Creator Economics (talk I gave at Money 20/20)

Money 20/20 Las Vegas photo

This week, I’m giving a short talk at the Money 20/20 Conference in Las Vegas. My talk is about Evolving Creator Economics and I thought it would be interesting to share this with everyone. Though not verbatim, I’ve included a transcript of my talk below:

I have 12 minutes (2000 words) to tell you everything I think I know about creators, how they work, and how you can work with them. 

 
 

I suspect I might be a creator, but I'm still not sure how to define it. 

Let's frame this as: the people and personalities behind digital media. This includes podcasters, newsletter writers, video producers, etc. Some may only have social media accounts, some may be full-blown multimedia empires. This range goes up to hundreds of millions of followers and all the way down to a few thousand.

Creators matter because social media is the new TV. We see this anecdotally in life. People spend less time on the couch watching TV. They have a phone glued to their faces scrolling through Instagram, TikTok, YouTube, and Twitter. The time and attention we used to give to TV now go into social media. 

The structure of media is extremely different. That has huge downstream effects on culture, business, and advertisers. 

TV was a very centralized technology. There were a few huge media companies, gatekeepers of all shows, and advertisers. Ads were expensive to make and distribute. That benefited huge national and multinational corporations like Procter & Gamble. It was the era of huge brands in part because of the structure of media

Now we're all spending time on social media. We're not all watching a Ford commercial anymore. We're all watching different creators. That’s where the trust is moving. 

We're all building trust and relationships with different people in this long tail of thousands and tens of thousands of people on social media. Now, that is the battleground of brands for consumer behavior. 

If your favorite Instagram follow recommends a product, service, or company you are very likely to use it. It’s mimetic. To a much stronger degree than typical brand advertising. 

This should inform the tactics of almost all marketing efforts. 

Let's look at creators from the inside out, so we understand how best to work with them.

 
 

First, there are low start-up costs. Accounts are free and everybody's got a phone. There's no barrier to people new creators starting. Every day a horde of new creators is born with new tactics, new techniques, and new ideas. This is a permanently fragmented market.  

Individual influencers might look puny and ignorable at first, but these audiences compound. 1% daily growth at 1000 followers doesn't look like much. At 100,000 followers, adding 1000 followers a day is expanding very quickly.

The algorithms reinforce the compounding. Word-of-mouth reinforces the compounding. Social proof reinforces it. People can grow enormous audiences on specific platforms, and then…

The other thing that's underrated is how quickly creators can expand across platforms. Someone with a big following on YouTube can very quickly build a big following on TikTok, Instagram, Twitter, or a podcast. We see this happen all the time.

Creators start small, scrappy. These are crappy low-margin businesses when they are small, but the cost tends to be ~fixed and growth is ~uncapped. As they get bigger, the margins get increasingly good. Even when creators are bigger there's a ton of opportunity left – because the business models change, they get better the bigger creators get.

 
Slide about how creators earn
 

Initially, creators have a small following and low traffic. They are usually using affiliate links to monetize. (Amazon is the most popular but there are a ton of other services.) Click a link, make a purchase, and the creator gets some money. That's the starting point, that's level one. 

As the audience grows, it becomes worth the effort for a brand and the creator to negotiate ad deals–sometimes they’re placements, sometimes they’re ad reads on podcasts. You see these all over the place. It's “level two” and sometimes this leads to partnerships–more referral partnerships or cobranding. 

Some creators take another big leap – creating their own products. This is a lot more work. They have to set up a store, they have to design products, and manage inventory. Or they offer digital products like courses and communities.) Creating and selling their own products is more margin for the creator, more control, and the revenue lets them reinvest in audience growth, platform expansion, new products, and more.

Now, we’re seeing the first big group of creators starting their entire own businesses. Rather than just selling the ads they're building the business. 

Ryan Reynolds and The Rock started their own alcohol brands instead of just getting paid to be spokespersons like Diddy did 15 years ago. They own the whole company because they know: if they have customer trust, they can create the equity in the brand, build the whole business, and sell it, (Ryan Reynolds sold Aviation for $600 million+)

Here are two amazing examples… both friends of mine and stories I've seen evolve over the last 10 years.

Missori Star Quilt Co logo

Jenny Doan was a quilter in Hamilton, Missouri. She had a typical small-town quilting service business. Her son Al bought a camera, pointed at her, and she started doing YouTube tutorials for quilting. 

They grew the content and the content became a community on forums. Then they added commerce and started selling quilt patterns and fabric. 13 years from starting their YouTube channel, The Missouri Star Quilt Company is now the biggest quilting company in the world. They do over 100 million a year in revenue. 

They own an entire town in Hamilton, Missouri with hundreds of employees and have become a formidable threat to incumbents in the space. Theirs is an incredible story that started with content and trust created through digital media.
(Al is my partner in Rolling Fun, and has told this story on the podcast in Rolling Fun #1.)

