The Only Thing Which Has Failed About The ‘Creator Economy’ Thus Far Is Venture Capital’s Attempts to Get Their Piece. Why There’s Never Been a Better Time to Be a Creator.

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I judge the health of the creator economy by one single controversial factor: ease of access and probability of survival for its participants. That is, if you are someone who wishes to earn a minimum viable living being creative, what is the likelihood you’ll be able to do so? A singer who wants to sing. An animator who wants to draw. A comedy troupe who wants to make you laugh. A writer who wants to blog about culture. With the question – can I figure out how to make enough money to keep doing this?

My bold statement is that there has never been a better time for Creators by that objective function. I absolutely concur that if you want to maximize around other objectives, or examine particular types of creative industries, you might disagree with me. For sure there were periods where smaller groups of participants had better lifestyles, more stable employment, increased societal influence, or a less demanding fandom. But all of these moments were based on artificial scarcity and cultural gatekeeping. It might be harder than ever to earn $1 million/year as a creative but it’s never been easier to make $50,000.

Software and technology in general has driven down the cost of most creativity and powerful tools are in the hands of more than 1 billion human beings.

Creativity is happening within communities and platforms which bring together distribution and collaboration.

And you can directly and indirectly monetize your creativity in a myriad of ways.

Put in another way, my framework for the Creator Economy is that there are three broad areas of value

  • Create: Tools that help people be creative and touch the production process in some manner
  • Distribute: Tools which help people find, growth, interact with, understand their audience/community/fans
  • Monetize: Tools which help people make money from their creative outputs

I am not saying it’s easy. I’m not saying it’s fair. I’m not saying it’s without tradeoffs. I’m not saying everyone will (or deserves to) succeed. But it has never, ever been a better time to try if you’re willing to commit. My earliest encounters with a personal computer, initial uses for the Internet, and 12+ years of product work [Second Life, AdSense, YouTube], were all driven by the conviction that everyone deserves the chance to be creative. And that the world benefits when little stands in between creator and audience.

But if I’m so optimistic about the world of Creators, what’s going on with the startups formed over the last few years to help this market succeed – why are so many struggling? I’d been thinking about this post for a while, waiting to get to it at some point, but nice essays from Mike Mignano [LSVP], Andrew Chen [a16z] and Kaya Yurieff [The Information] brought my hands to keyboard.

Mike, who we backed when he started podcast creation platform Anchor, wrote last year about what he calls the “Creativity Supply Chain” – how basically the market for Creativity is really much much larger than how we originally defined the Creator Economy, which became overly focused on Influencers and social platforms. I agree!

Kaya covers “How Influencers Dodged the Destruction in Creator Startups” and notes “times are grim for startups that sell products and services to creators. Some are folding, while others can’t pivot their businesses away from the creator economy fast enough. The creators themselves, however, are proving to be far more resilient.”

Chen penned “Creator Economy 2.0: What we’ve learned, why it’s hard, and what’s next” and analyzes why so many of the first wave of startups failed to scale productively:

The two posts pair nicely and I generally agree with the snapshots. However, I wanted to add a few of my own observations to Andrew’s hypotheses.

1) The Creator Economy as an Investable Concept was ZIRP Accelerated. Too Much Capital Too Fast.

Handful of temporal factors turbo’ed the amount of dollars and number of startups in the Creator Economy space.

i. COVID – lots of attention focused online, via social platforms, waiting to engage/be entertained/informed/etc by online creators

ii. Velocity of venture dollars deployed increased because of ZIRP

iii. Lots of new VCs (both new funds and new hires at existing firms). Do these folks want to be the 100th investor chasing SaaS or do they want to define/invent new categories where they can be the thought leaders? So there’s a little bit of fake it until you make it, where the incentives are to find white space to invest in. It’s almost always good faith just a byproduct of incentives and competition.

iv. Lots of founders with ‘relevant’ experience – FB, IG, YouTube, Snap, etc shedding talent and this CV is a credible pattern matching checkbox for VCs who assume these founders have the depth, insight, and relationships to build in this market. There also weren’t a lot of novel ‘consumer startups’ being built in non-gaming areas, so Creator Economy was attractive to folks who didn’t want to work in B2B.

v. Crypto speculation made NFTs, altcoins, etc all seem like viable mechanisms for creatives to scale

Prediction for Next Wave of Startups: Optimistic! Sometimes the best companies get started when a market is out of favor, vs overheated. Today’s founders got to see a bunch of experiments run on other people’s time and dollars!

