Waterhole Theory

Waterhole Theory says that instead of a lion chasing prey across the savanna, it simply waits by the waterhole where animals are bound to show up. In the same way, a company doesn't chase after customers one by one — it creates a place where those customers will naturally gather and waits there.

Animals on the savanna eventually have to come drink water. The lion doesn't need to run around searching; it just needs to post up by that waterhole. Companies can work the same way. Instead of hunting down where their desired customers are, one by one, they build the very place where those customers are likely to gather. Whether it's a café, a community, or an event, the people who walk through that door are already exactly the people the company wants.

Take Cogi, a company that sells insurance to startups, opening a café on the first floor of its office building — this can be seen as an example of this approach. Most people who visit the café work at startups or are preparing to start one, so potential customers walk in on their own for a cup of coffee without the company ever having to make a sales call. What the company gains there isn't immediate revenue, but the chance to become a familiar face and build trust.

The café run by insurance company Cogi, mentioned in the article, can be seen as an example that illustrates Waterhole Theory. It offers an answer to the question of "why would an insurance company sell coffee?" But one shouldn't misread this as simply meaning you can open a café anywhere — it only works if you precisely target the location and format where your actual target customers gather.

Copy the following prompt into a chat AI as-is to find your own waterhole candidates.

My business is [describe your industry here]. Where do my target customers already naturally gather, whether in physical places or online communities? From the perspective of Waterhole Theory, give me 5 candidate locations along with reasons.

Go through the places the AI suggests one by one, and narrow down the spots where you could naturally cross paths with customers without having to sell to them directly.