Andreessen Horowitz's Big Idea 2023: "in the coming year, we expect consumer companies to pursue 💡 B2B partnerships to drive non-inflationary distribution, avoiding the typical Facebook, Instagram, Google, and Apple 💰 “taxes.”
They described this as “escaping hell’s flywheel.”
📊 “By creating partnerships with set pricing, CACs become more predictable — and business becomes more sustainable.
We’ve already seen early signs of this, such as
and Bilt achieving new card sign-ups through an #alliance of residential property managers.
We can imagine consumer businesses reaching
or young adults via colleges and military organizations.
There are so many platforms to leverage that do not, themselves, want to be in the partner’s specific model.”
📈 Hell’s Flywheel and how partnerships can help to escape it
A16Z partner Joe Schmidt IV called Hell’s Flywheel a never-ending competitive race of margin creation/expansion and their consumption due to growing CAC (cost of user acquisition).
One of the ways to avoid it is to find “non-inflationary customer acquisition channels, such as distribution through a referral partner…
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.”
📑 Case study of how he shifted to Partner-Led user acquisition
“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.”