हेल्स फ्लाईव्हील से बचना: गैर-मुद्रास्फीति वितरण चैनल बनाना  

यदि आप जल्दी से एक स्टार्टअप शुरू करने में रुचि रखते हैं, तो उत्पाद बाजार में फिट होने के लिए यहां एक आसान सूत्र है। सबसे पहले, कम एनपीएस वाले उद्योग में मौजूदा उत्पाद की पहचान करें (जैसे अधिकांश वित्तीय सेवाएं) जो पारंपरिक रूप से ऑनलाइन नहीं बेची जाती हैं। दूसरा, उस मौजूदा उत्पाद के लिए एक नया डिजिटल ऑन-रैंप बनाएं, जैसे किसी बीमा या ऋण आवेदन को डिजिटाइज़ करना। तीसरा, ग्राहकों को उक्त उत्पाद की ओर आकर्षित करने के लिए डिजिटल विज्ञापन खरीदना शुरू करें। यह मानते हुए कि डिजिटल विज्ञापन बाजार अभी तक कुशल नहीं है, यहां तेजी से विस्तार करने का अवसर है। 

यदि आप ऐसा करते, तो निश्चित रूप से आप अकेले नहीं होते। यह प्रारंभिक मॉडल एक कंपनी शुरू करने के लिए एक खतरनाक रूप से आकर्षक तरीका हो सकता है और वर्षों से उधार, बीमा और बैंकिंग में कई वित्तीय सेवाओं के स्टार्टअप द्वारा कोशिश की गई है। यह देखना आसान है कि क्यों - आप अपने खर्च को कम करके अपनी वृद्धि को पूरी तरह से नियंत्रित कर सकते हैं, और ग्राहक अधिग्रहण लागत (LTV:CAC) अनुपात और पेबैक के शुरुआती आजीवन मूल्य के मजबूत होने की संभावना है क्योंकि आप बाजार की अक्षमता का लाभ उठाते हैं। लेकिन प्रतिस्पर्धी, मौजूदा, या दोनों अनिवार्य रूप से बाजार में प्रवेश करते हैं, इस दृष्टिकोण को अपनाने वाले व्यवसायों को या तो नए वितरण चैनल खोजने या क्रॉस-सेलिंग, अपसेलिंग, या कुछ मामलों में, लंबवत एकीकरण द्वारा अपने मार्जिन का विस्तार करने के लिए मजबूर किया जाता है। 

इंश्योरटेक में, एक ऐसा क्षेत्र जिसे मैं 2016 से देख रहा हूं, कंपनियों ने पिछले सात वर्षों के सबसे हालिया बैल चक्र के दौरान इस मॉडल के पहले भाग पर ध्यान केंद्रित किया है। उदाहरण के लिए, एक नया व्यवसाय एक डिजिटल बीमा एजेंसी को स्पिन करेगा, फ़नल को उसके उत्पाद सूट के लिए विज्ञापन खरीदेगा, और फिर स्केल करना शुरू करेगा। चूंकि कुछ कंपनियों ने डिजिटल रूप से देशी उपभोक्ता फ़नल बनाए थे, इन शुरुआती प्रवेशकों ने महत्वपूर्ण वृद्धि का अनुभव किया, इसलिए जब तक वे व्यवसाय के सकल मार्जिन से कम ग्राहक प्राप्त करने की लागत रखते थे।

वास्तव में, आठ साल पहले मैं जिस किसी से भी मिला था, उनका मानना ​​था कि यह डिजिटल एजेंसी बाज़ार में शुरुआती कील थी, लेकिन मैंने देखा कि लगभग हर पिच ने राजस्व और उत्पाद नियंत्रण को बढ़ाने और एक प्रबंध सामान्य एजेंट (MGA) बनाने पर ध्यान केंद्रित किया। सिद्धांत यह था कि जैसे-जैसे कमोडिटीकृत डिजिटल एजेंसी मॉडल में योगदान मार्जिन कम होने लगा, MGA संरचना काल्पनिक रूप से उच्च कमीशन दरों (अधिक राजस्व की ओर अग्रसर) और उत्पाद नियंत्रण में वृद्धि (उच्च रूपांतरण के लिए अग्रणी) के रूप में रक्षात्मकता की ओर ले जाएगी। 

