aspiring entrepreneurs, it is crucial to look beyond TAM, embrace credible adjacencies, and identify nascent markets to pave the way for a successful venture.