✍️ WHAT CAUGHT OUR EYES
A Customer Acquisition Playbook for Consumer Startups
Looking back at the most successful consumer startups of the last 10 years — most companies achieved initial scale by excelling at just one of three growth "lanes": (a) Performance marketing (b) Virality, (c) Content.
How do you pick, and win a lane?
Validate that a lane is right for you as cheaply as possible:
Determine which one is a natural fit: performance marketing if you generate revenue directly, virality if your product is better with friends, content if your users generate public content or when you have a lot of unique data (e.g. restaurants in Seattle), which you can turn into rich auto-generated pages.
Look at your data. Paid marketing: your tests generate paying customers with a healthy payback period, virality: over 50% of your new customer acquisition today is WOM, content: there is a high volume of keywords that are relevant to your product, and these are not dominated by competitors that will be difficult to unseat.
Commit the necessary resources to give the lane a real shot:
Most companies underestimate how large and disciplined the effort will need to be to turn any of these lanes into a superhighway.
Committing to a lane generally includes doing two things, both of which can be scary: dedicating a significant amount of cross-functional resources to the effort & influencing the core product roadmap.
Scale the investment to become world-class:
Virtually every customer acquisition channel becomes harder over time because you are acquiring lower and lower intent customers.
Over time, companies typically layer on additional lanes (e.g. Thumbtack adding performance marketing on top of SEO, Airbnb adding performance marketing on top of referral).
The whole article is filled with very actionable insights on each of these phases from Airbnb/Booking/Thumbtack - would highly recommend reading the whole piece.
Moats Before (Gross) Margins
Focussing on gross margins is understandable - they allow for more percentage points of revenue to be spent on growth/product & tend to translate to higher cash flow margin.
Yet, over-rotating on gross margins is myopic because business quality is driven by more than margins.
Business quality is about moats, and while high gross margins are often a reflection of moats, they are not a moat in and of themselves.
The markets will show you that companies with low gross margins can still be highly cash flow generative, defensible, and thus highly valuable. One of the highest-valued companies Apple has a 38% gross margin, roughly half of that for many software businesses!
In fact, many of the most valuable companies have low gross margins, from Walmart and Home Depot to Disney and Netflix to Nike and Starbucks.
For all entrepreneurs (but especially those building a low gross margins business), here are four examples of moats:
Economies of scale: Are your per-unit costs defensibly lower than your competitors’? It’s super-rare for early/growth-stage startups to achieve such scale; assuming yours are not, the next question is: are your per-unit costs improving while not degrading your unit economics?
Differentiated technology: One example is if your company has intellectual property. In the absence of IP, the clearest measure of differentiated technology is pricing power: are customers willing to pay a higher price for your product than others?
Network effects: Does engagement improve as the number of users grows? Another way is to look at monetization: are you experiencing organic growth in wallet share for supply and demand?
Direct brand power: One way to combat having fewer percentage points of revenue is to have built a killer brand. One metric to look for is increasing organic and direct traffic.
TOP CONTENT:
A very comprehensive guide to Marketplaces
Viral Effects Are Not Network Effects
Market Discovery at Square and PayPal
Gen Z Trends Report
Livestreaming monetization models
COVID 19 impact on Consumers worldwide
Warsaw’s largest-ever listing is a Consumer marketplace
👏 WHERE THE MONEY WENT
🇪🇺 Notable EU early stage Consumer rounds :
Hometree, a UK-based company offering smart boiler, heating & home care services, raises £7M with Anthemis/DN Capital - link
Knoma, a UK-based startup that helps lifelong learners finance their tech courses by spreading the cost via loans, raises £21M with GFC - link
🇺🇸 Notable US early-stage Consumer rounds :
Moment House, a US-based exclusive ticketed digital live experience for creators core fans, raises $1.5M with Forerunner - link
Lendtable, a US-based fintech helping employees increase the amount of money they can put in their 401(k) for retirement, raises $3M with YC/Valor/SoftBank - link
Impact, a US-based accelerator for the entertainment industry, raises an undisclosed amount with Benchmark - link
Golden, a US-based self-constructing knowledge database, raises $14.5M with a16z/DataCollective/Gigafund - link
Abridge, a US-based platform for medical care and follow through on doctors’ advice, raises $15M with USV/Bessemer - link
Pacaso, a US-based startup that makes it easier to own a vacation home, raises $17M with Maveron/Crosscut/GFC - link
Cerebral, a US-based mental health medication management and therapy startup raises $35M with Oak HC/FT - link
🔭 Notable later stage Consumer rounds :
Bitpanda, an Austria-based cryptocurrency trading platform, raises $52M with Valar/Speedinvest - link
GrubMarket, a US-based platform where consumers and restaurants order local fresh food, raises $60M with BlackRock/Reimagined/Trinity - link
Much 🖤 from Heartcore