The Growth Checklist for Consumer Startups
8 Questions that All Founders Should Answer Before Investing in Growth
Congratulations - you have launched your brand! While you have achieved a huge milestone, the work is far from over. Scaling your brand is the next step. It is at this stage that most companies fail. We’ve surveyed entrepreneurs of successful consumer brands to come up with a list of 8 key questions you should be able to answer before investing your time and money in growth.
Fair warning: this checklist is long but absolutely necessary in determining the success of any consumer brand. Don’t get stuck in the rut between launch and failure. Be honest with yourself about your goals and what it will take to achieve them. If you are not one for long reads, click below to sign up for a free consultation where we’ll walk you through all you need to reach your next milestone.
1. What is your competitive advantage?
Competitive advantage refers to inherent factors that allow your company to deliver goods better/faster/cheaper than your rivals. Anyone can launch a company, but the success of the company is dependent on the viability of your “moat”.
The purpose of defining your competitive advantage is focus. There are so many things that your company could be doing, but very few things you should. Take Dollar Shave Club for example. They built a moat by forgoing the traditionally high margins on razors and delivered them at lower price by mail. If they were to shift their strategy and start peddling luxury razors, this would encroach on their appeal and chip away at their competitive advantage.
Many early consumer brands are shift focus between too many things. Pick 1 or 2 areas that you will perform better than any other company in your industry. Focus on those and make sure every part of your strategy is intent on optimizing your execution in those areas.
2. Where are your customers and how will you market to them?
Knowing your customer is key in structuring a marketing campaign that will actually drive growth. To determine the type of customer you want for your business, you’ll need to analyze the characteristics of the typical buyers of products like yours.
The following characteristics should be considered:
Age
Gender
Socio-economic status
Education
Geographic location
Habits
Values
Knowing where your customer exists is just as important as knowing who they are. In the last decade, the trend has been for consumer brands to pour all their money into Facebook or Instagram ads. Before following suit, ask yourself - does your customer regularly visit these platforms? If your company targets executive-level business women, the likelihood of them converting based on a Facebook ad is quite low. You would probably have more success marketing on LinkedIn or partnering with network associations.
3. What is your expansion plan?
If you’ve gotten this far, it’s clear that you want to grow your business, but have you determined how you want it to grow? There are two primary ways for a startup to grow: product expansion or geographic expansion.
Product expansion is adding additional offerings to your existing business. For a brand like Warby Parker, that began by selling prescription glasses, this means selling sunglasses, offering eye exams and providing contacts. Geographic expansion is simply expanding the number of locations or channels in which your business is available.
Both of these expansion strategies have associated costs. Depending on your business, one may be more feasible than the other. List the pros, cons and risks of both strategies before deciding on one to pursue. As mentioned in #1 on the checklist, stay focused and choose one at a time.
4. Have you estimated your capital needs for the next 12-18 months?
One of the top reasons startups fail is because they run out of money. Do yourself a favor and plan out how much you’ll need for the next year and half. Then increase that number by 50%.
A lot of work goes into calculating this number. You’ll need to develop a robust model that forecasts things like your projected sales, cost of goods, equipment costs, personnel costs, marketing costs, and other incidentals.
According to Forbes, most businesses will not make a profit in their first year of business . In fact, most new businesses need at least 18 to 24 months to reach profitability. For those that do turn a profit, many will invest back in the business by hiring new people or expanding their product offerings. If you plan on reinvesting, this increases your capital need. Your reinvestment plan should be part of your broader company strategy.
Building this model is difficult for even the most experienced entrepreneurs. If you don’t have a financial background, we suggest seeking professional services like ours. A successful business depends on a strong financial and strategic foundation. Leave it to the experts - like us!
5. Have you invested sufficiently in customer service?
Customer service can make or break any company. The #1 topic addressed in reviews is the quality of customer service. While getting more customers is ideal, you need to make sure that you have adequate support to handle the influx of questions/orders that come with those customers. This can be addressed in two ways: increase support or increase automation.
Depending on your specific product offering you may be able to handle most of your customer service requests through automated offerings. Building a robust FAQ portal or investing in chat bots with prefilled answers to common questions are just a few ways to accomplish this.
Some industries, like luxury goods, are high-touch and will require a more personalized customer service experience. In this case, it is important that you onboard an appropriate number of customer service personnel to be able to attend to clients in a timely manner.
6. What is your plan for lowering CAC and increasing LTV?
First, we’ll define these two terms. Customer acquisition cost (CAC) is the sum of all costs associated with convincing a customer to buy your product. This should include things like marketing, introductory discounts and research. Customer lifetime value (LTV) is the monetary value of a customer relationship. This is all the money you expect a customer to spend with your company between their first and last purchase.
It is important to define and track these metrics because if your CAC is higher than your LTV, you do not have a viable business. Simply stated, if you are spending more to acquire customers than those customers are spending with your company, the business model is flawed.
There are many ways to optimize your CAC. Ensure that you are only spending where your customers actually exist (see #3 on the checklist). You can also try increasing the conversion rate on the ads you are showing. This can be done through increasing quality, alternating advertising channels or offering introductory deals.
The other side of the equation is to increase LTV. Customer retention is the holy grail here. Keeping a customer for a longer period of time is much cheaper than acquiring a new one. You can increase a customer’s LTV by upselling, creating an intervention plan for unhappy customers and encouraging repeat purchases.
Many industries have specific LTV to CAC ratios that are standard. If you need help calculating yours and benchmarking against your competitors, we are always happy to help!
7. Do your unit economics still make sense as you scale your distribution channels?
Unit economics are a profit/loss calculation on a per item basis. Many of the entrepreneurs we work with leave this until the end. In reality, your unit economics should be analyzed before selling a single item. If the numbers don’t make sense, scaling your business is virtually impossible without endless capital investment.
Simple unit economics calculation:
Average Order Value
- Unit Cost of Goods Sold
= Gross Margin
- Logistic Costs
- Shipping costs
- Other Variable Costs
= Contribution Margin
- Marketing and Headcount Costs per Order (Total / # of Orders)
= Net Contribution Margin
The goal is to discern whether your business can be profitable at scale. The goal of a business is to make money and if your current structure prohibits that, it’s time to re-evaluate.
To prevent businesses from moving forward with a business model that can never be profitable, we like to work backwards at West Egg. We start with a target net contribution margin and determine what your price and supply chain costs will need to be in order to get there. We then develop a robust pricing strategy and expansion plan to make sure that you are able to maintain your margins as you grow.
8. How will you measure success?
Success is measured differently depending on your company’s industry and maturity. A 5 year-old clothing brand’s measure of success will look at lot different than Amazon’s. Setting clear milestones and creating a plan to achieve them is key.
For example, if your metric for success is a high repeat purchase rate, your strategy should reflect that. First set a milestone, say 40% in 12 months. Then create a detailed plan and KPIs to measure your progress. Measure everything! In this example, you’ll likely need to start measuring churn, repeat visit rate, reviews and customer service requests. All of these individual metrics role up to your ultimate success metric. When you look at your business, you will easily be able to measure success by whether or not you are on track to meet your predefined success metrics.
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Now that you have the important questions, it is time to start answering them. At West Egg Consulting, we help consumer brands increase the probability of startup success. If you need help building out your response to any of the above, we’d love to hear more about your company. Feel free to email us at hello@westeggconsult.com or sign up for a free introductory consultation below. No pressure - if we aren’t a fit, we will point you in the right direction.