Do You Want a Celebrity Endorser?
- Posted by Jeff Carter
- on October 3rd, 2012
There are some celebrities that are active in the angel investing start up space. Ashton Kutcher comes to mind. Any company he invests in gets a cadre of people interested in it. Companies spend a lot of time trying to get high profile people’s attention. Is it worth it? Does it make sense for a start up?
Certainly, a lot of money is spent by companies putting goodie packages together for things like the Academy Awards. They get exposure to stars that might actually use the products. A boutique designer handbag manufacturer might benefit from having some starlet go out on the town wearing her bag. When Oprah had a big television show, one of the top rated shows was Oprah’s Favorite Things. Sales of those products would skyrocket overnight.
As long as companies are prepared for that onslaught, profitability won’t be affected because they are able to scale with the increased interest. Some companies aren’t prepared and actually lose money despite all the attention and increased sales. They can burn through their working capital. Sounds like a good problem to have except then you have to find a way to fund the business and if the bump in sales doesn’t look sustainable, then you will have trouble getting investors.
On the other hand, what about the digital company? Scale shouldn’t be a problem, since you just rent more space in the cloud based on traffic. However, being digital has its own unique problems.
Suppose you have a product that relies on going viral to be successful. You somehow are lucky enough to get a celebrity endorsement. That celebrity, tweets that they love your product. For example, Mark Cuban has 1.27 million twitter followers. He tweets you-does it help or hurt?
Short answer is the exposure doesn’t hurt. People might try your product simply because Mark Cuban tweeted something about it.
Long answer is the massive exposure might actually hurt a young company. The company might not be ready for it. Instead of being able to work through all the kinks they might in a beta, thousands of people just downloaded their app, tried it and now think it sucks. Even worse, if Cuban is actually invested in your deal, they get jaded and think he tweeted it just because he is invested.
This is why I love the principles in Do More Faster and The Lean Start Up. They allow you to launch and force the company to be very focused on the market. Instead of being a hammer, they are the nail and go where ever the market takes them. Founders have a decent idea about what they think should make a great product. But, they are only a small sample size. The market allocates much better than they can and by allowing the market to choose the path for your company you are liable to have more success-as long as your target market is big enough.
In an old post, Professor Raj Echambadi of the University of Illinois made some very enlightening points in a lecture I was at. Here is a great takeaway from that lecture.
To check yourself from this, ask yourself a simple question. What did the customer hire you to do? Answer that and you will be closer to your customer and you will create a product for them-not creating a product for you.
Companies fall in love with their own technology. This is called the “endowment effect”. They forget their customer. It happens more often than you realize. Even when companies say they are intensely customer focused, they really are trying to dictate to their customer in the marketplace.
If you campaign for, and get one celebrity endorsement, are the results of your soundings into customer preferences going to be real? Or are your customers going to say good things so that they don’t tick off or lose face with Mr/Ms Celebrity?
Besides, you might churn through a ton of company resources that would be better spent on creating a better product that is so viral, it will wind up in the hands of that celebrity anyway.
Just something to think about when you are designing and launching your digital product.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)
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