The hypothesis proved to be untrue. Instead of this verticalization leading to competitive moats and defensibility, it instead usually restarted the same vicious cycle of growth. The new MGA would spend a bit more than its non-MGA competitors, until those companies formed an MGA that had the same economics — or the cost of acquiring a customer reached the dollar amount of gross margin a policy generated. This race of margin creation/expansion, consumption, creation/expansion, and consumption is something I’ll call Hell’s Flywheel. 

Unfortunately, insurtech isn’t the only place this flywheel has been tested. Businesses and investors who spent time in digital lending during its boom in the early to mid-2010s experienced the exact same downfall. There are countless other industries where the law of Hell’s Flywheel also applies. 

Mathematically, there are a handful of ways a company can escape the flywheel and beat back margin destruction: having a lower cost of capital than any competitor (which is extremely unlikely as a startup), having a defensibly higher expected value per lead versus any competitor (perhaps by having either better conversion rates or more monetization methods than a competitor), having a lower cost structure than competitors (such as automation for a scaled call center), or having non-inflationary customer acquisition channels (such as distribution through a referral partner). The first three are exceptionally challenging for any business to achieve as the cost of capital and cost structure advantages are generally only impacted once a company has reached considerable scale, and conversion rates are very hard to sustainably win on. It’s worth noting that without some type of differentiation, your distribution channel may not matter and your margin will erode as competitors enter your channels. But non-inflationary CAC can be a continuous gift. 

Non-inflationary CAC can be created in three ways: 

1. Shifting from B2C to B2B2C
2. Shifting from B2C to B2B 
3. Finding non-democratized B2C channels

The first two methods involve uncovering the B2B business that’s lurking inside every consumer company, and then enabling a partner to either market the product to their customers and retain full customer ownership (B2B), or market the product to their customers and share ownership (B2B2C). Non-democratized consumer channels are places where there is a very deep, proprietary opportunity to market to your customers outside of any auction environment. Often non-democratized channels are only possible at scale but still require a shift in GTM thinking. 

Setting the company up for success

Shifting a business’s GTM strategy from direct-to-consumer (D2C) to B2B or B2B2C is no small feat, and in many ways, it can be like starting another company. The customer totally changes as it’s now the business that is selling to the ultimate customer, and the product, marketing, and technology infrastructure all need to change to serve that new customer.

The hardest part of solving this problem is structuring the company to reinvent itself while continuing to operate the existing product that has already hit product-market fit. This generally means taking resources away from the main driver of revenue and allocating it toward activities that might not lead to growth in the short term — and may never lead to growth at all. Doing this takes buy in from the management team and the board, along with a long-term commitment. Most importantly, it takes a team.

Shifting from B2C to B2B2C: I was lucky enough to work at Ethos for a few years as we scaled from $0 to over $100 million in gross profit. I was responsible for a few things during my time there, but most notably, I helped build our B2B2C business, whereby we sold our products through insurance agents. We grew that business from $0 to millions in monthly revenue with thousands of insurance agents marketing products for us. The key aspect of this model was that it had non-inflationary customer acquisition costs, or budgeted CAC, as we could pay referral fees to our partners based on conversions, rather than leads generated. The agents we partnered with already had customers and just wanted a better way of doing business. We were fortunate at Ethos to also introduce new mechanisms that made the business more durable over time, but building an indirect distribution channel was a major win for us and helped us reach our most recent $2.7 billion private valuation. 

