The Phase 1 Private Label Trap

The best question asked in my Q1 Author Q&A was from Kyle Kent, founder of Vodkyte. And so he got a signed hardcover of Ramping Your Brand.

His question?

“Is it a plus to do private label production for one of your top retail customers?”

I routinely hear founders get tempted to produce a private-label line after a retailer approaches them. Remember that private label is an operating business model composed of small-run production (across hundreds of categories that sell maybe 5-10% of category units as store labels). So, retailers easily put your small business into that small-run mental frame. They look at you like a co-man. The reality is that, even if this led to a PO, it usually becomes more than 50% of your revenue immediately. And this subjects you to enormous topline risk, should the most significant retailer suddenly kill the line. Private Label is highly in/out and experimental for large chains. They have no loyalty to you. And so, this is a really bad idea from the perspective of a small, low cash flow business. A private label line cancellation could end your company.

Additionally, executing private label lines would be a massive distraction because it involves catering to every spec the retailer wants. It is a very client-service-oriented business model. Most founders are highly entrepreneurial and driven and, quite frankly, have no aptitude for client service of this kind. More importantly, all this client-service time to get the line just the way the Hannafords want it will distract your small team from executing against all 4Ps for the branded line you own. 

Don’t fall for the private label, easy cash flow trap. Focus on your brand. Focus is everything. If you need a cash infusion, spend the time you would have on this private label line chasing angel funds. This skill is vastly more useful long-term than pleasing a retailer who needs private label whatever

Dr. James Richardson

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