disconoah.eth
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Third and final part on contrarianism - this is the home stretch. This time around, it's not about the kinds of startups founders are building/the types of businesses investors are seeding, or for that matter the conviction required to generate those ideas in the first place. Instead, it's about the offbeat, sometimes counterintuitive ways to actually scale a business.
In the AI era, company building changes dramatically. Mostly due to improvements in software development infrastructure. What artificial intelligence does, at least currently, better than anything else is the democratization of production - production of content, advertisements, knowledge, and most recently, working code.
Text-to-code platforms like Replit, Cursor and Lovable make it easier to spin up code through easy-to-use interfaces. This means that software development isn't restricted to those with technical know-how, but even people with no coding skills. Since anyone can now create a working prototype in a few hours ("vibe coding"), competitive edges shift from pure technical skills to something much harder to replicate - product intuition and creative approaches to marketing and distribution strategy. In a world where software production is being democratized, building a business that stands out and generates strong traction and brand loyalty is the true differentiator.
First, marketing.
AI has already disrupted content creation and marketing. The rise of generative AI means that companies can produce ads, blog posts, and social media content at scale for pennies on the dollar. This, however, has also made the internet noisier and more homogenized. With so much content flooding online platforms, the ability to sustainably capture attention and traffic can be a powerful economic moat.
Startups today spend an alarming amount of their funding on traditional digital advertising. On average, 40 cents of every venture dollar raised goes straight into the pockets of Meta and Google. This playbook worked until 2021, when Apple rolled a feature called App Tracking Transparency (ATT). This essentially required iOS apps to explicitly ask users for permission to track their data across websites and platforms. Previously, advertisers could automatically access a individual user's Identifier for Advertisers (IDFA), which is what they used to monitor the effectiveness of an ad campaign, attribute ad conversions, and build highly targeted campaigns. Direct-to-consumer (D2C) businesses, especially ones selling consumer packaged goods and software, took advantage of this, leveraging precise, data-driven targeting to acquire customers efficiently and at scale. But with the rollout of ATT, traditional channels because more expensive and less effective because it was harder for co's to track user behavior across platforms and optimize ad spend.
The downstream impact of ATT has been increased customer acquisition costs, and thus a diluted LTV/CAC ratio. Customer lifetime value to customer acquisition cost (LTV/CAC) is one of the most important KPIs for evaluating the long-term profitability of a business and the sustainability of its growth motion. Here's how it is calculated:
LTV = average revenue per user (ARPU) * gross margin * (1/churn rate)
CAC = total s&m marketing expenses / number of new customers acquired
As an example, a business with a lifetime customer value of $4,000 and a customer acquisition cost of $1,000 has a 4:1 LTV/CAC ratio.
A LTV/CAC ratio of 3:1 or greater is generally considered healthy. Venture investors backing DTC and SaaS businesses look closely at this ratio because it indicates how effectively a company is deploying its capital. As do the businesses themselves. But when traditional digital marketing channels were upended by ATT, average LTV/CAC ratios took a major hit. In order to improve their metrics, DTC startups need to take differentiated approaches to marketing, beyond the normal channels. This means leaning into unconventional, often offline, marketing strategies - like guerrilla and grassroots marketing. These can provide a refreshing contrast to click-based digital advertising.
Print is one such strategy. In an era of algorithmically sorted, feed-based content, the tactile and curated nature of print marketing could stand out as a powerful tool. Zines in particular - the gritty, DIY publications of punk rockets and subcultures from previous decades, are making a comeback. They offer a chance for startups to tell their story on their own terms, without the pressure of optimizing for clicks and shares. Zines have found a new audience among brands looking to differentiate themselves in a crowded market.
Out-of-home (OOH) marketing, also. Billboards are making a comeback. Successful, scaling startups like expense management platform Ramp are proving that OOF advertising, long written off as a relic of the pre-digital era, can still be effective. When done right, these high-impact placements can make a lasting impression, cutting through the noise of digital ads and high online CAC by creating a physical presence in the real world.
