PODCASTS / E78
SEPTEMBER 15, 2022
Top two investor questions for a consumer startup? 1) Do you have product-market fit yet? And 2) What is the platform?
Building a platform brand right from the start is the strategy equivalent of branding agencies telling you to build a lifestyle brand. The words “lifestyle” and “platform” appeal to our desire for scale, but that’s about all they do.
There is no scientific evidence that either approach leads reliably to scale, yet brands continue to launch this way, usually the ones with a lot of seed money. If your name is Dwayne Johnson or Jessica Alba, you might be able to pull it off. I notice that The Rock is NOT platforming either of his CPG brands (Teremana and Zoa). I think I know why.
Founders usually anchor their platform brands in an ingredient (e.g., chia) or attribute (e.g., keto). The idea is that consumers will buy from multiple categories if your brand can ‘own’ the platform in their minds. Sounds sexy. But there’s a problem. In Ramping Your Brand, I published the first-ever data science showing that multi-category, ‘platform’ consumer startups tend to decelerate well before they hit $100M in sales. This may not prevent an exit for a few, but it almost always does. And behavior experts know why.
It’s not that platform brands ‘fail’ in absolute terms, fail to grow or that they fail to survive in the market. With enough slotting money, I’m still shocked at how much scale you can buy in a fee-hungry FMCG retail environment.
It’s that brands that platform too early rarely scale. They don’t scale because they violate the Power of Focus principle and fail to generate initial memorability with a critical mass of enthusiastic fans. In many cases, I have found that the R&D put behind each set of category UPCs isn’t yielding the same level of quality for consumers. Shortcuts get taken. Mediocrity has a way of creeping in when you try to do too much too quickly to chase the scale that investors demand on an unrealistic timeline.
But there’s a more fundamental problem with brands that platform immediately. They rely on a fallacy. The fallacy is that shoppers shop primarily for ingredients or attributes and then consider categories. That would be nice. But it just isn’t how humans think. We procure culturally salient categories of objects. Categories are collective creations. We always have procured material culture this way. And we select producers based on category-specific criteria.
So, just because I prefer almond flour in my crackers doesn’t mean I care about it in my baking mixes.
Consumers already have enough brands. If you’re launching a new one, you will be replacing one they use now on a similar occasion. The optimal way to win this tough battle is to come off as a category expert, as a highly focused innovator in a specific category. Or better yet, to create a new category in consumer culture and be known for it.
DE-PLATFORMING YOUR BRAND
I often get asked, “What should we do if we platformed out of the gate and want to change that?
The case of RampCo shows you how to think about re-focusing a prematurely platformed brand into something that can accelerate adequately off of consumer enthusiasm—and setting an appropriate time frame for doing so.
RampCo is an angel-funded early-stage food company that was seeded well enough to get into Phase 2 (>$500,000K in trailing annual sales) reasonably quickly by the beginning of Year 1 of operations. It did so by launching 8 UPCs in four different categories relatively quickly with brokerage assistance. One of the founders had old ties to a brokerage before forming the company.
The founders initially believed they had a multi-category ingredient platform whose key ingredient was primed for rapid acceleration. What follows is a dramatic re-focusing pivot. The focus is on the topline math only to demonstrate the feasibility of this rare strategic move.
THE RAMPCO PIVOT
At only around $2M in trailing sales, RAMPCO launched into a fifth category. And this became the seed of a totally different strategy. In just six months the new UPCs in this category had contributed the majority of that year’s topline growth. The new products had exploded organically off the shelf without any dedicated out-of-store marketing.
The founders debated for a few days about how to react to this development at an offsite. They quickly realized that the stability of the business merited taking a calculated risk on the new category as they knew it had the potential to become the core of the entire brand in a UPC mix of average performers.
Over the next three years, they combined strategic under-investment in the older UPCs with paced delistings from their distributor catalogue. They worked closely with their distributor reps and buyers to make it clear that this was all highly strategic and would yield a faster growing brand for everyone involved.
But even they were shocked at how simplified the business had become in just three years. During this time, they had managed to grow three hero UPCs to become 75% of all topline sales. And they had reduced their UPC mix to three categories and only 9 UPCs from a maximum of five categories and 13 UPCs.
And, in the next year, they planned to slash the smallest third category as well as an operational distraction.
Distraction. The opposite of Focus. When a brand launches out of the gate with a platform strategy, founders get continuously distracted by this or that category they push into. Broker and distributors are ALL too happy to support this mentality. This ‘trade show strategy’ relies on a growth fundamentalis: new items are what generates long-term growth.
Yet, the data science is clear. It doesn’t. It leads most of the time to deceleration and stagnation, even to decline.
What may surprise some readers is how unwilling many platform brand operators are to invest in a three-year wait in order to give this pivot approach a try. Given that even the best brands take 7-10 years to scale exponentially, this is an odd position to take. It also surprises me how many supposedly risk-prone venture capital investors don’t trust in the behavioral and cultural dynamics that support de-platforming.
Focusing on one category and expanding UPCs within it (e.g. Spindrift) allows operations and the supply chain to stop overwhelming the leadership’s time and headspace. With mental time freed up, leadership can finally focus on the critical out-of-store cultural insertions I discuss at length in my book (and which still work in our Covid-19 world). They can also focus on leading a well rounded 4P playbook and the kind of team necessary to support such a playbook.
Tight UPC focus within a single operating category is liberating at all levels of an early-stage company. Its opposite: UPC proliferation clogs everything up and leads mostly to stagnation and sector-level growth rates. This is true despite anecdotal cases you might find to the contrary.
But you do need some organic market response to trigger this strategy. You need surprise exponential growth to create the opportunity. Don’t try to force de-platforming when you have no real hero UPCs. You need to develop some first, or stumble upon them.
If you’d like to read the entire case study, please visit my recent article at www.foodinstitute.com. Just type in “RampCo” in the search bar.