Shifting from B2C to B2B: An example of a business that successfully shifted from B2C to B2B is Marqeta. Marqeta started in 2010 as a prepaid card business. Instead of using an existing legacy infrastructure such as FIS or First Data, Marqeta opted to build its own issuing and processing platform to support its new card. Unfortunately, the company wasn’t able to scale the first or second direct-to-consumer card idea and escape Hell’s Flywheel. Instead, the business pivoted into offering the platform it had built to support its own cards to other businesses, such as Square and Doordash, which had already acquired clients and wanted to better serve them. Marqeta is now a roughly $3.4 billion public company. 

Shifting into non-democratized channels: Hims is a business that’s known for reinventing consumer healthcare delivery and started with men’s products. Early on, digital channels for other healthcare delivery services were inefficient and the company was able to scale rapidly. Once at scale, they did some very clever non-inflationary advertising, such as buying restroom/urinal space at Oracle Park. Zappos also used non-democratized channels when they essentially bought advertising spots at the bottom of all the TSA trays at a few regional airports so they remind the shoe-less passengers staring at the bins they should buy their next set of kicks from Zappos. Both are examples of non-democratized and non-inflationary distribution channels that are possible after reaching scale. 

As the focus returns to positive unit economics and defensibility, more companies will inevitably run into issues scaling direct-to-consumer offerings and will turn to trying to create budgeted distribution. If your company is going to go through this type of transition, here are a few thoughts on how to structure the transition:

1. Decide between shifting to B2B2C, B2B, or non-democratized: The hardest part about starting something new is to figure out which direction to run in. At Ethos, we simultaneously tried a handful of things, all of which were informed by where products similar to ours were already selling (~89% तक of life insurance is sold through an agent and 50% is sold through an independent agent). My partner Alex has a wonderful piece on when B2B2C business models make sense where he states that B2B2C is “easiest to sell when Business A does NOT want to be in the business you are offering.” The agents we worked with were in the business of selling products, not manufacturing them, so it was complimentary. If a prospective partner does want to be in the business you’re offering, it might be simpler to choose white label B2B so long as there’s a clear reason for adoption. 
2. Re-establish a startup mindset. By this, we encourage you to keep your team lean, as overstaffing can kill these new efforts, and ensure your builders are as close to the customer as possible. To start, this might be one generalist and one technologist, much in the same way a startup might begin. Make sure every team member is hungry, even if this means hiring less tenured employees over established executives. And remember to take a long view; one of the biggest mistakes companies at this stage make is not adequately funding — financially or with head count — their new business unit and giving the team enough time to execute. 
3. Ensure teams are self-reliant. Make sure that your teams have everything they need to build and don’t have to rely on the mothership for resources. For example, if you are building a new initiative, you don’t want to rely on the VP of Engineering to allocate resources to your sprint, because he or she probably cares more about building and maintaining your company’s core product experience and won’t prioritize working on anything new. At times, this may mean different teams are doing duplicative work, but this redundancy actually helps the new initiative move faster in the short term while also potentially protecting it from changes in the core experience. For example, when we were working on the early versions of the agent business at Ethos, our engineers copied over many sections of the code base so our agent-based product experience was not impacted by the tests we ran on the consumer funnel.  
4. Create go / no-go deadlines. It’s critical the new team has room to fail fast and figure out what works and doesn’t work. As there’s considerable ambiguity with the new initiative, adding a timeline to experiments can help avoid creep and allow you to make decisions faster. For example, the team may want to set a goal around solving for a specific problem by a set date, such as “by our next fundraise we need to have proved XX” or “we are funding this with $Y; to unlock more money here’s what needs to happen.”

While using growth channels you can easily toggle up or down can be deceptively attractive, the unfortunate reality is that there is no alpha in paid marketing and many businesses can greatly benefit by building the sustainably profitable distribution channels described above. If your business is stuck on Hell’s Flywheel, I hope these thoughts give you peace of mind that escape is possible and has been done many times before. Following the above steps and connecting with others who have been on the journey before can greatly increase your chances of success. And as with any startup, above all else hire and empower the right people and the results will take care of themselves.