The Future of the Creator Economy

What's up, everyone? This is Alex Lieberman, co-founder and executive chairman of Morning Brew. Welcome back to Founders Journal, where I give you, the business builder, the tools you need to think better in order to build better, whether that's building a business, a team, or a new product. Fellow entrepreneur and friend of the pod Cody Sanchez joins me again on the podcast today to discuss a little thesis that I have about the creator economy. The TLDR: I think that there is a huge opportunity to build a multi-billion dollar company by creating a holding company that helps creators build their businesses. Think the future version of Procter and Gamble or Unilever. Now let's hop into it. This vision that I've been working on for a long time, and I want to get your thoughts on Cody. I want to see what you think about it. I want you to poke holes. I want you to ask questions. I want to see where we net out. Out by the end of you taking my idea through the wringer.

Dude, I love it. This is the Berkshire or like P&G, Unilever of creators, right? Yes.

Yes. So the idea is, what does the next generation holding company look like? So the next generation Berkshire Hathaway or Procter& Gamble or Unilever. I use P&G or Unilever as the example because I feel like more people can understand that versus Berkshire Hathaway. I feel like most people aren't don't know what they do, maybe other than like insurance and like freight. So that's a reference point. So I am going to take you through this idea. Quick background. Procter& Gamble, you know, how does their model work? Right. They are a 100-year-old, almost 200-year-old holding company. The business Procter& Gamble was founded in 1837. It's a holding company of consumer goods businesses. So P&G, as of today, has 65 individual brands. 10 product categories. So they organize their business and even line itemize on their financial statements by their product categories. So I'm not going to name all 10, but just for example, one category is fabric care. Under fabric care, they have Tide, they have Downy, they have Bounce, they have grooming. Under that is Gillette and Braun. They have hair care. Under that is Head& Shoulders, Pantene, and Herbal Essences. For a sense of scale, P&G in 2021 did $76 billion in revenue. Another really important stat that I'm going to get to in a minute and explain why it's important is P&G is the largest spender of marketing dollars in the world. In 2021, P&G spent $11.5 billion on marketing. So just to do the quick math, $11.5 over $76, we're talking about 15% of sales spent on marketing. And that is up from $6.75 billion in 2019. That's the traditional model. Any questions there before we move on to why I think this is broken?

Yeah, I want to harass a couple of things. Well, one, double tapping on that marketing spend, it's wild, but makes a lot of sense because I feel like you said it, this company is super old school. So the way that they do marketing is, I am sure, all ads-based and acquisition, right?

Yeah.

Because they basically went around and bought up a bunch of these smaller companies. in order to cannibalize their growth. So I think the cool part about this is the old school method of a holdco is basically lots of acquisitions done on fast-growing companies to bolster the fact that their old school stuff isn't growing that rapidly unless they throw a ton of spend at it. And then you're kind of saying, all right, there's a new model. And I'm going to guess what I think is broken about it. But you tell me why this model sucks today, or why you wouldn't build this company today. And then I'd be curious, like, okay, how do you do it better?

Okay. Yeah. So, and by the way, something interesting that I was reading as I was reading about P&G's story is back in 2014, the company actually had way more brands. I believe it was close to 100 brands and they sold off a ton of their brands because they found that 95% plus of their revenue was coming from like the top 10 brands. And so that's something interesting to keep in mind about the holdco model. is how do you remain really judicious about not just continuing to spin up brands and put resources into them, but basically cut shit when it doesn't work? And I think that in general is going to be really hard for any business, especially a business that has kind of this house of brands model. Like, how do you have the right checks and controls in place to know what's not working and give it its fair shot, but then cut it? So I think that's just interesting to think about.

Yeah, that's like the power law too that you were talking about.

Exactly. 100%. And I think you can expect that there's going to be a power law With most businesses, like a power law of 80% of revenue is driven by 20% of the brands at P&G or even at Morning Brew, 80% of revenue being driven by 20% of our creators. Like, I think that is to be expected. But here is where I think P&G or Unilever or the traditional holdco is broken. Basically, it's in 2 places. The first is marketing. I just talked about how 15% of P&G's 2021 revenue was was spent on marketing and advertising. And P&G will argue, right, I was reading their 2021 financial statements and their commentary and they basically said—

As one does, by the way.

