TLDR: Good brands know what they do and don’t bring to the table.

You’ve just met your dream girl at a party.

She’s a billionaire heiress, a Michelin-star chef, and has a Netflix comedy special.

You finally have a moment alone with her.

This is your chance to impress her and show you are the ideal partner.

What do you say?

Well she’s a funny, rich, chef.

So you tell her a couple of real zingers and bring up your grandma’s famous enchilada recipe, before subtly mentioning that you recently got a raise at work.

Now you can add track athlete to her list of accolades because of how fast she ran away from this conversation.

You, my friend, just made the same mistake I see from 80% of the consumer brands I come across.

Hot Take: Maybe meet a need?

In an industry like spirits where success comes through M&A, value should always be viewed through the lens of that potential future partnership.

Back to our example above:

Your jokes might be funny, but not as funny as hers.

Your enchiladas might be tasty, but she’s got Wagyu dry aging in her cellar

What incremental value do you bring to her life?

zero.

So what’s the consumer brand equivalent I hear all the time?

“We have distribution in 32 states, and are adding 5 next year!”

Strategic buyers already have the distribution. They already have national alignment with the big distributor.

They don’t need it and they darn sure aren’t paying a revenue multiple for it.

One of the biggest red flags I see in an investor deck is they are using the proceeds to “expand distribution”.

Having more distribution is not inherently a bad thing, but there is an opportunity cost of the time, money, and personnel that could be invested in something that a buyer cares about (and will pay for)

Strategic Buyers Do Need Small Brands

The good news is that the strategic buyers do have needs they can’t meet themselves.

General rule of business: Big companies suck at innovation.

It’s in their DNA to suck at innovation (HBR Article) and when they try, it usually ends up with a lot of wasted money.

In theory, startups shouldn’t work. The big guys have every advantage in money, knowledge, people, etc.

Yet in every industry, startups first spank and then get bought by their much better-resourced cousins.

Buyers need to meet the ever-changing needs of the consumer. Startups can listen and iterate at a pace that no large corporation can match.

So what should a spirits brand focus on and what should an investor look for?

Winning the customer.

How do you practically measure that?

1. Velocity - Anyone will try something once. You’ve won if they keep coming back.

2. Margin - If you really are meeting a need better, then customers will pay more.

That’s what strategic buyers need and what they will pay the big bucks for.

Getting more sales and distribution is just about building a statistically significant enough dataset to show that the velocity and margin aren’t a fluke or a regional niche.