Alex's Place

Dissecting Startups- Clutter Pile 1: Financials

Jun 22, 2019

A broad-brushstroked, totally wrong and unspecific business model for Clutter

Here are some disclaimers for this post:

Basic Costs and Revenues

An exploration of Clutter’s Costs

An exploration of Clutter’s Revenues

How San Francisco (technically, Clutter is in LA) startups tend to spend money

Aka a quick primer on CAC and LTV

In Direct to Consumer (D2C) companies (for example, Quip, Casper, or Great Jones), the main metric is CAC— the Customer Acquisition Cost. In the purest of sales company—a traveling salesman selling encyclopedias—your CAC is that salesperson’s salary (and commission). Scale up and throw in Facebook Ads and Google AdWords and your CAC is a little more complicated.

I don’t believe there are any GAAP rules for how you calculate CAC, but lots of companies take that as a reason not to think about it.

The counterbalance to CAC is LTV—Lifetime Value. This is how much revenue you expect to earn from a customer. This can be further broken down into Monthly (or Annual) Revenue x Average Customer Lifetime. You can increase LTV by increasing either the subscription price or retaining your customers for longer.

One very common dilemma is what to do if your retention is low: do you reduce the price to try and retain them for longer?

Weird dynamics of CAC and LTV in VC-backed startups

Something you hear a lot is the “rocketship” analogy. The idea here evokes a company that is growing like gangbusters: the engine is firing, $1 is being multiplied into $5 reliably, and the only thing to do is shovel in more dollar bills. In these industries (in recent memory: meal prep deliveries like Blue Apron; on-demand house cleaning like Homejoy; food delivery like Munchery), the goal is to race to dominant user share.

When you have multiple companies competing for users, you see skyrocketing CACs. This is enabled by easy VC money, which in turn is fueled by… optimism? Blind faith? Perhaps a hope that what the company is building is truly so valuable and world-changing that when the TRUE cost is unveiled without sign up discounts and subsidies, that consumers will still stick around. It’s the modern BMG “12 CDs For One”.

Some examples of inducements that cause CAC to balloon:

Low effort services like food delivery are highly susceptible to this: their inducements are typically in the shape of a first order discount, and users will hop from service to service, cycling through discounts.

However, Clutter is a higher effort service: you’re not shopping around your belongings from service to service, so they’re relatively shielded from those competitive forces. But at the same time, I can’t imagine that $169 / month for a 10x10 space is the “true” price.

In the future, I’d bet that Clutter will grandfather old users and increase the rates for new cohorts. They do a pretty good job of not showing and committing to prices throughout the product.

Clutter looks about 50/50 on business model

Clutter has some stuff going for it:

On the other hand, there is a big pitfall:

In the next post, I want to try to put some numbers to this as best we can.

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