influencer run businesses are a multi-billion dollar industry but they are usually a terrible
investment for everyone including the influencer [Music] Prime energy
Ryan Reynolds is best known for his on-screen performances but behind the
scenes he is ruthless venture capitalist with two nine-figure exits under his belt before
the age of 50. in 2018 Reynolds acquired an unspecified minority stake in aviation Gin
from Davos Brands a new york-based distributor that had purchased the brand in 2016 from house
Spirits distillery in Portland the stricken Aviation gin make you feel like a superhero
I wouldn't know
Reynolds used his star power to promote the gin and drive sales from 15
000 cases a year to 96 000 cases a year according to the financial services firm
Jeffries and then we had our children and that's when I realized that I love gin
the liquor Market is dominated by well-established brands that customers show a high degree of
loyalty to the market for alcohol in America has also stagnated with younger consumers choosing to
drink less or not at all as a healthy lifestyle choice or a way to save money in a declining and
rigid Market a 540 increase in sales over just three years is a clear sign of how effective a
dedicated influencer-led marketing campaign can be the liquor giant diagio that already
owns Brands like Johnny Walker Smirnoff Bailey's Captain Morgan and their own gym brand tank array
recognize the potential and purchase Aviation gin outright in 2020 for 610 million dollars
um well I love uh marketing Reynolds followed up his success by purchasing a reported 25 stake in
the Telecom startup mint Mobile in 2019. he repeated the process of promoting the company
to his audience to increase the customer base and then sold the company to another Legacy industry
giant T-Mobile for over one and a quarter billion dollars which with Renault stake should net him
over 300 million dollars before taxes in just five years Reynolds was able to leverage his Fame to
make north of half a billion dollars on top of the money he made from his day job as an actor I
think I think I can now say that I've done pretty well in the business I mean you know Reynolds is
just the latest celebrity to make headlines for selling their business to a big company for a
ludicrous amount of money George Clooney had his own tequila company that he had also sold
to diagio for a billion dollars Dr Dre had Beats by Dre and Jay-Z had title that he sold to block
for 302 million dollars celebrity businesses are nothing new but the rise of the internet
influencer is making them a lot more common social media influencers can't monetize their
audience's attention as effectively as traditional celebrities that make music movies and TV shows
because there's usually no direct cost to access their content when you see a tweet or an Instagram
post from one of your favorite celebrities showing off the good life with a cool outfit a new beauty
product or a beautiful vacation spot there's a chance the star has a good reason to tell
you about it money someone who pays to watch or listen to content is is always going to be
more valuable than someone who watches for free YouTubers can run ads through Google AdSense and
have dedicated video sponsors but at current ad rates across the platform a Creator would need 5
000 people to view their video to generate as much revenue as just one movie ticket sale YouTube is
also the most monetizable of influential platforms Instagram Tick Tock and Facebook do offer ad share
programs with creators but the rates are usually a couple of cents per thousand views a tick tocker
would need more than a million views at that rate to make the same Revenue as one movie ticket I
understand that this isn't a one-to-one comparison movies are feature length not 60 seconds or less
and movies have large production and marketing budgets but making content isn't free and
independent creators are spending more and more money to stand out in the increasingly competitive
Marketplace for attention so influencers have gotten to the business of business the model is
simple an influencer will promote their product which gives them a Competitive Edge over other
businesses that need to pay for traditional marketing campaigns infos or businesses only
work in high margin consumer focused products that typically have large marketing spends Like Liquor
fashion cosmetics and fast-moving consumer goods Gatorade spent 59 million dollars on marketing in
America in 2021 according to company filings If Logan Paul and KSI can get similar Market
recognition without spending that kind of money on traditional advertising they will have a business
that is far more profitable and valuable business to business products and products that don't rely
on large advertising spends gain much less from being run by an influencer because their business
Edge is the free advertising they offer if you study this space for long enough you will realize
that there is not much Variety in influence your business is and that's just the first problem out
of four so it's time to learn how money Works to find out why influencer businesses are terrible
Investments even when they are worth billions of dollars this video was made possible by HubSpot
in this video I'm narrowing in on one very specific part of the Creator economy but
there's so much more to it and there's a report that I suggest that you check out the business of
creators report by HubSpot I've put a link to it in the description for you to download for free
this is the report to understand the Creator economy and it Dives deep into the business
models of content creators what motivates them to create content how they grow as content creators
and how they make money I've learned a lot from this report even as a Creator who has a decently
sized audience for example did you know that about 59 of content creators found consulting
or coaching to be their most profitable way to make money well I didn't and there's a lot of
things that I'm learning from this to improve my own little content business for both how money
works and how history works by the way they take data from over 300 marketing and business specific
content creators and how they operate their businesses so you know it's packed with real
insights if you're a Creator looking to become one or just interested in this video topic I'd highly
recommend this free resource there are report was made by HubSpot which is today's sponsor
the first problem with influencer businesses is that they are only as good as the influencer
themselves companies built around an affiliation with one individual have a single point of
failure which makes them a risky investment if the influencer steps back from the business the brand
loses its free advertising and its Competitive Edge when Reynolds sold his share in aviation gin
to diagio part of the deal was a 10-year earn out for him to remain on as a media spokesperson and
maintain the performance of the brand diageo's M A Team knew if they lost Reynolds the brain
would become just another premium gin in a highly competitive shrinking Market it can be even worse
if the individual decides to go full Kanye and publicly destroy their reputation if a brand is
aligned with the image of an individual person it's essential that their image stays desirable
Adidas was left with 1.3 billion dollars worth of unsold Yeezys after their split with West but
