The Value of Branding: How Startups Should Consider Spending Cash
When AI companion startup Friend spent $1.8 million on the domain name www.friend.com, it sparked a debate about the worth of branding and how startups should allocate their funds. While some questioned whether Friend had overspent, Avi Schiffmann, the founder and CEO of Friend, stated that the purchase had already paid for itself. This is not unusual, as companies like Tesla, Better.com, and OpenAI have also spent millions on domain names.
According to Alex Harris, a co-founder of startup marketing firm Fiat Growth and founding GP at early-stage VC firm Fiat Ventures, getting the name, domain, and branding right can significantly impact a company’s growth. He emphasizes that a memorable and easy-to-spell name is crucial for word-of-mouth promotion. In terms of domain extensions, ” .com” is still king. Additionally, Harris suggests that shorter names are better, as they are more memorable.
Olivier Toubia, a marketing professor at Columbia Business School, adds that the choice of name depends on how frequently customers interact with the business. If it’s a consumer product or software used daily, a unique and memorable name can be advantageous. On the other hand, if it’s a product or service that customers only use occasionally or when searching online, a more generic name that is easily discoverable on search engines is preferable.
For startups in industries like healthcare, including relevant keywords like “health” in their name can help clarify their services and improve search engine optimization (SEO).
Harris believes that choosing the right name and domain also adds legitimacy to a business and builds trust with customers, potential hires, and investors. A professional-sounding domain makes a company more reputable, while a complicated or unusual domain can have the opposite effect.
While spending $1.8 million on a domain may seem extravagant, Harris argues that if the purchase helps the company’s business, it will pay for itself over time. Additionally, a valuable domain can be seen as intellectual property (IP) that can be sold if necessary.
However, it’s essential for startups to balance the investment in branding with their product development. Toubia and Harris caution that if a company spends a significant portion of its funds on a domain without having a product, it may hinder future fundraising efforts. Startups should also avoid choosing a name or branding that could limit their ability to pivot or result in legal issues, which could be costly.
Furthermore, it’s crucial to avoid selecting a name that is too similar to another company’s. While it may not matter if the companies operate in different sectors, if there is any potential for confusion or negative association, it could harm the startup’s reputation.
Despite the debate over Friend’s decision to purchase an expensive domain, Harris and Toubia agree that the fact that people are discussing their strategy indicates its effectiveness. Harris compares the process of naming a company to naming a child, emphasizing the importance of patience and considering the competition before settling on a name. Ultimately, startups should prioritize finding a name, domain, and branding that align with their long-term goals and target audience.
