{"id":7562,"date":"2019-11-14T14:16:59","date_gmt":"2019-11-14T14:16:59","guid":{"rendered":"https:\/\/www.lemonade.com\/blog\/?p=7562"},"modified":"2022-10-30T06:51:20","modified_gmt":"2022-10-30T06:51:20","slug":"zero-to-100","status":"publish","type":"post","link":"https:\/\/www.lemonade.com\/blog\/zero-to-100\/","title":{"rendered":"Zero-to-100 Million in 3 Years"},"content":{"rendered":"

They say startup years are like dog years, by which logic we launched 21 years ago! Now that we\u2019re all grown up we thought we\u2019d take stock, give an update, and maybe get a beer.<\/p>\n

Strategy Transparency<\/h3>\n

We\u2019ve never spelled out our strategy in public before, but 3 years in we finally have enough data to substantiate its component parts, and anyway, what are Transparency Chronicles<\/a> for?<\/p>\n

So here it is: our strategy is to delight consumers.<\/p>\n

That\u2019s not a strategy, you say? Well, given how we\u2019ve architected Lemonade, it really is. You see, delighted customers fuel growth, growth spawns predictive data, data powers the machine learning that improves our performance, to the delight of consumers. Wash, rinse, repeat.<\/p>\n

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This feedback-loop propels our competitive advantages to become more pronounced and more defensible over time – the very essence of a strategy.<\/p>\n

So now that we\u2019ve laid bare our strategy, here\u2019s the data on how we\u2019ve fared along each of the components of this feedback loop.<\/p>\n

Delight Consumers<\/h3>\n

We\u2019ve worked hard to delight consumers from day one – though in the weeks and months after our launch you wouldn\u2019t have known it. Reviewers tended to be negative back then, though many of our most outspoken \u2018customers\u2019 sounded suspiciously like anxious rivals:<\/p>\n

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Over time, real customers outnumbered anonymous competitors, and the tide started to turn. \u00a0We still have our detractors, of course, but with tens of thousands of reviews collected by disinterested 3rd parties, Lemonade has climbed to become the People\u2019s Choice on pretty much all the destinations where insurance companies are evaluated:<\/p>\n

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Nothing we\u2019ve achieved is more meaningful to us than seeing customers\u00a0upvoting Lemonade over these years. Though, as our strategy lays bare, this isn\u2019t just a feel good thing – it\u2019s the foundational plank of our business, and it propelled the rapid growth we\u2019ve experienced since our launch.<\/p>\n

Grow Fast<\/h3>\n

Happy customers spread the word, fueling rapid growth. Very<\/span>\u00a0happy customers fuel very<\/span>\u00a0rapid growth!<\/p>\n

In their 2019 \u2018State of the Cloud\u2019 report, Bessemer Ventures shared a benchmark for how many years it takes \u2018Good\u2019, \u2018Better,’ and \u2018Best\u2019 tech companies to grow from $1m in annual recurring revenue – known as ARR – \u00a0to each of $10m and $100m:<\/p>\n

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Having reached $1m ARR in Q2 2017, Lemonade\u2019s ARR passed $10m ten months<\/span>\u00a0later<\/span>, and went\u00a0from $1m to $100m in\u00a02.5 years<\/span>.<\/p>\n

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There are a handful of tech companies that have bested that – but not as many as you might think:<\/p>\n

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It\u2019s commonplace to measure growth in ARR, but there are other indicators we monitor and cherish too.<\/p>\n

During our journey from zero-to-100, we saw Lemonade advance from a nonexistent brand to one of the most Googled in our category. If you add up the branded \u201crenters insurance\u201d searches among the top insurers in the US, you\u2019ll find that Americans are searching for \u201cLemonade renters insurance\u201d more than many of the largest and best funded brands in the industry.<\/p>\n

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That\u2019s true in aggregate, nationwide, but we have yet to launch in several states – so the graph actually \u2018understates\u2019 things. In places we\u2019ve operated in for 2+ years\u00a0– like NY, California, and Texas – \u2018Lemonade\u2019 is still more Googled – often the most<\/span>\u00a0Googled – offering a preview of where things may be going.<\/p>\n

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And it isn\u2019t only searches. The NAIC (US Insurance Regulators) published the number of renters policies in effect in each state in the US (as of 2016). Based on these official market-size numbers, Lemonade\u2019s market share is above 10% in many states!<\/p>\n

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But there\u2019s a twist in this tale: becoming so well known for renters insurance came at the expense of homeowners insurance<\/a>. We\u2019ve been selling homeowners insurance since we launched, and think of ourselves as a multi-line business, but all too often we are thought of by others only as a \u2018renters insurance company.’ Being pigeonholed so narrowly always irked us, but it was a problem of our own making. In truth, it was more than irksome; it was a significant failure on our part, and it threatened our continued growth.<\/p>\n

You see, renters insurance is less than 10% of the broader \u2018homeowners\u2019 market, and achieving 10% share of renters insurance so early was at once cause for celebration, and a warning of an impending glass ceiling.<\/p>\n

In August of 2018 we decided to right this wrong, and started to give homeowners the love and focus they deserve. It\u2019s been rewarding work: in the past 12 months we\u2019ve seen over 500% year-on-year growth\u00a0in sales of homeowners policies – even as our cost to acquire them dropped 70%.<\/span> Back in August 2018, 5% of our sales came from homeowners – now it\u2019s about 35% and growing.<\/p>\n

