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Business strategy

When an investor asks if your startup is ‘a vitamin pill or a headache pill?’, here’s what they mean

- September 29, 2021 5 MIN READ
Photo: AdobeStock
One of the most common questions an investor will ask a founder is, “do you see yourselves as a vitamin pill or a headache pill?”.

“Uhhh… we think we’re a software startup?” Is not the correct answer.

Worse, sometimes they will criticise you by saying, “You think you’re a headache pill but actually, I think you’re a vitamin pill”.

Both solve a different problem in a different way, and the reason the analogy is helpful is that you can actually be either, but you can’t be both.

More importantly, you can’t use the marketing and sales strategy for one to sell the other. If you’re trying to sell a vitamin with a headache pill marketing strategy (or vice versa) you’ll definitely fail.

But it’s the deeper, subtler differences when this analogy is applied to the tech startup industry that most startup founders fail to realise. This runs much deeper than most analogies in our industry.

Let me show you why.

Aspiration vs problem/solution

If the customer has a headache, they know they have a headache – you don’t have to create the desire for a better head, just the belief that your product can rapidly and effectively take away the pain.

If you want to sell a vitamin, you first have to make the customer aspire to gradually improve their health and well-being.

In tech, if hackers just stole all your customer data, you have a headache. You definitely aspire to develop better data security but that’s a second-order problem you won’t address unless you survive the immediate crisis of the hack.

The cyber consultancy that comes in to find that specific vulnerability and patch it is a headache pill – no demand-creation marketing required, just proof of efficacy.

The long-term cyber monitoring tech you buy to help protect you from future unknown threats? Well, your CTO says you don’t need it, it probably doesn’t really work, and most other companies like yours are no better or worse, so why beat ourselves up about it? That startup is a vitamin pill – it needs marketing to focus on creating the aspiration to get to a better place and the faith that a brighter future is possible.

Internal vs external proof and faith

You know when a headache has gone; you don’t need to go get a series of blood tests and measurements to prove it. You have internal proof.

The vitamin startup must find a way to make customers have faith that your product is working even when the effect can’t be clearly observed on a day-to-day basis. Customers taking a vitamin pill each day must be immunised against thinking, “why am I even bothering to take this?” Every single day until it becomes a habit.

Note that even in headache pills, behavioural marketing and placebo effect have great power to influence purchasing and brand preference, as anyone who’s wondered if the cheaply packaged uncoated uncoloured generic medication is really as effective as the impressive looking expensive name brand can attest.

The CLV vs the CAC

Not many of us consume a headache pill every day the way that most vitamin consumers have been trained to consume vitamins. And we usually care more about instant pain relief than cost of pain relief. So there’s usually a higher degree of potential price elasticity for headache brands than vitamin brands.

You can dial up major margins once you’ve established brand preference with the customer.

But, not many of us test one headache pill brand against another. We don’t have any interest in testing new solutions when we have a headache. We just want the pain to go away like it did last time.

We’ll walk right past a new competitor with improved features and even a cheaper price just to buy the brand we know and trust.

That trust was probably already established long before we came on the scene – many of us inherit the brand preference of a parent or life partner.

So the cost of acquisition (CAC) can be very high for headache pills when most customers already have a brand preference and a reluctance to switch. We’re going to need all the price elasticity we can get.

Vitamin pills, on the other hand, have a bigger customer lifetime value potential if we can get the ‘faith that it’s working’ marketing right: they will be buying a 200 vitamin pill bottle twice a year for 3–5 years rather than a 10 pack of headache pills every two years.

(That by the way is the main reason vitamin TAM is so much bigger than headache pill TAM – nobody buys a 10 pack of vitamin C and TAM is a measure of total revenue not units sold or profit. Subtract the cost of your faith-that-it’s-working marketing and maybe you’re going to need to sell 10x 200 pill bottles per customer before you break even).

Every day for a long time you need the customer to remember to take their daily vitamin, which takes a long term customer engagement strategy, not just a billboard saying “TAKE YOUR PAIN AWAY NOW!”

All that time, you also need to use your marketing to defend this slowly developing brand preference your customer has from being poached by a competitor with a price, positioning or feature differentiation.

Your long term goal is that the customer attributes their subtly improved health to the daily use of your product, and not to a hundred other possible things like diet, exercise and sleep.

Why do investors ask me if I’m a vitamin or a headache pill?

Most want to know that you’ve thought about it and your view lines up with theirs about the nature of the problem you solve and the marketing strategy it’ll take to sell it to customers.

Some investors prefer one over the other, which is usually a sure sign that they don’t understand the subtleties of the analogy. Neither is always better – the point is to agree on which it is, and make sure you’re not trying to market one with the strategy of the other.

No, headache is not always better

Some early-stage and angel investors will mistakenly believe headache pill startups are always better because the customer already knows they have a headache. That ignores the high CAC and strong pre-existing brand preference most headache customers exhibit.

A great tech example is trying to sell new practice management software into the healthcare industry.

You may find most dentists, say, unwilling to bring their very valuable, profitable practice to a halt for a week to swap out the old client-server piece of shit system.

Even though they swear at every five minutes of every day, even though they’d love to have the features, performance, mobility and on-demand pricing of your vastly better solution.

They don’t want to lose $3M turnover, retrain all their staff, and then find a whole bunch of new shortcomings and bugs in your software that require them to come up with a new set of workarounds. They’d rather stick with the devil they know.

That can mean you can be marketing a better and cheaper solution but they still won’t budge.

But neither is vitamin always better

Success in vitamin startups is a long game that requires a refined, intimate and detailed marketing strategy based on an in-depth knowledge of the customer based on real customer data.

As an early-stage tech startup you never have that. You might have put a heap of work into your lean canvas – hell, you might even have a hundred page marketing plan – but all of that is hypothesis stacked on hypothesis, multiplied by sub-scale sample size to the power of gut feel.

You might be a founder ‘solving your own problem’ and believe you already know your customer before you’ve sold your first unit but you’re only fooling yourself. The moment you became a startup founder you became radically unlike your customer (unless your startup is selling technology to other tech startups who sell technology to other tech startups who…)

You’ll maybe know in five years how to effectively create an aspiration to be better, and how to engender faith that your product will work in the absence of evidence.

Until then, the best you can have is enough self-awareness to know that this is the case, the skills to perform experiments to start turning your hypotheses into validations rapidly and cheaply, and the backing of your team and investors to keep backing the company even though you’ll invalidate more than you validate for many years to come.