Welcome to the 24th edition of Check your Pulse, a weekly newsletter where I curate thought provoking reads at the intersection of tech, society, and culture. It is read by 3,500+ founders, creators, and other purposeful readers and has been described by readers as ‘a yoga class for the mind’. If you know someone who’d like this sort of thing in their inbox, they can subscribe here.
Happy Sunday, friends.
VCs like to invest in companies operating in large TAMs (total addressable markets).
The problem is – there’s a difference between a large market and your ability to capture a meaningful portion of it.
Take a company selling smart dog collars. There’s a difference between the number of dog owners in the U.S. (your TAM) and the number of dog owners in the U.S. willing to spend $150 on a smart dog collar (your SAM – serviceable addressable market).
For most companies, the more people they reach, the less likely those people will be as die-hard fans as their early adopters, and the higher the CAC will be. As the company reaches a certain size, competition and a diminishing pool of potential new customers makes the acquisition of each incremental customer increasingly difficult and expensive.
This occurs even in markets with strong network effects. The case study here is Uber investor Bill Gurley’s well-known blog post “How to Miss By a Mile: An Alternative Look at Uber’s Potential Market Size” in which he argued that the TAM for Uber was the $1.3 trillion car ownership alternative market, not the car-service and taxi market. That sounds like a great thing to put in an investor deck but a very hard thing to build in practice.
In today’s business environment, the gap between the maximum possible market and what your business can realistically reach is very large.
With overall CAC up 50% over the last 5 years, distribution is so challenging today that distribution innovation may now be even more important than product innovation.
Which leads me to my most important point – more companies would be better served by building an audience before building their product.
The most obvious example of this was Michelle Phan (beauty influencer) co-founding Ipsy, a beauty subscription business reportedly valued at $800m. Emily Weiss turned her beauty blog into Glossier, a $1b beauty brand. The influencer behind @WeWoreWhat (2.2m followers) recently announced MoeAssist, a workflow SaaS product for creators. Just last week Shane Dawson sold 1 million makeup palettes in 30 minutes. And everyone knows how Kylie Cosmetics helped Kylie Jenner dethrone Zuck as the youngest self-made billionaire ever.
Creator entrepreneurs have direct distribution to millions of fans, an emotional connection to their customers, and an ability to involve their audience in co-creating a brand. This leads to massive reach, a low CAC, and a realistic SAM.
Having a good product is step one, but the second, less obvious step is figuring out how to get that product in the hands of customers. Hope and a large TAM is not a distribution strategy.
A built-in audience is.
I predict the capital invested in many consumer start-ups to maintain their early growth rates will not drive the returns investors had hoped for. Ironically, the departure of hype-driven founders will mark the beginning of a new wave of creator founders.
Hamish Mckenzie, co-founder of Substack (the platform I use to send this newsletter) said, “The 2010s were about platforms owning creators. The 2020s will be about creators owning platforms.”
That’s a decade I want to live to see.
“Execution is a critical gap between an idea and reality, but it’s not the only one. Another is belief. For ideas to matter, people have to believe in them. There’s only so much an idea can do on its own. Ideas need supporters, carriers and executors to be real.”
