Consumer Startups: What Works and What Doesn’t

Selling to consumers is hard. They can be fickle, hard to pin down, and just plain cheap.

Get the blog before anyone else…subscribe!

As an investor, I’ve seen some business models work better than others. Let’s break down what works and what doesn’t in consumer:


Marketplaces have been my biggest consumer success stories. What’s great about marketplaces is that they’re pretty easy to monetize.

If you sell a car, everyone expects you to take a percentage of the sale. And the price is high enough that even one sale generates significant revenue.

But transactions don’t have to be big.

Food delivery is another model I’ve had success with. The transactions are small but frequent, and everyone expects to pay a fee.

It’s no coincidence that the biggest successes in consumer, like Uber and Airbnb, are usually marketplaces.

Consumer Subscriptions

In my experience, these companies have not been that successful.

It’s tough to get consumers to pay for software. Even when they do, they’re likely to cancel quickly.

The price of most consumer subscriptions is fairly low, maybe $10 or $20 a month. This makes it hard to afford customer acquisition.

I recently met with a startup that had a Customer Acquisition Cost (CAC) and Lifetime Value (LTV) that were equal. This means every penny customers give them goes out the door to get another customer.

A business model like that can’t work.

That said, some consumer subscriptions take off. Calm is a huge success, with a valuation in the billions.

But most successful consumer subscriptions, like Netflix or Disney Plus, are streaming services.

Those take huge amounts of money to run. Few startups can compete.

Consumer Social

This is generally even harder than subscriptions.

Given the low value of each customer, advertising is usually out of the question. This means you have to go viral.

But how?

Unlike building a B2B sales team, there’s no readily repeatable way to go viral. Or if there is, only Nikita Bier seems to know it. 🙂

Monetization is tough. People usually won’t pay for a social app, and ads don’t pay much either.

And don’t forget the incumbents! It’s pretty hard to get people to use your little app instead of Instagram or Tik Tok.


D2C is the most difficult type of consumer business.

These startups involve physical products. That means messy, hard to scale, low-margin “stuff.”

Supply chains get tangled. Cut-rate imitators pop up daily.

You also face the same problem with customer acquisition as consumer subscription companies. The only difference — your margins are even lower, making it harder to afford ads.

Even the biggest outcomes in D2C are modest compared to pure software companies. Two of the most iconic D2C brands, Warby Parker and Allbirds, are valued at $1.7 billion and $400 million respectively.

Compare that to $70 billion for Uber and $69 billion for Airbnb.


Today, SaaS is the darling of investors. Indeed, the vast majority of my investments are SaaS companies.

But it’s important to distinguish between consumer business models.

Look for marketplaces that can transact tons of value, either in big transactions (Airbnb) or numerous small ones (Uber).

What do you think of consumer today? Leave a comment and let me know!

Have a great weekend everyone!

More on tech:

The Hard Thing About Hard Things

I Like Big TAM’s and I Cannot Lie!

Google is Losing the AI Race

Get the blog before anyone else…subscribe!

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:


This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “Brian Chesky and Travis Kalanick” by TechCrunch is licensed under CC BY 2.0.


2 thoughts on “Consumer Startups: What Works and What Doesn’t”

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s