Brand Strategy · Design

Any rules of thumb on how much startups should dedicate to brand strategy/design?

Chris Gorges Partner, Strategy at Rocketure

June 30th, 2015

I've seen research on how much companies should dedicate to marketing as a whole as a % of revenue or of funds raised and/or valuation, but I'd love some hard research on best practices specific to brand / design (logo, identity, naming, architecture, brand guidelines, etc). My ad hoc research shows that 15-35% of many top Fortune 50 companies' market cap can be attributed to "brand" (as defined by Interbrand, Brand Finance, etc) -- so what is the commitment to get an appropriate ROI. Obviously this varies between teams that are tech-heavy vs. teams that might already be brand/design-savvy, but it would be nice to set some guidelines to at least begin the discussion in a productive way.

Ken Hejduk CEO - Little Jacket

June 30th, 2015

Chris - 

It is pretty well accepted that brand equity is a contributing factor in the overall value of a business. For instance, there are quite a few cases where acquisitions have fetched prices far in excess of overall market cap because of brand value.  

Your question is tough to answer with any degree of accuracy. Mostly because the numbers are skewed by poor practice. For instance, many businesses allocate as little as 1% of operating budgets to marketing and they overlook the value of brand all together. When in reality they should be spending 5% - 30% on branding and marketing. Maybe not year-over-year but at critical inflection points at the very least. The problem is many companies look at marketing as an expense not an investment tied to operations. 

To further complicate the answer, it ultimately depends on a few variables: where the company or product is in its lifecycle, the market dynamics, and business goals to name a few.

But since you specifically asked about how much a startup should spend, let me suggest as little as possible. At least until you have product/market fit and enough capital to continue to grow at a comfortable pace without diverting critical funds toward something that is hard but important work for the future of the business. 

Many startups try to brand too early and ultimately design a brand that is incongruent with the future product or service they will end up scaling. This leads to expensive rebranding efforts down the line.

In the meantime, unless you are a consumer packaged good or a B2C company where rapid cultural integration means everything, be lean with your brand and focus on your product. Use every interaction as an opportunity to learn about what is important to the brand's DNA both internally and externally. The more you know about why the brand is special, the better the process will be when you are ready for it.

Tracey Solomon Principal @ LiftForce.com

July 16th, 2015

Lots of good advice here. As someone who has been in the branding strategy business for 15+ years (including 10 years at Interbrand) and launched her own startups, I would concur that some branding is essential even at the pre-seed and seed stages. Does it mean that you have to go to a massive agency and spend six figures on a branding plan? Absolutely not. But many startups are operating in commoditized markets (even though we all think we are disruptors) and brand is an effective way to differentiate and cut through the noise. Importantly, brand is an effective framework for telling your story when seeking out investor dollars and articulating your point of difference to the market. Think of it like the connective tissue that ties everything together - your point of view on the market challenges, where the opportunity lies, and how your products is going to solve and ultimately dominate the market. 

As for customer insights - you can never get those too early. Startups are reluctant to involve their customers in the development of their brand but these days you can't afford not to. Otherwise, to Ken's point you will risk building a brand that is irrelevant or doesn't connect with your customers. Again, this doesn't have to be a budget-breaking exercise. Surveymonkey surveys, a few phone interviews with prospective customers, informal focus groups. Whatever you can do to get feedback early on to refine your hypotheses a la Lean Startup will help you build a brand that will resonate with customers.

Good luck!

Chris Gorges Partner, Strategy at Rocketure

June 30th, 2015

Thanks for your thoughtful response, Ken. 

We've launched a new brand / design firm focused on growth-phase ventures (this is a wide definition -- concept, Seed-Series D, pre-IPO, spin-off of a corporation, new product, etc) so while I understand the "spend as little as possible" sentiment, I'll counter the "many startups try to brand too early and ultimate design a brand that is incongruent" aspect.

This very well may be the case in some issues, but the other side of the argument/thesis is that "branding/design" doesn't mean going through three iterations on 99Designs or buying a logo on Fiverr. If you commit to the deep, customer insights-driven thought of true brand strategy at the outset/early stages of your firm, you build a foundation that may very well avoid said expensive rebranding down the line.

In an increasingly digital/ADD world, that first impression means a ton. Look at Warby Parker, Bonobos, Shake Shack, Harry's, etc. -- these companies engrained design (experience, product, service, visual, communications) in every aspect of their DNA, and that approach is paying dividends for them now. Definitely not the case for every startup in every industry, but certainly something to be dismissed/discounted.

Gio Bacareza CEO at Morphlabs

July 1st, 2015

Find the fit, deliver your unique value to your customer. And once you deliver that consistently, that is your brand. Then you can put more money to reinforce that brand. my 2 cents.

Ken Hejduk CEO - Little Jacket

June 30th, 2015

Chris - 

When I said many startups brand too early, I was really talking about pre-seed, seed, or early venture funding.

Growth-phase ventures assume product/market fit is pretty well established so brand is definitely in play. And by the time a company is at a Series D or pre-IPO it is very likely brand can make a huge difference.  

Airbnb is a good example as they just went through an extensive rebrand in the past year. Fortunately for them, their founders have design chops and that got them pretty far before they needed to hire out.

At the growth stage, it is probably less about % of revenue and more about value for the business in question. A comprehensive brand program is going to range from anywhere around $200K to upwards of $1M depending on the projected ROI. Market dynamics are probably going to weigh pretty heavily on the value proposition.


 


Jennifer Fortney 20+ years’ experience in PR & marketing comms; Founder of Cascade PR, Chicago firm for small business & startups.

July 17th, 2015

At the end of the day it really comes down to budget and creating a customized plan to reach target audiences that best uses that budget. It also depends on the type of business. 

Remember startups are just a business until they become a brand. For me, that term is used to loosely and incorrectly. 

We find that most of our clients have a decent budget but their major goal on the road to building a brand is first building credibility, and that requires good communicating to the customer and ultimately an emotional attachment to the company. 

At the end of the day, percentages are not the best gauge. We evaluate goals and vision to develop a strategic plan our clients can use, and it doesn't focus on our efforts but what we really feel they need to do. Then, we connect them with other fantastic partners we work with.

Hope that helps!