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Category: business design

Will VC backed startups create new mass brands?

27 January, 2014 (19:25) | branding, business design, technology | By: Shannon Clark

In the past few years there has been a rise in the number of VC backed firms that are building businesses designed to compete with some of the largest consumer packaged goods companies in the world. From VC backed shaving companies, diapers, soaps, eyeglasses and more there is a new wave of ventured backed consumer products companies that have arisen to prominence in the past few years. Many of these firms are raising vast amounts and seem to be doing quite well.

However reading the press about these companies I think many, perhaps including some of the entrepreneurs and investors, are missing key  opportunities.

See an article from TechCrunch on Jan 27th – which talks about venture backed companies such as Madison Reed, The Honest Company competing with Procter & Gamble, Harry’s and Dollar Shave Club that compete with Gillette (and though the article doesn’t mention them Schick) and a bunch of other firms. As the article notes venture backed consumer goods companies have raised over $1.1B in recent years with many companies that were distributors of products from other businesses moving into direct manufacturing. Harry’s recently raised over $125M to purchase their 90+ year old German manufacturing partner and Fab which has raised a lot of money recently purchased a supplier of custom furniture to bring that manufacturing capabilities in house.

What the article misses and what most startups in the space seem at least publicly to be missing is that great consumer products companies actually serve TWO (at least) customers.

Their marketing and brands are built to sell to individual consumers – with marketing and branding frequently being among the largest expenses of many consumer products companies (for at least some products likely being a larger component of the prices those goods sell to consumers at than the actual costs of to make say the soap). These are companies that have had a rich, often 100+ year history of building up their brands on a national and international scale.

But  all that work to build brands that consumers seek out are done, for the most part, to sell the goods once they are available in retail stores (or these days available online via ecommerce sites). While consumers see the individual brands and marketing efforts the big retailers see distribution integrations, inventory and order management, payments for shelf space and in-store marketing/promotions, volume discounts, special packaging or product variations and more. All designed to help retailers make more money selling the consumer products business’ products (and in the case of goods sold in grocery stores to attempt in many cases to be as attractive or more attractive for retailers than those retailer’s house or generic alternatives).

Few VC backed startups building consumer goods are focusing on distribution of those products into the larger retail marketplace. Harry’s via their recent acquisition is somewhat of an exception – the company they just bought makes private label razors for many retailers across Europe (primarily). A recent CNBC article about the deal also notes that they have a distribution deal with J Crew and Standard hotels.

Integrating with large retailers is a very different business than selling to individual consumers one at a time via a website (or mobile application). It involves integration into ERP systems. Capabilities to take orders from retailers with potentially 1000’s of locations, distribution warehouses and many other complex logistics and payment processes. All while selling at a wholesale price that allows for an attractive retail price point (with pressure from many retailers like Walmart to drive down the retail prices – often by driving margins to be as slim as possible). All while also expecting that partners will build global brands as well as targeted marketing to drive in-store (or online) sales of the brand via the retail partners.

Very tricky stuff – but if companies like Harry’s or The Honest Company really want to scale to take on the consumer goods giants they probably have to master the art of relationships with large retail channels. It is possible that one or more startups will find a way to reach mass scale via a digital only direct channel – but most likely they will require leveraging the investments in time (and brand) of mass retailers to reach truly mass scale of sales.

An alternative approach may be for some startups to take on the mass retailers with some new approaches that will help drive mass sales without the drawbacks of the big box model. Whether this is via crafting a network of retail channels from smaller stores (an approach that many smaller coffee roasters are starting to take as a national network of small cafes has started growing that buy beans from national smaller roasters) or whether it is via building up a startup into a mass scale, likely online first business. Amazon.com for example but there are 100’s of other large scale online retailers.

Some of the newer same-day delivery businesses may offer yet another opportunity – potentially a startup brand might find a way to bypass physical retail stores via offering inventory to such same day delivery services directly. (Ebay, Amazon, even Google all might be open to this). Though it would have to products that compliment those business’ existing retail partners and such an approach may have complications around local taxes and costs of warehousing/inventory management.

