The value-theory (value-pool) market-sizing method

Method · ~7 min read · public-methodology

Top-down and bottom-up both count what's bought today. Value-theory asks a different question — how much economic value does this sector actually remove from the world, and what fraction of that can a vendor charge for? It's the leg that catches a market that's small today but sits on top of a huge pool of avoidable cost. Because it anchors to value rather than current spend, it's genuinely independent, which is exactly why it earns a place in the triangle.

The formula

Two inputs, both citable:

• Addressable value pool — the total annual economic cost the sector attacks: labour hours that could be automated, inventory losses that could be avoided, throughput that could be added. Sourced from official labour statistics, industry cost benchmarks, and company disclosures.
• Capturable share — the fraction of that value a vendor can realistically price for. Customers keep most of the surplus (that's why they buy); a vendor typically captures a slice, not the whole pool.

Worked example

Warehouse robotics removes labour and error cost from fulfilment. Say the annual addressable value pool across the served facilities is $120B (labour + shrink + throughput cost that automation can attack), and a vendor can defensibly capture 9% of it as revenue:

That $10.80B is the value-theory leg of the sample's triangle — the high estimate, alongside $9.00B top-down and $7.56B bottom-up. It runs high on purpose: value pools are large, and the honest work is in the capturable-share number, not the pool.

The guardrail that keeps it honest

Value-theory can be abused — pick a giant pool, a generous share, and you can justify almost any TAM. So the engine enforces a hard containment rule: the bottom-up TAM must sit inside the value pool. A sector cannot charge for more value than it creates.

If bottom-up ever exceeded the pool, it would mean the price or attach-rate assumptions imply customers paying more than the value delivered — economically impossible, and the report flags it before shipping. This is one of the five sanity checks.