I use a simple rule of thumb to figure out which is the new best trend to ride in the near to medium future: follow the (VC) money. That’s not to say that venture capitalists haven’t gotten A LOT of things wrong but it’s safe to assume that, if they doggedly pour money into something, that something will be around for a while.
- The crypto boom between 2020 and 2022 was largely funded by investor money. It’s also when every startup added blockchain to their pitches and tech stack, often needlessly. But you know, you gotta feed the hype.
- In the tech space, the end of 2022 saw the rise of AI, the perfect contender to replace crypto and blockchain. If you pay attention, you’ll see that the startups who swore by blockchain in 2021 are now willing to bet their entire existence on AI.
- The creator economy has been silently riding both these waves and more. In 2021, VCs poured more than $5 billion into creator-related startups. And that’s not counting the money VCs poured directly into creators’ businesses, through sponsorships or partnerships.
In 2022, that money was suddenly halved, with VCs sinking only $2.5 billion into creator economy startups. What happened?
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You can blame the economy but it’s mostly the creator economy
VC backing for startups fell across the board, with economic uncertainty looming. Still, overall startup funding fell by 33%, while the funding for creator-related startups dropped by a massive 50%.
In 2023 (thus far), the numbers look even direr, with funding down 86% in Q1. The projected investment for the rest of the year isn’t looking too chipper either.
So it wouldn’t be quite fair to blame the economy, would it?
In September 2022, the layoffs started: Patreon laid off 17% of its employees, Substack parted with 14% of its team, and Cameo with ~30%.
I know what you’re thinking: everyone laid off people, big companies and small ones alike. Sure, but these startups were VCs’ darlings, part of an industry that was thought to be recession-proof. Still, the growth they were expecting when they made the hires never showed up.
Why?
Creators are a risky bet
Essentially, creator businesses are small, even micro businesses. 65% of small businesses fail within 10 years.
Creators have a few advantages over your usual SMEs, though:
- Lower operating costs. Most creators sell digital products created from their homes. The cost of equipment (a laptop and a camera) is fairly low and something you’d usually have anyway. You don’t need expensive industrial machinery or raw materials.
- Lower distribution costs. You can still get by on free social media distribution, although I don’t think that will last for much longer. Creators will eventually have to pay for more of the tools they use, even distribution. Still, the costs of distributing digital goods will stay lower than those of distributing physical goods or even services (to some degree).
- Lower stakes. Most creators start with a part-time involvement until their business takes off and they can ditch their regular job (this is smart, by the way!).
Now creators’ risks are low, yes. But you can’t say the same thing about the startups that bet on them.
Only 10% of creators earn $100K or more per year. ConvertKit found that 22% of creators earn between $50K and $100K. Linktree, on the other hand, found that a whopping 46% of creators make less than $1K. A year, yes.
Let’s face it: the creator game is a side hustle for most people in the industry.
Where’s the catch? In the supply and demand!
A lot of supply, very little demand
You’re going to hate me for this but the only startup that understood the supply and demand game extremely well is OnlyFans. They understood that the demand for adult content is very, very high and the creators in this field usually pay very, very high commissions AND they rarely reach their audience directly. Plus, they had very few format choices for their content.
OnlyFans fixed all this for both parties. So they thrive.
Substack, Patreon, and (fairly) recent contender Behiiv missed the mark. Substack’s USP was interesting: publish for free. If you charge readers, we’ll only get a very small commission out of it. We don’t make money if you don’t.
Fair enough. At least until they figured out that most creators DON’T make money. Unicorns like Lenny Rachitsky are just that…unicorns, too few and too far in between to feed a startup with high operating costs.
Creators didn’t need startups that helped them lower their operating costs. Those operating costs are already low. They need startups that help them grow.
I’ve said this before in a previous analysis of the creator economy: when the entry barrier is low, the growth barrier is towering. Growth is what creators need help with.
Another company that understood this is ConvertKit. It’s why my newsletter runs on ConvertKit: nearly a year ago, I saw that they were beginning to figure out they need more than an email automation platform, so, after two months of testing a ton of other platforms, I chose them.
