June 23, 2020

One of the reasons I joined The Hustle was to learn more about the newsletter business — one of the fastest-growing (and these days, only growing) parts of the media industry.

This week, we lift the veil on how the business works, with exclusive insights from Sam (who created one of the country’s most successful daily emails) and a detailed analysis by Trung (who reads more newsletters than probably all of our team combined).

If we had an upvote feature on all the ideas you’ve ever given us, I’m convinced that a breakdown of the newsletter business would rank No. 1. So enjoy!

We’re mixing things up a bit this week. Among the changes you’ll see in today’s email:

• Less preamble, more ideas. We know you come here for the ideas, so we’re getting to them quicker.
• More focused Signals. We’ve tested a few shorter Signals in recent weeks and gotten good feedback. This week, we’re capping Signals at ~500 words each. Let us know what you think.
• Trung’s business breakdown. We know you love ideas for building businesses. This new feature curates the smartest insights on how notable companies operate.

This Week’s Lineup:

1. The Growing Case for Invisibility Cloaks. The facial recognition market is expected to surpass $12B by 2024, with increasing demand for products designed to protect users from unwanted tracking.
2. Cardboard Sports Fans Might Be Here to Stay. Ticket revenue makes up ~27% of revenue for pro sports teams. With no fans attending games, there’s growing demand for fake fans and real crowd noise.
3. Interior Design Services Are Surging Online. The WFH movement has led to a massive demand for online interior design services, with some consumers paying up to $20k/room.

Last week’s most-clicked links: High-margin, under-the-radar businesses… Mike Black’s $0 to $1m in a year project… and the coolest cutting-edge tools Trends members have tried. One that we think deserves another look: 50 private firms poised to break out in a post-pandemic world.

Now let’s get to it!

-Brad

PS: The NPS for last week’s issue was 83. It’s the 12th time in the last 16 weeks that it’s been over 80. Please take 15 seconds and tell us what you think by hitting the Smileys at the bottom. We rely on your feedback to make Trends great.

After many reader requests, we put together a breakdown of the newsletter industry. We look forward to your comments and questions.

In the report, we talk all things newsletters including:

1. History (starting with Bob Pittman and DailyCandy)
2. Business Model (ad-supported, subscription-based)
3. Secret Sauce (mass email adoption, higher engagement, owned distribution, lean operating costs, etc.)
4. Key Players (Axios, Industry Dive, TheSkimm — all doing $20-30m/yr.)
5. Challenges (anti-spam laws, subscription fatigue, limited search visibility, etc.)
6. Opportunities (B2B content, curation tools, bundling, paywall services)

And, just to be thorough, we took a stab at one of the newsletter industry’s favorite parlor games: “How much money does Ben Thompson’s Stratechery make?”

Our low-end estimate shows annual revenue of $3m with an incredible pre-tax margin of 91%. Dude is paid!

(Check out the Google Sheet here. You can make a copy and guesstimate Thompson’s earnings for yourself.)

Bonus read: Trends contributor Polina Marinova breaks down 10 lessons she’s learned in her first 3 months of running The Profile.

Lemonade — the Softbank-backed insuretech firm — filed for its IPO 2 weeks ago (S1 here). Rather than look at the company as an investment (you can read smart takes here and here), we’re going to tease out some lessons on the company’s business strategy:

• Entering a Huge Market? Find a Niche: Lemonade notes in its pre-IPO S1 document that insurance is a $5T industry. The company’s competitors include insurance giants like $31B All-State (ALL) and $29B Travelers (TRV). The most lucrative insurance verticals are auto, homeowners, life and commercial. Acquiring customers in these markets is extremely competitive, so to get a foothold, Lemonade primarily sells renters insurance. By establishing itself in a smaller niche, Lemonade is able to build its brand as well as improve its processes and technologies before moving up-market.
  
