🗞 What's New: Why the booming creator economy is great for tech founders

In a gold rush, you're supposed to sell shovels.

And to call the creator economy a "gold rush" right now would be an understatement. So read on for a few tips on the shovel business.

Here's what you'll find in this issue:

• Building for content creators presents new opportunities for founders. Find out more about this trend.
• New to running ads? We break down the do's and don'ts of advertising on all the top platforms below.
• A lot of founders are building in public. But few acquiring companies are buying in public. Read about the founder who is "open sourcing" the process of buying new startups.

As always, you can submit a section for us to include in a future newsletter. —Channing

🎥 The Creator Economy Offers Unique Opportunities for Founders

from the Small Tech Business newsletter by Justin Chu

A research group recently interviewed nearly 5K micro-influencers. 72% reported that they were posting more during the pandemic, and were also consuming 43% more content. With people spending more time at home, content creators have a larger audience for their work.

Defining the creator economy

Context: 2020 didn't create our new world. It's the other way around; the events of 2020 accelerated many ongoing disruptive trends, like the collapse of movie theaters and the surge in remote work. One of the most interesting trends is the quiet rise of the creator economy. Influencer marketing platform Neoreach published a rundown on the content creator phenomenon. They said:

Analysis: With 1/3 of Americans freelancing during the pandemic, content creators are busier than ever. This boom presents new opportunities for founders to build creator-focused products.

Most coverage on the creator economy focuses on major platforms like YouTube, Twitch, TikTok, etc. Creators on these platforms follow a well-documented, straightforward monetization strategy:

What's missing from this view is the thriving independent network of creators, which includes podcasters, newsletter publishers, online course creators, and self-published authors. Turns out that many of these creators follow a shorter path to monetization:

1. Create digital content
2. Sell the content

Products that help creators achieve one, or both, of these things will likely take off in 2021.

Building for creators

Companies geared towards supporting content creators have seen tremendous growth in 2020:

• Gumroad's creator revenue grew 94%.
• Substack's total paid subscriber count grew over 250%.
• OnlyFans earned over $300M in profits.
• Transistor.fm podcast hosting grew 120%.

Why this matters: Most content creators are working to directly generate revenue from their content. This provides lots of potential for founders looking to build products for content creators, as they are often looking for help juggling a myriad of tasks.

The bottom line: Consumer apps draw in users who expect to pay nothing for the platform (i.e. Facebook). Conversely, creator-focused products often avoid the monetization dilemma because their target audience consists of paying individuals. Building for mainstream creators requires large, scalable platforms that can handle high traffic and cover hefty costs to host large video or audio files. However, you don't need a massive team, or a sophisticated platform, to build for content creators.

Three best strategies to build for creators:

1. Define your target group of creators and build a product specifically for them.
2. Limit the audience your product serves. Focus on satisfying just the power user.
3. Reduce the number of problems your product tries to solve. Solve one problem, or just a few, very well.

Subscribe to Small Tech Business for more.

📰 In the News

🤑 Clubhouse announces a "Creator Grant Program" to support creators in revenue generation.

📘 Rob Fitzpatrick, author of The Mom Test, is launching a new book. Community members of his online community can access the current manuscript now.

📈 Mental health startups are predicted to be one of the year's biggest business trends.

🤝 Google workers across the world have joined to form a global union alliance.

🏫 Facebook will release data on targeted ads from the 2020 election, but only to university-linked researchers.

📱 Apple was hit with its third European class action suit for allegedly throttling iPhones. A fourth lawsuit is on track to be filed soon.

💡 The Beginner's Guide to Running Ads

from the Demand Curve newsletter by Julian Shapiro

Google Ads has started a phased release of their updated Insights page, and feedback is already promising.

The Insights page allows companies to explore emerging trends based on their products and services. All insights provided are highly tailored to your specific business.

With all of the ad channels available, it can be tough for founders to narrow down the best fit. If you're new to running ads, here's a quick overview of how to make each of the popular ad channels work (based on our experience running ads for 400+ startups). We believe that you should test most channels over time. This primer is to help you prioritize what you should test first based on your business.

Ad targeting types

Behavior targeting: Delivers ads to people searching for your product. This is better for conversion, but the audience size is limited to people actually searching for you. Google Ads is an example of behavior targeting.

Profile targeting: Uses social profiles and engagement to deliver ads. Conversion is lower, but the audience size is less restricted. As an example, Instagram ads uses profile targeting.

Here are the top channels in order by average cost per click (LinkedIn being most expensive):

1. LinkedIn
2. Twitter
3. Instagram
4. Facebook
5. Google Ads
6. Pinterest
7. Snapchat

Your cost per click may vary based on your product, industry, and audience.

LinkedIn

LinkedIn offers company and employee targeting. Clicks can be prohibitively expensive.

Good fit: B2B companies earning thousands per customer.

Poor fit: Anyone earning < $10K USD in lifetime customer value

Try experimenting with LinkedIn's ad units:

• Text Ads: Work well only for retargeting & brand marketing.

• Sponsored Content: Decent click through ratios, but this method saturates quickly due to small audiences.

• InMail: Generally avoid. Response rate is poor compared to cold emailing.

Twitter

Twitter ads let you target users who follow a particular topic or person. That's unique.

Best for:

1. Companies targeting niche audiences that can only be identified based on who they follow.
2. Enterprises running brand marketing.

Downsides compared to Facebook and Instagram ads:

• Twitter ads usually cost 2x more per click.

• Conversion is usually lower.

• Audiences saturate quickly because there are fewer engaged users.

Best use: If your profit margins allow, run Twitter ads to get sales leads that you can close via email or phone.

