One of the most common questions students and aspiring entrepreneurs ask me is how to launch a consumer products company in today’s competitive and crowded product landscape. It is a fundamental question to consider for anyone looking to enter the saturated mix with yet another yoga pant, sparkling water, lipstick, handbag, bedsheet, non-alcoholic beverage brand. . . .The list goes on.
The truth is this: It’s going to be challenging.
For starters, the fundraising environment for consumer goods is softening as VCs are leaning toward AI-enabled business-to-business technology companies. Compounding this trend, investments are conservatively being directed toward founders with built-in audiences — A-list celebrities and mega-influencers.
The climate is tough from a macro perspective. Adding to the complexity are micro forces, such as an entrepreneur’s proposition: If 80% of your offering is conceptually the same as what already exists and you’re in need of outside capital, the slope gets steeper.
So, what to do? Focus on the other 20%.
Most consumer-focused investors look at four things at the early/seed level. Fine-tuning your product at this stage becomes instrumental. Consider these efforts after you’ve done your basic market research and sizing analyses:
Create a unique product in an overserved market or a satisfactory product in an underserved market. Consider if you have an advantage that competitors can’t mimic. It can be a special ingredient, patent or process. For instance, perhaps you have access to a top-notch contract manufacturer that can create bespoke formulations at a low minimum order quantity, or MOQ, thereby keeping your costs down. Or you might have access to a specific audience or an untapped market.
Make your brand stand out and break through the clutter. It’s not just about style and color palette but the narrative of your brand and the emotional and lasting connection it creates with the consumer. What do you want your customers to feel when they think of your brand: envy, joy, vanity, lust? Ensure you’re demonstrating that consistently across your channels, packaging and products. The brand story you are telling should meet a consumer need and motivation while being compelling, memorable and ultimately relevant.
Execute an impactful and cost-effective go-to-market strategy. The more organic the marketing strategy, the better. Start with your core consumers and identify the micro communities of brand evangelists who are, or can become, obsessed with your product. You should be wary of spending an inordinate amount on paid advertising at this point, as attractive as that might be. Instead, focus on strategic partnerships, engaging local press and getting your product into the hands of potential consumers for free. Let your organic and direct momentum build.
Mobilize yourself to be an active influencer. Now is the time to flex your resourcefulness. Who do you know who is hot — meaning, who can you immediately contact within your network without asking for a warm intro? Start building those connections, with an eye toward creating access to vetted suppliers, consumers, communities and distribution arms. Ultimately, investors are looking to de-risk and scale; they want to ascertain who you personally can convince and influence to grow your business.
Then there is the question of funding. The magic number is around $2 million to start from scratch, launch with a few SKUs, establish your operational foundation and make a few early hires. I recently moderated the “State of Consumer Business” panel at Booth’s 2024 SeedCon, and the consensus from investors affirmed this sentiment: Aspire for $2 million and pragmatically try to hit $500,000, at a minimum.
Business-to-consumer businesses rack up expenditures quickly, from inventory concerns to consumer experience costs such as prototyping, packaging, creative content and paid ads. To secure the needed capital, I recommend starting with friends and family, angel investors and accelerator programs that have exhibited a genuine interest, commitment and track record of success in the industry you are pursuing.
2024 will no doubt be a challenging year for consumer businesses, but that’s never stopped us entrepreneurs before, so don’t let it daunt you now. Keep the above tips in mind and power ahead with passion.
The following article was written by Mia Saini Duchnowski, entrepreneur-in-residence at the Polsky Center, and originally published in Crain’s Chicago Business on April 15, 2024. Read the original article.