Why VCs should pay attention to brands
Brand growth is the business growth
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Brand is a filter for all business decision making, and this makes it a critical part of VC and PE firms acquisition and growth strategies. Investing in a brand is especially relevant for early and growth-stage deals.
As a decision-making filter, brand operates in several ways. It sets the vision for the company and defines where a company would like to see itself in the next 10 years - and what needs to happen today for this vision to be implemented. A company’s mission statement sends investors a signal about what business a company believes to be in and what are its priorities. A brand’s purpose explains why the company exists in the world. A brand also filters who are a company’s products and services for, who it wants to attract and retain and how are its products, services and stories different than anyone else’s. A brand also filters a company’s strategy, and ensures that the company operationalizes its mission and purpose in a way that it achieves its vision.
All product, service, experience and story decisions that lead to a company’s growth come from answers to the questions above. In considering these questions, VC and PE firms do not a choice. High failure rate and mediocre median returns of the VC industry require a fresh approach. Majority of funds’ returns is right now generated by a few superstar companies in their portfolio. Turning a company into a brand improves the odds of its success, increasing the value of the entire portfolio beyond a few high-performers. Companies that invested in their brands marked 67 percent above-average organic revenue growth and 70 percent above average total return to shareholders.
Building and managing a brand requires the same discipline as operational excellence, and there are two mind-shifts that need to happen in the PE and VC world for them to capitalize on the brand-building capability:
Expand time horizons. If brands are managed well, their value and relevance is maximized over time. The outcome is higher ROI, higher profitability and lower chances of failed IPOs.
Focus on the initial consideration set. A company that is part of the initial consideration set is two times more likely to be purchased than a company that is considered later in the decision journey. To become part of the initial consideration set, a company needs to be able to command awareness, but also convey what it stands for: its purpose and promise and values. For example, Nike and Apple offer product innovation and differentiated consumer experience. Brands evoke a specific meaning through its products, services, experiences and stories.
Here is how to turn a brand into a company’s (and VC or PE fund’s) growth engine: