How to grow a consumer brand fast and why Big-cereal is about to be disrupted.
We are living in an interesting period in startups and innovation where companies do not actually have to be innovative to be disruptive to any industry. This is not to say that it is the dotcom bubble happening all over again where dot-com domain names would suffice for millions in VC money, but instead, these are legitimate businesses with strong growth potentials who aren’t technically innovating but exploiting trends namely: the rise of the conscious consumer and the direct relationships between companies and consumers. This article is less so about cereal than it is about how to grow a consumer brand fast, the cereal industry just happens to be at the beginning steps of this disruption happening.
Why Cereal Startups are gaining traction?
According to the South Florida Reporter, 50 percent of Americans start their days with cereal. Americans consume 101 pounds or 160 bowls of cereal per person every year. The earliest known origins of cereal stem back to the 1860s and despite having more than 100 years of people consuming cereal the innovation to make cereal better has not improved that greatly. In fact, cereal for the most part is a very unhealthy way to start one’s day. Most breakfast cereals are loaded with sugar and refined grains. High sugar consumption is harmful and may increase your risk of several diseases. The massive health concern that has not been addressed over the past few decades is the catalyst for new cereal startups to disrupt the industry.
There are a few factors that make the best breeding grounds for startups:
- Cereal has not experienced any real innovation for a hundred years, the entire industry is ripe for disruption.
- Large addressable market the cereal industry is globally valued a over $40 billion.
- Growth: The cereal industry is growing again for a while the cereal industry was stagnant in growth but as the world moves to a more hype productive workforce the need for convenience products like cereal increases. This is why the industry is currently growing at an annual rate of 3.5% per year.
The above is what you would likely see in a normal pitch deck but while those factors are valid and reason to create a company none are more important than the following factors:
- The fastest growing and rapidly more profitable consumer group is the “conscious consumer.”
- Direct to consumer businesses are humanizing the relationship between the company and the customer.
- The advantage of not needing to establish new behavior.
1. The conscious consumer
In the 21st century, every industry is ripe for disruption, not necessarily innovation, well at least initially. Take Tesla for example, when Tesla started the EV(electrical vehicle) market was largely non-existent with many automakers choosing to abandon their developments of EVs with the false belief that their range will never be as good as gasoline cars, to add to this, EV cars did not have a good aesthetic appeal they were always perceived to be boxy “robot-like” and funny looking and it was believed apart from a few early adopters no one would ever buy one. But Elon Musk and the other founders of Tesla saw it differently, contrary to popular belief the first Telsa Roadster wasn’t all that revolutionary, the chassis’ were from the Lotus Elise and it had a range of 200 miles, but it accomplished its goal of creation, it wasn’t created to prove that electric cars were better but instead that the electric car could be a viable mass-produced vehicle. Having proved this point the car became its own marketing machine as more consumers started becoming aware and environmentally conscious, it wasn’t just the fashionable and hip thing to do to buy a Tesla but the morally right thing to do. The same trend can be observed in many other industries and that is the trend fueling the cereal startup boom, cereal will never be replaced as a convenient breakfast item but more conscious consumers will actively seek out healthier and more environmentally friendly cereal.
2. Direct to consumer and the humanization of brands.
Direct-to-consumer brands leverage many things that the traditional giants do not. They understand more than any other types of companies that today’s consumer is impatient, convenience is everything. One notable brand that was able to leverage this idea was the Dollar Shave Club, the founder realized that importing razers in bulk was much cheaper than he thought and that he could sell these razers direct to consumers cheaply but still making a substantial profit. This ultimately expanded out to serve customers grooming needs. The advantage they had was that they had a direct relationship with customers, their products were not necessarily better than the competition but none of the competition was conveniently offering a subscription service that could bring them all the stuff they will need to stay well-groomed. This success made Unilever acquire the Dollar Shave Club for $1 billion. The interesting opportunity that exists in industries that have largely operated the same way for decades is that they have not adapted to Social Media and the idea of having direct relationships with their customers. This allows direct-to-consumer brands to better serve their customers and they can also use the data they have from their ready existing customers to better target new ones rather than just running TV ads in the hopes that the right target market sees them. Being able to develop an effective customer acquisition strategy in this way i.e. that is not just burning investor money makes these types of businesses very profitable and high growth which is very rare in the startup environment.
3. The advantage of established behaviors
The most truly innovative company that invents something that has never existed before has the difficult task of integrating their invention to the behaviors of their new consumers. It’s why grandma will probably never use Snapchat or Instagram — “You cannot teach an old dog new tricks.” In the cereal industry, the heavy lifting in establishing behaviors was already done by the earlier pioneers of the industry such as Kellogs and any entrant in the new market can take advantage of the fact that most households in America consumer cereal every morning. Telsa and the Dollar Shave Club didn’t create brand new products that customers had never seen before, they took already existing innovations and made them more consumer-friendly.
“Don’t reinvent the will just realign it” — Anthony J Dangelo
It’s easy to get lost somewhere in between “The Social Network” and “Landing on Mars” in thinking that you need to reinvent the wheel to succeed, most successful companies aren’t all that revolutionary they looked at the changing trends of human behavior and built companies around them, the single most important factor to a Startups success is timing, not talent or location or level of innovation.
Cereal Startups and Funding
Fueled by the above-mentioned reasons, Startups in the cereal industry are startups to pop up and grow.
- Magic Spoon recently landed $5.5M in seed funding led by Lightspeed Venture Partners for its low-carb, high-protein “child-like cereal for adults”. Its frosted, cinnamon, fruity, and cocoa varieties are sold direct-to-consumer in four-box packs for $39.99.
- Catalina Crunch is a low-carb, zero-sugar, keto-friendly cereal generating nearly $1M in monthly sales. Aiming to be more portable, the product is sold in a resealable bag, an approach that’s working — just 45% of its customers eat this cereal out of a bowl.
The big picture — “The formula”
This article was less about cereal than it was about breaking the notion that every unicorn or successful startup is inherently groundbreaking. There are deliberate steps you can take in and consumer industry to create disruption.
- Look for industries that have largely operated in the same way for decades.
- Look at the overwhelming negatives of that industry, whether it be environmental or health negatives find negatives that a large consumer base of that industry does not like and would be willing to pay more if it was changed or solved.
- Create the product.
- Establish a direct-customer relationship with your consumers.
- Establish effective customer acquisition strategies like targeted ads and referral programs.
- Raise money to grow the business.
- Become a Unicorn.