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Kevin O’Leary: Startups Will Go Out of Business If They Don’t Prioritize Online Advertising

DigiDay | Marty Swant | Oct 21, 2022

Digital advertising for DTC companies - Kevin O’Leary: Startups Will Go Out of Business If They Don't Prioritize Online Advertising

Image: Pexels/Kevin Gamba

Kevin O'Learly [has] a portfolio of more than 50 private companies — which have been increasingly direct-to-consumer since the pandemic - here's his thoughts on digital advertising today (vs 5 years ago)

  • Is it getting too expensive for DTC brands to advertise on Facebook and other platforms, especially those with low margins?
    • Yields are down because of what Apple did on privacy. Geo-locked advertising on Facebook, or Meta, is still very valuable.
    • The way to get yields up is to augment it with auxiliary data.
      • So if we’re down 28% on yield, we can get 15% of that back by combining it. So we can use Facebook in conjunction with databases from banks that we’re renting, that we can smash that data together. So we’re paying more to mine the data, but we’re getting yields back up.

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  • What about TikTok or other platforms that have attracted a lot of DTC marketers?
    • We use all the platforms. Those algorithmic changes that occur so rapidly now require specialized teams. So if we’re going to shoot something, we shoot it for five platforms. LinkedIn is different than Facebook. It’s different than Instagram. It’s different than TikTok. It’s different than Twitter. So those teams now are an additional cost, but the yields are much higher. And we measure this every day. I mean, it’s the number one spend.
  • At least 75% of my returns have come from women-based businesses
    • Women are better story-tellers — they’re better at composing the 59-second TikTok or that Insta — whatever it is they’re doing. Because if you look at the companies run by woman that are consumer goods and services, they’re doing better on the digital spends. So they focus more. And because everybody is past 50% direct-to-consumer, there’s no choice but to spend. What are you going to do? How else are you going to acquire customers?
  • When you think about storytelling and advertising, how does that change the way startups pitch you or how you decide what to invest in?
    • It’s changed the way I’m investing. If you come to me for a $1 million dollar [Series A] round, and you’re telling me you don’t know your customer acquisition cost, I can’t invest. Because the whole reason I’m giving you $1 million is you’ve figured out CAC.
      • You show me that CAC is profitable, you know your lifetime value, you know CAC, you know your attrition rate if it’s a subscription service. If you have that model nailed down and I can stress test it. And I know I’m putting a million bucks into just pouring gasoline on the fire, I’m going to do it because I can get a really good return in 18 months on that $1 million if I know I can build the user base.
      • The companies that haven’t figured that out yet are un-investable, and you’ve seen that. They’re not getting anybody to invest in them. Because if all I’m going to be doing is burning my cash while you’re trying to figure out your CAC, I have no interest.

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  • Are startups becoming more knowledgeable to navigate digital advertising?
    • If you don’t understand it, you’re going out of business. The Darwinian nature of the world today will just take that entrepreneur and they will not be in business.
    • 5 years ago:  the average distribution pie looked like this: It was 50% through retail, it was 40% through Amazon — which does their own marketing and you don’t get the name — and then 10% from a website.
    • Today:  That’s completely flipped. Most companies now invest 65% direct-to-consumer on their own platforms. So they have to have this stuff nailed down. Those are very successful companies because their margins are very high. And the return on invested cash is good. So that’s a change over the last two years.

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NCFA Jan 2018 resize - Kevin O’Leary: Startups Will Go Out of Business If They Don't Prioritize Online AdvertisingThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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