Exactly. Yeah. And so they basically said that they were ramping up their marketing spend because they wanted a high growth year in 2021. And not that I think that is entirely bullshit. I just think it is amazing wordsmithing and it's a great spin on what's actually happening. I think part of it is, yes, they want to grow. They need to spend in order to grow. They can't just grow Organically, but I think the other part is right. We're just in this, I would say, secular increase in the cost of marketing. If you look at the cost of marketing on Facebook, Instagram, Snapchat, any of let's just call it digital advertising, and I don't know enough about linear or old school out of home in terms of their cost to speak to that. But digital advertising has been increasing in cost for the last several years. There's a few reasons for that. One is you're seeing this. Obviously large shift from traditional advertisers like the Procter& Gamble of the world moving from TV and linear and radio into newer channels. Right. So more demand for finite supply. The second thing you're seeing is companies like Facebook or Instagram, naturally, they're just going to raise their CPMs or the cost to advertise on their platforms over time because that's a lever they can pull to grow their business. And the third piece is what Andrew Chen calls the law of shitty click-throughs, which basically is this idea That the average Facebook ad, when Facebook first came out with ads, whenever they launched their ad platform, had some crazy high click-through rate because it was a novel unit. It was something that people hadn't seen and they weren't programmed to look past it and just keep reading through content. Today, people are programmed to look for advertising, and so click-throughs on advertising go down significantly or have gone down significantly, which means a lot more money has to be spent to drive the same amount of traffic to your site. So all of this to say, marketing costs are getting more and more expensive, and I do not believe that trend is going to stop.

Yeah, I agree. I mean, the other thing too is I heard somebody say it like, the only type of marketing there is is owned or stolen. And so owned marketing would be, you know, what we're doing right now. Somebody comes and just listens to the podcast because they want to listen to the podcast, and we can market to them because they have chosen this. We own that audience. And then stolen is literally anything else. And so what they have to do is they have to steal, you know, our ownership, basically. And so we just rent out our ownership to them. And I think the interesting part that you hit on is increasingly, I think just the interest in stolen marketing by consumers is going down. And so I really liked your model when you said it to me, because I know where you're going, which is to creators, which I think we should get to that part.

Yeah.

And I got a couple little things on it, but then you actually, if you're able to do this integrative model you talked about from a hold cold perspective, means that you could have sort of owned marketing with sort of creative endeavors through creative pursuits with creators. And so I think that's brilliant because then you don't have to steal marketing. I mean, you and I, when we both grew, when I grew, started to grow Contrarian Thinking, and to this day, like $0 in paid.

I was just about to say that is basically imagine if you did not have your own audience via your free newsletter, which you have hundreds of thousands of subscribers, your Instagram, which has hundreds of thousands of followers, your Twitter and your TikTok. Imagine you did not have those channels to be able to promote your paid newsletter. You'd have to be spending a shit ton of money borrowing audience from platforms that own that audience in order to possibly have a chance of driving the revenue you're driving today. And it, it both is not sustainable And also it's not building for the long term because it means if you haven't built this audience, how do you have affinity with the people you're selling to?

Yeah. And it also feels a little, I mean, thankfully since we never did it, and I know you didn't in the beginning either, is like when you have to start that way, I think it also leads you to, you know, users, it's not just affinity, it's almost like disaffinity. It's almost like there's a negative correlation to ad spend. And so what if in fact it's not? Only that you're stealing time, so you have a shitty click-through rate, as Chen says, but also that every time you put an ad out there, you're also kind of pissing somebody off instead, for every person, or I don't know what the actual ratio is, that you get in. It's really hard to do stolen audiences with creative enough ads where they feel like you're not stealing, you're adding value. Damn hard.

