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Lemonade's Strategy: Reinventing The Business Model + Charity as PLG

Initially, I planned to buy an HBR case study and spend a few hours reading it. Instead, I spent the past two days and even took a leave from work to study the company haha.

Lemonade’s CEO is by far one of my favorite people in the world

If I ever build a company, this is the kind of company I'd want to build. Insane business model built by people that truly get marketing.

Company is also a B-Corp and Public Benefit Corporation. They take political stands too.

What a story!

What is Lemonade?

Lemonade is an insurance company that uses AI and behavioral science to sell insurance. They've created a direct-to-consumer experience similar to taking a quiz when shopping for insurance. Their marketing is impressive, and the company seems to be of genuinely nice people.

With a market cap of $1.2 billion, Lemonade has been one of the fastest companies to reach $100 million in annual recurring revenue (ARR), beating companies like Slack, Shopify, and Twilio. Lemonade combines the elements of a strong tech company with effective marketing strategies.

Choosing The Right Market

The founders didn't know much about insurance initially. However, they recognized that many Fortune 100 companies were in the insurance sector, a huge industry. Property, casualty, and life insurance premiums total $5 trillion globally, accounting for 11% of the U.S. gross domestic product. Insurance never got the tech disruption, so they saw an opportunity.

From the start, they aimed to be a multi-product company. Building multi-product offerings from the beginning helps in designing a product that extends beyond a single feature. This approach aids in penetrating the market and building defensibility while making customer acquisition costs worthwhile if line extension is executed correctly.

Growth Loops


More data leads to better risk profiling. Better risk profiling results in faster claims processing and shared premium rates, which can reduce costs associated with brokers.

You answer 10 questions and the AI can create 1600 data points against your profile. No need to answer a hundred questions that brokers would normally do.

Claims take minutes to process since data is silo'ed in one place. They actually use Mixpanel too! Same as Streamline. Discounts are gamified past 10 questions.

Give to Charity

Lemonade's profit is capped at 25%, and any remaining funds are donated to a charity chosen by the customer. This structure ensures that Lemonade isn't incentivized by the same profit motives as traditional insurance companies, and customers are not encouraged to overreport claims.

They actually donate quite a bit relative to their profit: $2,008,847 in 2023 and $1,873,588 in 2022, despite having a revenue of US$257 million and a net loss of US$−298 million in 2022. This means they donated even while operating at a loss. Lemonade has reformed the negative business model prevalent in the insurance industry, where companies are accused of profiting by delaying or not approving claims.

Each year, they inform customers about the amount donated to charity and encourage sharing about it. If the experience with Lemonade is positive, it gives people a topic to discuss, and the charity donations are one such talking point. It’s what we saw with Lego’s case study. Numbers aren't crazy high yet so they may want to narrow down maybe.

Don't Combine Referral Offers

The Lemonade team, advised by psychologist Daniel Kahneman, studied thee impact of financial incentives on the quality of blood donation. They realized that paying $5 for blood donations often leads to lower quality blood donations. Turning a good deed into a paid transactional task can attract the wrong audiences (homeless people etc). So, if Lemonade gave $5 with their charity donations, it probably wouldn't work well.

Word Of Mouth Is A Beautiful Thing

Insurance isn't usually a common topic of conversation unless it offers a significantly better experience. Lemonade provided just that—a 10x better experience. If you're getting paid out in seconds, then why wouldn't you recommend?

In my family, we typically avoid buying insurance due to the difficulties in processing claims and understanding the fine print. It's often more cost-efficient to pay our own bills directly than to pay premiums and then have to deal with settling the bills again.

LTV Is Truly LTV In Insurance

There's no churn in this case, as the lifetime value truly represents a customer's lifetime. People typically don't switch from their life insurance policies. They might transition through different life stages, like moving from being a renter to a homeowner, which could change their policies and 10X premium paid. Once someone chooses a life insurance policy, they usually stick with it for life.


Lemonade's strategy focuses on capturing young adults with premiums starting as low as $5/month. This approach is effective because it allows the company to acquire customers early and then upsell as they progress through key life events.


There's potential to lower the starting premiums even more. Allowing parents and grandparents to purchase insurance for their children could introduce a delayed growth loop, enhancing the company's defensibility.

Invite Others In Your Policy

You can include other people to receive updates. For example, you can add your landlord in your rental space to your policy. Similar to Uber’s strategy of inviting family members in the ride to give safety updates.

Design and Storytelling

Their design is wireframe-based and appears simple, yet it's effective with high contrast and strong storytelling.

They are also experimenting with different approaches, like in the onboarding flows for the German versus U.S. markets. Germans weren’t comfortable providing their first name at the beginning, so Lemonade moved that question to the end of the process. In contrast, Americans were fine with sharing their name early on. Intrigued, I asked my brother, who is a research scientist in AI/ML, about his preference. He said, “Show me all the questions at once. Don’t treat me like a kid.” Sweet haha.

Pushing the perfection paradox bias

The bias related to people's perception of ratings is often referred to as the "authenticity bias" or the "perfection paradox." This bias suggests that consumers tend to trust ratings that are high but not perfect (like 4.7 to 4.9) more than a perfect 5.0, as they perceive slightly lower ratings to be more authentic and less likely to be artificially inflated.

Hiring for Growth

Surprisingly, Lemonade heavily focuses on hiring members for its growth team. I found an interview with their former VP of Growth, who has taken three companies public.

He stated:

"One of the most important things I tell new founders and startups is that I'm a big believer in involving a Growth Person right from the start. When do startups usually recruit a growth person? When the product is ready, when the website is ready, when the app is ready, and the growth person comes over and sells it. I'm a big believer that it needs to be from a much earlier stage, and it doesn't have to be a full-time hire, it can be a consultant. It's critical to insert as many insights as you can from these growth people into the funnel and infrastructure. It's both a big money and a time saver. Because developing and changing things is expensive for any startup. So I'd say get a growth person involved right from the initial stage—it's priceless. It can be for an hour a week and when you have the MVP or as we like to call it, the MWP, 'Wowable Product'—not a 'Viable Product'—it's super, super important."

He also expressed his concern: "I'm afraid to be dependent on the Google and Facebooks of the world." Hard agree.

How To Compete With Giants

Insurance is dominated by players with a significant head start, spanning not just decades but centuries.

Allstate was founded in 1931, AXA Group in 1816, and Allianz SE in 1890.

Company Name

Market Cap (2023)

Year of Founding

Marsh & McLennan Companies

$92.6 Billion



$92.3 Billion



$90.1 Billion



$58.4 Billion



$48.7 Billion


Arthur J. Gallagher & Co

$48.1 Billion



$47.6 Billion


Ping An Insurance Group

$91.74 Billion


AXA Group

$72.39 Billion


China Life Insurance Company Limited

$91.59 Billion


Allianz SE

$99.79 Billion


Lemonade was founded in 2015. Their tagline:

Thinking that you’ll win against competitors that have a century or more of a head start using tactics like SEO and paid ads is hilarious.

So, what should you do?

I think Lemonade’s CEO has found the answer:

"If you want to beat Kasparov, beat him in a game that's not chess. Kasparov is the best player in the world, and you probably can't beat him over a chessboard. If you want to beat him, do it in a different game, like backgammon.”

Other Notes

The problem with surveys with one-question-at-a-time is that there are bugs that become hard to detect. I ran into multiple bugs in Lemonade. For example, here it asked me for my email even though I had already logged in via an OTP. So, two logins and two OTPs in the same session.

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