Crowdfunding Your Cosmetic Company Start Up

Crowdfunding Your Cosmetic Company Start Up

Is crowd funding your cosmetic company start up a good idea?  I have somehow ended up on the mailing list of a company that is putting a lot of effort into getting funding via this route.  As I am not interested in investing I am finding it all a bit intrusive and annoying and I have unsubscribed, but I dare say if I was looking to invest some money I would find it more interesting.  But it did make me wonder if this was a viable method of funding new start ups in the cosmetic sector.

This particular company is one that is already in existence and presumably is seeking funds to expand.  They have a fairly generic natural organic offering that didn’t strike me as an obvious world beater, though thankfully they avoided using scaremongering tactics.  There are lots of small companies in this sector and they all seem to do reasonably well largely because they care about their products and establish good relationships with their customers.  To get beyond this requires a lot of investment in advertising and PR, and presumably this particular company has got to this point and is trying to stretch their wings.

Crowdfunding does seem like an attractive option.  Rather than having to find professional investors whose money comes with strings attached you seek out ordinary people who want to invest their money in something that they personally approve of.  Lots of people love personal care products and would regard this as a good thing to invest in, particularly if they have tried and like the products.  You’d be able to say ‘I liked it so much I bought the company’.

There is a very obvious disadvantage.  By its very nature, crowdfunding makes it necessary to reveal your plans to the world.  This will instantly alert the competition, who might already be very well funded, to get ready their deals offerings and promotions to coincide with your launch.  This is something that very small companies are probably not going to have experienced before.  The big boys of the cosmetic industry are a hard bunch to go up against.

This problem might seem even more acute if you have an innovative idea.  Surely if you are trying to get something genuinely new onto the market it is even more dangerous to go down the route where you let everyone know what you are up to.   Paradoxically, my feeling is that this is not at all the case.  The organic brand I was talking about earlier is following a well trod path that everyone in the business knows very well.  Something new is by definition going to be something without a track record.  I suspect that established players will pay it no attention.

So I would say that the crowdfunding route is better suited to the innovative company, and might well be a great way to get your great idea out there into the real world.  Something that ultimately sells itself can get away without so much expensive advertising as well.

I’d also say that the same applies to anyone thinking of investing.  You are more likely to lose the lot with an innovation, but you might just do very well indeed.

Photo credit: Mukumbura via photopin cc

4 thoughts on “Crowdfunding Your Cosmetic Company Start Up

  1. Ed

    Hi Colin,

    I can’t quite see L’Oreal or Boots seeing a crowdfunding pitch and deciding to copy it.

    Companies have their own strategies, people and problems, so even if they know exactly what a competitor is doing – months before they do it – they’re still unlikely or unable to change course in time.

    More likely I’d say is being copied by one of their immediate smaller competitors who can change things a bit quicker and might actually be on the look out for ideas.

    But actually, there really aren’t that many established companies desperate or stupid enough to completely copy another company’s positioning or branding.

    If a company does do so, then they immediately have three problems:
    – they now lack market distinction because their products, branding and message are the same as another company.
    – they are always a step behind the other company because they have to wait for that company to do something or disclose its plans before copying.
    – they can’t tell which are the good ideas from the bad ones.

    That last point is crucial but often overlooked. If you’ve had something out in the market for a year or two, you know if it is working, needs improvement or whether it hasn’t worked. The copier doesn’t have a clue!

    So don’t get put off crowd funding because you fear being copied. If you’ve something genuinely innovative, a large company won’t touch it until they know it is working (I’m agreeing with Colin here but for different reasons!).

    Don’t worry about your immediate competitors – if all they do is borrow other people’s ideas, you’ll out innovate them with all that new money you’re getting in.

    I looked up the company you mention and I know the brand. It is nicely packaged, well respected, has some nice stores but is pretty much just starting out.

    They have probably discovered by now that prestige listings in beautiful stores cost a lot to maintain and don’t deliver much in the way of volume.

    So this is a company that needs lots of working capital to build a team, do some marketing and prove that its brand can grow.

    However, the valuation is pretty much out there for any serious investor or for anyone who knows the market. Their revenues and growth to date (not profit as they’re loss making) doesn’t justify it. The team is small, young and inexperienced. I’m not saying they can’t build a multi million pound company, only that there’s no evidence (yet) that they can.

    They may still raise the money because crowdfunding appeals to inexperienced investors who are basically having a punt. If they get excited by the brand, if they see everyone else piling in, they may well chuck in a couple of hundred (and most investments are in the £50-200 mark).

    So it is a bit like online poker – lots of people having a bit of fun. I should know….I used to love playing poker, and I invested the other day in a company that grows food in disused London Underground tunnels!

    The other truism is that the house always gets its cut (or Crowdfunding platform in this case) and the majority of people will lose their money. But if it’s fun, so what?

    Now – off to Kickstarter to buy myself a wireless, phone operated, door lock 🙂

  2. Colin Post author

    I agree entirely Ed, my point was about using crowd funding for generic me-too products. The company that was soliciting my investment was doing something for which there is already a well trod path. In that case, if the competition are pre-warned they can make life difficult for the new entrant in a number of ways. On the other hand a genuinely new and ground breaking idea could be announced on the television and nobody will take the blindest bit of notice until it starts making sales.

  3. Colin Post author

    Incidentally, the phone operated door lock ought to include a solar charger for your phone. That way when you get back late at night, you’ve lost your keys and your phone is flat at least you will only have to wait until dawn to get in.

  4. Lena

    I don’t know which company it is that you mean, but crowd-funding may work if you already have a relationship with your future customers. Perhaps they are the one wanting the product. If it is a very specific tweak that is not of interest to the general consumer, might make sense to actually have consumers pay part of the development. I’ve seen this model with fashion items (bags, shoes, etc), where consumers actually have a say in the design of the item. Quite cool actually, although quite time consuming with minimal profit (due to lack of economies of scale?).

Leave a Reply