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How a small biz can score a big celebrity

In a piece that every entrepreneur should bookmark, the Wall Street Journal shows that celebrity endorsements are not just for the billion-dollar consumer product bruisers like Nike:

Before he earned his eight gold medals and became a global celebrity at the Beijing Olympics, Mr. Phelps and three teammates agreed to endorse PureSport, a protein mix made by a tiny Austin, Texas, company that didn’t exist three years ago.

The agreement with Mr. Phelps and three other Olympic swimmers — Aaron Peirsol, Brendan Hansen and Ian Crocker — gave the University of Texas spinoff a dizzying start.

I see three takeaways from the article that should make it into the strategy book of every entrepreneur.

First, Pure Sport signed on Phelps and three other swimmers before he went to the Olympics. In essence, Pure Sport took an entrepreneurial gamble with a potential celebrity. Once Phelps wrapped his fist around his eighth gold medal, signing him on as an endorser became a nigh-impossible task without the ability to write a multi-million dollar check on the spot. Pure Sport got in there when he was at least willing to listen. Take note: Pure Sport also signed on three other swimmers, none of whom attained the endorsing power of Phelps. They put their chips down on four hands at this table, not just one.

Second, they offered all the swimmers equity in the company. They couldn’t write million dollar checks, but they were tying the value of the company to the swimmers’ future performance in Beijing. This is a classic pay-for-performance compensation. At the moment of the contract, each swimmer was worth very little on the endorsement market. If they perform, the value of the company will skyrocket because of increase investment and retailer shelf space. The value of their contract, likewise, will increase.

As someone who has been involved with celebrity endorsements, I can tell you from experience that the equity model becomes pretty untenable after the celebrity signs on agents who know what they’re doing. It’s a cash business for very good reason, as the Journal notes:

Ryan Schinman, chief executive of Platinum Rye Entertainment, a celebrity broker for advertising campaigns, said the intense connection with a tiny start-up poses a serious risk.

“If it fails, does he want to be so closely associated with a losing company?” Mr. Schinman said.

The final takeaway: PureSport has been able to use Phelps as a substitute for traditional media advertising. They literally only get seven days of his time each year, but their initial growth has been based entirely on those seven days, his image, and his name, which they put wherever they can. The company cannot afford traditional advertising, so Phelps time and name have been enough to rocket the product into contention as a major player in its market.

How about a fourth takeaway? Four for the price of three! Think of the value of this endorsement if Pure Sport had been smart enough to include a social media component in the contract. Write this down in your strategy notes: celebrity endorsements : social media : don’t leave home without both!

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  1. [...] even if you’re a small business or start-up. If you’re a long-time reader of this blog, exactly one year ago I posted how a scrappy start-up small business, PureSport, scored Michael Phelps as its celebrity spokesperson for nothing by signing him long [...]


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