Business idea – feed of actual marketing messages

28 June, 2013 (19:54) | branding, business design, social media, technology | By: Shannon Clark

Discontinuation_notice_displayed_on_Google_ReaderGoogle Reader dies in a few days

I have been an avid user of Google Reader for years, at one time I had probably 500 or more RSS feeds I was subscribed to inside of Google Reader, at present i have culled this down to only 217. These include many customized feeds I created for specific purposes – monitoring Craigslist in my local area for specific items for sale for example.

But while individual posts have sometimes shown ads (depending on the relationship between the publisher and their advertisers) clearly Google Reader as a product has had an issue with how to monetize it. There are a bunch of companies creating alternatives at the moment many of which I will be testing out – however I haven’t yet settled on a perfect replacement (I like a lot of Digg Reader’s features but their iOS app isn’t working for me – it fails when trying to import my Google Reader feeds). A few feeds I subscribe to have a great model – they have a sponsored post once a week that goes into their permanent feed and is clearly shown as a sponsored post – here is this week’s sponsored post from Collaborate for Daring Fireball

Here is my big idea – what if you could get a customized for you feed of sponsored messages, that you could read how and when you want, and as you do so supported the apps and blogs you value??

The way this would work is that advertisers whether big or small, local or national, would publish a rich media post or series of posts containing the marketing message(s) that they want to share. These posts could be far richer than current banner ads, video ads or search ads. They could embed video, images or even attachments in the same way that any RSS post could (so could contain media ala a podcast or files of any form). But you wouldn’t subscribe to these raw feeds (unless you were a huge fan of a given brand – and yup, these could also be feeds to/from a group on a site like Google+ or Facebook) instead you would subscribe to a customized feed.

The advertisers would PAY to be on these feeds – paying on a per subscriber basis (potentially split into a baseline amount for being in such feeds and a further amount when selected actions are taken by users – such as reading/staring/sharing/viewing the content in a given post). This revenue stream could then be shared with the apps that incorporate it into their user experience – and could further share this revenue back to sites that provide other content to those apps (i.e. content publishers) potentially following a user-driven model ala Humble Bundle.

Sounds a bit complex and there is a lot of scaling issues to overcome – but as a user the effect would be that I could see highly targeted, rich content from advertisers that paid to reach me (but whose content I see when and how I want to see it) and which I could then interact with like I do with any other content – i.e. share it, star it to find it quickly later, email it to my wife etc. And if via doing so there is a viable business model that evolves for the apps that build services I use daily and content creators that actually create original, valuable and interesting content this would be a big win for everyone (and far better for me as a user than the current ad overloaded slideshows that masquerade as news on all to many websites – or the long form articles split into ten pages with interstitial ads that break on my mobile browsers.

Does something like this exist already?

If not, why not?

And how could we get started on building it?

Revisiting my thoughts on what Apple should do with cash hoard – Feb 2013

7 February, 2013 (17:32) | business design, technology | By: Shannon Clark

A bit over a year ago I posted my thoughts on what Apple should with their cash hoard, at that time it was nearly $70B. While I stand by most of my thoughts then, now they have over $130B in cash, even after planning to disburse over $45B in dividends over the next 3 years.

Earlier today my friend Ben Parr was on CNBC to discuss his thoughts about what Apple should do with their cash hoard now – his suggestions echo many of mine. Instead of trying to issue more stock or pay even higher dividends he suggests that Apple should be using (and probably are) their cash hoard to reinvest in the components they current use and plan on using the future like Flash Memory.

I still stand by my core suggestions from a few years ago with some updates:

