Tips for Emerging Consumer Brands Focused on High GrowthJanuary 11, 2019
Even the biggest industry players were once emerging brands. It is a success story that we have seen time and time again, yet no two cases are quite the same. In our years of work with emerging brands, certain themes have presented themselves, and while your goals are unique to you, you may be able to benefit from some of these lessons learned.
- Don’t Rush Additional Capital. A growing brand needs cash to fund its operating activities. Many brands are quick to raise extra capital without considering other options and the long term impact of dilution of the Founders’ ownership. As an interim solution before the next round of fundraising, consider debt through either a line of credit or convertible loans combined with improved financial discipline. Debt can often fund working capital needs while the company grows and allows you to potentially get a better valuation at your next fund raise.
- Sometimes less is more. It can be difficult to stand out in a crowded category, so when certain SKUs have gained traction, focus on growing these products. Offering a variety of products too quickly can drain the resources necessary to grow the ones that are the best performers to their fullest potential. Focusing on the high selling SKUs in the early growth stage, can help subsequent SKU development build a customer base more quickly as the brand now has customer loyalty from the original products.
- Know your Numbers. Companies tend to focus on gross sales instead of the gross profit on an item. You should be tracking the true gross profit and operating margin by SKU to make informed decisions. Additionally, current and potential future partners will want to make sure your net sales are properly reflected so a company should be monitoring the classification of promotional spending and accruing for trade spend that is expected to come through in a subsequent period.
- Be strategic when it comes to promotions. Opportunities to broadcast your brand to consumers come with risk, yet they are essential to your growth. Analyzing the potential benefits and related costs of trade promotions carefully will ensure that you are making decisions to help boost your business for a higher valuation. When aligning with retailers on giveaway, coupon or other promotional campaigns, it is pivotal to truly understand the opportunity cost, and negotiate and advocate for yourself to the extent possible. If it doesn’t make sense financially, it may be better to walk away now and revisit at a more appropriate time.
- Pay attention to Capital Structure. An investor will want to know the different classes of capital and the rights and privileges for each class. Any incentive units that have not been formalized should be prior to your offering. Before you are ready for institutional funding, you should consult your attorneys and accountants to determine if the structure of the current entity is the most attractive to potential investors, or if a change may be needed prior to fundraising.
- Who wants to take on other people’s problems? Typically, not new investors! An investor will want to know their exposure to liability. A company should make sure they have filed tax returns where required, maintain resale certificates, if applicable, and have a good understanding of their commitments. For example, many co-packer agreements include minimum volumes. The company should be able to reasonably project whether the company will meet these commitments.
- Hire strategically. Founders typically want (as they should) to be out in the marketplace doing what they do best; promoting the products they love. An investor wants to see that while the face of the brand is selling, a competent Controller or VP of Finance is monitoring the books and records to make sure controls are in place and proper accounting is occurring.
- Dream big about strategic partnerships and find peers. Even when a brand is small and may not yet be on the radar of some of the industry’s biggest players, it doesn’t hurt to start thinking about the key players in the industry that would make great strategic partners and investors for the company. Even if those “industry rock stars” never come face to face with the brand, it still helps to be aware of the qualities that would make a great partnership and seek them out when the time comes. Go to industry events and meet others who have been through the process and can mentor you.
- Don’t lose sight of your story. As your brand grows, priorities change. In the quest for success, it is easy to get caught up in the “business” aspects and lose touch with what led you to create your product in the first place. Customer loyalty is often built upon connection with a brand. Transparency of the founder’s goals and the company’s humble beginnings can really resonate with consumers.