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How Vertically Focused Field Service SaaS Companies Expand Their TAM

  • What investors and strategic buyers look for when it comes to TAM
  • How field services software companies can expand their TAM

The future looks bright for SaaS companies that specialize in field service management (FSM). These companies provide software that help businesses of all sizes streamline and improve their field operations, from scheduling and dispatching to estimates and invoicing. The FSM market is anticipated to reach $29.9 billion by 2031, growing at a CAGR of 19.2%, its growth fueled in part by the enormous variety of field service needs across a multitude of industries.

This variety of needs means that FSM software products are often created to serve very specific niches, such as a landscaping technology company that provides location tagging for trees. Because they are so specific, however, it’s not uncommon for SaaS companies to find themselves bumping up against the limits of their total addressable market (TAM).

TAM is the overall revenue opportunity in a particular market. In other words, it’s a cap on how much your company can grow within the market where it’s currently operating. A too-small TAM not only places a ceiling on your company’s ability to grow but also limits the amount of interest it’s likely to get from buyers and investors.

For companies in this situation, the key to a better TAM lies in finding and entering adjacent niches in order to stay competitive and continue growing.

What Investors Are Looking for

Naturally, buyers and investors want to see a return on their investment, so TAM is an essential metric for valuation. If your TAM is small, or if you’ve already attained a large percentage of it, your ability to scale will be limited and additional investment will start to yield smaller returns. Investors are simply not willing to pay a significant multiple if a business’s growth prospects rely on a TAM expansion that hasn’t yet been proven out.

Broadly speaking, a smaller TAM translates to less interest from PE companies, VCs, and buyers, but exactly how much TAM they want to see depends on a variety of factors. Many investors will consider a $500M TAM acceptable. More enterprise-focused PE firms and later-stage VCs who are making big investments and looking for outsized returns may want to see a TAM of at least $5B.

The Benefits (and Tradeoffs) of Starting Small

Small, bootstrapped SaaS companies typically start with product-led growth in a niche vertical. In many cases, the founders come from industries where they’ve discovered areas for improvement. With deep knowledge of a specific niche, these founders are able to build high-quality solutions based on a combination of personal experience and market field research and are often very successful within that niche.

The niche focus also plays out well because when companies try to attack too large of a market at the onset, they have a hard time competing with bigger, better-established companies with much larger sales & marketing budgets. Additionally, the quality of their products may suffer as they attempt to be too many things to too many people.

The flip side, however, is that the TAM for many of these niches is extremely small, potentially limited by geographic region or season, the number of customers, how much those customers are able and willing to pay, and other factors. A small or saturated TAM is generally a red flag for buyers and investors, who want to see that a company has room to grow.

Sooner or later, founders will need to seek greener pastures if they want to stay attractive to investors. If your company has reached 30-50% market saturation, it’s time to start thinking about what steps you can take to expand into different verticals.

How Can a Small Field Services Software Company Expand Its TAM?

Fortunately, small companies don’t have to completely reinvent themselves in order to reach bigger markets. We frequently see FSM SaaS companies expand their TAM by growing into adjacent verticals with similar end-customer dynamics. This provides new avenues for growth, usually with relatively minor adjustments to the product and marketing.

In some cases, companies are able to expand with external help from customers who become champions or partners. For example, we’ve seen a few SaaS companies find new areas of growth when a contact leaves the client company, moves to a new role in a different industry, and champions the product’s applicable use there.

More often, SaaS companies can be their own internal champions by finding creative ways to reach other markets and making small tweaks to their products to adjust. As an example, one of our FSM clients began by creating FSM software specifically designed for the needs of arborists. Later, they successfully expanded their TAM by branching into landscaping and lawn care services in general, making them an attractive target for acquisition.

A third option is moving into adjacent spaces via acquisition once funding has been secured. One of our past clients, Leap Digital, was able to acquire Job Progress after attracting majority growth investment from Nexa Equity. This acquisition enabled Leap to move from field services specifically aimed at roofers to a broader home improvement services market creating a substantially larger TAM.

Expanding into New Markets

Done strategically, expanding your TAM by moving into adjacent verticals can increase both your potential for growth and your company’s value. An experienced investment bank can help you understand the opportunities within new markets, position yourself to achieve your goals, and attract investors.

Learn how Vista Point Advisors worked with Jonathan Pototschnik, co-founder of Service Autopilot, to help him close on a majority deal for his bootstrapped field services company.

Modified on Mar 02, 2023