Sep 20, 2024 · 1h 23m · news
Phil Carter: Growth Loops, CAC + LTV Benchmarks, Pricing, Discounts, Paywalls... | E1204 · 20VC with Harry Stebbings
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In this episode of 20VC, host Harry Stebbings interviews growth advisor Phil Carter to dissect the core strategies, metrics, and economic realities of building and scaling successful consumer subscription applications.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 14.6% of the talking time here. How this is scored →
Harry as informed peer 3.7 Guest teaching 4.3 Guest disagreement 1.4 Harry pushing back 2.4
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 4:51 Phil rejects pre-PMF growth hiring premise
Phil explicitly disagrees with a premise Harry cites from a previous guest, arguing forcefully that hiring a growth team prior to product market fit is misguided.
Hardest push from Harry ▶ 1:21:13 Harry challenges guest's personal angel investment mathHarry puts Phil on the spot by challenging the valuation multiple and venture return potential of Phil's portfolio company, Ladder.
Biggest teaching moment ▶ 15:36 Quizlet UK SEO growth loop misdiagnosisPhil educates Harry on how growth data can be misleading, explaining how Quizlet thought they had a content creation issue when technical indexing subfolders were actually blocking SEO discovery.
Harry holds his own ▶ 37:36 Harry asserts venture return realities on consumer subscriptionsHarry uses his investor domain knowledge to challenge consumer subscription business models, noting that secondary markets trade private sub darlings at 50% discounts.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Defining Growth & Structure of Growth Teams | 2 | 3 | 1 | 1 | Harry asks for foundational definitions of growth and team structure. Phil sets the stage by explaining how product-led growth replaced traditional sales teams over the last 15 years. The tone is collaborative and conversational. | |
| When to Hire Your First Growth Team | 3 | 4 | 3 | 2 | Harry quotes an interviewee who recommended hiring growth pre-PMF. Phil politely disagrees with the premise, arguing that without PMF a company doesn't know if it's building the right product. Phil cites Strava's internal engineering evolution as a counterexample. | |
| Optimization vs. Big Swings on the S-Curve | 2 | 5 | 1 | 1 | Harry inquires about micro-optimizations versus big strategic swings. Phil educates using the S-curve framework, showing why early-stage startups waste time on button color tweaks without adequate user volume. | |
| Mistakes in Early Growth Hiring & Interview Strategies | 3 | 4 | 1 | 1 | Harry asks about common early growth hiring mistakes and structured interview prompts. Phil candidly admits his own past mistake of over-indexing on specialists instead of generalists who possess intellectual curiosity. | |
| Assessing Passion & Leveraging Failed A-B Tests | 3 | 5 | 1 | 2 | Harry prompts Phil for an example of a failed A/B test unlocking a major growth insight. Phil details Quizlet's UK expansion where technical SEO indexing issues were misdiagnosed as lack of regional content creation. | |
| Setting the Right North Star Metric | 5 | 4 | 1 | 2 | Phil breaks down inputs versus outputs in North Star metrics. Harry interjects with investor expertise, pointing out how contract seat count drives total SaaS revenue as a concrete input example. | |
| Why Consumer Subscription Apps are Easy to Launch but Hard to Scale | 3 | 5 | 1 | 1 | Phil analyzes why consumer subscription apps are easy to launch but hard to scale due to high churn, low ARPU, and app store taxes. Harry agrees and connects the idea to current consumer AI app trends. | |
| Customer Acquisition Cost (CAC) Dynamics & Early-Stage Strategy | 3 | 5 | 1 | 1 | Harry asks if CAC increases or decreases over market saturation and how low-budget startups should acquire early users. Phil highlights Peter Thiel's power law of distribution and advises focusing on a single dominant channel. | |
| Diversifying Channels & Spending Your Way to Dominance | 3 | 4 | 2 | 2 | Harry asks when startups should diversify channels and whether companies can simply spend their way to market dominance. Phil responds that spending to dominance only works in strong network effect marketplace models. | |
| Payback & Retention Benchmarks in Consumer Apps | 4 | 5 | 1 | 1 | Harry asks for precise payback and retention metrics for consumer subscription apps. Phil delivers concrete benchmarks including 1 to 3 month payback and 50% 6-month retention for monthly subscribers. | |
