Back in 2005 the founders of ycombinator had a simple hypothesis: “hackers” would create the next great technology companies. They knew how to build amazing products with their technical ability and there was a culture of experimentation amongst them. YC would get these teams started, give them a place to build their products and learn the business skills needed to get them off the ground. There’s a similar shift happening today.
Creators (those people making YouTube videos, TikToks, and Podcasts) are primed to build the next great consumer companies. They’ve been selling products through brand deals in the same way that technical founders were once software engineers for larger companies. This article breaks down the case for why creators are primed to build these next great companies. Over the next 5 years, we will see a new type of founder; the creator-founder.
The Creator Balance Sheet
Creators are making the internet valuable. Youtube, TikTok, Instagram, and the likes wouldn’t have a shred of value if it weren’t for creators. The internet connects us, but they give us a reason to use it. In this pursuit of making the internet worthwhile, creators are building an audience.
If I were to ask you “what kind of business is a creator building?” what would you say? you might say a media company or you might think there’s no business at all. Creators are building something that feels most like a media company, but it’s not quite that. This doesn’t take into consideration the writers, community builders, or indie hackers that also qualify as a creator. Creators can make content with only an iPhone, editing program and no additional help and are able to scale to an audience of thousands. There’s no production team, but there’s huge growth. Even when you get to the larger stages you don’t see the same amount of elaborate operations for content creation.
What makes the creator’s business difficult to see is that, in most cases, it’s not tangible or necessarily quantifiable. Thankfully accountants have a name for this kind of asset: Goodwill. Creators are manufacturers of goodwill. Brands rent this goodwill through brand deals and creators can monetize it with merch. From a business perspective, if you were to look at a creator’s balance sheet, It would be ~90% Goodwill.
Goodwill is what makes companies more valuable than the dollar value of the physical/tangible assets that they own. What’s interesting is that other business models can leverage these assets. How many creators have promoted subscription based product, single serve products, or even services. They are quite literally able to participate in any business model they want, so long as the offer is relevant to the audience.
The freedom that creators are afforded with the goodwill that they are creating are priming them for the next stage in the creator career path. Just as it’s normal for employees from top companies to leave and start their own, creators too have this path available. Ownership of equity will provide the wealth that any creator is aspirational enough to achieve.
Starting a business is no easy task. It’s certainly difficult, even if you are ex-{insert unicorn} and graduated from Harvard. What creators come to the table with is an audience that listens and has a history of participating in economic behaviour. Proven marketing and distribution is a distinct competitive advantage that creators get from day one. You just need to make something the audience wants - and that’s getting easier too.
Building a Business
You most likely heard of Mr. Beast Burger. What you might also know is that Mr. Beast is definitely not an expert in restaurant operations. In fact, the creator is almost never the operational expert in many (if not all) of the cases of creator-founded companies. The Rock isn't known for being a spirit producer and Ryan Reynolds isn’t a Telco operator. But, they all own large ownership stakes in these businesses.
The development of business operations has evolved so that anyone with enough money can white-label almost any operation they want. Mr. Beast Burger operations were outsourced to virtual kitchens, Teremana Tequila was built out of an already existing distillery. What's more interesting is that these businesses aren't your risky tech startup, they're proven businesses with good unit economics if you can sell and market. This is the creator-founder play.
Case: Ken Austin
I’d like to introduce you to a man named Ken Austin. Ken is responsible for Teremana Tequila and Proper No. Twelve Whisky, brands founded by The Rock and Conor McGregor respectively. In the spirits business, Ken is one of the most knowledgable people you can know. He launched his own tequila brand in 2009, Avion Tequila, after leaving his life in accounting and working for wineries and distilleries. You’d be surprised to find out that starting 2 of the fasting growing spirit brands in the world didn’t require him, or his clients, to buy or start their own distillery.
Teremana Tequila was brought to life from a partnership with a family-run agave farm in Mexico. Proper Twelve was similarly started with a partnership between a distillery (Ireland’s oldest) and McGregor. One of the key reasons why these brands were able to launch successfully was because of the goodwill they had with them from day one. No random person off the street would get a partnership with businesses like these.
The distribution that creators come to the table with is one of the most important assets in the business. In two years of operating Proper Twelve has a valuation of $235MM. Teremana has had the most successful launch in spirit business history, selling 300k cases in their first year. To put that into perspective, George Clooney's Casamigos was acquired for $700MM after selling only 175k cases.
One of the top reasons why new companies fail is because they don’t have distribution for their marketing. Every year, there’s thousands of people who start a business, share it with their immediate network of friends and family only for the business to fizzle out. Even when we look away from mega-celebrities like McGregor and The Rock, we see the same pattern from creator-founded ventures.
Anthony Pompliano started on twitter as an authority in the startup, investing, and crypto space. Back in 2018 his following was in the neighbourhood of 120k. Pompliano doubled down on crypto currency, and started his podcast “The Pomp Podcast”. Fast forward to the end of 2020, Pompliano used his following to raise his own investment fund. Using his expertise and distribution (i.e. his goodwill) he was able to create the network in order to raise money for him to become an investor himself. Pompliano broke the mold of the traditional route of graduating from an Ivy League, working on Wall St for 15 years and starting his own fund. And the distribution that he’s built up will only help him.
Creators that have seen monetary success from their creations are afforded a huge advantage in starting companies. You can avoid raising venture capital and keep your equity. You can quickly build operations and be generating revenue (and most likely profit) in less than a year. The best part of all is that you don’t need to pick the riskiest businesses either. In fact, I’d argue that your more likely to succeed with a less risky businesses with known unit economics and solid operational efficiencies.
Endgame
For the creator-founder, what is the endgame? For some it might be a liquidation event (acquisition or going public), for others it may be keeping a company alive that’s manifesting a dream of theirs. Either way, what you will see from these companies is that they’re creating lots of value for the creator and their partners. Above all, the most important thing when venturing into building a business as a creator is that you’re building equity that is valuable outside of your identity and brand as a creator.
When creators start monetizing at early stages one of the things they do is to set up a merch store. There’s a stark difference between the businesses this article talks about and a merch store. Clothing or branded goods are really a way to capture value from their goodwill. The creator-founder builds value.
If you look at companies like Ani Energy (Bryce Hall + Josh Richards) or Maverick Clothing (Logan Paul) the creator’s brand is not apart of the product. They show up in pictures and they’re listed as the founders, but they themselves are removed from the physical product. When you create the branded merch with your face/slogan on it, the equity that is in that business is not valuable. That store lives and dies with you. On the flip-side, the creator-founder builds equity in a company that can last without them. They switch from being the business themselves, to an operator of a business.
For those creators who take their vocation seriously, this is the endgame. It’s building equity in a business that’s large enough to merit a multi-million (even billion) dollar valuation. Whether your goal is to build wealth for your children and grandchildren or to fund the social change you want to see in the world, the creator-founder is acts as a businessperson.
Creators will start the next great consumer companies. They’re making the internet valuable, and building their balance sheet while they do so. What’s left to do is by no means easy, but compared to any other person out there with the aspirations to make a sustainable living, the creator has a distinct advantage.
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