Scaling a brand in the natural products industry is as hard as hell. That is just a fact, there is no way around it. We read about the “over-night” successes that in reality were 5 to10-year slogs with pain, suffering and a lot of luck. Sadly, for every one of those, there are a 100+ that last less than two years. You get my point, not easy!
In the early days, which I will operationally define as pre-seed to series A, too much focus is placed on growth. That’s a mistake. I know it sounds weird, but a growth-only focus can lead you down a path that can kill your brand and business.
During this phase of your business, your mantra should be to “survive to thrive”. I am not sure where I first heard that phrase, but I’ve co-opted it as my own. Let’s first define thrive. I will offer this as my definition. To thrive means that your brand has proven traction and a clear path to profitability. The underlying assumptions in your growth hypothesis have been validated, and you’re ready to scale. Further, investors believe in the upside and feel it is de-risked enough that they want in. Indeed, other elements could be included, revenue, buzz, but the above is good enough for the purposes of this article.
Getting from the early stages to a place where a brand can thrive is a bitch. There is no better way to put it. So, if the mantra is to survive to thrive, what action can you take to increase your chances of survival?
It is all about your use of cash. You must be as capital efficient as possible. How is that done? It starts with the fundamentals, unit economics, and channel economics. Too many brands in the early days have unit economics that makes every item sold an investment. If the difference between the selling price and COGS is not significant enough to support sales reductions and trade spend, you are starting off in a hole. You need to be dogged in your pursuit of getting your gross margin above 40%. If you’re in personal care or pet care, that number needs to be even higher. If you find yourself in the position that every unit sold is an investment, then that must be your mindset. Ask yourself, is this outlet, this shelf, this online retailer, worth investing precious capital? If the answer is no, have the discipline to walk away.
Not all channels are created equal. Specific channels have a much higher cost of entry and require a lot more capital to support. The question you need to answer is, in what channel can you drive discovery and gain consumer traction in the most capital-efficient manner? Once answered, that is where you put your focus.
In addition to the above, there are two other elements I’d like to highlight as it relates to capital efficiency. First, fail fast and small. You’re going to make mistakes. Be certain that you can afford them and recover quickly. Never put yourself in a position where a mistake becomes an existential threat to your business. The second, be scrappy. I think of that coupon clipping, deal-seeking grocery shopper who buys the same cart of groceries as their peer for 50% less. Be that shopper. Pack lunches, bargain hunt, call in favors, whatever it takes to be smart and stingy with the cash you have.
Being laser-focused on cash and capital efficiency is your best way to survive. You still must take on the activities and the risks needed to thrive. But, if you take those on with the counterweights being cash and capital, then you’ll have increased your chances you can survive to thrive.