  
• Creating New Customers: In an interesting stat, Lemonade notes that “90% of [its] customers said they were not switching from another carrier.” Effectively, Lemonade’s renters insurance product created a whole new class of customer, 70% of which were millennials. Creating new customers out of under-35s is very popular in the fintech space (think Robinhood for trading, WealthSimple for passive investing, Harness Wealth for financial advisory).
  
  
• Great Example of How Tech Makes a Low-Margin Product Viable: To be sure, there’s a reason why renters insurance is niche and many young customers have never bought it: The product is not terribly profitable for insurers. Lemonade pulls in $183 in premium per customer; servicing this policy with an underwriting team leaves very little margin. This is where Lemonade touts its tech solution with “minimal human oversight.”
  
  
• High CAC is OK if You Can Grow With Your Customer: An important part of Lemonade’s strategy is that insurance products increase steadily with rising income and age. Insurance is notorious for high customer acquisition costs (CAC) but due to the aforementioned dynamic, the lifetime value (LTV) of Lemonade’s customers justifies a healthy marketing spend. The company’s current payback period for a new customer: 2 years.

How to build a mega personal brand on LinkedIn. 6 steps to running a kick-ass sample sale. Build a net worth of 7 figures in 7-ish years. Noah Kagan’s path to $10m. Marc Andreesen on productivity, goals, delegation, and bets. How to network when there are no networking events. Calculate the right customer acquisition cost for your business. How sales lessons from Dunder Mifflin’s Michael Scott could make your Netflix subscription a business expense.

🇫🇮 Finnish company, Swappie, led a $40m Series B. Swappie sells repaired and refurbished iPhones across Europe, and saw demand quadruple in 2019, with $35m in net revenue.

🇩🇪 The stock price for German payment provider, Wirecard, fell 77% in 2 days after they delayed the release of their 2019 report for the 4th time. An ongoing audit has called $1.9B into question in recent months.

🇦🇺 Australian Buy-Now-Pay-Later (BNPL) startups are taking off. Leaders Afterpay and Zip have seen stock price hikes of 86% and 74%, respectively, since January.

🇨🇦 Applications opened yesterday for Google’s Women Founders accelerator. The program accepts women-led startups from Canada & the US, and is Google’s first female-focused accelerator in North America.

Are you interested in more global business news? Hit the Smileys below and let us know what you think.

The Growing Case for Invisibility Cloaks

Source: Pew Research (Published Sept, 2019)

The Signal: The facial recognition (FR) market is projected to surpass $12B by 2024, with companies like Amazon, Clearview AI, and Face++ continuing to sell facial recognition services to businesses and governments alike. Amid rising mistrust of FR’s shortcomings, there’s increasing demand for “invisibility cloaks” — products and services designed to protect users from unwanted FR tracking. D-ID, for example, has raised $23m for software that protects users’ photos from facial recognition online.

D-ID’s technology is just one example from a market that’s sure to grow in coming years: adversarial privacy products.

Adversarial designers develop products to fool computer vision applications like facial recognition. This shirt, for example, confuses some FR programs, and keeps them from “seeing” the person wearing it by exploiting weaknesses in the way computer vision works.

“You change a few [key] pixels in an image, and a neural network can’t recognize the object anymore,” Eva Bojorges Rodriguez, a machine learning engineer, told us. Often, this change is imperceptible to the human eye.

Source: OpenAI

The Opportunity: According to a 2019 Pew Research report, 41% of US adults feel it’s unacceptable for employers to use FR to track employees on-site, while 54% are against advertisers using FR to see how people respond to ads in real time. All of this was before the added controversies over contact tracing, and widespread protests against law enforcement overreach.

As people become more aware of this technology, privacy will play an increasingly prominent role in the design of beauty and fashion trends. The adversarial styles below, for example, are all unrecognizable to certain facial recognition programs, and show how privacy concerns could influence style in years to come.

Source: cvdazzle.com

Everything from glasses to masks, dresses, celebrity face shirts, and even makeup have been used to fool FR systems. Makeup could be particularly promising, Rodriguez said, since it’s applied directly to the face, and therefore harder to circumvent.

