How Influencer Businesses Actually (Don't) Work

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 DrDr had Beats  by Dr 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 MrPaul  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.