let's say it doesn't get Kanye level bad even the influencer businesses have a shorter than average
life cycle just the success of an influencer's business can make their fans unhappy because
nobody likes being advertised too and the cultural stigma of selling out can turn their fans against
them this is more common with certain types of celebrities particularly music genres that
Pride themselves on their Counter Culture image Ryan Reynolds received substantial fan backlash
after his part in selling mint to T-Mobile fans liked the low-cost product but they also liked
the alternative to traditional cell carriers which are some of the most hated companies in America
alongside the Weinstein Company EA and Monsanto fans were sold on this alternative by someone
they trusted and Reynolds used that trust to make 300 million dollars by selling it to the bad guys
finally Gonna Fill whatever hole I have inside my soul which possesses me to emphasize external
success over quieting an inner child futily craving some sort of illusory acknowledgment
from my now deceased father it's not just the fans that lose out here Reynolds himself could
struggle to repeat this business plan again after losing favor with his audience the company can
also suffer a large Telecom company buying a small Telecom company happens all the time and
usually their customers never even know what happened but Reynolds involvement made it big
news and people are leaving mint just to make a point Reynolds was only a minority shareholder
in both of these companies so he may not have been able to stop their Acquisitions even if
he wanted to and that's problem number two with influencer own businesses the influencers don't
own them Logan Paul and ksi's Prime energy is majority owned by a distribution company called
Congo Brands the professional internet idiots each own 20 of the business and the other 60
is controlled by the distributor bringing a food and beverage product to Market is a very difficult
process the brand needs to get FDA approval find a producer and work with distributors in
dozens of countries I am sure that Mr Paul and KSI are very smart men deeply down but
even if they did have the skills to manage such a difficult product rollout it would consume a lot
of their time as businessmen their time would be better and more profitably spent screaming
into a microphone getting punched in the face and selling nfts to their impressionable young
audience using a company with experience to make an upfront investment and handle the operations
was a good deal for the duo most other influencer businesses use experienced Distributors to handle
their products I will use myself as an example for some self-serving promotion I recently launched
my own merch shop to give people a fun way to support the channel instead of finding my own
suppliers and setting up a warehouse I just signed a distribution contract with spring
they handle the website hosting manufacturing payment processing and distribution for a cut
of the profits on whatever I sell so this hoodie made some YouTuber six dollars is the whole truth
I knew this was a risk if the supplier drops their quality standards people wouldn't blame them they
would blame me if the influencers don't own the company selling what is supposed to be their
products they can lose control of their Brand's Direction and end up contractually bound to a
product they no longer support or being forced to provide positive PR for decisions they were
against in November of 2010 the Kardashian sisters announced that they would be launching a prepaid
debit card called the Kardashian card the card was a horrible Financial product it came with
numerous fees including 99.95 sense just to open an account it also came with a monthly fee of
7.95 cost six dollars to close if you don't use the money that's in there they actually
deduct it or they they charge you and featured a two dollar charge if the customer tried to pay a
bill online the sisters were not the ones that created the card offering in the fee structure
they outsourced that to University National Bank but they were the ones dealing with the bad press
the third problem with influencer businesses is that there are too many of them new social media
platforms are giving attention to a lot of people that can't easily monetize their Newfound Fame
since influencer driven Brands only work with a handful of product categories in a small number
of markets influencers are starting to compete with other influencers it would be difficult to
find a beauty influencer with more than a million followers that doesn't have their own Cosmetics
line or a finance influencer without some course on how to flip houses or day trade Forex
if more influencers enter these markets they risk saturating their customers for choice and pushing
them back to brand name products some customers will even seek out products that are not aligned
with any celebrity or influencer because they want want to avoid celebrity culture and because they
think celebrity-backed products are inferior to traditional branded products problem number four
is that influencer products are usually worse than other Market competitors most businesses
fail and most products brought to Market are not as good as existing products that have remained
popular for a reason most businesses are not founded by a celebrity therefore the chances of
a good product that would beat existing products being founded by a celebrity are very slim unlike
bad products that don't have inbuilt celebrity endorsements an influencer product won't just
simply fail influencer products at higher price points can be kept Alive by good marketing Beats
by Dre used to be the market leader in premium headphones and portable speakers the recognizable
design was popular with music enthusiasts that wanted a good headset but weren't sure how to
find one what sounds good is subjective so a product developed by one of the biggest music
producers in the world was an attractive option Beats headphones were on average 50
percent more expensive than similar offerings from Bose Sennheiser and Sony the products
also suffered from poor build quality and add balancing profiles that emphasize bass which the
average beats buyer mistakes for a premium sound beats still outsold the existing Brand's 10-1 in
2006 and 2014 when it was acquired by Apple for 3 billion dollars the heavy-handed marketing of
Beats products has backfired today because most image conscious music employers don't want to
be seen wearing them because the fact that they are an inferior product sold to impressionable
people with too much money is well known beats now has similar sales revenue to product focused
headphone producers Bose and Sennheiser have become popular with the same customers who have
abandoned their bright red beats because these brands are now seen as the choice of enthusiasts
that know more about music and sound quality than you do Apple probably doesn't mind since
its self-branded headphones now dominate the market of people who just want something to
listen to the fifth reason that influencer brands are bad for everybody is because Business Leaders
should be boring to find out why go and watch my video on how good CEOs should not be Visionaries
a special thank you again to HubSpot for making it possible for everybody to keep