Research and Development: A startup's secret weapon?
4.5.6 Skin, Three Spirit, Mous and more...
Research and Development in consumer goods sounds like a lot of work. Expensive work. It seems like something that requires the type of manpower and monetary resources only available to gargantuans of the Fast Moving Consumer Goods (FMCG) industry. When we think of R&D, we tend to think of the likes of Apple and Tesla. Vast teams of researchers identify prime market opportunities, handing over to vast teams of high-level scientists who continually engineer new products. This means that the innovative edge, valuable patents and market distinction that come with such investment are only available to huge corporations, right? Not necessarily. With the increasing claims that the mass-production of generic, faceless products characterising the FMCG model is out-of-date, smaller brands are taking a different approach to R&D. Instead of trying to beat the big-hitters at their own game, they’re changing the game to meet the needs of their business and, crucially, their customers. As a result, these smaller brands are reaping the many rewards that come with R&D, and over time, more and more smaller businesses are realising that they can do the same. Excitingly, in today’s eco-conscious market, it’s the brands innovating in sustainability leading the charge. Let’s take a look at this wave of change and, more importantly, how your business can ride it.
According to CDP’s report Fast Moving Consumers, FMCG behemoths like Unilever and Nestle have invested so little into green R&D that they risk falling behind consumer demand and legal regulations. Innovative green start-ups (Beyond Meat being a prime example) are stepping in to meet these demands. UK consumer spending on goods branded as ‘ethical’ increased almost tenfold from 2000-2018, whilst the market share of smaller CPG (consumer packaged goods) companies continues to eat into that of large companies globally. The important thing to note here is that this is not simply a matter of branding. Across the consumer goods industry, from booze (and booze alternatives) to shoes, the public are becoming increasingly discriminatory when it comes to product quality. Customers are choosing brands who really care about their product; who they can trust to not greenwash and make false health claims. By not being a seemingly faceless corporation, churning out batches of product ‘upgrades’, smaller brands have the opportunity capitalise on this market trend towards careful and ethical shopping. How can you seize this opportunity? By doing R&D differently.
So far, there are two emerging approaches:
Trust in the science (because consumers do)
Customer trust is at the core of this change. Once, the generic and consistent nature of mass-produced goods signalled reliability. Now, in an age where customers are savvy about false PR and cynical about big corporations, they’re looking for proof. According to a recent article by ThingTesting, this is precisely why we’re seeing a trend in start-ups collaborating with scientists in product development. This can be done in a number of ways according to your product. Alcohol-free spirit brand Three Spirit, for instance, have partnered with scientists at UCL and the University of Surrey to conduct human clinical trials into the health benefits of their ingredients. Where this involves research, evidence and publicising of evidence, others are instilling scientific R&D into their ongoing business practice. Sustainable clothing brand Pangaia famously describe themselves as a ‘material science company’, perhaps following Three Spirit’s logic that scientific credibility is the key to long-term success. Meanwhile, French skincare brand 4.5.6 Skin have made science the heart of their customer service. Their products go ‘straight from their lab’, where a team of chemists ‘formulate your bespoke product’ to the customer’s doorstep. It goes deeper than this, though. 4.5.6 specifically designs products for non-caucasian skin - long neglected by the cosmetics industry. Founder Noelly Michoux, tired of the lack of extensive R&D into the differences in the skincare needs between skins of different colour, went direct to the LVMH Research Centre. Speaking to Dazed Digital, Michoux explained how their research-focused approach speaks directly to their customers:
“I feel like we have really created a lane, where melanin-rich skin men and women can come and feel like this is a brand they can call their own. We really address their issues in a way that is authentic. This is not just like marketing, everything we do is around melanin skin.”
It’s therefore not just that 4.5.6 addresses a gap in the market by providing the products. It’s the research itself that addresses the gap. From cosmetics to medicine to everyday design, people of colour have continuously been overlooked when it comes to research. By investigating thoroughly, scientifically, Michoux not only produces skincare likely to work, but shows the customer that they are seen and understood. What is that if not proving to your customers that you care?
