MVMT Founders Talk About Facebook and Instagram Difficulties
Jake Kassan and Kramer LaPlante dropped out of college and founded MVMT with the idea of selling stylish, inexpensive watches that would appeal to Millennials direct to consumers over the Internet. In five years, they built a business with $80 million in sales, creating a playbook for a successful digital-only brand.
They started in 2013 with a crowdfunding campaign on Indiegogo, which helped MVMT gain consumer recognition and $1 million in sales in its first year. Then Kassan and LaPlante started using Instagram, where MVMT now has nearly 1 million followers, sharing user-generated content under the hashtag #jointhemvmt and paying Instagram influencers to, subtly, push the brand at a time when the concept was still relatively unknown. As they scaled MVMT, which hit $7 million in revenue the second year, they rolled out on Facebook, Twitter, YouTube and podcasts, using a mix of paid advertising and organic posts to drive traffic to their website and sell watches. Because all of the sales came from that website, they could track, fairly precisely, which efforts worked and which didn’t – tweaking the message and marketing over time. “It was really like the secret formula for scaling the brand online,” says Kassan, who ditched college at 19 to focus on watches.
In an era when dozens of companies seemed to have come out of nowhere to get buzz and tens of millions (or more) in sales, MVMT was “the poster child of how to build a business on the dark arts of Instagram with influencers and microinfluencers,” says Gabriel Anderson, who runs VaynerMedia’s small business division. But times have changed over the past year, and already, the golden age of building a major direct-to-consumer brand on Instagram or Facebook is ending, as competition for digital eyeballs has increased, costs have gone up exponentially, and the use of influencers has spread to mainstream brands. “It’s much more difficult without a doubt,” says MVMT’s Kassan. “It’s still possible, but it would be very difficult to scale as fast as we did. We used channels that just aren’t as efficient or easy to use anymore.”
There’s no question that Facebook and Instagram have gobbled up other forms of advertising over the past few years with their ability to access vast numbers of potential consumers – specifically targeted by their demographics – at relatively low cost. They also offer an ability to see exactly what’s working and what isn’t, a transparency that’s not been available to advertisers in print media, television or other offline channels. But as with any marketplace, success has meant more competition, and more competition has meant higher prices, especially as deep-pocketed corporations have joined the fray. That means startups will need to be smarter.
“It was shooting fish in a barrel to start,” says Steve Dinelli, founder of digital marketing agency Blackbird Garage. “Now it is a lot trickier.” In 2015 (his first year in business) and 2016, he says, he had six client companies that went from startup to $30 million in revenue in one year. In 2017, he says, there was only one. Increasing competition from big corporations, as well as a flood of new startups, without a corresponding rise in ad slots has resulted in prices going up and competition to get the best slots increasing. That’s squeezed startups that either have to afford the higher prices or come up with a different strategy. “There is a lot more competition that is coming not only from these smaller direct-to-consumer brands popping up, but from bigger brands moving budgets away from traditional media,” he says. “Getting to $30 million is much harder than it was even a year ago.”
For companies that missed the golden moment, here’s how to think about Facebook and Instagram marketing, whether you’re just starting out or scaling up.
It’s the brand, stupid
Maybe it goes without saying that the brand is key, but a year or two ago it seemed even half-baked efforts could succeed on Facebook or Instagram because the idea of selling direct to consumers at a better price was new. “Before you could get away with not having a great brand. Today, you’ve got to have a great brand so that people will come back and repeat buy. The brand is what’s going to survive,” Dinelli says.
Aamir Baig, cofounder and CEO of Article, a modern furniture brand that launched in 2013 and has revenue above $100 million, agrees. He’s found success for his brand on Instagram (where it has nearly 190,000 followers), but he uses the platform to create brand awareness not for direct response. Home brands, like fashion brands, can create visual stories that tap into viewers’ emotions: This setting, this outfit, they tell you, is the good life. Baig’s goal is to plant the idea of Article as a desirable brand in people’s minds long before they’re thinking about furniture so that when they do need a couch or a chair, they’ll recall its beautiful Instagram photos. “It is a perfect medium for brands like us that are aspirational lifestyle brands,” he says. To keep customers, though, posting pretty pictures isn’t enough; Article and other new brands have to deliver a better product at a fair price to get repeat customers.
Pay attention to costs – and expect to pay more
Costs have gone up on both Facebook and Instagram, as competition has increased from big brands as well as more entrepreneurial ones without a corresponding increase in ad slots. At certain times of the year – such as on Black Friday and Cyber Monday – the auctions got so competitive that it wasn’t even possible to buy slots, Dinelli says. The same thing happens at the ends of the quarters, when large companies, with tens of millions left on their ad budgets, dump it into Facebook, using up the capacity there. As for cost, he points to a client (that he declines to name) that paid $20 per thousand impressions (or CPM) on Instagram this November, up 67% from the $12 per CPM it paid in November 2016. Similarly, a client on Facebook paid $23 per CPM this November, up 64% from the $14 per CPM it paid in November 2016. “I think it surprised everyone,” he says. “People can’t just keep paying more because it will become less and less efficient. I just don’t think we’ve reached that point yet.”
The upshot of those higher costs is that marketers need to be sure that their product’s pricing supports it and that they have the right strategy to see a payoff. “What people should be asking is what am I willing to pay,” says Joe Yakuel, founder and CEO of Agency Within, a digital marketing firm. Rather than looking at average costs, as many founders do, he prefers to look at marginal costs – whether the extra spend will bring in customers and increase market share without losing money on the transaction. “If you have a $10 product with 70% margins, it’s hard to acquire a customer. If you have a $150 product with 70% margins, I can acquire you a customer for $50 and you are still wildly profitable,” Dinelli says. The profit before advertising for a direct-to-consumer brand is generally higher than for a traditional brand because it’s cut out the middleman and all the associated supply-chain costs, but instead of spending on retail distribution it has to allocate additional funds to marketing in order to create a business. “Either you are giving away margin on a retailer or you spending to acquire a customer,” MVMT’s Kassan explains.
