Imagine this: a founder reaches out to pitch you on a company called Cold Water Inc.
The founder wants to build a community of cold water swimmers across the globe, and host events where they all meet up and jump in ice-cold water together.
For some of you, this might be an easy no.
But others may want to dig deeper.
If you fall into the second camp, here are the questions we recommend asking to determine if this is worth pursuing.
Is the company solving a recurring problem?
Now, you might not be the target customer for Cold Water Inc. Maybe the idea of diving into freezing cold water doesn’t excite you.
Or maybe you’d do it once for a thrill, but opt for warmer waters in the future.
But are there people out there who would be excited by this business? People who want to gather as a community for a “polar bear plunge” not just once, but on a regular cadence?
What we’re looking for here is a combination of low Customer Acquisition Cost (CAC) and high Lifetime Value (LTV).
Meaning, the founder isn’t spending too much to acquire new customers, and is earning a lot of revenue from each customer.
When users of a product aren’t coming back to the product over and over again, the LTV is low. So it’s important that Cold Water Inc. has a base of recurring customers.
In this case, you could suggest the founder move toward a monthly subscription model to ensure recurring revenue.
This could include monthly cold water community events, branded floaties, and coaching to help with monetization.
Could the TAM be bigger?
Cold water swimming is getting popular. Over 43,000 Instagram posts tagged #thestoics feature images of people swimming in insanely cold water 🥶.
That said, the total addressable market (TAM) is still pretty small.
If you talk to a company pursuing a TAM of $100m or less, it’s unlikely that they’ll achieve the scale necessary to be a venture backable business.
And that’s ok! Many great businesses can generate life changing revenue for founders without providing the 100x returns VCs look for.
If the founder of Cold Water Inc. is trying to make a serious splash though, encourage them to think bigger.
Is there a business to be built around the swim-for-fitness market that has 31 million participants? Or the estimated $17 billion swim school market?
Starting small with a niche wedge can work as long as there is a clear path to a larger market.
This advice means nothing if…
…the founder is Michael Phelps. Incredible founders can make mediocre ideas work.
This advice will also not be relevant if the founder isn’t receptive to your feedback.
To build a strong relationship, ask for permission to share direct feedback first, and if they decline, maybe that makes the no a little bit easier.