So far, these have been mostly passion projects carried out by hackers, artists, and academics. As the stakes rise, there will be opportunities to bring these concepts to a wider market.

Where to Start: Designer Kate Rose sells a line of adversarial clothes, backpacks, and facemasks designed to confuse cameras that typically read license plates. Her talk at Defcon 27 outlines a step-by-step process for developing adversarial textiles, including best -practices for printing and which dropshipping suppliers to use.

She says that solutions should focus on 1 of 2 strategies:

1. Cloaking: Blocking computer vision systems from gathering data in the first place, like Adam Harvey’s heat-blocking Stealth Wear drone camouflage.
2. Confusing: Overloading the computer with extra data so it’s no longer sure what it’s seeing, like Harvey’s HyperFace bandana.

Credit: HyperFace rendering by Ece Tankal / hyphen-labs.com

The trick for entrepreneurs exploring this space will be keeping up with the technological improvements.

“Researchers are constantly working on neural networks that work against adversarial strategies,” Rodriguez told us. “And then people make adversarial neural networks better, too — to fool the algorithms again.”

The next generation of fast fashion could well be defined by this cat and mouse game between FR developers and those looking to subvert the technology.

Cardboard Sports Fans Might Be Here to Stay

Source: Google Trends (as at June 17, 2020)

The Signal: Professional sports leagues are planning to start back up in the coming months — but unless you’re living in New Zealand, don’t expect any fans in the audience.

In 2018, ticket sales made up $19.6B, or ~27%, of overall sports revenue. Sports teams have a problem: 27% is a massive proportion to handwave away. They’re eager for ways to fill some of that gap.

One solution is slowly winning out: cardboard cutouts. Fans submit photos of themselves from the torso up, then a company prints them on cardboard and installs them in a TV-viewable seat. The pitch: You get to see yourself at the game while supporting your team.

Cardboard fans at Colchester United match in the UK. Screenshot via ESPN+.

Cardboard cutouts are popping up in South Korea, Taiwan, Australia, the UK, and Sweden. Some are seeing a deluge of customers: In Germany, the soccer club Borussia Mönchengladbach has sold over 21k+ cardboard cutouts since April, according to the fan club FMPG that is organizing the initiative.

Cardboard fans have even gone stateside. The first team in the US to test out cardboard fans — the Oakland Roots — is an independent soccer club launched in 2018.

The Opportunity:

In the major sports leagues, cardboard cutouts probably won’t stick around once the pandemic ends. When your average seat price costs in the hundreds of dollars, selling a cardboard cutout for $20 to $45 will hardly make a dent in profits.

But there’s a real opportunity with smaller teams — teams that don’t sell out their tickets even in normal times. Lara Smedley, a veteran sports event organizer who recently launched My Fan Seats, told Trends that some small-time college teams she’s reached out to are talking about keeping cardboard fans around for the long haul.

Their idea: What if friends or family members of players who live far away could buy cardboard versions of themselves and place them in the stands? For players, “maybe their families are there in cardboard form, and they’re surprised by seeing their mom or dad’s face,” Smedley says. For small teams, it’s a quirky way to earn extra money and fill their excess seats.

As an industry, cardboard fans barely existed pre-pandemic — but here is a snapshot of the current players:

• Face Fan, the spinoff of a license plate and traffic signs maker called Tennants UK.
• Fans at The Game, an outgrowth of the sports advertising firm The Football Company.
• Be At The Game, a startup co-founded by Tom Hickson, president of the World Dodgeball Association.
• My Fan Seats, a US-based company spun out of the sports-focused Smedley Events.

The list prices of cardboard cutouts vary wildly, but all are in the range of $20 to $45 (e.g., Beşiktaş: ~$19; Brighton: ~$25; and Oakland Roots: $35-$45). For reference: In Germany, production cost is 10 euro ($11.24).

