Jul 22, 2024
Building For B2C: A Collection of Insights, Advice and Watch Outs
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Building a successful VC-backed consumer-oriented co with sustained success has been quite tough in recent years.
But the cyclical pendulum does swing - surely that means we’re due a wave of exciting new B2C companies in the coming years, powered by the AI platform shift.
That said - building in B2C is not for the faint of heart. Formerly high flying B2C leaders have been fairly capital inefficient in recent years. Many were acquired for low multiples relative to capital raised; and many publicly traded B2C companies are faring poorly in public markets. This has caused VCs to be more conservative in funding consumer tech startups in recent years.
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We hope in the coming years to see many founders avoid the sins and overcome the historical hurdles of the past. To help, a selection of reading and listens from smart folks to help navigate:
Overall Strategy
- Make sure you have a well defined value prop. Will your idea deliver marked, measurable value to the end customer in delight, accessibility, and/or price? Kent Bennett at Bessemer Ventures articulates this well in a framework - “Better, Cheaper, Easier, or Lovelier”
- Is your TAM big enough to attract VC and drive a VC-scale return? The folks at A16Z offer a TAM definition here, plus the definition of many more important metrics. VCs care a lot about existing, and/or potential TAM, especially funds that need to return $Bns - it’s helpful to understand what kind of outcome a VC will consider a success relative to your TAM, and financial plan.
- Will you fall prey to, and/or leverage the 7 deadly sins? Tanya Shushchenko argues compellingly why startups should appeal to one of the 7 deadly sins to make a killing (sorry). Caryn Marooney from Coatue reinforces this, and adds how startups can avoid killing themselves by not falling prey to the deadly sins.
Product Strategy
- Will your product or service truly leverage the benefits of the new platform (eg AI)? Think about what unique customer benefits can be offered by AI, rather than just slightly improving an existing web or mobile product (or by adding “.AI” to your company’s URL 🙂). Kirsten Green at Forerunner recently gave a great talk on Winning with Consumers in AI - they also have lots of insights on their site for founders building in b2c.
- Will you build with focus, or build for a horizontal market? There can be big benefits to early focus on a product or service category, and/or on a target customer segment. The“beachhead strategy” enables you to learn and succeed through focus then you add on later. Bill Aulet (MIT’s Martin Trust Center) points out the virtues of Amazon’s beachhead strategy here. Ebay also started with focus on a limited number of categories, Pinterest as well. Uber, DoorDash and Instacart are examples of successful beachhead strategies vs Task Rabbit’s horizontal strategy. Building for all can make it hard to offer purpose-built UX, acquire target users, and to build recognition for being great at one thing.
- Measure your Product Market Fit. It’s important to know how you’ll measure PMF, and have theses about what you’ll try, and how much time and money you’ll spend to try to get there. Lenny Rachitsky’s piece on “how to know if you’ve got product market fit”; and Sequoia Capital’s different archetypes of PMF offer great definitions
- Test early, and often. Iteration, data-driven feedback loops, and high product velocity can be key to surviving and thriving in B2C. The Product Marketing Alliance shares reasons and tactics here/
Marketing, Customer Acquisition & Community
- Great storytelling, especially by the CEO, is key for fundraising, getting earned media, recruiting, customer acquisition and more More about storytelling from Nancy Duarte in a stanford talk here; and storytelling can be learned - one way is storytelling training
- Pay careful attention to customer acquisition spend and unit economics. When it comes to CAC expenses - in addition to understanding your product or service cost of goods sold (COGs), you’ll likely need to experiment with multiple paid and unpaid channels to drive user acquisition and retention. Dan Hockenmaier and Lenny Rachitsky share a great teardown on consumer acquisition in the First Round Review.
- It can be helpful to build and leverage hype, but don't become over-reliant: Benchmark’s Sarah Tavel offers some great advice and examples on how and when to leverage hype for consumer builders.
- Building an engaged, loyal organic community can significantly lower cost of customer acquisition and help with viral growth. Tina Sharkey, former CEO of Brandless & Babycenter, now Prof at Iovine and Young @ USC does a great teardown on the DNA of building a modern brand in the Digital and Dirt podcast.
- What is branding and how do we do it? Eg define, frame, measure it? Marketing professor David Aaker’s book On Branding is a classic presenting 20 principles on building a strong brand.
- Tips for building an “audience”-based business. Audience-based breakouts like Facebook, Pinterest, Snap and Twitter focused in early years on user growth, stickiness and sharing, adding monetization years later. Monetization (ads, premium features…) too early can create user friction (it’s important to be able to raise capital with a vision and strong user growth and retention data if you have no revenue). A great breakdown of how Pinterest did this is here, from the Product Habits blog.
Finance & Monetization
- Pay attention to capital efficiency. Have you thought about how capital efficient your business will be? How much you raise for your business will have a big impact on how much you,employees and shareholders will make (in our unicorn analyses here and here, capital efficiency for VC-backed business has gone down a LOT in the past decade)
- Models for monetization will likely evolve in the AI Era. Most consumer tech companies historically monetized via transactions, or ads; Spotify and Netflix have shown you can drive $Bns in monthly subscription revenue, and Roblox has gotten to $Bns in revenue selling credits. Mighty Networks’ teardown on monetization shares a helpful guide to the various models - and we look forward to seeing new ideas in the coming years.
Above are just a sample of insights and advice we’ve curated from smart investors, operators and firms. Any great pieces we missed? Please comment or send them over to hello@cowboy.vc, we’d love to add them. And if you're buliding in B2C, of course we'd love to hear from you - hit us up at Cowboy.VC.
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