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How Much Capital Do I Need to Build My Brand?

At Marketing 360®, we help entrepreneurs market their startup efforts.  Some come to us with ideas of creating a major consumer brand, the type that crosses over into majority adoption.  What kind of a budget does it take to create that type of business?

 

Let’s talk about a certain type of entrepreneur.  The type with major aspirations.  The go big or go home type.

They don’t just want to create a small line of clothes for a targeted audience.  They want to become the next Under Armour.

They don’t just want to open a local burger joint.  They want to be 5 Guys Burgers and Fries.

They don’t just want to create an app for a limited, narrow-scope audience.  They want to be the next Uber.

This means something major is going to have to happen.  They’re going to have to cross the chasm:

product adoption curve

This is the famous production adoption curve.  The chasm is the massive challenge a product or brand idea has to overcome to become a “household name”.  It must be crossed to move from a smaller group of users, called early adopters, to recognition and use from the majority of consumers.

Notice they don’t call it the hole.  It’s not even a river or canyon that could be bridged with the right effort.

It’s a chasm.  A void of unknown dimensions that sucks ill-prepared businesses into its depths, never to be seen again.  It’s a gigantic obstacle to overcome; one that is almost insurmountable.

So what does it take to cross the chasm?

First of all, it takes a great business plan with the determination to work for years with no profit to push your brand into majority adoption.  We outlined what this journey looks like with the example of the Kate Spade brand.

The Spades had a solid understanding of where they could compete in the marketplace.  They were prepared to – and in fact, did – take major personal financial risks to build their business.  They worked hard for years making no profit, living lean.  They also got assists from serendipity, making connections and winning several fashion awards that helped them gain recognition and exposure.

This is a good example of the efforts, risks, and even luck involved in building a major brand.

Another fact of business is that it takes capital.  You need money to invest in not just business assets, but in the marketing you’ll have to do to build your brand.

How much of a budget should a startup have in place if their goal is to cross the chasm and become a major brand?   This varies, but the reality is that most entrepreneurs underestimate what they’ll need.

The typical startup small business with these goals raises $200,000 or $400,000 in equity.  It usually comes from friends, family, or maybe amateur investors.

But experts suggest that to build the kind of brand we’re talking about – one that can cross the chasm into majority public adoption – a business might need up to 50x that amount.

That means you’re talking about $10-20 million in capital to achieve this type of branding goal.  You may not have it when you get started, but if you want to take your brand to the level of national recognition and majority consumer adoption, that’s the kind of number you need to think of investing.

This means dealing with serious venture capitalists or angel investors who will put millions of dollars on the line for your idea.  It means having an expertly researched marketing strategy and super detailed, well-organized marketing plan.  It means having the human and technological resources in place to execute this plan.

And even with all that, you’ll probably need some luck.  You not only need a fantastic product, but your timing has to be right.  You’ll have setbacks, so you’ll need the resources and planning to pivot when they happen.

Chasm indeed.

 

The Beauty of the Niche

Let’s temper things a bit.  A lot of entrepreneurs dream of building a brand that crosses into majority adoption.  But few have the resources to make it happen.

At first, $200-400k may seem like a lot.  But when you start adding expenses like equipment, commercial space, and salaries, you’ll soon begin to see it isn’t that much.

However, it’s a very decent amount if you’re bootstrapping a business where you offer a high-value service or product to a niche audience.

This audience is much smaller than the majority expressed in the product adoption bell curve.  In fact, it’s niche enough that the reality is it maximizes at the innovative/early adopter stage.  With this type of business plan, you don’t have to cross the chasm because you don’t even plan to attempt it.

Instead, you have a marketable idea for a well-targeted audience.  You’ve tapped into a specific need for that group of people.  You can use direct-marketing tactics (both online and offline) to reach them and move them through the sales cycle quickly.

If you have a strong idea for a viable audience, you can start to turn a profit fairly quickly with this type of business.  Before long, you can pay those investors back and start down the path of long-term success.

If you’re the type of entrepreneur who thinks you want to cross the chasm, then by all means go for it.  The next big brand is waiting to be discovered.

But realize that to reach that size audience, you’ll need a lot of capital.  And also remember that the bell curve is melting.  There are fewer brands that dominate the majority; we’ve moved well beyond three channels on TV.

For most, targeting a niche and keeping the business model lean is not only the better option, it’s the only option.  We live in a digital world that drives the connection economy, which is designed for niche offers to connect with highly targeted audiences.

And you never know.  Your niche offering might take off and cross the chasm on its own.

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