Why Most Influencers Shouldn’t Launch Their Own Products

George Clooney and Casamigos, Kylie Jenner and Kylie Cosmetics, Jay-Z and Tidal.

It’s easy to see why celebrities and influencers find brand building appealing. In the most successful cases, it ends with a party outing, a nine-figure check and, for some, the title of billionaire.

But beware, aspiring entrepreneurs: the founder mindset is risky, and many founders walk away with next to nothing.

“Ninety-seven percent of creators and celebrities should not start their own brands,” Scott Van den Berg, the founder of HotStart VC, which invests in influencer brands, told Business Insider. “They don’t have a strong enough audience to build a billion-dollar business.”

Despite this, many designers, including MrBeast and Emma Chamberlain, have chosen to launch their own businesses in recent years. A typical formula is: launch a brand, use your followers to help it explode, then hope to cash in on your equity when the company is sold or goes public.

The desire to own something, rather than promote other brands, stems from “creator anxiety” of relying too much on advertising and brand deals to make money, said Eric Bogard, CEO of talent firm UnderCurrent Management.

However, betting on yourself has its own drawbacks. Take the example of Logan Paul and KSI, two renowned YouTubers who launched Prime Hydration three years ago. The brand was wildly successful in its first year, but has since struggled in some markets – and may serve as a cautionary tale.

Looking back on our reporting on failed influencer businesses and our conversations with industry insiders, a clear theme emerged: It’s often best to ignore founder mode. Savvy influencers can negotiate short-term revenue through royalties or marketing commissions, and worry less about fairness.

“The calculation you always want to make is: Is this equity potentially worth 10 times more than what I would charge to publish about it?” Bogard said.

Bogard’s advice is to opt for a healthy mix of equity and royalties.

Take his client Landon Bridges, a food influencer and comedian who launched a hot sauce brand called Lava Sauce in March.

Although Bridges had some net worth, his salary was geared more toward a royalty for each bottle sold, said Bogard, who helped launch the hot sauce brand through UnderCurrent product studio Viral Goods.

So when Bridges said in April that he had sold 600 bottles in 48 hours, propelling the product into the top 10 hot sauces on Amazon, he wasn’t just celebrating a sales milestone, he was celebrating a payday.

A first-rate cautionary tale

The rollout of the Prime drinks brand clearly shows why creators would be better off opting for some royalties rather than just equity.

The brand is experiencing meteoric rise. In 2023, its first full year of operation, it generated $1.2 billion in sales, according to court documents. Grocery stores and bodegas couldn’t keep it in stock, and a black market formed on playgrounds, with preteens reselling the colorful bottles for a profit.

If Paul and KSI had made a deal like Bridges’, they could have profited via 2023 royalties. Even a simple sponsorship deal with some sponsored videos could have been a significant gain.

But the creators took the founder’s route, opting for equity rather than royalties, two people with direct knowledge told Business Insider. KSI and its management team, Proper Loud, owned 25% of the company, one of them said.

It’s possible that the co-founders were able to cash out some of their equity through a private sale, as some startup employees do with their stock options in private markets.

KSI, Paul and representatives for Prime did not respond to requests for comment.

The strategy they used had huge winning potential. Owning a significant stake in Prime could prove profitable if the company goes public or is acquired. But waiting for such a financial outcome could take years, and it’s certainly no guarantee in the highly competitive beverage industry.

Meanwhile, Prime’s initial momentum fizzled.

Although total revenue for 2024 is not public, Prime sales in the U.K. — a key market that in 2023 accounted for more than 10% of the company’s total — fell by about 70%, from £112 million (about $149 million) to £33 million (about $44 million), according to June filings.

Consumer interest in its brand has moderated, the company wrote. Last year, Prime was the subject of a lawsuit from one of its suppliers, claiming that sales had “fallen far below” expectations, in part due to a series of lawsuits and a “disappearance of social media buzz.”

Once a brand loses popularity, the downward spiral often continues, as influencers become less motivated to promote the product, Van den Berg said.

“Other things will happen that will directly make them a lot more money, and then slowly those companies will disappear,” Van den Berg said.

The celebrity brand graveyard is littered with once-promising companies that have turned south, from Arielle Charnas’ Something Navy to Addison Rae’s Item Beauty.

Bring it back old school

On the other end of the spectrum are sponsorship deals, which are the foundation of the influencer industry. In these deals, an influencer posts about a brand on Instagram or TikTok in exchange for a fee. They usually get no property in return.

According to a July survey by influencer marketing company Linqia, 84% of marketers reported working with creators on sponsored content, compared to 16% for product collaborations.

The tactic isn’t as sexy as a product launch, but it has reliably sustained the industry for years.

Then there is the middle path, which predates the era of the influencer. It’s what made some of the most famous spokespeople, from Michael Jordan to George Foreman, so rich.

A revolutionary move away from the low-risk, fixed-reward model of promotion — appear in a commercial, earn a check — these stars earned a cut of the sales they made, whether it was a pair of Nike sneakers or an electric grill.

For many designers, a combination of these models may be the best solution.

“You want your partnerships to pay you fees and keep the lights on,” Bogard said. But if you’re in a comfortable position with brand partnerships and other income, then you have the luxury of becoming an entrepreneur and “getting equity in a business you really believe in,” he said.

Look at Alix Earle’s recent deal with soda brand Poppi. The TikTok star promoted the brand – posting content, shooting a commercial and creating her own flavor – in exchange for a fee And equity. This capital eventually became valuable when the brand was sold to Pepsi for nearly $2 billion. But even if there hadn’t been a deal, she would have gained something.