| Is Consumer Subscription Venture-Backable? | 7 | 3 | 2 | 6 | Harry aggressively argues his investor thesis that consumer subscription as a category is not venture-backable, pointing to secondary markets where private darlings trade at 50% discounts. Phil agrees in general while outlining rare exceptions. | |
| Differentiating and Enduring Core Value Promises | 4 | 5 | 1 | 2 | Harry asks how hardware-subscription wearables like Whoop and Oura combat diminishing value over time. Phil explains how upfront hardware pricing escalates commitment and how feature velocity preserves subscriber intent. | |
| Gamification, Streaks, & the Octalysis Framework | 3 | 6 | 1 | 1 | Harry questions the mechanics of gamification, streaks, and badges. Phil educates Harry on Yukai Cho's Octalysis framework and breaks down Duolingo's streak avoidance psychological drivers. | |
| The Art and Science of Notifications | 6 | 4 | 3 | 7 | Harry explicitly challenges Luis von Ahn's warning on notifications, arguing that sending fewer notifications in an era of digital noise will just cause users to forget the app. Phil responds by explaining notification fatigue and throttled re-engagement models. | |
| Paywall Optimization & Hard vs. Soft Paywalls | 3 | 5 | 1 | 1 | Harry asks about paywall view rates and the tradeoff between hard paywalls and freemium models. Phil cites Jake Moore's Superwall benchmark of an 80%+ first-session view rate. | |
| Pricing Tiers, Durations, & Tinder's Monetization Strategy | 5 | 3 | 2 | 6 | Phil praises Tinder's tier differentiation (Plus, Gold, Platinum). Harry pushes back, stating that Tinder does a confusing packaging job that drives users to Bumble. Phil humorously admits he hasn't used dating apps personally since meeting his wife. | |
| Time to Value & Onboarding Personalizations | 4 | 4 | 1 | 3 | Harry questions Noom's 100-screen onboarding flow and asks about drop-off rates. Phil acknowledges the likely bimodal drop-off but explains how intent builds once users pass the initial screens. | |
| Strategic Discounting & Dealing with Seasonality | 3 | 5 | 1 | 1 | Harry asks about effective discounting and managing severe seasonality. Phil shares a growth tactic: sending activity-based discount emails that route to web-checkout to bypass Apple's 30% fee. | |
| Introduction to Quick Fire & Irreversible Founder Mistakes | 2 | 4 | 1 | 1 | Harry initiates the quick-fire section by asking for irreversible founder mistakes. Phil warns against over-funding and pouring capital into paid ads prior to establishing unit economic health. | |
| Obsolete Growth Strategies (Paid Acquisition & SEO) | 3 | 5 | 1 | 1 | Harry asks what growth strategies have died. Phil outlines the breakdown of the traditional Series A Facebook ad playbook post-ATT and discusses AI's impact on search and answer engines. | |
| Rethinking Onboarding Flow Length | 3 | 5 | 1 | 1 | Harry asks Phil what he changed his mind on and his favorite recent campaign. Phil highlights his shift toward longer onboarding flows and describes how fitness app Ladder leveraged TikTok spark ads. | |
| Debating Valuation Multiples and Venture Return Potential | 7 | 2 | 4 | 8 | Harry directly challenges Phil on his angel investment in Ladder, arguing that even $100M revenue at a 3x multiple isn't enough for venture returns. Phil defends his investment thesis by pointing to 6x growth and first-principles execution. |
Statements from this episode (44)
Carter: Average Consumer App Loses 50% of Annual Subscribers in Year One
“The average consumer subscription app is losing more than 50% of its annual subscribers in the first year and more than 50% of its monthly subscribers in the first three months.”
Phil Carter: Overusing Push Notifications and Emails Kills Engagement Channels
“Anytime you increase the number of notifications or emails you send, in the short term, it's like the sugar high. It's going to lead to a short-term pop in your metrics, but if you do that too many times, you kill the channel.”
Carter: Quizlet Generated 95%+ of User Acquisition Organically via SEO
“Quizlet that's, you know, 95% plus organic acquisition through SEO and word of mouth”
Carter: Startups Should Hire First Growth Leader Only After Reaching Product-Market Fit
“In my opinion, Before you have product market fit, you don't even really know if you're building the right product. And then even once you have product market fit, you then need to figure out how do I get this product to scale within the right channel so that …”
Phil Carter: Seed and Series A startups should avoid small growth optimizations
“So if you're in the early part of that S curve, which by definition means any seed or series a startup, You should not be focusing on small optimizations. It's a waste of time for a couple reasons.”