Sure, it is much harder to measure the effectiveness (conversion) of these offline strategies, but they are a refreshing take on marketing and allow co's to lower customer acquisition costs by building more organic, authentic connections with the target audience. The best founders today are those who can zig when everyone else zags - embracing the weird, the unconventional, and the deeply human aspects of brand building. Traditional digital advertising is the marketing playbook of a previous era of company creation, and it should be burned in most cases.
Second, distribution.
Distribution is all about getting the product/service in front of consumers, and efficiently moving it from the creation stage to the consumption stage. There is somewhat of a chicken-and-egg situation in terms of a startup's order of operations, and whether it makes sense to distribute a product first or market it. Distribution typically follows marketing because you need to build awareness in the product/service before worrying about how to get it into customers hands. If none of the target audience knows the brand or what it stands for, distribution won't matter. Effective distribution is a function of clear storytelling and positioning, and marketing initiatives allow startups to define the narrative and emotional hooks that drive customer interest.
With that said, for startups pursuing product-led growth strategies (selling a product that has built-in viral loops or network effects that allows it to sell itself), it would make sense to prioritize distribution since intentional marketing motions are less necessary. Brands may start with a strong distribution strategy instead of worrying about how to "market" their products, focusing on scarcity and exclusivity before mass marketing.
Whereas contrarian marketing involves building awareness through unconventional channels, contrarian distribution is all about getting the product into the right hands without relying on social media - again, primarily Meta and Google. One way to do this is by leaning into IRL experiences to differentiate from competitors and build brand loyalty. DTC companies like Glossier, and even fintechs like Brex, are curating experiential retail experiences that provide the space for would-be customers to interact with the brand in the real world, and build deeper, more emotional connections with it. These are the kinds of connections that digital distribution strategies struggle to create. Glossier and Brex may still sell their products/services online, but they use offline as an effective distribution strategy by building connection, community and relationships with customers. As it turns out, live event activations and community-led growth are highly effective distribution channels.
While it makes sense for DTC companies selling tangible products (like Glossier's makeup and skincare) to leverage the aforementioned channels because consumers can actually touch and test those products, it may be trickier for consumer technology startups to find the same level of success with non-traditional distribution. Often, these companies rely on platforms like Twitter, Discord, Indie Hackers, Product Hunt, and Boring Launch to get their offerings into the hands of consumers. This is especially the case for consumer crypto startups, which heavily depend on Reddit and "crypto Twitter" for distribution. That strategy has varying degrees of efficacy. The "mega launch" on a major social platform is great because products can reach critical mass on day one, but this leaves startups with minimal room for iteration on an initial prototype since consumers usually give a product one shot to win them over.
A contrarian distribution playbook for consumer crypto startups could look like moving beyond the typical social media echo chambers and focus on integrating their products into the daily lives of users in more organic and contextually relevant ways. Collaborating with lifestyle brands, sponsoring IRL events, creating products that bridge the digital and physical worlds, or incorporating real-world utility tied to digital assets which creates a sense of exclusivity and cultural relevance. Instead of the mega launch on crypto twitter, repeatedly run experiments into small, closed communities such as crypto-culture networks (DAOs like Friends with Benefits or NFT clubs like Bored Ape Yacht Club) so that distribution is tailored to a specific target audience and the startup can get many shots on goal to get the product right.
For founders willing to take the contrarian path to building and scaling, the playbook is wide open. It's almost required that they do things differently now, due to the commodification of software development and dwindling effectiveness of traditional growth channels. It's not about how fast you can build, but how creatively you connect. I expect to see more outside-of-the-box thinking, once the average founder realizes that contrarian and memorable approaches to marketing and distribution are the ultimate competitive moat.
Enjoy a few conclave memes, and some other high quality yapping on X this week.
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