This is the story of how and why we arrived at the decision to build Cloutdesk for Marketers, a revolutionary new product for creator-brand partnerships.
Photo by Etienne Girardet on Unsplash
The road to product market fit has its ups and downs, hairpin turns and blind corners. This has been especially true for my startup, Cloutdesk.
Just 6 months ago, Cloutdesk was a SaaS tool built to help creators monetize brand partnerships more effectively. Today, less than 200 days later, we have evolved into something quite different — and much more ambitious.
This pivot has since reinforced our flywheel and led us to grow 350% since the beginning of the year.
In the following post, I will do my best to outline the discoveries and insights that caused us to cast aside our doubts, change our thinking, and “embrace the dark side”. We are a creator technology company that built an infrastructure platform for marketers — and we are damn happy about it!
Here’s why we did what we did and the lessons we learned on the journey:
Influencer marketplaces spam creators with dozens of enticing emails that propose vague opportunities for brand deals each week. More often-than-not these opportunities require that creators “apply” to participate. These “applications” each require creators to provide creative concepts and ideas to the client for free. Not only do these applications take precious time (up to 30 mins a piece), but they rarely result in actual revenue. When interviewing 18 of our pilot users, they reported that on average only about 10% of opportunities presented by marketplaces resulted in actual revenue, compared to roughly 50% when working directly with an agency or brand partner. For most creators, applying to marketplace sourced opportunities is not simply worth their time.
Abysmal compensation rates
In addition to procuring free creative work under the guise of an opportunity, the rates offered by influencer marketplaces skew significantly lower than when the marketer (or agency) is working directly with the creator. An analysis of data collected from over 2000 tracked campaigns during the beta of our SaaS product, indicated that influencer marketplaces pay between only between 50–60% what a creator earns when working directly with a client.
Opaque take rates
This significant difference is accounted for by two factors: transparency and terms. Many influencer marketing platforms fail to disclose, or obfuscate how much of their fees ultimately make it into the creator’s pocket, which I will dig into shortly.
Exploiting inexperience by design
More insidious however, is how these marketplaces handle creator licensing terms. With click-to-sign agreements, marketplaces exploit creator inexperience by including unconscionable terms the fine print. Global licenses across all media channel (including TV, billboards, and everything in between), unrestricted content usage, and prohibitive exclusivity requirements are non-negotiable by default. Creators who have access to legal or talent representation know that these terms are a massive source of value that drives billions in revenue each year.
Not trusted by experienced creators
Having been burt in the past, many experienced creators are conditioned to distrust and ignore opportunities from marketplaces and instead only work with clients directly.
Lesson #1: Ignoring the needs of one side of your marketplace will leave the door open for new disruptors to steal market share in the long-game.
Taking more value out of a market than you return is never good business, not just because it sours relationships with market participants, but because it leads marketplaces into a vicious spiral. Many marketplaces today have fallen into this trap as a result of the two most common business models:
- Arbitrage Model- Neither creators nor clients who engage with each other on these platforms know exactly how much the other is paying or being paid. These “black boxes” often hide 30–60% take rates by conducting arbitrage between creators and marketers. For instance, they can receive a fixed cost-per-sale from marketing clients, only to turn around and pay creators on a cost-per-view basis. Companies with a network model will frequently monetize licensing rights to creators’ content, which they acquired by default for free. This is shady, right?
- Enterprise SaaS- If you are an enterprise-grade marketer who values all-in-one solutions and wants to manage everything themselves (usually in house) this may be is your solution. These platforms often come with implementation fees, annual contracts, and (typically, but not always) per-seat pricing. As a marketer, you can expect to pay $100K+ per year before influencer spend just to license the software. This is budget that could be otherwise invested with creators directly, putting more money in their pockets and driving more ROAS performance. The only reason exorbitant SaaS fees have been allowed to continue is because a $100K software license is still less expensive than hiring the 3–5 team members that would be needed for the marketer to conduct the same work.
Why such high margins and/or prices? One possible clue comes down to the fact that many of these platforms started as services.
In absence of sufficient technical capabilities, many early movers did what made the most sense at the time and staffed up to “service the gap”. As they grew, so did the dependency on increasing non-technical headcount and high take rates / fees.
Take Mavrck for example. Despite raising $135 million a few months ago, their engineers only account for a less than 10% of their total staff. For reference, the proportion of engineers at Facebook, which could be argued is reaching the peak of it’s maturity cycle (and theoretically should need more sales staff to grow) is 3x higher. If this does not make sense to you, you are not alone. It simply isn’t sustainable under competitive market conditions.
At Cloutdesk, we believe that market participants will ultimately gravitate towards the networks that offer the most overall economic benefit.
