When Fundraising Isn’t Enough: What Founders Need To Know About Launching A Startup
By Alex Song, CEO and Founder, Innovation Department
The current startup landscape is broken. Look all around and you’ll see direct-to-consumer brands that are eager (desperate, even) to obtain VC capital in order to grow. Once they do, they end up needing to continue raising money in order to meet VC expectations by pouring fuel into the fire of growth. The best case scenario is that a DTC brand grows to be large enough that it ends up “stuck” with only a few buyers big enough to acquire it, or it’s left feeling out the capital markets in hopes for an IPO (e.g. Honest Company, Warby Parker, Casper). For most startups, though, the reality is that failure to scale quickly enough to meet expectations leaves them flaming out as a result.
Enter startup studios (which at last count totaled hundreds worldwide). Studios were invented to fix the broken VC model, yet they are increasingly dependent on the model that they initially tried to fix. Today’s startup studios are focused on getting their companies to fundraise more quickly than ever before by taking advantage of the market demand for VC-fundable businesses. What too many of these studios fail to do, however, is look far enough down the line to create strategies based on repeatable success in the early stages.
When startups have a business idea that they’re passionate about, the process of turning that idea into an actual company can seem like a sprint to the finish line. Many companies focus so much of their energy on fundraising that they ultimately ignore a host of other elements required to achieve success. Of course, a successful launch needs money to stay afloat. But to thrive, any new venture needs a comprehensive approach to growth that extends far beyond future funding.
At Innovation Department, our hands-on approach applies our experience, resources, and unique advantages to spur growth while providing the support entrepreneurs need most. Based on our experience, we think every startup should consider these five questions when building a launch plan:
Is your money going as far as you think?
It’s imperative to think about how you can stretch your capital to the maximum level through efficiency and intelligent decision making. Doing more with less in a repeatable method is the biggest factor that differentiates us from traditional VC firms. Our approach relies on built-in audiences, software that accelerates acquisition, shared resources, a team of core business operators, and an institutionalized playbook, all of which come together to allow us to launch brands with significantly less capital to start. We create these efficiencies to get our companies to profitability faster.
At the point of profitability, our companies can either build and scale by reinvesting, reinvest into another one of the brands, or decide later down the line to accept VC money. For example, based on a $1.5M seed round for a direct-to-consumer brand, our companies experience an average savings of $750K as compared to other VC-backed ventures. That’s an enormous savings for a startup, which can then be re-allocated to support and fulfill other business priorities and opportunities.
Do you have a built-in audience?
A critical part of your launch plan involves building your customer base. But creating an audience from scratch can be time-consuming, not to mention expensive. The good news is that there are ways that you can leverage a built-in audience from another brand with similar interests or goals. In fact, there are technologies and tools out there to help new brands tap into already established customer lines by facilitating cross-brand partnerships. For example, we use our partnership marketing platform, DojoMojo, to almost instantly build an audience for each of our new brands upon our decision to launch. To date, DojoMojo has actually helped more than 8,000 brands find partners that help drive their unique brand goals. For example, WellPath, a nutritional supplement company, acquired an email audience of over 1.5 million through partnerships alone over the past two years. This audience growth has led to positive sales conversions and proven ROI, which would have been much more challenging to generate otherwise.
What’s your brand story?
Whether you’re trying to complete another round of funding or just trying to build a relationship with your target audience, a consistent and compelling story is everything. Developing a core key message track that explains who you are, who your company is, and what value you bring to the market is a good starting point. But the real work is making sure that these messages come through everywhere — your pitch deck, verbal conversations, online presence, and all of your collateral materials. This creates a clear sense of alignment and consistency across all of your brand outlets and materials that in turn builds a strong and trustworthy reputation. One example in our case would be our natural sleep drink, reBloom, for which we’ve also launched a content site called Rise & Shine that covers topics like sleep tips and productivity hacks. By investing in the growth of reBloom’s content strategy in this way, we’ve essentially managed to build an entire content arm through which we’ve developed relationships with our customers that go beyond just promotions or marketing communications. We’ve created an avenue through which our audience interacts with reBloom’s content, becomes familiar with the brand’s story and core values, and may decide to convert from there. And by mastering — often through testing, experimentation, and insight gathering — the content marketing component of growth for just one of our portfolio brands, we’re then able to carry those principles over into our work on other brands and repeat the process for each new brand we bring into our ecosystem in order to realize the same success over and over again.
Do you have the team to execute your plans?
As you continue to look for additional funding, it’s important to find the right partner. Pay attention to who you will be dealing with on a day-to-day basis and trust your instincts. It’s important to find someone you’re excited to partner with, not just someone who works for a firm with a big name. We’ve seen too many companies go belly up because of poor partnership decisions.
Hiring the right people who share your vision is another key driver in taking your ideas to the next level. This means having a core operating team to keep your vision intact and on track, and to own the processes that you’re pinning down as crucial to repeatability in brand growth. At Innovation Department, we don’t partner with founders; we are the founders. With each new brand launch, our core operating team further refines our go-to-market strategy and develops a constantly improving instinct for launching brands, leveraging our proprietary assets to facilitate their growth, and establishing broader strategies based on the knowledge and learnings that have been gathered over time through the building of other brands. As we unlock new avenues of success, we codify them in our playbook and use these proven tactics to minimize wasted effort, capital, and most importantly, time with each new build.
Do you have a system of checks and balances?
One of the dangers of early phase business planning is going “all in” without a system in place to ensure your brand is trending in the right direction. That’s why having a brand testing channel is so important. We use Valyrian Media as a channel for optimizing our brand strategy process. Our proprietary audiences provide us with critical data, which we use in brand ideation. Having built this audience using the same tools that we use to build our future brands, we can rely on survey data regarding things like buying behavior and pricing preferences to extend to our future brands. We are also able to use testing data to narrow down our products, pricing, and messaging towards product/market fit pre-launch. And since using traffic to test is traditionally the most capital inefficient part of driving towards product/market fit, our ability to utilize existing audiences is a huge advantage. Having this system of checks and balances in place is not a step you want to skip.
Although the increasingly popularized startup studio model is broken, that doesn’t mean it can’t be fixed. The key is for founders to realize that launching a company requires a long-term focus. While capital is necessary, fundraising isn’t a magic bullet. Instead, founders must take the time to truly understand and implement what is needed in order to sustain your initial momentum and grow profitably for years to come.
