When I think about startups, the first thing that comes to mind are tech innovators like Airbnb, Uber or Snapchat. But consumer companies like Casper, Warby Parker, Blue Bottle Coffee and Everlane are equally innovative and are attracting VCs to their startups.
Sophie Bakalar in TechCrunch (she’s an early stage CPG and Retail investor) wrote a great piece that’s worth a read!
Here are four of the criteria she uses when evaluating consumer startups for early stage investing. Each is important but pay special heed to #4.
1. Is the company aspirational and on-trend
2. Are they digitally fluent (not just competent)
Companies must leverage the power of the internet to market to, engage with and distribute to customers who are increasingly reliant on their digital devices.
Companies also must be adept at optimizing digital distribution channels and sell directly to the consumer. This is the “digitally native vertical integration” model that Warby Parker, Casper and Everlane all used to upend industries bloated by wholesalers.
3. What’s their plan for repeat customers
As a general rule it costs 5x to 7x more to acquire a new customer than to retain an existing one, so loyal customers are paramount for success.
Subscription models like Dollar Shave Club are the mode du jour for optimizing customer retention. Another good tactic for enticing repeat customers is to focus on “zero-sum markets” like razors or pet food, where a customer typically only uses one brand.
The number of new products in the U.S. has more than doubled since 2000. With so many options, startups must differentiate themselves in order to be successful.
And the differentiation must be meaningful. Adding superficial features like rotating gizmos and flashing lights — a default strategy for legacy brands like P&G — just doesn’t cut it anymore.
While taglines like “Uber for Restaurants” or “Tinder for Sneakers” may seem tempting, consumer startups can’t just transfer proven tech models to a new space. To succeed, consumer startups need a brand new idea and some unfair advantage to set themselves apart.
In other words, a company should be uniquely qualified to solve a specific problem with a new solution. It must have some “edge” to maintain a defensive advantage: sourcing advantages, an experienced team and proprietary IP are just a few examples.