The Cult of Celebrity Start-ups

The Cult of Celebrity Start-ups

Superstar status sells, and something as simple as etching a signature to a hot new product can usually guarantee its success. After years of selling other people’s stuff, celebrities began to come to the realisation that they are the real reason people buy these products. Actors, musicians and even athletes then decided to boost their profits by cutting out the middleman, going on to launch their own franchises.

Now, the market is saturated with celebrity produce, with fragrances and clothes being their main port of call, particularly because they require little or no interaction from the celebrity or ‘phantom CEO.’ Fragrances in particular boast incredible mark-up value, with the actual liquid content costing as little as 3% of the overall production costs. The remaining 97% is made up of packaging, marketing and distribution. It is estimated that fragrances enjoy as much as a 95% profit margin, with products such as Lady Gaga’s FAME retailing at £55.00 per 100ml.

The boom in celebrity fashion lines are also a gold-mine if done correctly, as long as you can boast A-Lister status. Victoria Beckham’s DVB brand is fast becoming one of the fashion world’s hottest brands, generating sales in excess of $95 million in 2012.

However, this example provides an exception to the general rule. Many celebrity products have low quality control and they cash in their name rather than their expertise. An example worth mentioning is the Kardashian clan’s attempt to enter the financial services with a credit card dubbed ‘The Kardashian Kard’. With excessive interest rates, sisters Kim, Khloe and Kourtney eventually backed out of their contract, claiming they were unaware of the card’s high fees. In the restaurant space, celebrities such as Steven Spielberg, Britney Spears and Jennifer Lopez have all succumbed to closure, along with the ill-fated Planet Hollywood and Fashion Café. Even Hulk Hogan’s ‘Hulkamaniacs’ couldn’t stop his Pastamania from closure.

For any entrepreneurs reading that may have considered aligning their product to a celebrity, Mark Suster, an LA-based investor who has witnessed his fair share of celebrities trying their hand at entrepreneurialism, offers a few words of warning;

“If your product isn’t amazing having a celebrity endorsement isn’t going to make it so. It’s going to get you some press buzz – sure. For 5 minutes. But customers will come to your website, realise your product isn’t amazing and will leave.

“Like many companies that launch an MVP product, you may eventually find your way and build a great product. But by then the celeb will be on to their next opportunity and you will be out of some equity. They simply don’t get the product/market fit and aren’t patient enough to stick around and help you find it.

“On the other hand, if your product rocks you don’t need a celeb to take a percentage of your company. If your product is great and you are reasonable at marketing then customers will find you. You will get adoption, the press will build authentic buzz and celebrities will use your product for free. How many celebrities have signed up to Instagram of their own accord?”

As Mark mentions, unlike the army of ego-driven celebrities trying to make a quick buck, the true winners of celebrity product lines are those who take their particular specialism and create a truly innovative product. Andre Romelle Young is a great example, better known within the Hip-Hop community and across the globe as Dr. Dre. The former rapper and internationally recognised producer has created a name for himself by creating musical tracks that have defined a generation. Unlike his industry contemporaries, Dr. Dre worked on a product line outside of celebrity convention.

Launched in 2008, Dr. Dre teamed up with a handful of partners to launch Beats by Dr. Dre, a line of premium headphones. Currently, Beats by Dr. Dre sells over 50% market share of the premium headphone industry, with a single pair of headphones retailing at $100+. As a result of the products success, Dr. Dre collected $100 million pre-tax (profit) when handset maker HTC paid $300 million for a 51% stake in the company last year.
Dr Dre’s objective from the beginning was simple – to allow the consumer to ‘hear what the artists hear, and listen to the music the way they should – the way I do.’ By focusing solely on quality, the company is regarded as a market leader in its sector and rightly so.

Following meticulous testing, Beats offer a high calibre product which is both functional and technologically superior to competitors in the market.

The producer-turned-entrepreneur is now unstoppable, with Beats technology now being incorporated into software and hardware. In 2011, HP began to offer personal computers (such as Envy laptops, its all-in-one TouchSmart desktops and its TouchPad webOS tablet) that were equipped with Beats Audio systems, featuring Beats software which is optimised for high quality sound output. The company also partnered with Chrysler, incorporating a 10-speaker Beats by Dr. Dre sound system in its 2012 Chrysler 300S luxury range.
Beat’s venture into the digital music space could also prove a winner. In 2012 Beats acquired MOG Music Network for approximately $16million, with the music sites offering of high quality audio files making it a perfect fit for the brand.

By utilising his personal strengths and identifying a gap in the market, Dr. Dre has been able to leverage his brand to create a quality-centric business with clear aspirations for the company’s expansion plans. In the celebrity battle to dominate the purse strings of the consumer, those who are able to create a viable business model by utilising their own skill sets rather than putting their stamp on other people’s is the truth path to an innovative celebrity product.