When we at Tandem think of the term “disruption” in the startup world, we have a particular picture in mind: a small team of hungry entrepreneurs beating out larger incumbents for market dominance. If it were a fight movie, we’d be looking at Rocky, The Karate Kid or Million Dollar Baby. You know the story: an up and comer with limited resources figures out how to punch above his or her weight and defeat the champion.
So how do tech startups write their own scripts with the same winning results? There are certainly a number of possible approaches, but one powerful pattern we’ve observed is new market entrants building their brands quickly and cost-effectively from the time of launch. Think of how fast the Dollar Shave Club brand arose in the last three years versus Gillette over the last 100. Consider Birchbox in cosmetics, Stella and Dot in jewelry, and of course Uber in transportation.
Quick, effective brand building is indeed a key strategy for small teams to punch above their weight. What’s more, startups can leverage a number of tools to build a strong brand much earlier and more cheaply than ever before.
When building brand in the early days, startups should not only try to raise awareness of their products, they should also look to trigger an emotional response from their prospective customers. A number of tools exist to create, shape and manage these emotions, but we have found video to be the most effective. When done right, video (with the right audio mixed in) elicits a range of powerful responses from laughter to empathy. Zappos reported that it saw an increase in sales of 30% after adding video to its product pages. Dropbox saw its conversion rate rise 10% with video on its homepage.
Dollar Shave Club, meanwhile, is an even more compelling case study on the power of video. The company leveraged its launch video to successfully differentiate itself from its old-school competition. It related to consumers with a dual focus on humor and transparency. This struck a chord with viewers, garnering 30,000 subscribing members in its first week, and the video has now been viewed over 19 million times.
Community as a Driver
Another effective means of building brand is through the creation of an active customer community held together by a common cause or interest. Understanding the value of artisanal goods to a certain consumer demographic, Etsy built an online platform connecting craft makers with craft enthusiasts. But Etsy’s value does not just lie in easing the consumer’s search for a handmade, reclaimed wood bench or providing a local metalworker with global discoverability. Etsy’s brand value augments its financial value because it has brought together a like-minded community of buyers and sellers who feel they are benefitting the world by eschewing corporate retail. The Etsy community has allowed the company to grow organically, and eventually IPO earlier this year, while remaining true to its ethos.
Here again, tools exist to help young companies build communities quickly and cheaply. Social media, especially Facebook, is an incredibly powerful (and of course free) platform to organize groups along interests. ShoeLovers (a Tandem portfolio company) has been particularly successful in using Facebook to build a community of footwear enthusiasts. Today, the company has the second most active Facebook page in the world (Yo Amo Los Zapatos) with over 31 million highly engaged fans. The company is now leveraging this community to provide input on shoe design for its own line of footwear and that of other leading brands.
The Power of Early Revenue
Many startups today have discovered somewhat new monetization methods that allow them to increase their brand building budgets (among other things) in their early stages. The ubiquity of mobile phones provides a large audience for small app companies to make a volume business out of selling low-priced digital goods. Supercell is perhaps the master of this freemium model: with just 150 employees, the company earned $1.7 billion in revenue from digital goods across three mobile games in 2014.
Subscription-based monetization allows customers to spread the cost of a service over time while providing young companies the stability of recurring revenues. Additionally, these services yield longer-term relationships with customers, reinforcing brand and strengthening customer loyalty. Birchbox has been very successful with its subscription service, so much so that it is now re-investing its revenues to expand into brick-and-mortar storefronts, further raising its brand awareness.
Lastly, pre-sales campaigns, popularized by platforms like Kickstarter and Indiegogo, allow startups to ask potential customers for money upfront, which is then used for production and yet more marketing. For a more lengthy discussion of pre-sales campaigns, see The Four Enablers and The True Pre-Sales Campaign Platform)
Meanwhile, Facebook, Google and other digital ad platforms have catapulted the targeting and reach of advertising such that startups can use whatever budget they have to build brand very efficiently. Online platforms have an average CPM 40% less than TV, magazine, and newspaper advertisements while providing broader reach than these traditional outlets (Facebook has 1.4 billion international MAUs; Google has 1.2 billion). Furthermore, targeting on digital is more nuanced, allowing for smaller budgets to reach the highest value customers based not just on age, sex, and marital status but also on seemingly niche interests and oft-visited websites.
Of course, for any of the above approaches to work, a company must understand the clear differentiated value of its offering versus existing products – and be able to communicate what this is. These are table stakes to building a disruptive business, and no one should bother with any brand-building tactics whatsoever unless there’s a compelling story to be told.
But when there is such a story, it’s now cheaper and faster than ever to build brand with the right audience. With the power of emotional video content, engaged communities and self-sustaining marketing budgets, startups can load their gloves to take much larger and more established companies. And the incumbents will continue to be surprised by how fast their worlds can get rocked. As Apollo Creed’s trainer shouted to him during the big fight with Rocky: “He doesn’t know it’s a damn show! He thinks it’s a damn fight!”