In early 2012, I made the case to Co.Design’s readers that venture capital firms should incorporate a more comprehensive awareness of brand and design into their investment decisions. It seems that my assertion was not so far-flung. In the months since, some of the more forward-thinking firms in the venture-capital world have demonstrated a growing awareness of the impact of design. Google Ventures expanded its internal studio to support design initiatives for its startups. The venture-capital firm Kleiner Perkins Caufield & Byers launched the Design Council and Fellows Program to connect startups with talented students who will in turn be mentored by top design talent. Phin Barnes and the team at First Round Capital & IDEO began hosting "Design + Start-ups," a running series of events where speakers address design philosophy, technique, entrepreneurship, and more.
These tactical steps are sure to improve overall design, particularly the user interface and user experience (UI/UX) of the products offered by the firms’ portfolio companies, while also expanding the firms’ networks within the design community.
While these efforts should be applauded, there remains an even greater opportunity for venture capitalists to add value to their portfolio companies by sharpening their focus on brand. By "brand," I refer not just to a new logo or identity but rather a company’s strategy, positioning, personality, story, and all other expressions thereof. While design is largely tied directly to a product (be it physical or digital), brand extends well beyond the frontiers of what is being produced, into environments and entire communities.
As venture capitalists look to history as a guide, I predict that we will soon see these firms incorporating in-house brand expertise into their overall roster of disciplines. Consider the trajectory of companies in the industrial age. An entrepreneur creates a product: Henry Ford the Model T; Thomas Edison the light bulb. At the outset, the product is the end in and of itself, and the manufacturer’s focus is on refining the product (read: engineering) to improve its functionality, efficiency, and cost effectiveness. At some point, however (often in conjunction with the onset of competition), the manufacturer realizes that by also focusing on qualities other than simply how the product functions, it can add value — rendering the product more aesthetically and experientially compelling and distinguishing it from rival offerings. It is at this point that the company incorporates design into its overall product development. Once the product is strong enough in terms of both function and design, the company focuses on brand to further engage its consumers.
The same trajectory will increasingly hold true for companies in the information age. With most of the "new" products for this era now well established (search, social networking, e-commerce), even early and middle-stage technology companies are placing a tremendous emphasis on design, mainly in the form of improved UI/UX in the development process. Indeed, these companies have made the leap to this secondary stage at a greatly accelerated pace vis-à-vis their traditional counterparts. And venture-capital firms have responded, adding design experts to their teams in order to better support their portfolio companies. Google Ventures went so far as to document its process, known as their "Five Day Sprint," in a recent series of videos.
Johnson & Johnson offers an instructive counterpoint to Instagram’s experience. From 2009 through early 2012, the company recalled over 10 of its leading consumer products, including Children’s Tylenol, Extra Strength Tylenol, Aveeno Baby Lotion, Motrin IB, and Rolaids. But because Johnson & Johnson is such a trusted brand, the recalls had little impact on its bottom line. Indeed, J&J’s fourth quarter results for 2012 exceeded expectations.
Brand can also add value in the information age by positioning companies to move beyond their core products or services. Take the example of Fab vs. Gilt. Both are highly successful online retailers operating on a flash-sale business model that offers products for a limited period at discounted prices. Fab is focused on design products and has grown parabolically since its launch in 2012. Gilt offers fashion, food, travel, and lifestyle deals and was growing at an equally rapid pace until its sales plateaued at $600 million in 2012.
However, while Fab has placed a tremendous emphasis on crafting a coherent and consistent brand that transcends its product, Gilt has taken a reactive approach to branding that has ultimately proved confusing to users and has diluted the brand’s value. Whereas Fab’s brand transcends its product, Gilt’s remains inextricably tied to what it is offering. In keeping with its brand emphasis, Fab has announced that it will be launching its own line of products later this year—a move that will generate an entirely new revenue stream for the company. Such a move is only possible because of the strength of Fab’s brand, which will give its products, if well designed and produced, an outsized chance of success. Gilt could similarly benefit from the revenue growth a branded product line would bring, but such a project would be hampered by the company’s inability to commit to a specific (and thus powerful) brand identity.
The majority of venture capital firms today remain committed to bringing in outside brand experts on an as-needed basis. But such an approach is tantamount to crisis management—a reactive approach to branding brand problems only after they have become manifest, which then often serves only to weaken the brand further. By contrast, a proactive approach that anticipates potential branding brand issues and crafts a strong identity with an eye toward those challenges will generate brands with greater resiliency and scope, thereby making the concerns that inevitably arise that much easier to navigate. Venture capital firms would be well served by bringing brand experts on staff full time to identify and address the brand challenges that their portfolio companies face before they rear their ugly heads.
[ILLUSTRATION: Business via Shutterstock]