According to Hickson of Be At The Game, the real opportunity is with smaller independent and college teams. Groups like the American Basketball Association, the American Association of Independent Professional Baseball, and the National Independent Soccer Association are most likely to go all in on cardboard cutouts. Sports leagues with total revenues of less than $75m could be good places to target:

A related opportunity:

• Crowd noise. Web apps like HearMeCheer have landed partnerships with networks like ESPN for inventing a way to bring at-home audience reactions onto TV. HearMeCheer, for instance, asks people to record their reactions live while they watch the TV — then relays their cheers or their boos back to the broadcast in real-time.

Interior Design Services Are Surging Online: New Opportunities in a Traditionally Face-to-Face Industry

Source: Google Trends (as at June 16, 2020)

The Signal: Three weeks ago, Sam asked community members to predict the biggest trends in a post-COVID world. One theme that we heard a lot about: New developments in interior design and home decor.

“The WFH movement has been huge, which has led to a massive demand for our online interior design service,” Jacky Chou told the group. His business isn’t the only one that’s growing. Search interest in “online interior design” surged when the pandemic hit, and has maintained traction.

We spoke to Chou, who bought an expired domain (Laurel & Wolf) in March and relaunched an online interior design brand around it. In March, consumers’ budgets for design and furniture were around $1-$2k/room. Now, people are spending as much as $20k/room on design, decor and furniture, Chou told us.

Source: Statista

Laurel & Wolf’s business model is similar to that of competitors such as Havenly (~260k site visits/month), in that it has tiered interior design packages ranging from $75 to $450. Insiders we spoke to disclosed that Havenly’s revenue has increased by as much as 2-3x since the pandemic.

Laurel & Wolf design service packages

Laurel & Wolf also offer access to trade partner discounts with furniture stores (e.g., Williams Sonoma) and their own decor ecommerce businesses (e.g., Far & Away, more on that below). They outsource the design work to Pratt- and Parsons-educated freelance designers they met through LinkedIn connections who earn 50% of the consulting fee plus commission on furniture and decor sales.

Opportunities:

• Online interior design: Monthly search interest for interior design services and ideas indicates that there are opportunities to meet demand:
• “Interior design ideas”: 49.5k
• “Interior design for small house”: 14.8k
• “Online interior design course”: 14.8k
• “Online interior design”: 12.1k
• “Interior design app”: 4k

Entrepreneurs could provide: design templates; agency/matchmaking services (think “Airbnb of interior design”); end-to-end “design in a box” services (like this South African company); interior design apps; or interior design courses and resources.

Demand for design services go beyond the physical world: In this Signal we wrote about people paying interior designers ~$50/hour to help them revamp their virtual Animal Crossing homes.

• Functional furniture and artisanal decor: Even before COVID-19, the luxury furniture market was expected to grow by $7.6B from 2018-2023, with a CAGR of ~5% during that time. This will be accelerated by people spending more time at home.One of the key growth drivers is multi-functional furniture, such as these 28 multi-purpose furniture pieces, these 44 multi-functional office furniture concepts, or these 16 modern multi-functional pet beds.

Source: Technavio

Higher budgets for furniture and decor means that people will be looking to spend on unique statement pieces. Jacky Chou told us that sales of his artisanal modern dinnerware sets at Far & Away have increased significantly since March, and luxury scented candle sales have also surged.

This, combined with the trend towards localism, creates a unique opportunity to source and sell locally produced decor items (e.g., rugs, kitchenware, wall decor, lighting, vases, bedding, baskets, etc.) at a premium, too.

Join Daniel Doyon and Tristan Homsi, co-founders of Readwise, for our latest Trends lecture, “Bootstrapping a SaaS Product to Thousands of Users,” this Thursday (June 25) at 3pm ET. We will discuss how they took the simple idea of easily syncing Kindle highlights and scaled it to a fully grown product that now services thousands of subscribers. Register here.

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