Lanin Labs: The underestimated online business? #DHDL

Many founders who present their products on ‘Die Höhle der Löwen’ have a clear target in mind: retail.

In addition to Ralf Dümmel, who is probably rightly nicknamed ‘Mr Shelf’, there are several other lions who can help start-ups place their products in the retail sector. Judith Williams has also proven this on several occasions, and her good connections to a large drugstore chain are well known. However, in the case of Lanin Labs, she was not at all impressed by the founder’s focus on retail and had completely different ideas. How did this come about?

Especially at the beginning, it is important to choose a distribution channel for your product that allows a certain degree of scaling quickly. However, an important limitation here is the available resources. For example, how much pre-production you can handle financially and what logistics efforts you can make.

However, the trade usually requires certain minimum quantities, which are often simply not affordable for start-ups. This is why the lions provide the often-named ‘working capital’, which is often not a matter of course for investors outside the cave.

But the lioness of the first hour, Judith Williams, certainly does not shy away from this. However, before she explained her reasons in more detail, the discussion about production costs and sales price gave the first clues. The current retail price of 60 euros for 30ml was already considered very expensive by the lions, and the target price of 50 euros mentioned by the founder was not convincing, especially for the two commercial lions Ralf Dümmel and Tillmann Schulz. The latter had written 29.95 euros as a realistic target value in his book.

Although the founder did well and replied that smaller units could be the solution to achieving this price, she was still unable to convince the two lions, who still did not see the product as particularly promising for retailers.

This is another component that start-ups should take into account: the large retail chains in particular have a lot of experience of what sells and what doesn’t, depending on the product category, and therefore usually don’t even give products with the supposedly ‘wrong’ price a chance.

In order to get into retail, you also have to adjust your price – and perhaps betray your positioning strategy. Sure, the reward could be a wide reach and many sales, but are they really worth it?

Because what has not yet been discussed and is unfortunately still disregarded or at least significantly underestimated by many founders are the costs of the respective sales channel. This is because the costs required to acquire a customer, i.e. the respective customer acquisition costs or CAC for short, can vary greatly.

If you now assume that no additional marketing needs to be done for retailers – which is a little optimistic for a completely new product – you still have the retail margin that needs to be calculated for this sales channel. This is easily one third to one half of the product price. For a beauty serum costing around 30 euros, this is at least 10 euros, but start-ups in particular often have a worse negotiating position and pay significantly higher retail margins.

Online, however, it depends on the efficiency of the marketing measures, and you could even end up below this. But in eCommerce there is another very important effect that is often underestimated: Here you are not tied to the retail prices and can choose your positioning freely. If you then find a target group for which the product is precisely tailored and which is willing to pay more, you can sell the same product for €50, for example, so that even CAC of €15 or €20 would still lead to better revenue per product than in retail.

And in the case of Lanin Labs, beauty expert Judith Williams emphasises very clearly that she sees some advantages in online sales, as the precise targeting options give you the best opportunities. For example, you can very precisely target customers who are 35 years old, wear red nail varnish, gold hoop earrings and eat their muesli with oat milk.

Above all, this means less wastage, as is the case in retail. This gives you the chance to sell higher-priced products with reasonable marketing expenditure, which would probably not stand a chance in retail.

And even if her more detailed explanations here most likely fell victim to editing, she will have considered the Lanin Labs serum to be such a product. After all, the number of women with very melanin-rich skin who are willing to spend more money on higher-quality cosmetics would probably be much better and more effectively targeted online than in stores, where the product is unlikely to appeal to many fair-skinned women.

With a purely online strategy, the start-up would probably have a good chance of achieving a decent margin even at an early stage and therefore a good chance of scaling up quickly.

Despite the slightly different view of the sales focus, all the lions are enthusiastic about founder Azuka, especially Judith Williams, but in the end she drops out due to the very low sales figures so far. A turnover of €5,000 in 11 months seems too high a risk for her.

Although the founder emphasises that she has achieved this so far without a single euro of marketing budget, this is not always positive, as there is no information about the aforementioned CAC. This is because these could also be significantly higher and really eat up the good margin.

Fortunately, the founder is optimistic and leaves the cave without a deal, but with some ‘homework’ that, regardless of which sales channel she ultimately chooses, will hopefully lead to the desired success for the likeable entrepreneur.