Old school R&D, but make it ‘woke’
We’ve talked about Allbirds’ move to make their shoe technology open-source before, highlighting the move towards collaboration over competition (read our take here). Yet it’s also the perfect example of the capitalisation of their investment in R&D. At first look, it seems they followed the same old R&D playbook. They researched their market extensively, finding their USP. They applied for a grant to fund initial research. They worked with developers, creating their own patented technology perfect for their target market. However, this is where they diverge from the standard model. By sharing their technology Allbirds completely integrated their R&D into their marketing strategy and, more importantly, their brand identity and mission. They’re forward-thinking, and open-sourcing R&D demonstrates it. It fulfils customer demands for transparency, shows that the brand genuinely prioritises sustainability and showcases the innovativeness of their product all in one swoop.
Part of the reason Allbirds have been able to evolve from a dynamic start-up to a $1.7 billion business is, appropriately for a climate-friendly company, their efficiency. Through their approach to R&D, they’ve been able to streamline their resources. There is an important lesson here for start-ups and smaller CPG businesses with limited financial means. By doing ‘the right thing’, considering R&D part of your overall mission, using it to build your profile, you can make your investment go a lot further. That being said, there’s no doubt that R&D is a considerable investment.
Here are a few tips to help you find the means:
You can divert funds from marketing
In a crowded and competitive consumer goods market, exposure is vital. However, this doesn’t necessarily need to cost as much as you think. The digitisation of shopping habits has essentially democratised brand exposure, making it easier for brands to reach the mass market without mass marketing budgets. The more exciting and innovative the product, the more likely it will sell itself through the complex grapevine of the internet. Take phone-case designers Mous. Starting as a bootstrapped start-up, they achieved one of the most successful crowdsourcing campaigns in history and are now a global brand. How? A shoestring budget Youtube video of one of the team dropping a phone. The simplest showcase of their heavily researched protective phone cases. Similarly Daye, a sustainable sanitary product brand ‘rooted in science’, showcased their innovative dissolvable tampon wrappers in a Tiktok, which ended up going viral! Read our interview with Daye to learn more.
You can apply for an innovation grant
This is a time-consuming route, and one that won’t be right for every business. On average, applications can take anywhere from 6-10 weeks, and the likelihood of needing a professional consultant to assist you will ramp up the costs. However, the reward may be worth the extra work. Just ask Ella’s Kitchen, who used the Innovate UK grant to hone their organic baby-food and launch their product into the mainstream. They’re now the UK’s leading brand.
Grants exist for R&D in general, but additional grants and funding are available for green innovations. UK Research and Innovation (UKRI) frequently launch funding competitions, the latest geared at funding packaging innovation.
Find an up-to-date list of current competitions here.
You can apply for tax breaks
HMRC offer extensive tax breaks for SMEs investing in R&D. Find a downloadable guide here, a helpful article here and an official introduction here.
You can partner with bigger players
In a recent newsletter we discussed the mutual benefits of partnerships between big and small brands. The bigger fish can improve their brand image and enough street cred to reach niche markets, while the smaller fish can access bigger funds for development and gain access to the mass market. See Burberry’s collaboration with eco-conscious lifestyle goods brand Elvis & Kresse as a recent example.
Overall, R&D is still a balancing act between risk and reward. The monetary risks smaller brands and startups take by investing in R&D can be managed - if your business’ entire purpose is to bring an innovative product to market. It’s undeniable that many of the brands we’ve profiled here have placed all their eggs in one basket, trusting that the resulting product is so good that it can be sold simply by showing customers what’s gone into its development. Google Allbirds, and you’ll find hundreds of articles talking about nothing but the investment and care taken in the technology. This risk isn’t necessarily appropriate for every SME and startup. If, however, your intention is to build your business around an innovative USP, it’s hard to see a better way. Fortunately, in this new age of R&D, it’s never been more achievable for businesses of any size.
Interested? Follow up with:
Unclear? R&D is a broad field. This guide provides a simple run-through of all the different types, allowing you to identify what’s most appropriate for your business.
Keen to get started? There’s lots of guidance out there for SMEs wishing to invest in R&D. A particularly helpful step-by-step introduction can be found on nibusinessinfo.co.uk (make sure any legal guidelines apply to your area).