I had a recent and interesting conversation with a VC about the importance of distribution and velocity. It made me think about an article I wrote last year for New Hope. I thought I would share it here to rekindle the conversation and debate.
How many stores, shelves, doors, are you in or on? In some form, that is the most frequently asked question of a founder of an emerging brand. In my opinion, that question perpetuates the wrong strategic focus. I will admit, I have a strong opinion on this issue. Chasing ACV, getting sucked in by the allure of store count, can kill a brand before it ever really gets started.
Unless an emerging brand has some compelling reason to be fast and first to market, focusing on building velocity is the smart strategic approach. I will give you 5 reasons why.
- It proves product/market fit. A brand learns if its value proposition resonates with its consumers.
- It allows for fast failure. A brand can experiment with placement, pricing, promotion, and gain critical insight without taking on significant risk.
- The insight gained allows a brand to optimize its go-to-market strategy setting the foundation for scale.
- It identifies the pain points and bottlenecks within a brand’s supply chain and order-to-cash process that need to be resolved prior to driving significant growth.
- It is what investors want to see. They’re interested in brands that can demonstrate traction with their consumers.
I wanted to validate my thinking, especially as it pertains to investors. So, I asked some leading Venture Capitalists to share their insights.
When evaluating a brand, what holds more weight, distribution (the number of outlets or ACV) or velocity (the number of units sold per point of distribution)?
“At the beginning of a company’s lifecycle, when the team is battling for distribution and shelf placement, velocity should be the focus and we get excited when we see brands demonstrate exceptional velocity in a core set of blue chip retailers. If a management team can demonstrate strong velocity performance on the shelf versus competitors, then expanding distribution has the potential to accelerate growth. As a company matures and grows the base of distribution, % ACV becomes more important.” Nicolas Mindel – Managing Partner, Trail Post Ventures
“When evaluating a brand, velocity holds more weight than ACV for us. We would rather see a company that has built a strong and growing tribe of devoted customers than one with low velocity that has placement in a lot of stores. If a company’s product isn’t moving off the shelf, a higher store count won't compensate for a brand that isn't selling.” Lauren Ivison- Partner, Ridgeline Ventures
“In evaluating brands, our philosophy is that deeper is better than wider. What does that mean? We want to see early-stage brands focus on driving velocity and building a strong consumer base in strategic geographies and retailers. This way, they can better connect with consumers and be nimbler in how they approach sales and marketing execution. As investors who work in a collaborative, hands-on manner, this approach is all about smart, sustainable brand building that creates longer-term value for all stakeholders.” Frank Zampardi
“When looking at a brand’s initial traction, we like to see depth over breadth as measured by velocity. Depth of velocity indicates that consumers are coming back to the brand time and time again. If a brand - in a focused, narrow set of distribution points - can bring consumers back and create turns, then there is a story there that is potentially replicable. As the goal is to build brand equity, the starting block for brand awareness and a reason for being is the ability to effect and create velocity. Velocity is a metric that can empower a brand in talks with retailer partners to increase ACV based on an incremental gain selling story. Velocity reigns all, especially initially; when a brand begins to scale, that’s when it’s important to turn the conversation to expanding ACV whilst maintaining strong velocities.” Arif Fazal - Founder & Managing Director, Blueberry Ventures
If you are a founder or a team member of an emerging brand, focus on building velocity. Find the outlets that are going to provide you with the learning, consumer traction, and the story that can be leveraged as you scale.