  1. Apple should invest in the Enterprise. Apple’s Enterprise successes are not as well known as their consumer successes. But they have made significant traction in getting iOS adoption within enterprise companies and the willingness of Enterprises to support Macs has been growing. However Apple’s Enterprise offerings in terms of servers and large scale enterprise purchasing and deployment of computing devices is not as well known or well managed. There are many opportunities for Apple inside of the Enterprise to build on the popularity of the iPad and the iPhone to expand upon their successes. Innovative firms and startups as well as independent consultants have for many years now be early adopters of the MacBook line, especially the MacBook air and more recent Retina Display models.
  2. Apple should consider buying Foxconn (if possible) and buying more of their supply chain in general. Apple since their switch off of Intel processors and onto their own processors has seen their biggest years ever. Buying Foxconn may not be possible due to Chinese laws (and the costs) but they should be looking closely at ways to continue to own much of their core components and their full supply chain as they have shown the very big value they can extract when they do so.
  3. There is a growing window for an Apple gaming console not (just) an Apple Television. I still think that Apple has a major opportunity to dominant the living room if they were to seriously explore a new gaming console (which also embeds all of the functionality of the latest generations of the AppleTV devices) and which might be paired (though would not require) any new screen that Apple offers as an Apple Television. In 2013 we almost certainly will see the announcement of new consoles from Sony and Microsoft, though whether those will arrive in time for the holiday season in 2013 or won’t show up until 2014 is still open to debate. In either case Apple has an opportunity to explore a new platform to compete with the WiiU, Playstation and next gen Xbox. I said this could happen years ago, I stand by that – in particular the growing power of iOS for immersive games suggests that Apple could do something interesting with a game console. And imagine if instead of a proprietary controller w/screen (ala WiiU) if Apple could allow iPads and/or iOS devices like the iTouch or iPhone to pair with the games console and be used for navigation, data entry and at times as a second (secret) screen. Apple could look at buying a new firm like Ouya (for their controller designs more than their device) or swinging even bigger and far more costly look at trying to buy Valve (and get Steam in the process). There were rumors to this effect in April of 2012 after a visit to Valve by Apple’s CEO but I think it should be given serious consideration. I would, however, guess that the cost might be in the multiple billions.
  4. Apple should consider buying PayPal from Ebay. Okay this is a wild speculation and new (not part of my previous speculation) but I think that Apple should look at buying PayPal from Ebay. The intersection of a global payment processor with the iOS device global ecosystem (and the new Passbook offering) could be quite significant. Apple could potentially help PayPal find a route into use by millions (hundreds of millions actually) consumers and integration with thousands of developers building upon the iOS and Mac platform. PayPal however suffers from a UI and UX problem (for consumers, merchants and developers) which Apple could potentially help through allocation of Apple designers and developers (and management). What Apple could get is a further extension upon their massive payment processing – i.e. the millions of payment cards linked to iTunes accounts. And among payment processors and applications PayPal is among the most global and Apple is very much a global company today.
  5. Apple should expand even more globally. Apple is very global already with stores globally and manufacturing on a global scale, but this suggestion is that Apple should also be looking to aggressively hire staff at all capacities globally. This suggestion isn’t, I should note, that Apple should be looking to do this as a cost saving method. In fact I would argue that this should be done whether or not the staff hired globally is cheaper than US alternatives. Instead I’m suggesting that to keep up with a global demand for Apple products Apple should be looking to hire the smartest technologists, designers and business people wherever they live and whatever languages they speak. And I would bet that if they do this aggressively it will be an idea sparked by one of these non-US employees that will lead to their next $1B+ (many times plus) product line. LIkely a type of very Apple product that might never occur to their US based staff (either in type or in the business potential)
  6. I still think Apple should attempt a national (at least) Wifi network. Legal issues and barriers may make this functionally impossible (liability for open Wifi hotspots in particular) but if Apple could find a way to help support the richer spread of municipal wifi networks as well as the overall expansion of actually good broadband throughout the US that can only help their ongoing sales (in all categories). However there may be too many issues around this for them to consider.

What are your suggestions for how Apple should spend their billions? 

The two base business models and what they mean for your business

6 August, 2012 (17:16) | business design | By: Shannon Clark

There are only two basic business models.

Two.

Yes, only two.

Every business falls into one of these two models (and many non-businesses such as organizations, non-profits and others also fit here). I would even claim that most people’s jobs fit into one of these two business models (though primarily most people who work for a company fall into the first model almost entirely). Both of these models can be fantastic businesses and they each offer advantages as well as disadvantages. Many businesses use a mix of the two models, though often without fully realizing it.

So, what are these two business models.

Model One – Sell something non-discretionary

Put simply this model is to sell a good or service to someone who uses that good or service to accomplish their business objectives. This sounds simple but it has a few key and important facts to remember.

