Casamigos, Honest Co, Dollar Shave Club: how positive ideology creates unicorns
What we can learn from new brick and mortar start-ups achieving unicorn status
Before the news about Diageo and Casamigos, I was looking at these brands as a consumer, thinking they are all “pretty cool” because I wasn’t thinking much about them. When Casamigos was acquired for $1 billion a month ago, I started thinking a lot more and something clicked.
Nice guys, nice valuations
HONEST (company), Dollar Shave CLUB, HOUSE of FRIENDS (Casamigos tequila), INNOCENT (drinks). All these are startups in the FMCG space that have been bought or targeted by large industrial conglomerates at an early stage and for a hefty sum.
Innocent or Honest position themselves as “ethical”, good for the user and for the planet. Dollar Shave Club and Casamigos are explicitly about belonging to a community, or tribe. They all share a positive ideology as a founding principle.
They also share stellar valuations for relatively young and small brands.
In July 2016 Unilever announced it would acquire Dollar Shave Club for $1 billion, over 5 times the company’s revenues.
A few months later the same giant FMCG company was in talks to buy the loss making Honest Co for the same price, or 4 times the company’s revenues. The deal eventually fell through, Unilever opting instead for rival brand Seventh Generation at a lesser price.
In June 2017 drinks giant Diageo acquired tequila brand Casamigos, for $1 billion or approximately 30 times its revenues.
Valuation at a multiple of revenues let alone 30x doesn’t really make sense from a financial orthodoxy point of view.
Innocent was a much bigger business when it was acquired by Coca Cola for a mere £320 million. But that was in 2013… may be they should have waited a few years.
When valuations can’t be explained by numbers
All those companies are digital-savvy but they all sell products in the old fashioned way. You can’t compare them with companies fighting for the digital interface, where you can dream of billion users and astronomical growth.
I spent the first years of my careers in M&A, and I remember enough from that experience to know that it is almost impossible to explain these valuations (Casamigos in particular) with multiples, discounted cash flows, or any traditional financial model.
Could it be that corporate titans forget their maths? There is a startup frenzy after all. Or are they falling head over heels for celebrities? Casamigos was co-founded by George Clooney , Honest by Jessica Alba.
There is of course huge PR value in star studded companies. And Casamigos / Clooney have already created a lot more headlines for Diageo than they could ever manage on their own. Those headlines are worth millions but not billions.
Dollar Shave’s CEO is by no means a celebrity but he is a YouTube sensation and a pretty good actor. A lot has been said of their subscription model and retention rate including in this article on Medium.
There is a lot of value in all that but… still not enough.
You have to look beyond the numbers.
The DNA of the unicorns
Something in common to all the companies mention is how clear, simple and credible their story is.
Jessica Alba launched Honest when she became a mom as she couldn’t find the good products she wanted for her children.
Clooney and friends wanted to make the best tequila to drink amongst libertine friends.
Dollar Shave is for people who can afford the most expensive Gillette blades but are also “insiders” who mock traditional, celebrity endorsed marketing.
These stories are carefully repeated in various ways by the brands both in PR and their own communication.
In the case of Clooney, it is his millionaire status and bon vivant reputation that reinforces the story, not his fame. Most of us launch a business with financial hopes or at least to fulfil a personal ambition. But what more could Mr. Clooney want? It’s really easy to believe that his tequila brand happened by accident while he was on a purely hedonist quest for the best tequila.
These stories become particularly relevant to multinational brands as they don’t relate to functional or emotional benefits. They can’t be beaten by a better product or better advertising. They also can’t be replicated because nobody would believe the story if it was told by a conglomerate.
The equity in cultural branding and storytelling
Time will tell if the investment will pay off for Diageo, Unilever or Coca Cola. The latest acquisitions however can only be explained by the potential from a cultural branding perspective and the founding stories of these startups.
For the Clooney fans, the burning question is: will he ever bother going back to acting now that Hollywood paychecks will be less than the interests on his cash? He might well focus on tequila and the twins instead.