Facebook and Instagram

Facebook and Instagram are the best profile targeting channels.

Good fit for: Mobile apps/SaaS, eCommerce.

Poor fit: Most enterprise products.

Instagram ads generally convert better than Facebook. Use Instagram to target the 18-24 year old audience that doesn't use Facebook. Start broad, then niche down. These channels present the opportunity to really lean into the algorithm.

Best use: Very effective for product discovery. You can reach people who didn't even know they needed your product.

Google Ads

This is the best behavior targeting channel because you can reach people who are actively searching for your product.

Good fit: Products that solve known, high-volume problems.

Bad fit: Products people don't search for because they don't know they exist (i.e. cutting edge technology).

Best use: Use an exact match for the important keywords, and add a broad match modifier (e.g. + women, + summer, + hats) to capture long-tail keywords.

Be sure to add negative keywords to filter out things that aren't suitable.

Pinterest

Pinterest ads combine profile (interest) targeting with behavior (search) targeting.

Best for:

• Selling fashion, food, or furniture.

• Products that lend themselves to pretty, eye-catching imagery.

• Products predominantly targeting women (70%+ of Pinterest's audience).

• B2C eCommerce.

Key for Pinterest: You don't want users to click your ad by accident. Make your content look like ads so that those who click do so purposefully.

Check out the full article at the link below to continue with Reddit, Snapchat, and website banner tips. We'll cover TikTok and YouTube soon! Do you plan to use any of these ad channels for your business?

Discuss this story, or subscribe to Demand Curve for more.

🧠 Harry's Growth Tip

from the Marketing Examples newsletter by Harry Dry

Jake Paul has 50M followers on social media. His paid community flopped. My pal Charlie Ward has 1,700. His paid community is thriving.

Strength of bonds > Number of bonds

Go here for more short, sweet, practical marketing tips.

Subscribe to Marketing Examples for more.

📂 Raj Sheth is "Open Sourcing" the Process of Buying Startups

from the The Saas Factory newsletter by Raj Sheth

The SaaS world is divided into two camps: funded SaaS companies and bootstrapped SaaS companies. I started Decalab in an attempt to find a third way.

Last year, we acquired a business that had previously raised $10M in venture capital and was currently at $500K ARR. Over the next the few posts, I'm going to openly share our attempts to buy company #2.

Learning by doing

After college, I started two B2C companies in India: a classifieds portal, and a direct to consumer jewelry brand. They both failed.

I was excited by the internet, but knew little about building teams, products, or business models. My biggest challenge was to build a balanced team of co-founders who could bring a product to market. I was looking for the perfect mix of engineering and growth talent.

I met my future co-founders on a visit to Bangalore, and we started Recruiterbox. We got along amazingly well; they were engineers (backend and frontend), and I was the growth guy. Over nearly seven years, we bootstrapped the company to 3K customers and a team of 55 (across Bangalore and the US). Recruiterbox was eventually acquired by a private equity fund in San Francisco.

I learned a lot about SaaS, and about myself, during these years. While I was hungry for success, I cared even more about building a product that was also helpful. It wasn't about getting funding just for the sake of funding. The money was an investment in our company's mission, just as much as being an investment in our software.

The idea for Decalab

Without VC funding, the alternative was to repeat the scenic route for my next company: create efficient, profitable and slow-growth SaaS products. I meticulously explored Crunchbase, and noted the healthy Seed and Series A rounds that never raised a round again (with a team size of <25). There were tons!

It seemed to me that a company can commit to the $100M ARR sprint in seven odd years by taking capital north of $10M. But most companies don't reach that goal. They may raise $10M, but after four years of that round, they are at $2M in ARR.

This is where the idea for Decalab originated. I knew that a lot of these products would make great $10-$25M ARR businesses in due time, with only the revenue invested back into the businesses (especially with a global remote/India team). So why not create a SaaS factory that is focused on cracking the $1-10M and offers founders liquid exits if they no longer want to continue?

We could do 5-10 companies that totaled $100M in ARR, all from revenue spend. The only starting capital we would need was enough to acquire the companies themselves. After that, they had to be self-sufficient.

I wrote to 119 founders, a friendly founder-to-founder note, asking them if they were considering an exit. Within two days, I had 22 calls scheduled.

Our first acquisition

Through that effort, I found FlyData.com, our first acquisition. It was doing $500K ARR, raised nearly $10M, and had bet on a few different products. Six years later, they had their core product, a loyal customer base, and very low churn! FlyData had $10-15K average revenue per customer per year, and was a completely self-serve product.

Luckily for me, the San Francisco-based founder was looking to move on. As far as employees, there were only two support engineers on the team (one in Japan and one in the Philippines). I made exiting very simple for the founder, and closed the whole deal within 30 days.

I derived the valuation based on these 6 factors:

1. Revenue growth rate

2. Churn

3. EBITDA (profit)

4. Annual vs monthly plan mix

5. Team that will be left behind

6. Space (Competitive? Commoditized? Declining?)

If you're considering an exit, write to me and let's brainstorm the best path. Most of the time, if we don't see Decalab adding value to the future of the business, I point people to better options than me.

Follow along for acquisition number 2!

Discuss this story, or subscribe to The Saas Factory for more.

🐦 The Tweetmaster's Pick

by Tweetmaster Flex

I post the tweets indie hackers share the most. Here's today's pick:

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Special thanks to Jay Avery for editing this issue, to Nathalie Zwimpfer for the illustrations, and to Justin Chu, Julian Shapiro, Harry Dry and Raj Sheth for contributing posts. —Channing