Phil Carter: Early-stage startups lack sufficient user volume for A/B testing optimizations
“And then the third reason is oftentimes, even for consumer businesses and certainly for B to B businesses, if you're that early, You simply don't have enough users to be able to measure a statistically significant difference in a small optimization type of an …”
Carter: Interview Assignments Should Take Under Two Hours on Ubiquitous Companies
“What I found works best is pick an assignment that truly shouldn't take more than an hour or two before you hit diminishing returns. On, you know, spending more cycles on it. And that number two is either more of like a hypothetical scenario or it's a company …”
Carter: The biggest growth wins often follow failed A/B tests
“The biggest wins come right on the heels of a failed A-B test where, like, that's not what I was expecting to see, but based on what I am seeing now, I've learned something new about the customer, so now let's go run a second A-B test on the basis of that lear…”
Phil Carter: SEO drove over 70% of Quizlet's growth
“With that context SEO was driving more than 70% of Quizlet's growth and had been for some time.”
Carter: Quizlet's content creation metrics were higher in UK than US
“All of our content creation metrics in the UK, metrics like what percentage of teachers and students become content creators and how many pieces of content does each of those creators create? Those metrics were actually higher in the UK than in the US, which k…”
Stebbings: Growth teams should optimize seats per contract, not top-line revenue
“The biggest mistake that I see as an investor today, you know, with the investing hand, it's like focus on revenue and it's actually like actually seats per contract drives the total revenue size. And so the growth team should be focused on what product change…”
Phil Carter: Consumer Apps Lack Upsells to Drive Net Revenue Retention
“There's no real concept of net revenue retention, because unlike B to B SaaS, you can't land and expand. Like most of the kinds of companies have one subscription tier. They don't have anything they can really upsell consumers into.”
Phil Carter: CAC almost always increases over time for scaling startups
“For everyone else, CACs almost by definition will go up over time for a couple reasons.”
Carter: Spending Under $10,000 Monthly on Facebook Ads Is Inefficient
“Like they're spending 5000 dollars a month, 10,000 dollars a month on Facebook. That's just not enough to get an efficient outcome.”
Carter: Fast-Growing Startups Get 70%+ of Early Users From One Channel
“70% or more of user acquisition for most fast-growing tech companies is going to come through a single channel early on, and so don't spread yourself too thin.”
Carter: Invest in secondary channels 6–12 months before saturation
“Ideally, once you start to see the early signs that, okay, we're not at saturation yet, But I can connect the dots to six to 12 months from now. We're probably going to start to hit saturation. You should be investing heavily at that point and figure out what …”
Carter: Consumer subscription apps cannot spend their way to dominance
“There are some rare exceptions where I think that has happened. Typically in marketplace businesses where the network effects are so strong once you get to the tipping point that you can have upside down unit economics for months or even years. And then, you k…”
Carter: Consumer App CAC Payback Benchmark Is One to Six Months
“Six months is good. One month is great. You know, first, first session is exceptional, which is significantly lower than B to B, right? And B to B, you know, 12 months can be considered a good payback or even 18 months for an enterprise SaaS business.”
Carter: 75% of Consumer App Trials Start Within 24 Hours of Install
“RevenueCat recently had their state of subscriptions report for, ah, for twenty-twenty-four, and they reported that over 75% of trial starts actually happen in the first 24 hours after a user installs an app, in many cases on the first session.”
Carter: Retaining 50% of Monthly App Subscribers for Six Months Is Exceptional
“For monthly subscribers, I think any company that is retaining more than 50% of its subscribers for six months or more is doing a very, very good job because monthly subscribers just tend to turn at much higher rates”
Carter: Annual app subscribers retained for two years stay long-term
“There's a lot of data that shows that after the second renewal period, the subscribers that you've retained for two consecutive years as annual subscribers are often going to retain for many years after that.”
Stebbings: Consumer Subscription Is Not a Venture-Backable Category
“But I don't think consumer subscription as an asset class, as a subcategory or category, is a venture-backable large enough category. There might be one like Duolingo, and maybe a couple more? But that make it to venture scale returns.”