What makes them different is that they bundle together email automation, commerce, referral solutions, sponsorships, creator networking, and recommendations — all under a single digital roof. It’s why a lot of creators ditch other platforms and move to ConvertKit.
They never claim to help you save money. They help you grow instead, in more ways than one. Plus, you save a ton of time by having everything under one roof. Growth and time are the biggest creator challenges and ConvertKit understood that. (No, this is not a sponsored post.)
What most creator-related startups built was a solution looking for a problem.
They ignored the 101 of supply and demand and they thought there was enough strength in numbers — there are enough (aspiring) creators out there to make a living off them. Turns out there weren’t.
But what about the creators themselves? How do they abide by the supply and demand rules?
What creators supply and what their audiences demand
Back in 2020, when everyone was going through a weird anxiety-fueled ennui, the creator market was booming. We were learning new languages, new skills, honing crafts, and studying like mad.
But hey, the pubs and the borders are open again and it’s hard to compete with hedonism and wanderlust.
This doesn’t change the need for creative products and assets. Creativity has been around forever; the way it’s incentivized is changing.
With less free time on their hands, creator audiences are less likely to click, buy, or subscribe. The trouble is that few creators understand this. They use guides, templates, and hacks that were written in 2020-2021 for a type of demand that has since died off.
A lot of what creators (I’m not talking about influencers, but specialized creators here) offer today is not in demand anymore. With audiences growing more selective with what they consume and especially with what they buy, nice-to-have products and content are not in demand anymore.
Assessing whether what you offer is useful or entertaining enough to be worth attention and/or money is the toughest challenge creators face today.
Despite the doom and gloom around creator-focused startups, creators will exist with or without them. They didn’t need all of them to begin with — solution looking for a problem, remember?
It’s why I strongly believe that the creator economy is NOT in trouble. On the contrary, it’s consolidating and separating the wheat from the chaff, which is what healthy industries do.
The creator market is not dying, it’s consolidating. Here’s how to leverage that
1.4% of creators and influencers make over $1 million/year, according to a study by NeoReach. It may seem daunting, but it’s actually a sign of good health: significantly fewer than 1% of employees make $1 million or more.
The problematic part is the delay in the emergence of the middle-class creator, the creator that makes a decent but not luxurious living off their work. While the signs of that happening aren’t fully here yet, it doesn’t mean that you can’t stay ahead of the curve and cash in $50K or more from the products you sell.
Here’s how:
- Are you selling vitamins or painkillers? “Vitamins” did well during the pandemic but we’ve entered the era of “painkillers” aka products or content that people NEED, not sort of want. Vitamins aren’t completely dead, though, but you’ll need a very well-off audience to buy them.
- Add services to your offering. I think the “productize everything” advice has gone too far. Some things need to keep the “service” label because services are far easier to personalize to customers’ unique needs than digital products. And people are more willing to pay for something that’s created exclusively for them. From design to business and marketing consulting, there are hundreds of different services you can offer.
- Build a value ladder. Invest in customer loyalty as early on as possible. IF the economy hits the wall that we’re being threatened with, there’s no asset more valuable than loyal customers.
If you’ve been here for a while (thank you for that!), you know that I walk the talk and do all of the things above myself. I took a page from ConvertKit’s manual and decided to bet on helping creators and small business owners grow. My 1:1 strategy session, for instance, does exactly that: it sparks growth, as does my content. If you’re looking for a growth catalyst, it might be just the thing you need *wink-wink*.
Final disclaimer: I obviously have a stake in the creator economy too. But I’m not a doomer, so I don’t see an impending end to this industry because of the drop in VC funding. Despite my best efforts, however, I may be biased in my analysis, so do write back if you think I made any logical or argumentative errors — I always welcome constructive debates.
What I know for sure I’m not wrong about is building a business based on the 101 of supply and demand. If you supply something people demand, you’ll never be in trouble.
That’s it from me today!
See you next week at the same time, in the same place.
Here to make you think,
Adriana
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Adriana’s Picks
- Selling cellphone location data may soon be illegal in the US. Can I get a hooray for privacy?
- I laughed way too hard at this: the Elon Musk private jet tracker resurfaces on Threads and immediately goads Mark Zuckerberg.
- More celebrities are suing OpenAI for copyright infringement. Meta, too, this time.
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