Distribution and conversion models for consumer startups

TL;DR

Growth rates are crucial for valuing software and consumer companies, but efficient growth and conversion optimization are equally important. New distribution channels like VR, blockchain, and smart home devices are emerging, while breakout consumer companies become their own distribution channels.

Transcript

Today, it's no secret that valuations are closely correlated with growth rate. For software companies, growth rate, irrespective of burn or margins is the single most important factor in determining valuation for consumer companies. This just is not the case. Growth matters, but not at any cost. So for once consumers are actually more rational. In ... Read More

Key Insights

• ☠️ Growth rates are essential for valuing software and consumer companies, but efficient growth is more important for consumer companies.
• 🤩 Distribution and conversion are the key factors for efficient growth. Acquiring users through effective channels and optimizing their behavior are crucial.
• 👶 New distribution channels like VR, blockchain, and smart home devices offer opportunities for consumer companies to grow and reach new audiences.
• 🥳 Breakout consumer companies are becoming their own distribution channels, allowing third-party developers to leverage their user base.
• ⚖️ Disintermediation from Facebook is enabling startups to directly reach influencers and creators for audience scale.
• 👤 Efficient acquisition is meaningless without conversion optimization to turn users into engaged, long-term customers.
• ❓ The challenges of conversion can hinder even the most successful distribution strategies, highlighting the importance of focusing on both aspects.

Questions & Answers

Q: Why are growth rates important for valuing software and consumer companies?

Growth rates are closely correlated with valuations, as they indicate the potential future success and profitability of a company. For software companies, growth rate is the most important factor, while for consumer companies, growth must be efficient and sustainable.

Q: What are the two critical ingredients for efficient growth?

The two critical ingredients for efficient growth are distribution and conversion. Distribution refers to how a company acquires users, whether through paid marketing or other channels. Conversion focuses on optimizing user behavior and turning them into long-term customers.

Q: What are some new distribution channels that are emerging?

VR, blockchain, and smart home devices are among the new distribution channels that have reached a critical mass of adoption. These platforms offer unique experiences and distribution models, presenting opportunities for consumer companies to grow.

Q: How are breakout consumer companies evolving into distribution channels themselves?

Breakout consumer companies like Snapchat, Roblox, and Discord are evolving into distribution channels by opening up their platforms to third-party developers. This enables developers to reach the user base of these companies and distribute their apps or services.

Summary & Key Takeaways

• Valuations of software and consumer companies are closely tied to growth rates, but growth at any cost is not sustainable. Efficient growth, adjusted for sales and marketing margins, is of utmost importance for consumer companies.

• Distribution and conversion are the key ingredients for efficient growth. Distribution entails acquiring users through effective channels, while conversion focuses on turning users into engaged long-term customers.

• The emergence of new distribution channels, such as VR, blockchain, and smart home devices, presents opportunities for consumer companies. Breakout consumer companies themselves are becoming distribution channels, while disintermediation from Facebook is allowing startups to directly reach influencers and creators.