Yeah, I totally agree with that. And so this goes What you're saying basically goes to the second thing that's broken about this model, which is at the end of the day, I do not believe— and listeners, you can check me if you think I'm wrong and you actually love the shit out of your toilet paper— but I do not believe that human beings have deep love for most consumer products that are sold under the Procter& Gamble umbrella. Right. I don't think people have deep love for Gillette and wake up in the morning being like, oh yeah, I am the biggest fanboy or fangirl of the Gillette story, and I shave every day because I just want to see Gillette succeed. Same thing for Bounty or Charmin or Oral-B. And what I am not saying is that people have to love their toilet paper, right? Like my co-founder Austin always says how he's like, you know, the fact that we— that like Casper or these mattress companies have created this whole thing around like the story around sleep and you are learning to love a brand that represents sleep. It feels disingenuous because at the end of the day, it's a fucking mattress and you're just sleeping on a mattress that you find comfortable and hopefully you can get 7 hours of shut-eye with. And so I don't mean that, but I do think that with these brands that sit under Procter& Gamble, there is no story or essence for people to latch on to, to continue to have a reason to want to go with that brand. Basically something that locks people into that brand versus going to another one. All that to say that, like, to me, it's a competition on quality and price, and I'll explain why in a second. I think that's a really bad thing to compete on. So the whole thesis here is that I believe the next Procter& Gamble is going to be a holding company of creator-first or creator-led brands. What does that mean? It is going to be brands where creators who have built heart-loyal niche audiences of various sizes. They become co-founders of products, in this case physical products that they launch with experienced operators. And I think at the end of the day, we are already seeing this. We are early in the evolution of this happening. I would say we're probably in inning 2 of 9, but it is happening. So you look at a business like Skims, right? Kim Kardashian launched Skims in 2019 and this clothing brand in 2022. So this year, the business was valued at $3.2 billion. In 2021, they did $275 million in revenue, and they expect to do $400 million in revenue in 2022. And of course, here we're talking about one of the biggest influencers in the world. But I think this thesis still holds for anyone who has a deeply loyal niche audience. One other example for you is Teremana Tequila. So I've tried Teremana before. I don't know if you've tried it, but basically this is The Rock's brand. The Rock is a co-founder in Teremana. He launched this tequila brand in March of 2020, and he launched it because the guy was already drinking a lot of tequila. He had a ton of videos on his Instagram of him drinking it, and someone approached him and was like, dude, why don't you just own your own brand? In 2021, Teremana sold more than 640,000 cases of tequila, and now it is being compared to some of the largest spirits companies in the world, which not surprisingly are creator-led spirits brands. So people are comparing it to Casamigos. which was co-founded by George Clooney and sold to Diageo for $1 billion in 2017. It's also being compared to Aviation Gin, which is co-owned by Ryan Reynolds and sold to Diageo for $610 million. So I think we're already seeing this happening. Just no one has rolled it up into a portfolio of brands.

I think you're right. I mean, and I mean, you could even go a little bit like the 1.0 version of that would have been like Gwyneth Paltrow Goop. Yeah, right. So that was like, what, 2015, 2016? They got to do a couple hundred million dollars in in revenue. Somebody can check me on that. I mean, I would be guessing they're worth somewhere around $1 billion. And then you also had Honesty, right? So you had Jessica Alba, which Jessica Alba is a good example because, I mean, I don't know what fucking movies she's been in. She doesn't have any Oscars or Emmys. I don't think she had a giant social media following prior to that. Nothing like— I mean, Kim and The Rock could sell Silly Putty and probably turn it into hundreds of millions of dollars. But Honesty, You know, that was from a creator, but not the biggest. So I think you're spot on. And the interesting part is that those are all celebrities. You know what I haven't seen yet, which seems like it's your thesis, but maybe to push back on it, is we haven't actually seen pure creators, like not celebrities, but creators do this yet. Like we've seen MrBeast, but like, is anybody still buying Beast Burgers? Is that like still a thing?

It, it's a great question. You know, I invested in Feastables, which is MrBeast's chocolate brand. Oh yeah, you told me that. And I think the whole thesis is that that they'll go from chocolate into literally becoming, you know, the next Hershey, like, holdco of candy. I know that the business absolutely crushed it in the early days. In the first few days, they sold a shit ton of chocolate. I don't know recently, but I also think this comes down to a question of, one, are you finding the right creator-product fit, meaning Is it a product that the creator's audience naturally is looking for and wants? And second, and I think this is the biggest risk, some creators, especially really big ones, they have so much shit going on and they like the idea of building a business and making money off that business more than the actual work that it takes to build that business. And so that's why I think at the end of the day, something like Terra Mana has been so successful because the business has been out, you know, now for over 2 years and still religiously, The Rock is posting videos while sipping his tequila in his house every single week, multiple times a week. And I think that's actually the biggest risk in this model is you're putting a ton of faith in someone that could decide that a month into doing this, there's the next cool hot thing that they're going to go jump on.