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What\u2019s even better is that ever more of this \u2018homeowners growth\u2019 is internal – and free. You see, most people join Lemonade while they are renters – but a growing number of them have graduated to become homeowners. It\u2019s wonderful for them – (congratulations on the new home btw, you know who you are!) and wonderful for us: the average premium of a homeowner is 6X that of a renter!<\/p>\n

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This \u2018graduation\u2019 dynamic was something we had always hoped to see, and it was the strategic reason for focusing on renters in the first place.<\/p>\n

Another avenue for growth for us has been geographic expansion<\/a>; most significantly, our entry to Europe<\/a> in June of this year. It\u2019s early days, but I\u2019m happy to report that so far so good: in our first 5 months since our launch in Germany we\u2019ve grown our customer base slightly faster than we did during the equivalent period in the US:<\/p>\n

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That said, we\u2019re also learning that the German market is quite different from the US, both in ways we expected and in ways that surprised us. A trivial example: AI Maya greets the user by introducing herself and asking their name. This works well in the US, but it turns out that the German consumer often doesn\u2019t feel ready to share their name at the beginning of the interaction – so we\u2019ve shuffled things around some.<\/p>\n

To continue our early growth spurt in Europe will require continuous experimentation, successes, and setbacks. We still have a long way to go before we can declare that our European launch is on the same glide path as our US business.<\/p>\n

Predictive Data \u2192 The Machine Learns<\/h3>\n

Growing ARR, brand awareness, market share, product mix, and geographical footprint are worthwhile goals in themselves. In a business governed by data and the law of large numbers, however, growth does double duty: it yields the rich data sets needed to refine risk models, transforming the company\u2019s key performance indicators.<\/p>\n

For every dollar we earned in Q1 2017, we paid out $3.68 in claims. The ratio of dollars paid out to dollars earned is called a \u2018Loss Ratio\u2019, and at 368% it was called a Friggin Terrible\u00a0Loss Ratio. Since then, it\u2019s dropped steadily and steeply, and our 2019 third\u00a0quarter Loss Ratio was 78%, and trending downwards.\u00a0Notably, the equivalent loss ratio among the top 20 insurers in the US averaged 82.34% last year (source: S&P Global<\/a>).<\/p>\n

Lopping\u00a0290%\u00a0off a loss ratio in 2.5 years – without material price increases<\/a> – is a neat trick, and not many industry observers believed it could be done:<\/p>\n

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There\u2019s a saying I\u2019ve had thrown in my face: \u2018If it grows like a weed, it probably is.\u2019 In insurance circles, rapid growth is associated with a worsening loss ratio. It makes sense: growth often goes hand in hand with being less discerning, which will be reflected in ballooning claims and fraud. Small wonder insurance veterans talk of \u2018shrinking<\/span>\u00a0to excellence.\u2019<\/p>\n

Seeing growth and risk both improving dramatically, as we have, flies in the face of insurance orthodoxy. But in a tech context, it makes sense. Lemonade is built on a digital substrate – bots instead of brokers, machine learning instead of actuaries.\u00a0While brokers and actuaries can be overwhelmed by big data – bots and machines thrive on it<\/a>. Torrents of data do not degrade their performance – they boost it:<\/p>\n

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And it isn\u2019t just the Loss Ratio. We see the impact of data feeding the machine across the company. For example, customers write in with an endless stream of questions and requests. In the early days of Lemonade, 100% of these were handled by people. Only in 2018 had the data grown big enough for AI\u00a0Maya to learn how to answer some of these \u2018tickets\u2019, though \u2018her\u2019 contribution was still modest. But AI Maya is a\u00a0quick learner<\/a>, and today, the AI handles more than a quarter\u00a0of all customer inquiries, crushing costs while delighting customers – thereby closing the feedback loop on our strategy.<\/p>\n

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Lemons to Lemonade<\/h3>\n

It\u2019s been a packed 1,151 days (~800 workdays) since we launched, with unexpected and sometimes downright bizarre incidents. But we tried to make lemonade out of these lemons, such as when the incumbents came out with their own citrus-infused copycats<\/a>\u00a0(most have died as quickly as they appeared), or that freakish State Farm attack ad<\/a>\u00a0on bots, targeting Lemonade, that backfired.<\/p>\n

The latest saga in our David vs. Goliath series may get the Most Ridiculous award. Just a few weeks after we launched in Germany, Deutsche Telekom (T-Mobile\u2019s parent) went to the courts to demand we abandon our use of pink entirely.<\/p>\n

It sounded like a joke, but they were serious. A quick Google search revealed that these bully tactics weren\u2019t anything new: for years DT has tried to take a wide range of pinks away from businesses across multiple industries and countries. It\u2019s why TechCrunch labeled them \u2018trademark trolls.\u2019<\/a><\/p>\n

So we decided to fight back, and filed to invalidate DT’s Magenta trademark<\/a> – calling on anyone who wanted to join us to #FreeThePink. We also bought a bunch of swag from DT and T-Mobile, and Team Lemonade got decked out in “their” pink, emblazoned with their mission statement: “Life Is For Sharing.” Who can argue with that?<\/p>\n

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The response has been amazing: the largest publications in Germany covered the story prominently, as did the media across Europe and the US; several CEOs of companies from a bunch of industries and countries wrote to say Deutsche Telekom threatened them too, and encouraging us to stand firm; and people around the world came out in droves calling to #FreeThePink.<\/span><\/p>\n

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We\u2019ll see how it all plays out in the coming months and years – but I want to thank everyone who joined the chorus to #FreeThePink!<\/p>\n

3 Years By The Numbers<\/h3>\n

And so the flywheel turns, building momentum with every rotation. As seen in the numbers, since our launch Lemonade has:<\/p>\n