The Difference Between How Startups and Big Cos Launch Brands

Selection of the top DTC brands in the US — Source: IAB

My name is Sean Lee, and I am the Vice President of Marketing and eCommerce at Pure Romance. I spent eight years at Procter & Gamble working on big Brands like Old Spice and Iams. Then I spent time in our P&G Ventures group, where I co-founded and launched Zevo. Zevo is a digitally native insect control brand that is safe to use around people and pets and uses essential oil-based ingredients instead of chemicals you can’t pronounce.

Launching the Brand in only the eCommerce channel was perfect because we could use Lean Innovation principles pioneered by Eric Ries to refine our product pitch, solicit feedback from early adopters, and find our “tribe” of evangelists. The other fantastic thing about launching only in eCommerce is that the primary market share leaders in the space (Raid and Hot Shot) had poor eCommerce presences and they were focused mostly on the retail channel. This category was similar to the countless others that were being disrupted on a monthly and yearly basis by digitally native Startup Brands.

When I built the initial digital launch plan for Zevo, I spent a ton of time studying how Startup Brands were going to market. I talked with 10–20 founders of digitally native Brands, listened to hundreds of podcasts (Foundr and How I Built This are two of my faves), and I mentored Startup CPG Brands at The Brandery in Cincinnati. I also reflected on why some of my past product launches on big Brands failed.

Based on all my reflection and research, I noticed some significant differences between how Startup Brands and Big Co Brands go to market. Both models have their challenges and strengths. Coincidentally, start-up Brands would kill for the distribution strength of Big Co Brands and Big Co Brands would love to have the one-on-one relationships and agility to adapt to customer feedback that start-up Brands have.

Here are my general observations of Big Co Brand launch models based on my experience:

Big Co Brands almost always grow distribution ahead of awareness. They lack a one-on-one relationship with their consumers and can’t identify their evangelists. They also can’t solicit early in-market feedback from paying customers to pivot before it’s too late because they’ve already invested millions in product lines, inventory, and retail distribution.

Typical Distribution and Awareness Model of a Product Launch by a CPG Big Co

A typical Big Co product launch looks something like this:

3–5 Years leading up to launch

• The new product is shrouded in secrecy. Any outside vendor has to sign a non-disclosure. R&D and marketing focus groups informed all learning. There is no transactional learning where someone pays money for the product and leaves a rating and review or provides a Net Promoter Score. Net, all product feedback is claimed vs. actual behavior.

Year 1 — Secure more distribution than awareness.

• Secure 90–100% ACV (All Channel Volume) Brick and Mortar distribution. Gaining distribution is what Big Cos do best and what makes them so valuable. (As a side note, Startup Brands would kill for the ease of getting product distribution that Big Cos enjoy).
• Minimal eComm investment. eComm can be less profitable than a point of distribution in Brick and Mortar. Therefore, Big Cos neglect eCommerce even though the channel is growing much faster than Brick and Mortar.
• Invest $20–50 Million in marketing during the first year to get 40–50% awareness (much less than the 90–100% distribution that was secured). Big Cos often cannot make enough people aware of their product in a short amount of time to justify their distribution everywhere.
• There are no one-on-one relationships with the end consumer. The retailers own all that data.

Year 2 — Distribution losses begin, paired with reduced marketing spend because awareness did not meet distribution levels.

• Brick and Mortar distribution losses begin occurring.
• The Brand still invests $10–20 Million in awareness (about half as much as year one).

Year 3 — Distribution losses accelerate, paired with minimal marketing spend.

• Brick and Mortar distribution losses accelerate due to low awareness or the company moving resources to a new product launch.
• The Brand invests $1–2 million in awareness.

Year 4 — The Brand loses almost all distribution, and there is virtually no awareness generated. Similar to Startups, only 10–20% of new product launches at Big Cos succeed.

Here are my general observations of Digitally Native Startup Brand launch models:

Startup Brands almost always grow awareness ahead of distribution. They have a one-on-one relationship with their consumers and know who their evangelists are. They can solicit real-time feedback and adapt their products quickly.

Typical Distribution and Awareness Model of a Start-Up Brand (Using Harry‘s as a Rough Example)

A Startup CPG product launch looks something like this:

Year 1 — Launch with a waitlist or on Kickstarter and then only in eComm.

• No Brick and Mortar distribution. Sell via their .com website (and sometimes on Amazon) to test and refine the proposition and business model.
• Focus on acquisitions, word of mouth, and retention. Driving the cost-per-acquisition down and the lifetime value of a customer up are the lifeblood of start-up brands.
• Deliver personalized interactions and amazing unboxing experiences from acquisition through product delivery.

Year 2 — Continued eComm sales/learning while becoming more efficient in acquisition marketing and building one-on-one relationships.

• Scale the eComm model and build a loyal customer base.
• Invest in 10–20% awareness (often with Venture Capital funds).

Year 3 — Partner with one Brick and Mortar partner that overlaps with their consumer set. In the example of Bonobos, it was Nordstrom. In the case of Harry’s and Casper, the partner was Target.

• Gain 10–20% distribution — Continue building the eComm business via one-on-one relationships and cross-selling product adjacencies.
• 25–40% awareness

Year 4 — Expand Brick and Mortar distribution in-line with awareness and continue investing in eComm as a one-on-one sales and learning platform.

I recognize my observations are boiled down into simple overviews and a lot of hard work goes on behind the scenes to launch a product at Big Cos and Startups. However, there are lessons to be learned from both models that Startups and Big Cos can apply to perform better.

What can Big Cos learn?

1. Don’t let internal employees build a product for years without ever selling it to anyone to try out. Focus group feedback and personal preferences can lead you to develop a product that misses the mark. There’s no substitute for the feedback you receive via a rating and review from someone who paid money for your product.
2. Sell directly. My Big Co friends will say that it’s much less profitable per unit than Brick and Mortar. (This is true. It can cost $10-$30 to acquire a consumer online and $2-$3 to acquire a consumer in Brick and Mortar). However, treat it as a learning lab to gain real feedback and build one-on-one relationships with your biggest fans.
3. Take it slow. Instead of getting to 100% distribution immediately, take a more measured approach and partner with one or two retailers while you sustainably build awareness.

What can Startups learn?

1. Retail is not dead. Smart Brick and Mortar distribution can be a cost-effective way to drive trial and volume through availability. As Andy Dunn said on the “How I Built This” podcast, Bonobos’ main inflection point came when they got distribution a Nordstrom (a strategic partner).
2. Mass awareness is still necessary, and it requires good copy that stresses the consumer pain point and highlights a superior benefit. You can only reach so many customers through Google and Facebook ad platforms before you see diminishing returns. There is a reason we see companies like Casper, Roman, and Hims advertise on TV. Big Cos do this better than anyone.
3. Most Big Cos don’t know how to launch new brands, and they are open to partnering. Most Big Cos are not set-up to start new brands. They are set-up to operate $0.5-$1 Billion brands, which is a much different skill set. There is a lot of great work going on at Big Cos to identify partners for seed funding or to make acquisitions. P&G Ventures, SpringBoard Brands by Kraft-Heinz, and The Hive Incubator by Pepsi are all examples of this work.

Overall, Startups should study Big Co models because they will likely exit to a Big Co and Big Cos should study Startup models to better innovate and connect with their consumers.