How start-ups have used Instagram to build $1bn businesses

A woman’s manicured hand clutches a glass filled with a clear liquid poured over ice, her first and middle fingers each adorned by two sparkling gold rings.

“Two finger ring stacks are in. Millennial pink is basic. Ugly shoes are money. Juice cleansing is dead. U follow?,” reads the photo’s caption.

It is just one of Dirty Lemon’s more than 3,000 posts on Instagram, the social media platform that has been key to the direct-to-consumer beverage brand’s growth.

“I have an order issue,” wrote a customer in the comments.

“Checking now x,” responded Dirty Lemon, whose products include a “collagen beauty elixir” and “charcoal daily detox”.

Dirty Lemon, whose parent company Iris Nova raised $15m in seed funding at a valuation of $60m last December, is just one of dozens of start-ups that have leveraged Instagram’s 1bn users to build their businesses. Larger examples include beauty brand Glossier and mattress company Casper, both of which became “unicorns” last month, after raising another $100m each.

As more companies have embraced social media marketing, the photo-sharing app has become a nexus of branded marketing, with millennials browsing the latest fads and a large number of so-called “influencers” peddling products.

Last month, in an effort to harness these new networks, the Facebook-owned platform said that it was launching a shopping feature that will allow users to buy products directly from the app. With Instagram checkout, merchants will be charged a “selling fee”, calculated as a percentage of each transaction.

Creating an Instagram page that displays a gallery of products remains free. But paid-for advertising on the platform has become big business since it launched in 2017: eMarketer forecasts that Instagram will make up 6 per cent of global mobile ad spending this year, and a fifth of Facebook’s ad revenues.

“Brands have gone all in on Instagram,” said Alexa Tonner, cofounder of social media marketing agency Collectively, pointing to the beauty, wellness and fashion sectors, in particular.

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She added that Instagram’s simple, visual layout — a rolling feed of images as well as individual user galleries — makes it well-suited to advertising. The opportunity for unmediated communication between brands and users has also allowed early-stage direct-to-consumer businesses, such as personal grooming brand Dollar Shave Club, to develop personal relationships with customers.

Dollar Shave Club, which grew its following by posting tongue-in-cheek photos of bearded men posing in steamy bathrooms, raised $165m from venture capital firms over four years. In 2016, it was bought by consumer goods company Unilever for $1bn.

Dirty Lemon founder Zak Normandin said Instagram was “critical” to his firm’s early growth. In 2015, the health drinks company launched using only an SMS-based ordering service and Instagram account to build an audience. Mr Normandin said the company grew its following “quickly and organically” using free and “relatable” posts.

Relatable — for a company that charges $65 for six bottled drinks — includes Instagram posts of bikini-clad women holding Dirty Lemon drinks with captions such as “let’s pretend for a moment we’re on boats in mykonos or whatever” and “my life is nonstop, running from meetings to the studio to travelling to throw a party”.

In 2017, the company became one of the first to pay for advertising on Instagram, and was at one stage spending $30,000 a day on the platform to build a customer base.

While it does not disclose revenue or profit figures, Dirty Lemon said sales had doubled every year since 2015 and were expected to increase by 250 per cent in 2019.

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Meanwhile, Casper’s chief marketing officer Jeff Brooks said Instagram had been “integral” to building awareness of the mattress company, and for cultivating “a community where we can connect and engage with our customers”.

Its posts include photos of people and small dogs swaddled in duvets with captions such as “emotional support pillow” and “if you’re reading this, go to sleep”.

Debra Williamson, an analyst at eMarketer, said that for early-stage companies looking to develop a following, Instagram has helped provide a “level playing platform” because it shows users the posts and ads it thinks they will like most, rather than those from the biggest brands.

But Mr Normandin argues that the rising cost of advertising on Instagram has reduced its “value as a marketing platform” for small businesses. The cost for Dirty Lemon to acquire a customer on the platform rose from around $30 in 2017 to more than $100 at the end of 2018, he said. Instagram declined to comment.

According to researchers at AdStage, the median “cost per click” to advertise on Instagram fell 80 per cent to $0.83 year-on-year in the fourth quarter of 2018 — though the platform’s median click through rate also jumped 121 per cent to over 14m clicks.

In the same period, the cost per click was highest on LinkedIn and YouTube, at $3.72 and $3.61 respectively, compared to $0.57 for ads on Facebook’s news feed and $0.40 for those on Twitter.

Ms Williamson of eMarketer said brands could still build a following for free on social media if they “create great content and gain buzz”. This is easier to do on Instagram than on Facebook, she added, since Facebook’s updated algorithm makes it “much harder” for businesses’ posts to automatically appear in a user’s feed.

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But as competition intensifies, some brands — including Dirty Lemon, which once advertised solely on Instagram and Facebook — have ceased to advertise on social media altogether.

Instagram has become “cluttered with brands pulling for customer attention”, Mr Normandin said. “If we were starting from zero right now, we wouldn’t start on Facebook or Instagram.”

This article has been amended to reflect that Dirty Lemon’s parent company Iris Nova raised $15m in seed funding at a valuation of $60m last December.



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