If you recall, I said earlier that a TAM below $5 million
is outside the TAM sweet spot.
In fact it's below the low end range.
Now, are there are exceptions to this?
Yes there are that's what we're going to talk about right now.
It's possible that initial TAM of less than $5 million
could lead to a successful business
if you capture the market quickly and convincingly,
especially if the gross margin of your product is very high.
90% or more for software, mobile apps, or information
based business models.
And if you do not need many employees
to dominate your beachhead market,
that's another good sign.
But with a TAM of 0, you not only
need to capture this market very quickly and convincingly, i.e.
dominating the market.
But this beachhead also needs to give you
a powerful position from which to attack better
markets quickly and efficiently.
It has to create an asset that's enormously valuable to you
that you can monetize in other ways.
Let me give you an example of this before we go to Thyme.
And I think it's a very compelling one.
If you look at the company and the application Pinterest,
where pin pictures up.
Well, this turned into a very valuable company
and how did that happen because it's a freemium business model?
They're not charging.
Isn't the TAM 0?
Well, in fact, what happened is, their beachhead market
was women who were getting married.
And they were looking for at first wedding dresses but then
other things for their wedding.
I mean what an attractive demographic to be dominating.
You can monetize that in many different ways.
A lot of people looking to get access to that demographic.
So while that beachhead market was not
something they were monetizing directly,
it was something that was clearly a strong asset
that they could monetize indirectly.
Likewise for Amanda and her team at Thyme.
If they can get dominant market share
within that beachhead market of business schools,
this is a very attractive demographic.
It's something that you could then expand out from.
And people will pay to get access to that demographic.
And then that demographic will go on
into other jobs including jobs in the enterprises.
One of the advantages of focusing in on the MBA market
is that this is two years when these students and customers
are actually on a break from the corporate world.
Often, they're coming from consulting, or finance,
or other corporate areas and they
take a break to go to business school.
And the likelihood is they're going
to go right back into that world which
makes it a very organic lead in to the enterprise space,
if in fact, that's where we one day decide to go.
So in these scenarios, while somewhat unusual,
a TAM of less than $5 million can turn out
to be a very attractive business if you
think about it the right way.
Every decision you will make as an entrepreneur
will have consequences.
So if you're going into a beachhead market
with a TAM of 0, or another very small TAM,
you will need to know why you're doing it.
And what that means for your company.
You could look at creative ways to fund it
by getting customers to pay you up front.
But in some way, shape, or form, you're
going to have to get some money to take care
of this negative cash flow until you get to the point
where your beachhead market is successfully conquered
and you can move on to one where it will produce real revenues.
For Thyme, that means that until they win their beachhead market
and begin attacking follow-on markets,
they will be cash flow negative.
That's not a problem in and of itself.
This is a common characteristic of innovation
driven businesses.
But what that does mean is that Thyme and other companies that
are in an innovation driven business,
need to attract cash from investors
or other people, customers.
And if they attract it from investors,
their founders will start to cede control of ownership.
And control of it will pass over to the investors.
That's not necessarily a problem but just a trade-off
that you should know.
For our business, our sort of customer acquisition strategy,
it's going to be necessary for us to take on investors.
But I look at investors as an opportunity.
Because people in the investment community who do this
professionally, they have a lot more exposure and a lot more
experience in what's going on in the market.
And I think that they can actually
end up being a value add not just in terms of the money
that they bring to us but also the advice and feedback
that they can potentially lend us.
Some entrepreneurs are comfortable with less ownership
and control while others are not.
There's no right answer.
You should decide what's right for you.
But let me say, that if you want to build a great company,
it's hard to be in control it.
There's a saying by Noam Wasserman at Harvard and Matt
Marx here, you can be in control, you can be king.
Or you can get rich and have big impact.
But it's hard to be a rich king.