Investor field notes: distribution and conversion models for consumer startups

Investor field notes: distribution and conversion models for consumer startups

"The Greatest Legacy for Future Generations / Glasp"

Introduction:

In the ever-changing landscape of consumer startups, there are two critical metrics that determine success or failure: distribution and conversion. Distribution refers to how businesses acquire new customers, while conversion measures a business' ability to optimize the user experience and achieve specific goals. While distribution channels may evolve over time, it is essential to understand the dynamics of these two factors for sustained growth.

The Power of Distribution:

Distribution plays a vital role in the growth of internet businesses. However, it is crucial to recognize that relying solely on distribution is not enough. Monetization, which is the end result, can only be achieved through effective conversion strategies. Let's explore some key insights on distribution and conversion models for consumer startups.

1. Virality via Social Proof:

Social proof, a well-observed consumer behavior, influences our actions. People tend to mirror the behavior of others to reflect what they perceive as correct. This phenomenon creates opportunities for startups to leverage social proof and drive virality. By gaining validation from groups of people and friends, businesses can encourage others to emulate their behavior. This strategy can be an effective way to acquire new customers and deepen engagement.

2. The Etsy Effect:

Driving discovery is challenging for startups, as consumers often prefer engaging with the original seller who referred them. However, platforms that enable users to be discovered can create loyalty and brand equity. The Etsy Effect refers to the ability of platforms to promote discovery and build an audience of engaged consumers. By fostering an environment where users can be discovered, startups can establish themselves as trusted platforms.

3. Influencers and Disintermediation:

Influencers have become a powerful distribution channel, allowing startups to tap into their fragmented audiences. While scaling influencer marketing is not without its challenges, the low-cost customer acquisition potential is often worth the effort. Gymshark, a fitness brand that leveraged celebrity influence and social proof, experienced rapid growth by targeting those interested in working out like influencers. Startups should explore the potential of influencers and constantly experiment with newer, less crowded platforms.

New Platforms and Opportunities:

New platforms open up new opportunities for startups to explore. Mega platform shifts and breakout individual platforms can serve as new distribution channels. While there haven't been significant platform shifts in the past decade, emerging technologies such as IoT, voice devices, autonomous vehicles, and blockchain present possibilities for disruption. Startups should keep an eye on these emerging platforms and leverage their features for distribution.

Actionable Advice:

Before concluding, let's highlight three actionable pieces of advice for consumer startups:

1. Group Purchasing: Consider leveraging group purchasing organizations (GPOs) to negotiate discounts and incentivize users to share deals with their networks. This strategy benefits both users and merchants by streamlining supply chains and aggregating deliveries.

2. Niche Markets: By building for niche, underserved communities, startups can create world-class experiences that capture the attention of specific verticals. Word-of-mouth marketing within these communities can lead to organic growth and liquidity.

3. Standing on the Shoulders of Giants: Exploit large incumbent platforms for cheaper distribution, particularly when there is a privileged relationship with the platform. While there may be a risk of platform dependency, rapid growth can reduce its significance and allow for diversification in customer acquisition.

Conclusion:

Distribution and conversion are the driving forces behind the success of consumer startups. By understanding the dynamics of these metrics and implementing effective strategies, startups can achieve sustainable growth. Leveraging social proof, exploring new distribution channels, and optimizing conversion tactics are key to building a successful business. As the consumer ecosystem continues to evolve, it is crucial for startups to adapt and innovate to stay ahead of the curve.