Use “lookalike audiences,” but understand their limits
Facebook allows businesses to target a “lookalike audience” that is demographically similar to its existing customers. For startups, this has been a great tool in scaling up quickly, and may help explain why so many of these new brands have ads with the same minimalist aesthetic designed to appeal to upscale Millennials in San Francisco or New York. Home-goods startup Parachute,for example, used lookalike audiences in its early digital marketing efforts to great success. But as the four-year-old company grew – it had $30 million in sales last year – it gathered enough of its own data to target the customers it wanted in a smarter way than Facebook’s algorithm alone could.
“A lot of old school businesses think of the lookalike as the holy grail. We think of them as training wheels,” says Moshe Mosbacher, CEO of TubeScience, which uses data to help companies market on Facebook with videos. The strength of lookalike audiences is also their weakness as companies get bigger. By helping firms target more customers that look like their existing ones, they don’t help those businesses scale to new demographics or geographies that might be interested in their product. In a sense, they help to keep the brand insular in whatever its original conception of itself was. Instead, Mosbacher says, brands that want to scale need to segment Facebook's audience into different personas that have to do with interests rather than simple demographics. For his clients, he'll create 10 or 20 different personas, each of which gets its own targeted ad campaign. “A lot of brands struggle with that,” he says. “They know how to talk to a customer in San Francisco, but they don’t know how to talk to a customer in Savannah, Georgia. If you try to do that one message of what your brand is, you are missing 80% of the country in some cases.”
Consumers are burned out, so you need to cut through the clutter
As ads have proliferated on Facebook and Instagram, consumers have gotten burned out by the noise. “You are being advertised to on Instagram more than you are seeing your own friends. You used to see a Kardashian wearing a dress and you would think it was organic and real,” MVMT’s Kassan says. “Now you have so many ads pushed in front of you with discount codes and hashtags, and customers just scroll by. It’s very different than what it used to be.” The upshot: Your marketing strategy needs to be even better than it was a year ago to stand out.
One way to cut through the clutter: Having a strong, authentic voice. VaynerMedia’s Anderson points to Goatcase, an iPhone case startup whose Instagram feed (which has more than 700,000 followers) is entertaining without being polished. Another: Using guerrilla marketing tactics to promote a brand in a way that appears less commercial. Scott Gabrielson, founder of Oliver Cabell, a direct-to-consumer bag company, spends hours online searching for microinfluencers with a similar minimalist aesthetic to his brand in an effort to get noticed. “The influencers we seek out don’t do a ton of product promotion, but they really love the brand and they scream from the top of the account why they love the brand,” he says.
Another strategy is video – and lots of it. In the early days of social marketing, a simple photo was often enough, but today Facebook is emphasizing videos, and to stand out companies need to be prepared to constantly churn out new ones. “We don’t really have a choice. At the end of the day, it is what is most effective for customers,” says Julia Olson, cofounder of Treehut, a maker of wooden watches with sales around $18 million. TubeScience’s Mosbacher figures he puts more than 1,000 videos a week on Facebook for his clients. “No one wants to watch a video twice on Facebook. They’re like, ‘I’ve seen that already.’ The result is that videos burn out really quickly,” he says. “You need a massive amount of video content to scale.”
Be prepared to max out online
If you’re lucky enough to soar past $30 million in revenue, as MVMT did, you’ll need different strategies. MVMT went with television advertising; so, too, did Hubble Contacts, which built its direct-to-consumer contact brand on Instagram. “A lot of our clients have gotten to the point where they have maxed out Facebook and Instagram and these digital channels,” Blackbird Garage’s Dinelli says. While television and other offline media don’t offer the same ability to measure impact, at some point to keep the business growing entrepreneurs need to reach people who aren’t living by their social media feeds. “It’s really hard for these digitally native brands that are used to being able to attribute every dollar to revenue. As you get larger you just cannot do that,” he says.
Parachute founder Ariel Kaye, for example, has branched out into everything from podcast advertising (she loves “Pod Save America,” which has helped push the brand with humorous and authentic marketing) to taxi-topper ads to a few small retail stores, testing different possibilities as the brand grows. “The playbook you followed last year no longer works for this year, and two years ago is archaic,” she says. Moving to these other channels means thinking about the marketing spend in a longer time horizon; a podcast ad is unlikely to result in an immediate traffic surge, and a taxi-topper isn’t something you can track, but what you lose in immediacy, you gain in brand awareness, which, over time, with luck, translates into traffic and orders. “Our biggest challenge is to get people to know about us,”Kaye says. “It’s all about the emotion.”
MVMT’s Kassan says that his decision to run TV ads followed testing of videos online to see what worked and what didn’t – and that the older medium is important to the brand as it expands. “We knew it was going to be new eyeballs, and it has a ton of scale compared to the other channels,” he says. And because MVMT’s sales still come largely from its own website (though it launched in department stores last year), he can still see whether, say, an ad aired at 5 p.m. led to a corresponding bump in online sales at that hour. In the best of cases, the TV ads also create a feedback loop that amp up customer awareness, and make the digital marketing that much more effective. Says Kassan: “The brands that don’t invest in other channels are going to hit a ceiling.”