You want to launch a sub-brand. Do you build it yourself, or do you acquire someone else?
Each approach has its risks and benefits. If you build it yourself, you have total control (and 100 percent ownership), but no guaranteed product-market fit. If you acquire, you get a readymade audience, but the risks are the same as any relationship: What if unforeseen misalignment causes a breakup?
Whether to acquire or build is deeply circumstantial, and starts with answering several questions.
My company, ThirdLove, just acquired Kit Undergarments. We'd been considering a sub-brand for years, and there were a few key reasons why we chose to acquire rather than build ourselves.
Here are four questions to ask when deciding whether to acquire or build.
1. What's the opportunity cost of building internally--how much money, how much time?
Remember how long it took you to build your flagship brand? How much blood, sweat, tears, elbow grease, etc.? True, much of that effort was spent developing the operational processes to function at scale, which wouldn't necessarily be the case for a sub-brand. But it always takes time for an audience to accept a new brand, no matter how successful its sisters.
The money and time you devote to a sub-brand would be money and time not devoted to your flagship. In our case, we still felt that we were scaling our flagship brand, so we didn't want to divert that level of resources to a sub-brand. As you envision the different routes, quantifying your opportunity cost is an essential first step.
2. Can your internal team do it? If so, can they do it better than someone who's already done it?
Of course you believe in your team--they've been so effective at nurturing this brand, it stands to reason that they could spin up another one.
But a key obstacle to thinking up something new is just that: It has to be radically new. It has to align with your main brand on a values level, a human level, but it has to distinguish itself in terms of identity and audience. Your team was very effective at reaching your current demographic (in our case, Millennials in their 30s), but that doesn't necessarily mean they'll be as skilled at connecting with other demographics.
One of the main things we like about Kit is that they resonate with Gen Z. While we have a small cohort of this audience, growing that connection would take extra time and effort. Instead, we chose to help Kit maximize the already strong connection with this audience, giving them scaling resources that they wouldn't have gotten elsewhere to move even faster.
3. How easily can you integrate the brand into your ecosystem?
With an acquisition, you want to strike a balance between what you take over and what you leave to them. You don't want them to lose the creative spark that made them successful in the first place, but you also want to be sure that they look and sound like a natural member of your ecosystem.
Whether or not you can fulfill both objectives depends on a couple things. First, just like in your recruiting process, you want a mixture of diversity and alignment. Values should be aligned, and universal across your organization, but backgrounds, strengths, points of view should be varied. The same applies to acquirable sub-brands.
Second, do you have complementary strengths, and can you limit your intervention to just what you're good at? In our case, we can offer Kit operational resources--manufacturing, logistics, pricing--that they wouldn't have on their own. But we're comfortable preserving their creative autonomy; we don't intervene on product design, photoshoots, copy, visuals, etc.
4. Do you believe you can scale the acquired brand?
When you acquire a brand, you're helping it fast-track many of the challenges of scaling. Rather than courting new investors, betting on enhanced production, seeking out new hires, it can use the infrastructure that you already have in place.
Your role as acquirer is effectively an investor/incubator. Thus, the last step of the equation is: Do you believe the brand will scale, and how integral will your resources be to that process?
An acquisition is a delicate dance; a sub-brand you build is a gamble. Which route you choose depends on your business goals, your inherent strengths and weaknesses, your resources, and your values.