“How big could this thing be?”
After checking the boxes for founder/mission fit and product/market thesis, early-stage startup investors want to know how big your total addressable market (TAM) could be. They want to know that the problem-solving product brought to life by the founders’ passion can potentially be used by tens of millions of paying clients. Startups are hard to do and often fail, so they want to know that the ones that do navigate the maze to success can win big. Power law distributions dictate that one big win will represent most of an investor’s return on time and capital invested.
Colm gets this question a lot when he pitches (and he never stops pitching) so we decided to write a blog post about how we niched down from all the possible use-cases Cadoo could address and how big that niche market can be.
Cadoo is digital cash incentives triggered by online events: if this, then money.
When we started building the Cadoo mobile app in early 2018 (a refining pivot from the original web app, which you can read about here), we spent a few weeks researching and defining the space we aim to pioneer.
We started broad with the following assumptions:
- Any app or service wants to make it easy for their users to incentivize others to become users. (Referral programs have been a core growth strategy for startups since Paypal; Cadoo makes them user-funded: zero CAC growth, which is the holy grail of tech adoption).
- Any existing incentive system that relies on analog initiation, verification, and pay-outs can be improved in terms of impact, effectiveness, reach, and fraud prevention by becoming programmatic, digital, and smartphone-based.
These two assumptions led us to conclude that online incentives could be the third biggest use-case of the Internet after communication and commerce.
So far, so very big TAM.
They want to know that the problem-solving product brought to life by the founders’ passion can potentially be used by tens of millions of paying clients.
There were many obvious B2C use-cases: referral awards, discounts, rebates, productivity bonuses, in-store visit incentives, etc. For large companies, these incentives are already mostly digital, but our market research uncovered a big opportunity for a plug-and-play platform to help SMEs and startups add a flexible layer of digital cash incentives to motivate sales, growth, and engagement.
There were also many giant government (at every level) use-cases: from those currently embedded in the tax code (i.e. tax credits) to innovative civic rewards (i.e., if no citations or convictions, then receive yearly good citizen bonus). Government could do a lot more to incentivize health and education more efficiently by rewarding events triggered by fitness and learning apps. And nation-state foreign policy could be transformed from sticks to carrots by effective propagation of ideas (aka propaganda) by rewarding the comprehension of essays, articles, videos, and podcasts as triggered by hack-resistant online quizzes, essays, and other proofs of learning.
The opportunity that excited us the most, however, was C2C because this is where we saw the quickest path to finding product/market fit and the fewest obstacles to growth.
Neither of us was enthused about doing enterprise sales, burning brain cells and time persuading businesses to allocate marketing money to a new customer acquisition and retention tool. We also didn’t relish the idea of competing in the same space as junk mail rebates, coupons, loyalty point programs, and online coupon aggregators like Honey. We liked the idea of helping tech startups grow with spoof-proof referral awards programs, but we also knew from our own past startups that we’d be in a constant battle against a global army of fraudsters and hustlers trying to game and scam our system for fun and profit.
Going after government-related use-cases also wasn’t something that excited us, despite the huge opportunity of transforming state-sponsored sticks into carrots. We didn’t want to wait on bureaucracies to allocate budget or green-light trials. We also both lean libertarian and believe that the market is much better at efficiently allocating resources and solving problems than any government agency.
The opportunity that excited us the most, however, was C2C because this is where we saw the quickest path to finding product/market fit and the fewest obstacles to growth.
We decided to focus on C2C (aka P2P) digital cash incentives triggered by online events because we see them as a the future of two giant segments of the global economy: education and health.
We believe the current education system of classrooms and credentials will be replaced by online learning and that incentivizing specific module-to-module, subject-to-subject learning (and requesting to be incentivized) will replace paying tuition and graduating with degrees of questionable real-world value.
We also believe that physical and mental health is necessary before productive learning can happen, and that incentives will be an indispensable countervailing force to the ubiquitous temptations to destructive diets and lifestyles.
(we wrote about it here)
This shift is reflected in the explosion of fitness, health, and well-being apps and services over the past decade, as well as online education platforms that make it easy to learn just about anything. A common feature of all these innovations is their users’ ability to authorize the sharing of data.
Focusing on C2C health and education, we refined our thesis:
- Any health or education app or service wants to make it easy for their users to incentivize others to become users.
- Any existing health or education incentive system can be improved by becoming programmatic, digital, and smartphone-based.
That’s why Cadoo’s slogan is: “ Motivate the People you Love to use the Apps you love.”
From our market research with power users of Fitbit and Duolingo we know that people who enjoy the benefits of health and learning are the most likely to want to incentivize friends and family to have the same experience.
Cadoo makes it easy for data from Fitbit (and soon iOS Health and Strava to trigger digital cash payments so that progress and achievement can be rewarded as soon as it happens.
From our market research with power users of Fitbit and Duolingo we know that people who enjoy the benefits of health and learning are the most likely to want to incentivize friends and family to have the same experience.
We believe Cadoo’s C2C focus is the fastest path to product/market fit because it doesn’t require businesses or government to allocate resources to get started. All it requires is for health and learning platforms to allow their users to authorize Cadoo’s access to their data, which in the age of open APIs is increasingly a given.
Will popular platforms in the learning and health space integrate with Cadoo or allow Cadoo to integrate? So far the answer is a resounding yes and we don’t expect that to change.
Startups are hard. Although the problems maybe large and the solution far superior to what exists, you still have to get people to make that leap of faith to give your app a try. Cadoo turns power users into power promoters, a user-funded referral award program.
Our C2C focus also has founder/market fit going for it. We are both passionate about fitness and learning. The current education system is a disaster, a near- total waste of human potential. And everywhere we look we see people who could be healthier, happier, and more productive, if only they were nudged toward better diets, more activity, and tools to find inner peace. We are committed to making that happen.
Very soon, parents can incentivize and reward their kids to be more active by sending a Fitbit Cadoo. And soon kids will be able to request their parents for extra motivation (i.e digital cash incentives) to learn a foreign language with Duo Lingo or to code with Mimo or Code Academy.
So getting to the answer to the question posed in the title of this blogpost: What is Cadoo’s Total Addressable Market? Here’s what we’ve been telling our present and future investors: we believe we can get a small percentage of users of health apps to send cadoos to motivate friends and family to us those apps. Our target for Fitbit users in 2020 is to reach 1% of Fitbit Active Users and have them send $14 in total Fitbit cadoos each month (Cadoo charges 1.5% of the Cadoo reward).
But that’s just one Cadoo integration partner. We expect to have a half dozen heath and learning apps during 2020. Add them up and the Cadoo TAM starts looking increasingly toothsome and compelling.
Cadoo will be published in the iOS and Android app next week, so time will tell if we can deliver on our projections. What’s certain is that we are committed to making Cadoo a success that helps as many people as possible live better and more fulfilling lives.
We think of our TAM as the global pool of human potential that can be unlocked by apps that promote health, learning, and well-being.
Want to learn more about Cadoo? Contact us: Colm (colm@cadoo.io) and Tim Parsa (tim@cadoo.io). We’d love to hear from you and collaborate.
Originally published at https://medium.com on January 13, 2020.