caught my attention
links to love this week
A handy list of 171+ resources for freelancers, including things like proposals, invoices, and personal development templates. 🛠
Microsoft Japan switched to a four-day workweek — and sales skyrocketed 40% Japan is one of the most overworked countries in the world, which often leads to workers slipping into a depression or worse. That's why the results of Microsoft Japan's experiment with a four-day work week are so exciting — not only did employees end up being happier, but they also were 40% more productive. With more efficient meetings, less energy use in the office and a better work-life balance, it goes to show that the key to running a successful business is all about working smarter, not harder. 🏖
Great article in the NY Times arguing that in the future, the ugly Internet will be free and you’ll have to pay for the nice version. The image of the internet as an egalitarian free-for-all — a place where no amount of money could buy you a superior experience, and where no lack of money could condemn you to an inferior one — persisted for years. Unlike the rest of consumer culture, the internet seemed immune to class division. Bill Gates used the same apps, visited the same websites and logged into the same social networks as the guy who mowed Bill Gates’s lawn — at least in theory, anyway. And now? Well, check your credit-card statement. Today’s internet is full of premium subscriptions, walled gardens and virtual V.I.P. rooms, all of which promise a cleaner, more pleasant experience than their free counterparts. 🤔
Companies are coming to the realization that elite pedigrees and high GPA’s don’t always correlate with superior performance. Historically, Google was a company known for hiring only the top people from the top schools. However, Google also loves data and when they analyzed their own in an effort to discover what makes Google employees successful, they ultimately found that grades were, in the words of one leader at Google, “worthless.” In many cases, GPA was an inverse predictor of innovation. Google is now moving away from requiring employees to have post-secondary education— as are companies such as Hilton, Apple, Nordstrom, IBM and Bank of America. 🎓
I don’t think I have ever raved about detergent but this laundry soap by Zum Clean makes my clothes and house smell amazing. 👖
Tom Hanks is playing Mister Rogers in a new movie and this beautiful, personal profile of him in the NY Times is guaranteed to lift your spirits. 🎬
Stealing Amazon Packages in the Age of Nextdoor. Amazon is helping police departments run “bait box” operations, in which police place decoy boxes on porches—often with GPS trackers inside—to capture anyone who tries to steal them. The porch pirate of Potrero Hill can’t believe it came to this. 📦👀
This profile of the CEO of Goldman Sachs (who is also a DJ known as D-Sol) is captivating and will keep you engaged til the very end! Known at the office as an über-professional, hard-charging manager with little patience for small talk, Solomon was anxious that people would no longer take him seriously—mistakenly equating the side gig with some sort of midlife crisis. “You know what, it’s who I am, and nobody would tell me not to play golf,” Solomon says now. “And why shouldn’t I—because I’m a CEO?” “I don’t want to make Goldman Sachs more exclusive. In fact the opposite,” says Solomon. “I’m trying to make it more open, more approachable, more understood, more human.” After all, many younger Goldmanites remember neither the boom times nor bailout days; to them, nothing symbolizes the bank more than a selfie at the club with D-Sol. 🎧🤑
I love this so much. May our children grow through what they go through. 👶🏼
This piece that looks at the impact of online advertising got a lot of attention this week. The core message is that we really don’t know if online advertising is working but few people have an incentive to figure out the answer. The article is pretty long but here’s an interesting summary. 💻
In perhaps the clearest example of algorithms and AI having bias, David Heinemeier Hansson (the creator of the coding language Ruby on Rails) took to Twitter this week to declare the Apple Card a sexist program. And Steve Wozniak (who happens to be the co-founder of Apple) seems to agree! 💄💳
Food for thought on the relationship between time and money ⏳👇🏽
a roundup of startupy things from around the web
A great compilation of startup failure post-mortems by CB Insights.
Alex Hoffer has listened to over 50 episodes of the popular "How I Built This" podcast, and shares some of the common themes she's noticed along the way, including:
Explosive startup growth is the outlier, not the rule
Distribution is more critical than you think
Making money is a terrible reason to start a business
Near-death business experiences are common
There is no such thing as a "founder personality"
An excellent cartoon that should give us a good laugh and a reason to ask ourselves whether we know as much as we think we do about our business. As William Bruce Cameron said in 1963: “Not everything that counts can be counted, and not everything that be counted counts.” 👇🏽
have you heard of?
We spend 25 years of our lives sleeping and yet 1/3 of Americans have trouble sleeping. Eight Sleep (full disclosure: I am an investor) makes high-tech mattresses and sleep products that turn bedtime into recovery time. Their signature product “the Pod” is the first bed designed to boost your performance. Starting at $2,295 (or $89/mo), it features dynamic, self-adjusting cooling and heating to keep you at the perfect temperature all night long. Many people use wearables to track their sleep, but these often lack accuracy, only track sleep, and must be worn. In contrast, Eight products don’t require habit changes, have continuous monitoring, and are non-wearable. Casper, Tuft and Needle, and the plethora of mattress brands out there ushered in a new model for CPG that offered better design, service, & business model. I believe the next wave in this category will be led by innovation at the tech/product level. Eight just raised a fresh round of $40m in funding led by Founders Fund. If you’re in the market for a new mattress, readers can use discount code FFPOD to get $600 off.
overheard on twitter
If you’re wondering who’s behind this newsletter:
My name is Sari Azout. I am a design-thinker, strategist, and early stage startup investor at Level Ventures and Rokk3r. My mission is to bring more humanity and creativity to technology and business.
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