Phil Carter

speaker

228 appearances 1 recordings 1 series first heard Sep 2024 last heard Sep 2024

Phil Carter’s voice in public audio — every appearance, attributed to the second.

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The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch · 20Growth: The 7 Core Levers to Win at Consumer Subscription: Growth Loops, CAC + LTV Benchmarks, Pricing, Packaging, Notifications, Discounts, Paywalls | The Breakdown with Phil Carter · 20 Sep 2024 podcast

Or in an ideal case, does it actually... Is it a smile curve where it comes up? So Duolingo is an example of where even as highly touted as Duolingo is, they don't have fantastic monthly subscriber retention rates.

But you actually get quite a bit of reactivation on Duolingo, where a user will maybe subscribe, learn a language because they want to go on a trip or because they're trying to teach their kid Spanish, and then they'll go dormant for a while.

But then maybe a year later, they'll jump back in and they'll become a subscriber because they're learning a new language or they want to refresh their Spanish skills. And so all of these different dynamics matter when you're thinking about the overall picture of retention. But certainly getting retention right, it's the foundation of any business.

But for consumer subscription, it's particularly important because you're just losing so many more subscribers early on than a lot of B2B models.

I think that's right. You either need a very large market, so that you can afford to churn through plenty of lower intent subscribers and still build $100 million plus business. Or this gets back to, or you just don't raise venture capital, and you keep your team small, and you build a great $10 to $20 million ARR business with a smaller team. And that can work really well in certain cases.

Overall, I think that's right. I think it is a hard category. And that's probably not going to change anytime soon. I actually just published a guest post for Lenny's newsletter. And one of the figures that I include in that article is a list of consumer subscription businesses that have achieved billion dollar plus valuations.

So that's both publicly traded companies, as well as private companies based off of their latest publicly available valuations. And there are about 30 to 40 companies on that list. Roughly half of them are public, half of them are private, but there aren't many, right?

how difficult it is to scale these businesses. I won't name names, but there are plenty of companies that were darlings in the venture community, in the tech community a couple years ago that are household names and consumer subscription, but they still haven't gone public. Well, why haven't they gone public?

I haven't seen their numbers in most cases, but they probably haven't gone public because under the hood, there are metrics that say this may not be sustainable over the long run.

And so this gets back to, if you are a venture capitalist, consumer subscription is not the most attractive asset category because there have been very few billion-dollar-plus outcomes, let alone the $10 billion, $100 billion-plus outcomes that you're ideally looking for to make your fund multiple times over.

But that doesn't mean that with the right discipline and with the right product and growth strategy, you can't, as a founder, find a really attractive niche, build a great product for a small but rabidly excited and loyal community of enthusiastic early adopters. Get that to $10 to $30 million in revenue. And with a team of 10 to 20 people... have a really great outcome in a sustainable business.

As long as you don't push yourself beyond your core to the point where all the metrics start to break down. You start to see LTV go down and cap go up like we were talking about before.

I think based off of historical performance, it's fair, right? If you look at the number of Duolingo's, Spotify's, Tender's, there just aren't that many of them, right? And so I understand why based on those outcomes and based on some of the underlying metrics we've talked about, churn rates, net revenue retention,

It makes sense that the quality of that revenue is just considered lower and therefore the multiples are lower. I do think that there may be some factors over the next 10 years that start to make this a little bit easier. For example, 15 to 30% app store fees. I think Google and Apple are under increasing pressure to lower the average App Store fee, at least in certain cases.

So that's one that could have a pretty significant impact on a lot of these companies' margins. Number 2, I think AI is going to create all sorts of chaos and disruption. And as Brian said on his episode with you, chaos is a good thing for growth teams. There hasn't been a lot of alpha to go after in terms of consumer subscription acquisition channels over the last 5 years.

TikTok is probably the big exception to that. And there have been a couple companies recently... I'm an investor in one called Ladder that's basically made their business on the back of cracking TikTok. But there haven't been many examples of those. I think AI is going to create a lot of new opportunities to rapidly scale consumer and prosumer subscription business models.

I do think there are a couple of factors that may make things easier in certain cases and may lead to some of these bigger outcomes.

Yeah, sure. So a core value promise, and this doesn't just apply to consumer subscription businesses, this is any business should be built on a strong core value promise, which is simply what am I delivering to you as a product or service that ideally you couldn't get anywhere else, or you couldn't get anywhere else as cheaply as you can get through my company.

For subscription business models, what's important is that these are unique and differentiated and that they're enduring. And the reason I emphasize those two words, unique and enduring, is because of the challenges we talked about earlier.

If I am a consumer subscription business whose value promise looks a lot like a dozen other companies in my category, then it's going to be really, really hard to charge a high enough price and maintain strong enough subscriber retention over time to build a sustainable business.

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