Carter: Only 30 to 40 Consumer Subscription Companies Are Worth $1B+
“I actually just published a guest post for Lenny's newsletter, and one of the figures that I include in that article is a list of consumer subscription businesses that have achieved billion dollar plus valuations. So that's both publicly traded companies as we…”
Carter: Apple and Google will lower App Store fees within 10 years
“I do think that there may be some factors over the next 10 years that start to make this a little bit easier. For example, 15 to 30% app store fees. I think Google and Apple are under increasing pressure to lower the average app store fee, at least in certain …”
Carter: Quantified Self Apps Lose Subscription Value After Two Months
“In many cases, after I see a month or two of my data, I kind of know, okay, these are the things that lead to better sleep, and these are the things that lead to better fitness metrics like HRV or resting heart rate or whatever the case may be. So the value di…”
Phil Carter: Oura is best in class at releasing features and retention
“Oura is truly best in class at this, is the velocity with which they are launching new features, new insights, and Explaining those new features to users either through the app itself or through emails or other channels is pretty remarkable.”
Stebbings: Effective product notifications must either educate or inspire
“I think notifications like social posts, which is very simple. Everyone must either educate or inspire.”
Carter: Overusing scarcity and urgency tactics destroys user credibility
“Scarcity and urgency are real things, and they can work to drive Short-term DAU retention or to drive, you know, trial start rates because I'm getting a one-time only discount. But when you do too much of that, you lose all credibility with the user.”
Carter: Consumer Apps Should Target 80%+ Paywall View Rate in Week One
“You want your paywall view rate to Ideally be over 80% and over 80% ideally within the user's first session, or if not their first session, then certainly within their first week.”
Carter: Organic Apps Suit Freemium While Paid Acquisition Requires Hard Paywalls
“You do see a lot of correlation between companies with lower price points and organic acquisition strategies like Quizlet going more freemium. And companies with higher price points that are much more dependent on paid advertising for subscriber acquisition go…”
Carter: Consumer Apps Should Maintain a Single Pricing Tier Until Scaling
“So on tiers, I think the vast majority of consumer subscription businesses should only have a single tier, at least until they become very large, mature businesses, and they're actually becoming platforms that are offering multiple premium product offerings ra…”
Carter: Weekly subscription plans suffer high churn and rarely work at scale
“Weekly plans just have such high churn rates that I think they generally don't make sense for companies that have achieved any meaningful scale.”
Carter: Consumer subscription startups should revisit pricing at least once a year
“So on pricing, it's like, this is something that should be revisited, in my opinion, at least once a year.”
Carter: Paywall complexity depresses subscription conversion rates on the margin
“The more complexity you introduce in the paywall, the worse your conversion rates are going to be on the margins.”
Stebbings: Tinder does poor product marketing for its subscription tiers
“I would argue that Tinder do bad product marketing on their different packages. I have seen them, and I don't really get what I'm getting for each of them, and so I'm like, ah, I'll go to Bumble. That, so, so the way that you described it, I go on and I'm like…”
Carter: Noom's Onboarding Flow Contains Over 100 Screens Taking 20+ Minutes
“New, right? Which has more than a hundred screens in its onboarding flow, or at least the version of the onboarding flow I've gone through, right? It's got so much personalization that everybody probably gets a slightly different adventure through their onboar…”
Carter: Longer onboarding quizzes drive higher conversion for health and finance apps
“In categories like health and wellness or finance, where you're making a very considered purchase. And part of the value promise is believing that this product is being tailored to your unique needs. In that context, a longer onboarding quiz, if implemented co…”
Phil Carter: Indiscriminate discounting erodes brand equity and long-term outcomes
“The mistake that a lot of companies make is they treat it as a blunt instrument. It's like, we're just gonna throw out 50% discounts like they're candy. It's like the Oprah meme of like, you get a discount. And more often than not, that's just gonna road your …”
Carter: Web-Based Checkout Discounts Neutrally Bypass 15-30% App Store Fees
“That email will often lead to a web-based checkout flow, which means that you're avoiding the 15 to 30% app store fees, and so your net revenue as the business is neutral, but you're converting subscribers that otherwise wouldn't have converted because the pri…”
Phil Carter: Marketing cannot force students to use edtech in summer
“No amount of brilliant marketing or new product innovation is going to force students to use an education app in the middle of summer. It's just not going to happen.”
Phil Carter: Quizlet hedged summer seasonality via international growth
“As you expand internationally, you can offset some of the seasonality. And so that was one of the biggest things I worked out at Quizlet was international expansion. And we did start to see some hedging on that seasonality as we got more users in Asia or in La…”
Carter: Winning in LLM Optimization Requires the Exact Same Assets as SEO
“A lot of the underlying things that you need to do to be really successful in SEO. Are the same things that you need to do to be really successful with these LLMs, right? You need to have a product that is relevant. You need to have content that people find in…”