By sector
Consumer diligence
Retention curves that flatten or do not, acquisition costs that rise with scale, and the difference between a moment of attention and a habit.
Realistic time Five to ten hours
Consumer businesses are the easiest to get excited about and the hardest to assess. Growth can be spectacular and meaningless; a product can be delightful and unretained; a brand can have enormous attention and no economics. The failure mode is confusing enthusiasm with evidence, and it catches experienced investors as reliably as new ones.
The central question is whether the retention curve flattens. Every consumer product loses users over time; the ones that build businesses lose them for a while and then stop, leaving a stable base that keeps returning. A curve that decays toward zero describes a product people tried, and no amount of acquisition spend fixes it.
The second question is whether acquisition can scale without the cost rising faster than the value. Early consumer growth is often organic, cheap and unrepeatable — a launch, a viral moment, a favourable algorithm. What matters is what happens after that, when growth must be bought.
01
Retention: does the curve flatten
Ask for retention cohorts by week or month, over the longest period available, on the metric that represents real use of the product. The shape is the answer. A curve that declines and then flattens at a meaningful level describes a habit. A curve that continues toward zero describes a trial.
The level at which it flattens matters as much as whether it does. A product retaining a small percentage of users after six months can still build a business if the economics per retained user are strong, but the acquisition volume required is very large.
Be careful about the definition of an active user. Companies choose definitions that flatter, and a monthly active user who opened the app once is not the same as one who used it weekly. Ask what the definition is and ask for the stricter version.
Check
- Retention cohorts over the longest available period.
- Does the curve flatten, and at what level?
- The precise definition of an active user, and the stricter alternative.
- Is engagement per retained user growing or flat?
- How do recent cohorts compare with the earliest ones?
02
Acquisition and its cost
Establish where users actually come from, in proportion. Organic, referral, paid, partnerships and press behave completely differently and scale completely differently. A business that is 90% organic has not yet learned whether it can buy growth; a business that is 90% paid has, and the question is at what price.
Paid acquisition cost almost always rises with scale, because the cheapest audiences are exhausted first. Ask for the trend rather than the current figure, and ask what happened the last time spend was increased materially.
Virality deserves precision. A product where each user brings others has a fundamentally different growth economics from one that relies on paid channels, and the claim is easy to make and straightforward to test with the referral data.
Check
- Breakdown of users by acquisition channel.
- Paid acquisition cost trend over the last four to six periods.
- What happened the last time paid spend was doubled?
- Referral rate — how many new users does an existing user bring?
- Dependency on any single platform, algorithm or app store.
03
Monetisation
Consumer businesses monetise through subscription, transaction, advertising or commerce, and each has a different shape. Subscription is the most predictable and the hardest to achieve; advertising requires scale that few consumer startups reach; commerce brings inventory and margin questions that founders sometimes underestimate.
Ask what proportion of users pay anything, and what the revenue per user is. Then ask whether monetisation has been tested at all — many early consumer companies have deliberately not monetised, which is a legitimate strategy and means that a central assumption remains unvalidated.
Check
- What proportion of active users generate any revenue?
- Average revenue per user, and per paying user.
- Has pricing been tested, and what happened?
- For commerce: gross margin, returns rate, inventory commitment.
- For advertising: what scale is required for it to be meaningful?
04
Platform and distribution risk
Consumer companies frequently depend on a platform they do not control: an app store, a social network, a search algorithm, a recommendation feed. Changes to any of these have ended businesses, and the change usually arrives without warning.
Ask which platform matters most and what the company would do if that channel halved overnight. The answer reveals both the risk and whether the founders have thought about it.
Check
- Which single platform or channel is growth most dependent on?
- What would happen if that channel halved?
- Has the company been affected by an algorithm or policy change before?
- App store fees and their effect on unit economics.
- Does the company own a direct relationship with its users, such as email?
Stop and think
Red flags
- Retention curves that decay toward zero, presented alongside strong growth numbers.
- An active-user definition chosen to flatter, with reluctance to show a stricter one.
- Growth entirely from one viral moment that has not been repeated.
- Paid acquisition cost rising sharply with no channel diversification.
- Complete dependence on a single platform with no direct user relationship.
- Monetisation entirely untested at a stage where it should have been.
- Vanity metrics — downloads, sign-ups, impressions — used in place of engagement.
The other side of the table
What founders are taught about this
Gustaf Alstromer - How to Get Users and Grow
Growth channels, how they are tested and how they saturate — the operational detail behind the question of whether a consumer company can keep acquiring at a price that works.
Published by Y Combinator. Channel verified from ycombinator.com, and YouTube's own oEmbed response names that channel as this video's author. Pressing play loads content from YouTube.
Take these into the room
Questions to ask the founders
- Show me retention cohorts over the longest period you have.
- How do you define an active user, and what does the stricter definition show?
- Where do your users actually come from, in proportion?
- What happened the last time you doubled paid spend?
- Which platform would hurt most if it changed its rules?
- What proportion of your users pay you anything?
- What is the most disappointing number in your business?
From the decoder