  1. Price is constrained by the value your goods or service offer to your buyers. If they cannot buy your goods or services and use them to generate more income than they spend with you they will not be repeat customers. This means that if you want to sell at a higher price level you have to find a way to generate a great return for your buyers either by improving the value of your product (again either goods or services) or you have to find new buyers who can obtain a greater value from your products than your current buyers.
  2. Scale is dependent on the scale of your buyers. On the positive side this means that as your buyers are able to grow their businesses your business can grow at nearly the same rate. On the negative side this means that if your customers’ businesses are not growing your sales will also slow until you find new buyers (think sellers of horse carriage parts as the automobile industry grew, some were able to adjust and sell products to the automobile companies but many were not able to adjust).
  3. Competition is limited to products that can deliver the same value needed by your buyers. This is usually a good thing for businesses as while you can face a lot of competition it is limited to competitors that can fit into the business of your buyers in the same way your products fit. However this means that when the business of your buyers changes or when you try to grow by selling to a new category of buyers that you can face a very large pool of competitors who were working with those buyers already.

Or your business can be

Model Two – sell a discretionary product

This is a very broad category of businesses most of whom today don’t fully realize that they are competing with each other. What do I mean by a “discretionary product”? Simply put this is any product whether a good or a service which is not purchased as a component of another business. i.e. goods and services which are purchased out of personal preference or desire over being a necessary part of another business’ process.

This is a very broad category it includes a large swatch of local businesses – from restaurants, cafes, bars, hair salons and bookstores. All these businesses primarily sell a service or physical good that isn’t bought as part of a business process but out of a personal need. However they all may have aspects of their business which serve other businesses (remembering that you can think of yourself as a business of one). A restaurant can be used for a business meeting or event to take just one example. But while that event may be a necessary part of a business process the decision about where to hold it, what to serve at it and how much to spend on it is a discretionary decision for most buyers.

Advantages and disadvantages of discretionary businesses:

  1. Price is potentially unlimited. Discretionary businesses have the advantage, though it can be a challenging one, that pricing is potentially unlimited. Since the products these businesses offer are discretionary purchases they can potentially be sold at any price since the buyers are choosing to buy for reasons other than as part of a business process. The disadvantage of this unlimited pricing option is that frequently leads to pricing of discretionary businesses being an artform not a science. You have to figure out a pricing model that will accomodate your costs of business while also selling to the right mix of buyers. For some businesses this may be selling a large amount to a very small number of buyers. This is partially why many discretionary businesses have a history of selling at flexible and negotiated prices. Local monopolies may also shift what people are willing to spend (think the concession stand at a local movie theater – purchases there are fully discretionary and since there are constraints on the competition via “don’t bring in outside food” policies the prices are typically marked up from what the identical good may be for sale just outside of the theater.
  2. Competition is essentially unlimited. This is a big challenge and one that many businesses in a discretionary business don’t fully grasp. The competition of a new restaurant is not just the other restaurants in that neighborhood but all of the other discretionary purchases available to potential customers – the movies available to be seen, the newest video game, the latest bestselling book, the new sneakers and more. The competition that any new social game company faces is not just other social game companies but all games, in all genres as well as all other discretionary ways people could spend their limited time and funds.

Businesses that operate in both models face some unique challenges, especially around thinking carefully about their pricing as well as definition of the goods and services that they offer. The needs of their non-discretionary buyers may conflict with the interest and potential business from discretionary buyers. The airline industry perhaps is a key example of this conflict. “Business travelers” are traveling because they have made a calculated decision that the costs of that travel are less than the opportunity they gain from traveling. What the value is travel arrangements that increase the value they can generate – from getting on and off the plane faster to having the flexibility to reschedule their travel. Discretionary travelers however value a different set of elements when choosing to travel. In many cases they want to spend as little as possible on their travel costs – to allow them to spend more on other discretionary elements of their vacations – but there are also travelers who may choose to spend more than even a business traveler because they value certain elements of the travel experience highly. 1st class cabins are one attempt to capture this part of the business.

The variable pricing of airline tickets is in no small part a result of these competing forces on airlines as well as their own highly variable non-discretionary purchases to operate their business (fuel, plane financing, gate fees, flight crews etc).

Which of these business models does your business (or business idea) fall into?