We’re thrilled to have Dr. James F. Richardson, author of Ramping Your Brand as a guest on our blog today. As a professionally trained cultural anthropologist turned business strategist, Dr. Richardson has helped over 75 CPG brands with their strategic planning, including brands owned by Coca-Cola Venturing and Emerging Brands, The Hershey Company, General Mills, Kraft Foods, ConAgra Brands, and Frito-Lay. In this post, he’s examining the 4 phases of revenue development most early stage brands go through and the things they should consider in order to successfully build the next superstar consumer brand.
The 4 phases of early-stage growth
The media loves to feature finish-line tales of unicorns—brands that appear to have come out of nowhere and scaled instantly. In the past decade there have been a small handful of brands that have truly shot up like rockets and reached $100M in sales in two years or less from their market inception (Caulipower is the latest example of this in the U.S.).
While this unicorn path makes for great aspirational reading material, it isn’t the most realistic path for most consumer-packaged goods brands. There are many factors that make a unicorn path unattainable for most, but they have nothing to do with the long-term potential of your brand. By taking the right steps at the right time, your brand too can become an incredible success.
I’ve isolated four major phases of revenue development most early stage brands go through as they fight mightily for awareness, trial, memorability and sustained repeat purchase. How fast you move through these phases does matter. If you move too slowly, you may be outflanked by later entrants who essentially ‘own’ your innovation or simply become outdated. If you move too quickly and ignore the fundamentals of early stage growth, you will generally find yourself on top of a house of distribution-led cards that easily crumbles.
Phase 1 - 0-$1M – Designing and Managing a Small Experiment
Half of my book focuses on this phase. Why? Because most startups approach it as an irritation, not as a critical learning phase. Most overfunded brands try to skip right past it. By scaling quickly to $250K and then growing 75-200% annually afterwards, smart brands allow themselves a few years to optimize their offering in-market through intense interaction with early fans (and detractors). It’s critical to see a new consumer product line as an unfinished experiment. This can be hard for many founders, as they often have a geeky, overconfident view of their product line. Understanding why consumers keep buying your product and keep habitually consuming it is critical to planning acceleration later. While many early stage companies don’t do any consumer research at this point, this is actually the most crucial phase to do it.
Phase 2 - $1-$7M – Optimizing the Conversion Funnel
Once you have reached seven figures of trailing annual revenue, regardless of your channel, you need to start understanding your ability to inhale new triers, and convert a meaningful percentage of them into repeat purchasers who habitually purchase for at least a year or so. This repeat purchasing core will generate disproportionate revenue, but more importantly, critical stability to your business. Finding the right mix of moves to keep generating more of them (near where you are selling) is critical to financial efficiency and to generating local word of mouth. Strategic, geo-targeted sampling among predisposed consumers is a proven accelerant in snacks, beverages and anything consumed on impulse.
Phase 3 - $7-30M – Initial Proof of Concept
This is the phase when institutional investors will become interested in what you’ve built. It is also the phase when a very select number of proven accelerants in the broader CPG space (e.g. price-pack architecture) become relevant. And, it’s when many typical CPG growth levers could destroy what’s been built. The most common is chasing breadth of distribution way too quickly, especially in low price channels with enormous scale. There is, believe it or not, absolutely no correlation between sustained growth and net increase in distribution breadth in any random sample of brands I’ve looked at. Yet, time and again, venture-backed brands make this mistake. Accelerating during this phase is about carefully ramping distribution so that you can ensure same-store sales continue to grow, especially off promotion.
Phase 4 - $30-100M - Accelerating to Scale
Prior to COVID-19, when capital flowed too easily to CPG startups, large fundraises enabled or fooled some founders into believing they could take on the big CPG brands directly. Yet, 95% or more of CPG founders simply don’t have the industry network let alone the capital to simulate a massive product launch typical of giants like Coke or General Mills. For them, acceleration needs to involve generating far more memorability and enthusiasm than large brand product launches ever can. It’s about putting in the extra sweat and time to get consumers, or fans, to do much of your marketing work for you. The goal is to find those champions who will repeat purchase you at a higher frequency and for longer than anyone does for the latest line of your biggest competitor.
If you have the patience and discipline to grow quickly (but not too quickly) you can scale a new consumer brand exponentially through these four phases and surprise everyone when you arrive. You can become the next Siggi’s, Vita Coco, Kind or Barkthins.