How do you scale a physical product?

It’s been two years since I started More Labs, a CPG startup behind Morning Recovery. Prior to that, I worked as a product manager at Facebook, Uber, and Tesla where I focused primarily on user growth.

While I built experience scaling consumer tech products to the masses, it hasn’t prepared me to grow Morning Recovery. Below are key lessons I learned about scaling physical products through my transition into the CPG world.

This is a summary taken from Q&A hosted on Blind.

More Labs’ products

Distribution is king

When you build products at large consumer tech companies like Facebook, you tend to take distribution for granted. There is a dangerous mindset that if you build a great product, customers will come. This is false.

I think the most difficult part of scaling a product, especially in CPG, is scaling its distribution. Take a look at everyday product you use; a toothpaste for example. You’re likely purchasing a brand because of its superior distribution. It’s available where you’re trained to purchase them. You can walk into stores and it’s right on the shelf at eye-level while its competitors aren’t.

This is not to say the product isn’t important. You need a good product, but it needs to be plugged into the best distribution channels to win. It needs to appear in front of you when you need to buy them. Better products with inferior distribution end up failing to scale. The challenge is figuring out how to distribute a physical product when you don’t have the usual growth levers common in consumer tech products like network effect, virality, etc, which are often plugged into the core product experience.

At a high level, this starts with getting your product available where people expect to find them.

Do you purchase Colgate toothpastes?

Find a product/channel fit

In the case of Morning Recovery, we started out as a DTC brand like everyone else. Soon enough, we realized people expected to purchase Morning Recovery next to where alcohol is purchased/consumed. This made sense since the intended use case of Morning Recovery is when you drink alcohol. This is why it was important for us to keep our product in a beverage format that you could consume as a mixer/chaser/pre-drink; perfect for its use case.

We learned that we had to go offline, but where would we start?

This is where my experience as a growth product manager helped. My previous job boiled down to [A] understanding the goal, [B] building hypotheses, and [C] rapidly testing against them. Our team would double down to execute against winning opportunities throughout this iterative process.

In the case of Morning Recovery, we took the same iterative approach. [A] Our goal was growing retail sales. [B] Our early hypothesis was that selling into channels that sold alcohol would perform the best given their natural incentives. [C] We tested selling into different channels to notice if there were clear winners. As we identified channels with highest sales velocity, we started to double down on them. We continued to experiment by expanding the set of variables we wanted to test within these winning channels. These including pricing, merchandising, promos, shelf location, etc. We were essentially doing series of experiments to identify the the highest throughput channels and a set of behaviors within those channels that drove retail sales.

Clear winners came out to be convenience, alcohol, and drug stores. Getting into these channels, and driving sales velocity became organic and easier than other channels. Fast forward nine months into our retail program, we’ve expanded into channels such as CVS, 7-Eleven, and Total Wine.

Examples of Morning Recovery displays next to alcohol

Build leverage to attract wholesale distributors

If you are distributing through retail, you are most likely to end up working with distributors to scale. What we learned though is that going after big distributors and chains early on is a waste of time. You simply don’t have leverage as a new brand.

Instead, I think it’s better to generate signals that you are a hot, up and coming brand that distributors should pay attention to. You want to have them knocking on your doors, not the other way around. This is critical because every distributor will want to negotiate their own unique terms with you. You need to build leverage.

The best way is to generate sales. If you can generate sales without distributors, you are generating a clear signal. In our case, we did this through e-comm and through independent stores (handful of channels). Next best thing is building an engaged community that swear by your product. A loyal customer demanding a store to carry your product becomes your best salesperson. One important factor is to focus on building a niche, but highly engaged community. When you have limited resources, you want to focus on going deep to build engagement instead of spreading yourself thin. Density is important in retail.

There doesn’t seem to be a magic formula here, but a combination of sales and engaged community (real tractions) have worked the best for us in securing distributors early on. Rest became noise.

PS — Even if you have a personal rolodex to get your brand plugged into major chains early on, this is a bad idea if your brand awareness is not up to speed. Your products sit on shelves, and you have angry stores and distributors who won’t reorder from you.

More Labs started out as an e-comm store

LTV is your primary metric

Ultimately, your measure of success in scaling comes through maximizing customer LTV. This breaks down into achieving:

  1. Increasing AOV (make a lot of money per order), and/or
  2. Increasing retention (get customers to come back to buy over and over)

While you can add tactics to increase LTV, its upper boundary is often tied to the product/market fit. In the case of Morning Recovery, we were already charging customers $35 for a 6-pack online, a fairly premium price for the category. We could charge people more, perhaps increase our AOV a bit, but the upside would have been limited. We had to increase e-comm LTV through higher retention. We doubled down through subscriptions, and it makes up more than half of our online sales today.

Even then, there was an upper boundary. Our best customers subscribe to Morning Recovery often quarterly, not monthly. Others purchase more sporadically based on drinking events like weddings, bachelor parties, etc. It didn’t make sense to scale our business indefinitely through e-comm only if we couldn’t produce MoM retention like Dollar Shave Club. Our LTV was capped. Drinking, we learned, is often a serendipitous event. Morning Recovery had a large, intent-driven purchase opportunity by being next to alcohol sales/consumption. Sales velocity in these offline channels generated higher repeat orders/retention from wholesale distributors than e-comm customers. Our AOV was also multiple times greater (a pallet vs. 6-pack). Interestingly, our retail presence has started to push e-comm LTV; it’s acting as earned media for e-comm.

Ultimately though, whether in retail or e-comm, it comes down to finding a fit to maximize LTV.

Your hero product becomes the content

Eventually it becomes more important to churn out great content in high quantity and speed than it is to produce and improve the physical products you are selling. When’s the last time Red Bull launched a new product? Remember that it’s still a $20B+ company.

All great products eventually get commoditized in the CPG world. Think of energy drinks. It’s hard to differentiate them at the product level. This logic applies to all other consumer brands. Nike shoes are good, but so are all other running shoes. They get made in the same factories in China. So how do they differentiate to increase market share? By being on the top of people’s mind, appealing to their emotions/wants, and mastering earned media. I mean this is basically what branding is. Personally though, branding is such an abstract word that it’s hard to optimize against it. Instead, I think it’s better to focus on optimizing for content creation. Your hero product is your content. What you sell almost becomes secondary, eventually.

Red Bull as a media company

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EIR @hashed | sisun.co