Yeah, I think that's totally true. Like, nobody thinks of MrBeast and they're like, you know what MrBeast is? Burgers and chocolates, right? Like, not, not what you see. I mean, it'd be smart if— The Rock's relentless, right? I mean, he's just like, shove the tequila down your throat.

It's literally his same approach to frickin, you know, pumping iron at the gym is like how this guy approaches, you know, shilling tequila to the world.

Yeah. So maybe that's the thing. I mean, you need this stuff. I mean, the Kardashians love to show off their curves. That's like pretty much every photo they got. You know, Jessica Alba, she's always putting on makeup and doing stuff with the kids. So yeah, I think you're on something. I mean, here's the reason I think this business model gives me hives is because we're both creators. We're insufferable. I mean, creators are the worst. We're so high maintenance. We're creative, and so we're all over the place. You can't nail us down. We have to have— you got to have an Austin, probably. I got a Nikki because I need a leash. I need a leash. I need a restraint.

Yeah.

If you can do this model in a way where there's somebody who's business-minded— here's what I would do. It would need 5 things. One, they would have to be obsessed about this thing. You can already not get them to shut up about it. You're just like, oh, by the way, here's a way to monetize it. 2, you would have to have a ton of rules and expectations about what they would do for the business, or even better, probably make them put skin in the game, like actual money in on this that's meaningful for them.

Oh, I think they would have to. They'd have to.

And then 3, I think you'd have to make sure that these creators have somebody like, you know, my adult in the room.

Yeah, an operator.

Yeah, they need it. They need an operator, but they also need an adult. I don't know if those 2 things are the same. And then I guess 4 and 5 are basically like, do you want to— I think if you find cool creators, this could be a really fun model. But like, do you actually like these people long term? And then I guess the only last thing would be, do they have length and longevity?

Yeah.

You know, you and I wouldn't shut up about slime on one of these last things. Like, those people probably do not have longevity, right? It's like, that wouldn't be a good model. But otherwise, I think it's cool. I'd invest in your fund.

So the last thing I'll say here is speaking about longevity, by the way, this is one of the reasons that I think creators are so incentivized to do this, because I think of creators a lot like I think of professional athletes where there is a shelf life to their career. Creator— most creators are not going to last 20 years creating content. It is an exhausting profession. And so at the end of the day, you know, they're collecting brand partnership checks or affiliate checks. That well will dry up when they decide to actually stop creating, which is understandable that they'll do. How do they build wealth when they know that check is going to end? And it's going to be through building equity in something and building equity in something that grows beyond them as the— as them being the first best marketing channel. And so one last story I'll just give you in work. So I have a goal this year of launching my first creator business, but one that did not work out Then I'll just explain what it was. Is— I mean, this sounds— this is hilarious how this happened. But last— 2 weeks ago, I was interviewing a potential chief content officer candidate at Morning Brew, and this candidate was a man and he was wearing nail polish. And so I, I found it really interesting because I've noticed more and more men wearing nail polish in the last, call it 2 or 3 years, especially celebrities and even entrepreneurs like even our friend Noah Kagan. He wears nail polish on all of his TikToks, and I found this trend really interesting. And so—

Like it. Let's be totally inappropriate. I told Noah, I was like, Noah's single. I'm like, bud, I don't know about this. I don't know if this is going to work out for you. This is not a look that is like forward-looking on your future wife, you know? And he promptly told me to pound sand. But I think I'm right anyway.

So here's what I mean. My thought is that what do I think about men wearing nail polish? I'm all for people doing it if they believe that it's, you know, a way to express themselves. And I think kind of one of the things is men feel like there are less ways to express their creativity in their day-to-day dress than women can. And I think this is potentially a new lever that's trying to be pulled. I have not personally worn nail polish, but then again, I love—

Mine.