Cloutdesk lowers the barriers to access by removing upfront/fixed fees for marketers, empowering more informed negotiation for creators, and providing the most efficient mechanisms for each party to enter and manage partnerships at high volume. As a technology, not service-first solution, we are able to provide CDFM to customers at fees that are 6–10x lower than comparable alternatives.
Our model extracts the minimum value necessary to for Cloutdesk to sustainably grow services while maximizing “working budget” for creator collaborations. This means means more revenue yield for creators and better return on investment for marketers. With businesses that are heavily reliant on servicing gaps in technology, it will be difficult, if not impossible, for incumbent solutions to follow us into this model and compete on cost efficiency.
Lesson #2: Do not assume larger incumbents benefit from economies of scale. That same scale may be their Achilles heel.
There is a reason that 18k influencer marketing solutions exist today. They were born to solve a very real set of problems for marketers.
Influencer campaign management is hard at high-volume:
Let’s say a brand is managing their influencer marketing in house. They partner with 60 creators on a 6-month campaign, agreeing to pay each creator monthly. Participants in the campaign are responsible for publishing 12 pieces of content in total(one every 2 weeks). That’s 720 deliverables — each which needs to be produced, reviewed, approved and posted. Let’s not forget about those invoices that need to be paid, somewhere around 360 of them.
That’s a lot of work, but we’re still only talking about ONE brand…
If we apply this same case to an agency-example, it gets even crazier. If our example agency services 10 different brand clients. That’s now 600 creators, 7,200 pieces of content and 3,600 invoices.
Such a feat would previously require a literal army of agency coordinators to pull off cleanly. Today, it can be accomplished by a team of 4–6 people, as long as they are using a software solution.
Today, most of influencer marketing solutions for brands offer comparable features, data, and service. They look almost indistinguishable from one-another because they all followed a similar approach — taking processes that had formerly been in email or spreadsheets (outreach, relationship management, reporting, payment, etc.) and moved them to a dashboard where they can be managed hositistically in the cloud.
What this approach fails to account for is the impact it has on creators, who bear a similarly burdensome list of responsibilities.
When deciding whether or not to go forward with building a solution for marketers, we didn’t have to think twice about validating the marketer-problem. Dozens of other solutions had already done the hard work for us. We just needed to figure out what we could do better and in a way that was more our style: a win-win for both creators and brands.
The opportunity to help marketers engage more meaningfully with niche customer communities is only open if we can make micro and nano creator transactions frictionless and scalable.
Lesson 3: Whenever possible, have incumbents validate markets and user/customer pain points for you.
It was nearly by accident that we discovered the opportunity to help marketers. It started when, early last winter, we released a new tool that enabled creators to draft their own brand partnership agreements. This feature gave our users the ability understand and influence the terms of their brand partnerships — all without a lawyer and, in some cases, for the very first time.
When creators make contracts on Cloutdesk, our technology use the document’s data to automatically generate campaign briefs, content specs, invoices, deadline reminders, and everything in between that users may need to successfully manage a partnership. Voila, just like that- 90% of the creator back-office automated!
In the back of our minds, we were concerned: what if marketers refrained from to adopting the Cloutdesk contract standard promoted by creators on our platform?
Our worries would be put to rest (at least momentarily) when, within weeks of the release, a handful of agencies and brands had already contacted us to see if they too could use our contracting tool.
The only trouble is that our contract builder was integrated deeply into our creator application. We didn’t have anything for them..
A month of late nights and weekends later, we had a fully-functional prototype in the hands of our first agency partner. To our surprise and relief, they not only liked this new tool — they loved it! So much so that our pilot agency partner was fully ramped up within 30 days and onboarding dozens of creator partnerships per-week.
When circling up for a review and feedback session with the agency, we were told our technology was saving each of their account managers 2–3 hrs.
Per week, or per month? we wondered aloud.
No, per day. ?
It was then that we realized this experiment was worth developing, but to what extent, we did not quite fully understand.
The next 6 months of engaging with the pilot agency other others like it generated the “pull” for new features, supported use-cases, and scalability many companies die trying to find. Rather than stumbling across that most- sought-after and elusive precursor to product-market fit, “pull” had found us.
Lesson #5: Continue challenging/questioning your foundational market assumptions through late-stage discovery. You may find the inverse of what you expected to be true.
Figuring out how to charge creators was a complex process of trial and error (mostly the latter), and of course, luck. After experimenting with a half-dozen business models, we decided it would be better for all involved if we stopped charging creators and instead monetized the other side of the market. Here’s how we found business model fit and why we determined it results in better outcomes for all market stakeholders.
