How Influencer Businesses Actually (Don't) Work

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Edited By: Andrew Gonzales

Music Courtesy of: Epidemic Sound

Select Footage Courtesy of: Getty Images

All materials in these videos are for educational purposes only and fall within the guidelines of fair use. No copyright infringement intended. This video does not provide investment or financial advice of any kind.

#business #howmoneyworks
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Influencer run businesses are a multi-billion-dollar industry, but they are usually a terrible investment for everyone including the influencer. Ryan Reynolds is best known for his on-screen performances but behind the scenes he is a 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. 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 Jefferies.

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 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 Diageo that already owns brands like Johnnie Walker, Smirnoff, Baileys, Captain Morgan and their own Gin brand Tanqueray recognized the potential and purchased aviation gin outright in 2020 for six hundred and ten million dollars. Reynolds followed up his success by purchasing a reported 25% stake in telecom start up 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 one point three five BILLION dollars which with Reynolds stake should net him over three hundred 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.

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 also sold to Diageo for a billion dollars. Dr Dre had beats and Jay-Z had tidal that he sold to block for three hundred and two 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 audiences attention as effectively as traditional celebrities that make music’s, movies and tv shows because there is usually no direct cost to access their content. Someone who pays to watch or listen to content is always going to be more valuable than someone who watches for free. YouTubers can run ads through googles AdSense and have dedicated video sponsors but at current ad rates across the platform a creator would need five THOUSAND people to view their video to generate as much revenue as just ONE movie ticket sale. So, influencers have got into 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. Influencer 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 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 influencer businesses 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.

[Stef.Cata]

As a personal rule, I never buy products promoted by influencers, if I considered buying a thing and I see it promoted I immediately go to the next choice

[SmokeSP]

Influencer backed companies are good at marketing, not at making great products. Don't buy marketing.

[parsafarjammusic]

Honestly, I think the less you know about a company's CEO or Founder, the better. If a company is heavily cashing in on the big man/woman behind the whole thing, it may be trying to hide a flaw in its core business model. There are many examples of this I can think of, but the best one by far is Theranos and Elizabeth Holmes.

[Neophobic]

As someone who believes that they can see through marketing, I've always been blown away by how easily people are made into consumers. I got into the wrong business...

[danielhale]

The goal of celebrity marketing is to take something that is objectively worse and convince you to buy it anyway. If you want something good, get the product that doesn't have to use celebrity recognition as a crutch.

[LRosieB]

There’s another class of influencer marketing that you didn’t mention. I’ve seen plenty of channels that use their platform to advertise their small business and create a fan base. These are often highly skilled professionals who want to show off their trade. They own and run their business themselves.

[jamesodell]

I fit into category #3. I do not buy products with someone's name on them because I can always find better quality at a lower cost.
I really hate the word "influencers".

[majorfallacy]

I like that british guy whose business is talking about swords and selling them. Probably not super profitable but he's found a niche with no competition (or rather he's always been in it)

[NerdishGeekish]

It still baffles me that the concept of an "influencer" actually exists. Like I just can't imagine a public figure whose only purpose is to sell shit to their audience, and said audience only tunes in to be told what to consume.

The modern world is a whole other kind of wild, man!

[luongmaihunggia]

I don't think the video is supposed to abruptly end like that at 12:52

[.]

Influencer marketing is kind of fascinating because it’s so heavily based in an innate desire to trust and believe other people. Really enjoy learning about behavioral economics and how biases and other psychological factors affect decision making.

[craigmak]

I have always instinctively avoided products that are heavily endorsed by a celebrity. I always considered them to be inferior. I figured it was because the money they gave to the celebrity for marketing would have made the product better.

[ZeketheZealot]

Listen, i dunno if it was on purpose, but cutting the video a few seconds into your sponsor spot at the end was genius and really, REALLY funny

[jerrykreutzer]

You gotta love how no one in the comments is ever affected by ads and marketing.

[jakebolling]

Glad someone finally said it. Tired of every fitness instagrammer making a clothing brand…very likely they just found some supplier, slapped their label on it, and are monetizing their die hard fans. Very unlikely that the quality beats any traditional fitness apparel brand. Everybody has to make a buck, but the saturation absolutely does just push consumers to traditional, non-influencer products.

[NixonYusa]

Your points on Beats by Dr. Dre is spot on and relays how I see products promoted by celebrities/influencers. They just tend to be overpriced because of its brand image, and I myself would prefer a good product for a fair price, and it's a bonus if it's from a brand I can trust. It's hard to build a reputation but it's easy to destroy it.

I understand that popular products may make it less appealing to certain people like me, but at this day and age, it doesn't take long to do research and find out that the products are inferior and more expensive than the market its competing.

[MrApontjos]

"The professional internet idiots" You sir, have earned yourself a Like

[abrahamannan]

Damn Ryan Reynolds really used his fame to finesse the hell out of his fans

[joeymckinney]

Mint Mobile being sold felt like such a stab in the back

[tasneemahmed]

If I see an ad for a product I actually make a mental note to not buy that product unless absolutely necessary. This applies to all ads not just influencer ads.