Well-grounded entrepreneurs stand best chance to catch crest of coming wave

By Hank Schultz contact

- Last updated on GMT

©Getty Images - Suwaree Tangbovornpichet
©Getty Images - Suwaree Tangbovornpichet

Related tags: Entrepreneurship, Dietary supplement companies, Dietary supplement industry

The dietary supplement industry, with its low barriers to entry, is often welcoming to startup entrepreneurs. Many of these startups would have a better chance of success by having a solid foundation in the realities of the industry going in, rather than learning these in the school of hard knocks, observers say.

The old saw has it that with crisis comes opportunity. So it is with the current pandemic.  While times may hard now for many companies not directly involved in the immune health category, many observers foresee a rebound in 2021 and companies that lay the ground work now can stand to catch that wave when it is first building.

Many startups in the dietary supplement industry start with a founder’s idea, and then go straight into the contract manufacturing sphere. That’s a viable way to get into business and can provide a solid foundation, provided an entrepreneur selects the right contract manufacturer.

But having at least a rudimentary familiarity with the realities of the supplement industry can help set up startups with the best chance of success, both in choosing the right people to make their products and deciding on the best way to sell them, said longtime industry consultant Steve Hanson, who has founded a new branding and business development consultancy called Nutrasocial.

Wrapping your head around regulation

Hanson said one of the things that many first time supplement industry entrepreneurs miss is that this is a regulated industry.  Some of these businesspeople have bought the line that there are few regulations in the supplement trade.  It’s a hard and expensive lesson to learn if their negligence leads them down the path of getting an FDA warning letter.

"It's critical for a start up to understand the industry-specific regulations. A meeting with an experienced law firm covering the primary regulations, labeling requirements, allowable claims and Good Manufacturing Practices will help prevent costly mistakes and potential office actions from the FDA. In the past, there has been a perception that the industry is loosely regulated. Today, this is not the case as both the industry through self-policing and the FDA through enforcement actions are making sure the regulations are followed,” ​Hanson said.

Hanson said in addition to understanding the regulations, it’s critical for new companies to have an appreciation for the heterogenous nature of the supplement market.

Understanding the market and sales platforms

“The US supplement market is significant at over $50 billion. While the market is attractive, it's also fragmented with hundreds of companies selling thousands of products sold in distinct sales channels. It's a very different strategy to sell your product on Amazon versus selling it on the shelf at a natural products retailer. Figuring out your product's market opportunity and the most relevant sales channel is paramount to success. Appropriate market reports can be useful as background along with hiring someone with industry experience to assist in business development planning and implementation,”​ Hanson said.

Paul Jarrett, CEO and co founder of Bulu, agreed that choosing sales platforms are a key element of a new company’s growth.  Bulu is a company that sells sample boxes on a subscription basis as a way for companies to get real time information about how their products are perceived in the marketplace.

“Choosing your online selling platform and fulfillment company are the biggest decisions you'll ever make,” ​Jarrett said.

How best to be different

Both Hansen and Jarrett said having a compelling point of difference is key to the early success for any company, and perhaps especially so in the supplements industry which is awash in me-too products.

"In my experience, the number one reason a product succeeds or fails is whether it has a compelling point of difference. If your product offers nothing different or is similar to what's already in the market, you'll need to reconsider what's going to make it stand out. Product differentiation may be gained through a breakthrough technology, patents & trademarks, brand positioning, scientific studies or access to an exclusive ingredient,”​  Hanson said.

Jarrett gave a couple examples of innovative product differentiation that he has seen when working with product developers.  One was a line of supplements aimed at hunters.  Another idea focused on the cycles of the Moon and tied that in with the sales of certain plants and supplements.

“We built a Subscription Box in partnership with BuzzFeed and Scott's Miracle Grow called Lunarly. This Subscription Box, which is shipped based on the cycles of the moon, contains plants and is focused on self-care. Here's the kicker: We have health and wellness products included in the box. Had you told me a few years ago that we'd be shipping plants based on the moon cycles that sold vitamins and supplements, I would have laughed...in fact I did! But when you understand the angle is 'self-care' it totally makes sense. You don't need a complicated USB (unique selling benefit) but you do need an angle to claim,”​ Jarrett said.

Credibility seen as key to longevity

Hanson said another key differentiator in the supplement industry is credibility.  Industry stakeholders often speak of there being ‘two industries,’ namely those companies that are in it for the long haul and companies that don’t have longevity as a goal.  The assumption is that many of the problems that that can be found at the fringes of the industry — understrength products, outlandish claims, knockoff ingredients — arise from this latter group.

"In addition to being different, your company and/or product must also be credible. If you make claims, you must have the scientific support as back up. If you have a technology advantage, you better have the proof to demonstrate the difference. If your brand stands for ‘sustainability,’ you must have reasons and actions demonstrating that it's sustainable. Making your brand believable is key part of product positioning and doing it effectively over time creates enduring market success,” ​Hanson said.

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