Investor Field Notes: Distribution, Conversion Models, and Developing Mental Immunity

Investor Field Notes: Distribution, Conversion Models, and Developing Mental Immunity

Introduction

In the world of consumer startups, success or failure is often determined by two key metrics: distribution and conversion. Distribution refers to how businesses acquire new customers, while conversion measures a business's ability to optimize the user experience and achieve specific goals. Without mastering both distribution and conversion, even the most promising startup can struggle to thrive in the competitive market.

The Role of Distribution in Startup Success

Distribution channels play a crucial role in the growth of consumer startups. Over time, new waves of distribution open up, allowing businesses to experiment and exploit emerging channels for growth. However, as these channels become crowded with competitors, they become less attractive for new entrants. The dominance of online advertising by Google, Facebook, and Amazon highlights the importance of distribution in reaching a mass scale.

However, distribution alone is not enough. Without effective conversion strategies, businesses may acquire customers but fail to engage and monetize them. Conversion is the ongoing process of deepening and optimizing engagement with users. Startup founders often focus on monetization, but it is conversion that truly drives long-term success.

Actionable Advice for Conversion:

• 1. Virality via Social Proof: Social proof is a powerful consumer behavior where people emulate the actions of others to reflect correct behavior. By leveraging social proof, startups can create a sense of validation and trust among users, leading to increased conversion rates.

• 2. The Etsy Effect: Driving discovery is a challenge for startups, but by creating platforms where users can be discovered, loyalty and brand equity can be built. By understanding the value of being discovered on a platform, startups can drive conversion and engagement.

• 3. Influencers and Disintermediation: Influencers offer a highly fragmented distribution channel that can be tapped into for low-cost customer acquisition. By leveraging influencers' audiences, startups can reach new users and drive conversion. While scaling influencer marketing may be challenging, the potential for low-cost distribution makes it worthwhile.

New Platforms and Opportunities

New platforms often bring new opportunities for startups. Mega platform shifts, such as the rise of IoT or blockchain technology, can create new distribution channels. Additionally, breakout individual platforms that aggregate consumer attention can also serve as valuable channels for startups.

Startups should aim to exploit the features of emerging platforms for distribution. Just as Zynga piggybacked on Facebook's platform, startups can leverage the unique characteristics of new platforms to drive growth. These shifts are rare and less predictable, but they can provide significant opportunities for those who seize them.

Actionable Advice for Distribution:

• 4. Group Purchasing: Group purchasing organizations (GPOs) allow businesses to pool their purchasing volume and negotiate discounts. By incentivizing users to share deals, startups can secure discounts while benefiting from streamlined supply chains.

• 5. Niche Markets: Targeting niche communities can lead to organic growth and word-of-mouth marketing. Startups that create world-class experiences for underserved communities can build loyalty and spur liquidity.

• 6. Standing on the Shoulder of Giants: Exploiting large incumbent platforms can provide cheaper distribution for startups. While platform dependency is a risk, if a startup can grow quickly enough, it can diversify its customer acquisition engines.

The Importance of Developing Mental Immunity

In a world filled with misinformation and bad ideas, developing mental immunity is crucial for making sound decisions. A healthy mental immune system allows us to detect misinformation and reject it promptly. It also enables us to spot bad ideas at an early stage, saving us time, energy, and money.

Actionable Advice for Developing Mental Immunity:

• 1. Meta-Beliefs and Cognitive Interrogation: Meta-beliefs are beliefs that we hold after thoroughly reasoning and interrogating their validity. By training ourselves to immediately interrogate information presented to us, we can develop a stronger mental immune system.

• 2. Cognitive Flexibility: Developing cognitive flexibility allows us to change our minds faster when presented with new, better-evidenced information. It is essential to recognize that misinformation is common and that fake news is designed to appear genuine.

• 3. Diversify Information Sources: To strengthen mental nourishment, it is important to diversify our information sources. Digging deeper into underlying research helps us identify potential misinformation and make more informed decisions.

Conclusion

Distribution and conversion are fundamental to the success of consumer startups. By understanding the dynamics of distribution channels and implementing effective conversion strategies, startups can thrive in a competitive market. Additionally, developing mental immunity is crucial for navigating a world filled with misinformation and bad ideas. By cultivating cognitive flexibility and interrogating information, we can protect ourselves from falling victim to misinformation and make better decisions.

Actionable Advice for Startups:

• 1. Prioritize conversion over monetization.

• 2. Constantly experiment with new and less crowded platforms.

• 3. Develop a strong mental immune system by interrogating information and diversifying information sources.