And The Two Things You Need To Look Out for
We talk a lot about why celebrity co-founders make great partners and most importantly, how they can quickly accelerate a brand’s growth. But what about when it goes south? Who is to blame?
Because the truth of the matter is that most celebrity brands fail. For every Skims, there are hundreds of failed celebrity brands you haven’t even heard of because many of them fail to make it to retail. From Kanye West’s first clothing line Pastelle to Flavor Flav’s Fried Chicken and even 50 Cent’s Magic Stick Condoms – it proves that being an A-lister doesn’t necessarily build an A-list brand.
And that is because building a business is hard work. Even for celebrities.
Investopedia reported that 20% of new businesses fail in the first two years of their opening, 45% in their first five years, and 65% during the first decade. Overall, just 25% of new businesses make it to 15 years and beyond.
Throw in a paparazzi punch-up or a disgruntled ex and you have a recipe for disaster. Unless you know what to look for at the outset and worst-case scenario, can commercialize a calamity (think Ariana Madix).
The simple fact is that celebrity brands that fail often fail regardless of the celebrity. Conversely, the celebrity brands that do well are often because of the celebrity.
This outlines two very important concepts when investing into celebrity brands:
1. The brand and the business must be solid. Basic investing principles apply here. You can’t overlook issues like poor margins or lack of product market fit because you have Brad Pitt involved. It doesn’t work like that. Celebrities should be viewed (and used) as accelerants to the business, not the match. If the business doesn’t fundamentally work, then it doesn’t matter which celebrity you attach to it, it will fail.
2. You need to know how to use the celebrity for your brand. Not all celebrities are created equal and not all brands are created equal. There are a myriad of assets to utilize and you shouldn’t utilize them all. Nor should you use them all the time. Understanding what drives numbers (not just eyeballs) is critical.
Ensuring the celebrity in question is doing the right thing at the right time for the brand is key. Just having a celebrity on board for the sake of ego will cut into your bottom line by at least 20% – founders need to be very clear, and very certain, how their equity will be used to drive the business beyond what that equity is worth. I’d argue that 99.9% of founders haven’t even thought about it, let alone worked out the financials. Which is why celebrity brands fail quicker than brands without a celebrity – the founders of celebrity brands are working with much higher (usually unrealistic) expectations for growth, for a smaller piece of the pie. Most give up because it feels like it’s not worth it. And most often, it’s not.
So if you are going to invest into celebrity brands, you really need to know what you are doing. You also need to be able to help both parties work with each other in the best way possible to leverage strengths and minimize weaknesses. It is very simple, and simple to achieve – yet too often people forget the basics of business when the flashing lights get in the way.