Cloutdesk started as a virtual assistant SaaS that we initially priced at $199/mo. We used this as a way to validate our solution to the problem of creator back-office management. However, rather than asking early users to pay full-price we provided a 50% discount. Still, many creators we spoke with found this too high.
We then tried offering three pricing tiers, ranging from $29–99/mo. When nearly all our beta users migrated to the $29/mo. plan, we knew this merited deeper investigation.
In hindsight, the results this research yielded are not surprising, but they deeply changed how we think about the business.
- Creators hate fixed monthly costs — their income can fluctuate dramatically on a month-to-month basis. Carrying a flat SaaS fee during softer months is painful, especially at the beginning of your creator career.
- Taking a % of a creator’s income is a turn-off, unless you are bringing new, previously inaccessible value to the table. Many creators will even avoid getting paid via Paypal due to the 3% fee taken from transactions to merchant accounts.
- Earning fees from Payday-style loans felt shady, unethical, and high-risk. Once becoming integral to the contracting and payments processes, we realized we could earn fees from creators from factoring their invoices. For the uninitiated, invoice factoring allows businesses to sell their owned invoices to a 3rd party at a discount, in exchange for getting immediate payment. Despite getting some uptake from creators, we felt this took advantage of the creators who were struggling to make ends meet and it didn’t feel right. Additionally, the risk that comes with purchasing (and effectively paying) an invoice before its respective work was fulfilled did not sound feasible. Just to cover the risk, we calculated we would need to pay no more than 93 cents on the dollar for each invoice (estimating that it would take us 60 days to get paid back for each invoice). This would be the equivalent of charging the creator a 40% APR. That’s exploitation, not empowerment – definitely not our style.
So what to do instead?
Releasing the pilot of our marketer-facing tool gave us the answer we had been searching for. Upon recognizing that we can provide significant value to marketers by giving them a portal into our infrastructure, we started experiment with charging them a nominal platform fee. Unsurprisingly, it worked.
Cloutdesk’s platform fees to markers are 3–5x below the next closest incumbent and still generating stronger monetization that we’ve ever seen on the platform. Better yet, Cloutdesk is now free for all creators to use. This means 0% fees on invoice creators send and unlimited usage of our contracting and partnership management tools.
This not only removed friction to creator adoption, but actually provided more value and incentive for creators to join.
Lesson #6: Ignore market price sensitivity at your own peril.
Perhaps the most important take-away from all of this is that you can’t solve a market’s problems by building a solution for one-side of the equation. Market-changing companies must strive to solve customer problems at the source, not symptom level.
If you are building a platform for one side of a marketplace and have not yet identified the origin of the customer/user pain, follow the flow of a transaction through the value chain. The issues that your immediate customer is facing may be beyond their control, especially if they operate on the supply-side of the market (or the side of the market with traditionally less bargaining power) and are more likely to capitulate to demands of their counterparties.
When this is the case, as a founder you must make the hard choice to decide if your passion, resources, and timing are still suited to pursue the problem into a new market, or whether it’s time to abandon the problem all-together.
For us, the choice to continue pursuing the problem beyond creators and squarely into the realm of marketers was an easy one. Our team’s experience and network is remarkably well-suited to the the task.
My technical co-founder, Paul, built some of the core programmatic infrastructure for marketers at Chango and later, was responsible for launching influencer partnerships for his brand.
Before entering the creator economy in 2017, I spent the first half of my career building, selling, and vetting programmatic marketing tools for some of a largest digital marketers on the planet. It was my earlier experience as a marketer that helped form the initial idea for Cloutdesk, which was honed while working with my spouse, Samantha, who has been a professional creator for the past seven years.
When done right, expanding from SaaS to a network or marketplace model can have knock-on effects that benefit your core business. In our case, we discovered that our growth flywheel is more effective when there are two sides to it:
- When marketers use our platform to partner with creators, those creators, in turn, adopt Cloutdesk as a brand partnership management tool.
- When more creators use our free toolset for contracts, content approval, and invoicing, it drives more marketers to our platform.
This virtuous cycle has been the biggest contributor to the 350% growth I mentioned earlier. Beyond that, creators who are invited by their brand partners are 6x more likely to stick around and use Cloutdesk than creators who are coming in “cold”.
We could have not achieved such success without an awesome founding team, investors who believe in us, and our community of creators and brands who actively contribute to our mission.
Today, I am proud to introduce the launch of Cloutdesk for Marketers and invite you to get in touch, try it out, and help us create a world with more meaningful, equitable, and accountable relationships between creators and brands.
To learn more about Cloutdesk for Marketers and schedule a demo, you can book time with me here.