 
 

Epic Gardening has a similar story. My friend Kevin started a YouTube channel 9 years ago. They now have 2 million subscribers on YouTube and 2 million followers on TikTok. It is the biggest gardening media company in the world. 

Along the way he added e-commerce. A profitable media company adding e-commerce escapes the most expensive part of e-commerce–acquiring the customers. He's got a profitable media company bringing customers to an extremely profitable e-commerce company–owned by the same guy under the same umbrella. 

(I’ve had Kevin on the podcast too and we went in-depth on this model.)

The remarkable thing is the synergy between reaching the customer with digital media, creating trust, and combining commerce. It’s not just e-commerce selling physical goods that does this. We see the same thing in investment businesses as well.

 
Codie Sanchez photo
 

Codie Sanchez built an incredible social following very quickly. She’s got a great newsletter and expanding into courses. She's recently raised a rolling fund, the same kind of fun that I manage. It is a wonderful structure for creators. (Surprise, she was on the podcast too!)

Patrick O'Shaughnessy photo

Patrick O'Shaughnessy arrived in a similar place from the opposite direction. His family started a quant hedge fund years ago. Recently, he started a podcast called Invest Like The Best, which attracted a ton of investment to that fund. 

He has sold the fund, and sold a B2B SaaS company they started alongside that fund, but kept the podcast. He kept the podcast because Patrick realizes that is the golden goose. He's keeping the goose and selling the eggs. 

He has now started a VC fund, another one of those golden eggs. When you have relationships and trust from well-done media, you have a platform which continues to produce opportunities. 

If there’s one takeaway that you have from this whole talk I hope it's this:

 
Slide about Marketing and Media Departments
 

If you have a marketing department, the fundamental assumption is you are spending money to acquire customers. Marketing is a financial negative to bring in customers. 

When that's the frame that you were entering with, you will get your ass kicked by creators and media departments. Their mandate is to attract attention and build a relationship and recurring audience in the same customers that you are going for – profitably. 

It's all they think about all day. They can't afford to take a loss. 

What happens when they develop those relationships (profitably) and start selling a product with better margins than you? Their business as a system of reinforcing parts is much more profitable. 

They're going to be able to reinvest more, faster, and you're gonna get smoked. Incumbent brands are going to get edged out by creators and brands with creator partnerships. Customer’s money follows their trust. 

How do you do that? 

This is a short playbook for finding creators and working with them. Simple but something. Lots of exciting things happening, and this is the perfect moment because this is de-risked but not exploited. 

 
Using Creators to Reach Customers
 

Start with your existing customers. Go find out who they trust online, who they are following on Instagram, Twitter, YouTube, who they watch, and who the experts are in the space. Find the creators and then find other creators like them. Look at all the platforms. 

Just like in traditional marketing repetition matters. Surround your customers. You can be behind multiple creators. You may not be able to construct a company brand that reaches all of the customers that your product might be good for – by being behind a broad variety of creators… you can. 

Let creators be that interface and reach your customers personally, precisely, uniquely. You could be behind 10 different creators that all address a different niche, but customers end up at your company in your product at the end.

I encourage you to get creative. Buying ads is great. You can be a creator’s big break buying ads, and change their lives. Beyond that, think about referrals programs, long-term partnerships. You could go into white-labeling. Help creators up their professionalism by allowing them to provide a service that's surprisingly sophisticated under their own brand. Give them leverage, keep most of the margin. 

Think about joint ventures, starting new companies, co-branding, developing new products specifically for their audience and more. So many opportunities if you can commit long-term. 

Don't read this, buy a bunch of ads for one quarter and then tell me this doesn't work. 

All the examples we were talking about today were 10 years in the making. It won’t take you 10 years to see results, but plan for the long-haul. Find the creators, build these relationships with people you align with and let the trust built.

 
Money 2020 talk stage photo
 

The next Suze Orman is out there. These personalities are getting created every day, but they're on blogs, YouTube, and podcasts. This could be the next growth channel for your business, because this is the battleground for customer trust. It’s what determines behavior.

Creators are cultivating it today. They're experts in communicating with the people that you're trying to communicate with and they’re doing it more frequently and more authentically than companies have ever done it.

And, luckily for you, compared to traditional marketing – they’re likely cheaper! 

 
Slide about becoming a creator
 

If you don’t want to become a creator or build a media department, partner with a creator. If you don't partner with a creator, you may soon be competing with a creator.

I’m seeing very interesting strategies develop:

  • Creators founding companies more and more.

  • Creators funding each other’s companies.

  • Founding teams including creators from the beginning to bring feedback, community, and attention.

  • Private companies selling equity to creators who they have partnerships with to create win-win alignment (get cash and save cash on ads/referrals!) (+passive income for creators rather than revenue, per tax code.)

  • Aggregators including creators as investors and marketers for a collection of brands.

I'm very happy to talk to you about implementations, ideas, concepts in this space. There’s a lot of interesting work to do. 

Thank you!