Thread by @dunkhippo33

1) Some thoughts on unit economics (and why they are so important). I think founders don't spend enough time thinking about this from Day 1 but really should.

2) tl;dr: you really need the spread between Lifetime value (LTV) and cost-to-acquire a customer (CAC) to be AS BIG AS POSSIBLE. The reality is that your CAC often goes up so you need as much buffer between these 2 numbers as you can get.

3) An example of this is that 3 years ago, I backed a company whose CAC was $4 at the time and today, their CAC is $35! You might think this is a bad thing, but it works well for their business, because their LTV is super high.

4) But if their LTV had been $10, that would've been horrible. Part of the reason their blended CAC has gone up is that they have delved into many more channels now, and some newer channels are much more expensive. But they can get so much more marketing reach.

5) So when I see pitches where a company is spending $1 and making $2, that actually make me pretty nervous. At a small scale, that works, but there just isn't a lot of room for error. Even if you are not a professional marketer, you want your unoptimized numbers to be great.

6) This is just me, but having seen so many companies' unit metrics now, if I were to start a product company today, if my unit economics on my business idea were not great from the getgo, I would scrap the idea entirely and try something else. It matters a lot.

7) When you hear about these crazy VC flameouts at the late stages, it's often because the unit economics didn't work out. And more often than not, the unit economics NEVER MADE SENSE to begin with!

8) An example of this: years ago, in a class, my teacher was going through a case study of Pets.com. Pets.com was losing money each time they sold a bag of dogfood. My teacher asked us, what would you do about this? The answer: stop selling dogfood!

9) Ideal scenario to shoot for on day 1: cover both your marketing spend + your COGs into that first transaction. Quick payback period & strong unit economics. Later you'll understand your retention and repeat buys better to know how much more you can spend on marketing.

10) Business fundamentals start from Day 1. Too many entrepreneurs and VCs overlook, which is baffling to me, because this is exactly what business is all about. Business is not about product. Or about design. It's only about making your sales and costs work out.