I love frickin pedicures now. And if you asked Alex 5 years ago, would you have gotten a pedicure? I would have said absolutely not. And I would have laughed in your face. So I do think things evolve over time. But anyway, getting back to this guy, he was wearing nail polish and I said, that's super interesting. I've seen more and more people doing it. It turns out he was wearing nail polish because his 2 kids love painting on his nails and he just doesn't take it off. And that's just kind of like an activity he does with his children. But it got me thinking, do I believe this trend will continue and is there a way to launch a men's-focused nail polish brand with a creator who is known for wearing men's nail polish? And can that be a wedge into a whole line of male beauty and grooming products? Because going back to Head& Shoulders, I don't see a male-focused creator brand that has gone into things like shampoo, deodorant, pomade. And this could actually be a wedge into it. And so out of curiosity, when you hear about men wearing nail polish, who do you think of first? I just want to see if you think of this person that I came up with.

I already know who it has to be. Machine Gun Kelly.

Exactly.

Yeah.

So, so, so basically I— this— I went on Twitter and I was like, I have a business idea for Machine Gun Kelly. And literally people out of the woodwork were connecting me to people in Machine Gun Kelly's orbit. And like, it was so— the vision was so clear to me. Like, this guy would be wearing his own nail polish all the time. It would— on Instagram, it would be a clickable link to buy it. I was like, I'm a fucking genius. And so then I ended up having a conversation with Machine Gun Kelly's agent the next day, literally the next day after getting connected to him on Twitter.

I love the internet.

And I get connected to this guy and I'm like, I have an amazing idea that I want to propose to you. And I did the whole shtick— creator-led brand, Machine Gun Kelly. It's so native to him and to his audience. Let's launch a nail polish brand that can then expand into other things. He's like, dude, I love the idea so much. I love it so much. We launched it 6 months ago. And so then it like it wasn't But it's not anywhere on Machine Gun Kelly's profile, which to me actually goes back to what we're saying. Like, how much does he give a shit about the brand? Because this launched 6 months ago. He never promotes it, but he launched a nail polish brand. I believe it's called Undone, U-N-D-N. And the interesting thing is they don't call it nail polish. They call it lacquer. So it's Undone Lacquer.

Smart. Like that.

Launched it 6 months ago. You should check it out. It definitely has like a punk rock feel to it, which is why I think there's still Opportunity in the space, but honestly, if if I had to to give my view on this, I just think either Machine Gun Kelly does not care enough, or he doesn't have what we talked about kind of the adult in the room or the operator to stay on top of MGK to promote his brand that he has a vested interest in. Oh my god!

This is terrible. Look at this branding. He's not even in it.

Yeah, exactly.

Image has got to be machine.

Yeah, and if you and if you go to MGK's IG. He wears nail polish in every photo, yet he doesn't promote it. So anyway, I'm getting off my high horse.

The adult in the room.

Exactly.

So easy for somebody else to just be like, hey, in between making out with Megan Fox, just throw this on here for a moment.

Exactly. So anyway, that is kind of to put a pin in the Procter& Gamble for the next generation being creator-led brands. That is one I worked on, but I'll keep us updated on creator-led businesses I'm working on. And by the way, I think this exact thing could exist for you. And I think it's even interesting to think about, to your point, what does this look like not for movie stars or rock stars, but YouTubers and internet creators? So let's put a pin in this now.

It's not nail polish. I'm like, not that together. We're going to have to come up with a second product.

It's going to have to be a line of car washes. Cody's Car Washes. All right, guys, that was part 1 of my latest 3-part conversation with Cody Sanchez. What do you guys think of my creator holding company proposal? How should creators think about fast-tracking their own businesses? Shoot me an email to alex@morningbrew.com and we might just talk about your ideas in a future episode. And we're also sending out a survey to get more feedback from you all to help inform the future of the show. So please subscribe to our show newsletter. At foundersjournal.morningbrew.com. And finally, before we go, a quick shout out to the team that helps make Founders Journal possible. Our show is produced and engineered by Dan Bauza. Our associate producer is Bella Hutchins. Brian Henry is our executive producer. Holly Van Leeuwen is our fact checker. Emily Milliron is our video producer and editor. And I'm your host, Alex Lieberman. Thanks for listening, and I'll catch you next episode.