Why The Creator Economy Ended Up Being A Dumpster Fire

0:00We're going to talk about why the creator economy ended up being a dumpster fire. So a couple of years ago, maybe in 2021 or so, there was a lot of VC activity going to these creator startups, right? So a lot of money was being poured into Patreon, Substack. I think for Andreessen Horowitz, they put like, I don't know how many millions into Substack. First, we need to define what the creator economy is. But first, I'm going to share this first before the first. I'm going to share this chart over here. So check this out. Projected U.S. fundraising for creator startups is down more than 90 % this quarter compared to the same period two years ago.

0:33So Q2 of 2021, boom, 2.5 billion, right? Then it drops, it drops, it gets lower and lower and lower. You can see the screen. And you can see here, here are all the layoffs. Patreon laid off 17 % of staff. Linktree, they sacked 17 % of staff. And then Cameo cut 160 people or so. Substack cut 14%. And this is just the beginning, right? So Neil, coming back to it, just to define the creator economy, what is the creator economy as I go through this? Yeah, sure. Sure. So the creator economy is people who are just, there's a lot of businesses out there that are enabling people like Eric or I or influencers out there to either create their own business or make money through any form that is just us doing stuff with our talent.

1:18So that could be recording a video that could be getting people to subscribe through a subscription, like what's only fans, the subscription Patreon is similar to that can be snooped up creating a promotional video like on Cameo. It could be you creating your own ebook products and you sell it through tools like Kajabi. These are all examples of like the creator economy. Yep. So look, this is funny. So I'm pulling this from every dot to, this is a newsletter that I subscribe to. So it says, what is a creator? A small business in general is a shitty business. 65 % fail in the first 10 years in the US.

1:51A media company is also a shitty business. Media stocks had their worst decline in 30 years in 2022. A creator is a small business that is also a media company, aka shit squared. It is important for me to note that as a creator, I am one of those terrible businesses, blah, blah, blah. So a lot of businesses also fail to even if they're not creator economies. And Eric and I don't think creator economy is bad. We think VCs overvalued them, gave them two crazy evaluations, and they just weren't realistic with their growth potential. Yeah. So here's the thing, right? I think when you raise money, what happens is people are looking for a moonshot.

2:29They're looking for 100x, right? They're not interested in like a 5x or 10x. That's just how the numbers, the power dynamics work with VC. But the point here is that when you look at who's actually succeeded in the creator economy, OnlyFans has really succeeded. So last reported earnings had the company at$433 million in pre-tax profit. Kajabi, we have a mutual friend there, company that allows creators to easily sell courses, far surpassed$100 million in ARR and has done over$5 billion in gross merchandise value. What was Olifan's revenue numbers? $433 in pre-tax profit. Wow. Yeah. So here's the thing.

3:02Linktree actually did a report recently. So this is really geared more towards the creators. they basically said that creators that were spending over 10 hours a week on content creation only like 16 of them were making more than 50 grand a year the rest were making like less than 10 grand a year right so the economics don't quite pan out you you have to be like the top one percent to make it work and so if you're going to get in this creator business i mean you're better off selling the picks and shovels only fans picks and shovels kajabi is picks and shovels as well if you're going to start a business in that space or the other thing we've talked about this on the podcast before is if you look at how Mr.

3:38Beast or Logan Paul, or you look at how Neil's doing it, how I'm doing it as well, it's we have the audience, but then we've picked the right business model to put it under. Neil, I was actually watching a new interview with Mr. Beast yesterday, and he learned that over time that getting advertisers to pay millions of dollars for each of his videos just didn't make economic sense anymore because A, they couldn't afford it for a hundred million, 200 million eyeballs. He wasn't getting paid what he deserved. and so it's like I just need to make my own products and control that product experience now and so that's why he started Feastables.

4:08Yeah that makes sense there's nothing wrong with the creator economy it's great if you're going to create something within the creator economy stick with the picks and the shovels right if you look at the gold rush the people who made the money were people like Levi's that sold the jeans that you needed if you're out in the field because the pants were rugged and they lasted or the people who sold shovels because people continually need to buy shovels. So try to be the platform or try to be the person providing all the utility. Creators come and go. And it's a tough business to succeed at by being a creator.

4:41It's what most people don't realize is if you want to be in the creator business, it's not about the number of followers you have. It's about the number of followers you have within your niche. So you ideally want to be in a very lucrative niche. For example, I have, I don't know how many followers between all my social profiles, but let's say a few million, two, three, four million, something like that. Let's go with three. I'm rounding at this point. It's better to have 3 million followers between all my social networks and a vertical like marketing that has a massive total addressable market, which is also known as TAM, where people spend billions of dollars versus having a total of$10 million and having a following people who just follow you on not going to college or how to deal with your parents or something like that, right?

5:29Those kinds of markets, just they're harder to monetize. Yep. So there's more to talk about here, but I think we can end at this note. So please don't forget to rate, subscribe, five stars, please. It helps us grow and we'll see you tomorrow.