LAS VEGAS — Retail’s disruptors come in all shapes and sizes, from bed-in-a-box firms to nonalcoholic beer companies. But for Kevin O’Leary, an investor known for his role on “Shark Tank,” one shape in particular is no longer welcome.
“I don’t want to see another hot sauce — I can’t take it anymore,” O’Leary said on a panel at Shoptalk Spring on Tuesday. “To think that you can break into an ancient category that is hardly growing with another hot sauce — that’s a definition of living hell on Earth. … There’s so many people that think they can break into the hot sauce market. Sure, it’s a multibillion-dollar market: Every iteration of hot sauce has been done a thousand times, so please, no hot sauce.”
What does matter to O’Leary is brands that can tell a good story — and companies that have their customer acquisition costs and return on ad spend in order.
“Investors have gotten very savvy about this space over the last four or five years, and it turns out, what they look at first is, has the company figured out a way to take their story [and] build a community?” O’Leary said. “Because that’s really what works now in terms of consumer goods and services.”
Central to that is the ability to acquire customers in a profitable manner and make it sustainable, according to O’Leary. The rising costs of customer acquisition has been a key challenge for DTC brands in retail over the years, as the expenses associated with advertising on social media have grown.
“The whole deal is CAC and ROAS now because if you buy into a company that hasn’t figured out CAC — they basically go bankrupt, advertising themselves into oblivion,” O’Leary said.
One of O’Leary’s main questions to startups now is whether or not they’ve tried out television advertising, specifically because social media has gotten so expensive. According to the investor, any brand spending more than $50,000 a month on advertising should be testing television. O’Leary, in addition to being the chairman of O’Leary Ventures Management, also helped launch a TV advertising agency dubbed WonderAds last year.
“Television, in many ways, is better than social media: The person is captive. It’s that lump sitting on the sofa,” O’Leary said. “You’re not competing with scrolling up and down, doom scrolling on your phone. You’re saying, ‘Oh, I’m watching this thing. Now there’s an ad that means something to me.’ This s— works. That’s what I’m telling people. And I’m all over it — it’s almost 40% of our spending.”
Testing is also critical to success throughout the process, according to the investor, who noted in one case that highly produced ads were performing noticeably worse than more gritty ones. Even so, it all comes back to the cost equation — or at least it should, O’Leary said.
“People get so emotional in this industry about, ‘Oh, this creative is so beautiful.’ It’s all BS if it doesn’t make you any money,” O’Leary said. “What’s the ROAS on this ad? ‘Oh, we don’t worry about that — we’re brand building.’ That’s the code for ‘I don’t know what the beep I’m doing.’ If somebody tells you that you’re spending your money to build your brand and you’re not getting a really high ROAS and a low CAC, they have no idea what they’re doing. Avoid with extreme prejudice.”