2) “Creators” Are Not a Single Customer Segment

“Freelancers,” “SMBs,” “Creators” – these are all examples of broad categories which can span too broad a variety of personas, needs, geographies, and so on, to really be targetable by a product wedge. Of course there are some needs which can cuts across a significant number of segments, but it’s nuanced and you need to pick an initial customer base that’s big enough to be meaningful but specific enough in the job to be done. Too many Creator Economy startups targeted overly broadly (“Influencers”) or overly narrow (“sports coaches want to create video”) ICPs.

Prediction for Next Wave of Startups: More startups that build for defined, but not yet venture scale, markets. And then only raise VC once they can (or want to) jump from that profitable first customer to a broader goal.

3) Creators Might Each Have 1000 True Fans, But There’s Overlap and Cannibalization Across Creators

Many CE startups were running on the hypothesis of 1000 True Fans, basically the notion that minimum viable success comes from a Creator finding the 1000 folks who like them the most and figuring out how to monetize this group to its fullest level. This is what allows CE growth spreadsheets to imagine a Creator Economy that even if it followed power laws, would still produce a very valuable long tail. There turned out to be two problems in relying upon this theory as ‘a given’ for your startup.

  • Cannibalization and Competition Among Creators. If the CE was going through a venture-fueled hypergrowth phase it caused a speedrun of 10x, 100x more creators asking for your dollars to buy their merch, subscribe to their newsletter, tip their livestream, etc. Most consumers are True Fans for more than one creator/interest and also have a fixed budget to spend on content and entertainment (whether it’s predefined or more just a sense of ‘spending too much/what can I afford this month). So getting to your 1000 True Fans meant not just finding 1000 people but 1000 people who could afford what you were selling and preferred you ongoing to all the other Creators competing for their attention and dollars. Hence, conversion rates and retention fall over time.
  • Global Fandom. Although it’s much easier to be Day One Global for a startup versus years ago, most still can’t take on the infrastructure, legal, and system integration hurdles to serve international creators and/or consumers right off the bat. This adds another friction in finding a Creator’s 1000 True Fans – your business model relies on those Creators and their 1000 customers being in geos you can service and monetize (while also recognizing that not all regions are as valuable from a currency standpoint if your Creators are in US).

Prediction for Next Wave of Startups: More advanced approached to customer CRM/lifecycle management + better content windowing/price segmentation to help you segment and serve 100 Rabid Fans + 1000 True Fans + 10000 Casual Fans + 100000 One Offs.

4) Most Creator Economy Startups Aren’t Greedy Enough

Margin. It’s hard to create a big business on small margins and low take rates. Too many of the CE startups started with sub 20% take rates or venture-subsidized subscription prices. I get it – you want to get to scale first, don’t want to be greedy and reach into Creator pockets. But it’s really tough to get your P&L rightsized this way.

Even more essential (and subtle), I really believe your margin is your mindset! Think of it this way – how much value would you have to create for a Creator in order to justify taking 25% – 50% of a transaction instead of 5%? A lot of value! And it totally resets how you think about a minimum viable product offering or what success can be. If during the seed phase more CE startups solved for the value proposition question *before* getting on the growth curve I believe we’d see (a) fewer move on to the Series A funding phase but (b) the survivors be stronger, better companies.

Prediction for Next Wave of Startups: Higher take rates 🙂

so TLDR: I worked in the Creator Economy since before it was named, believe in the creativity of human beings (whether it’s economically motivated or just for expression), and want to see more products built for Creators. Many of these will originate from within the communities themselves rather than be originated solely by venture-backed entrepreneurs so you can’t judge the ‘health’ of the Creator Economy just by VC funding statistics.