Lipstick on a pig and recession-proof businesses – Your Startup Guru
Welp, there’s no need to put lipstick on a pig. Today’s GDP data released by the US Bureau of Economic Analysis showed that real gross domestic product (GDP) decreased at an annual rate of 32.9 percent in the second quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0 percent.
This is really bad news which means figuring out how to mitigate damage and making all adjustments by bootstrapping. Many businesses such as bookstores, farms, and clothing manufacturers pivoted their business models to adapt to the impact of COVID-19.
One thing I learned while working with my client KiloNiner several years ago is that pet products were largely recession-proof during the 2007-2009 recession. This is because people view their pets as family members so cutting back was avoided. There are many other businesses are that recession-proof as long as adjustments are made to accommodate social-distancing requirements:
Repair / maintenance services: People will still need their plumbing to work, their lights to turn on, and their car engines to run
Dry cleaning / laundry: Laundered clothing and materials will always be needed as long as people wear clothes and don’t have in-house machines. Dry cleaning for clothing might decline as formal wear is reduced but will not go away as people still wear jackets, etc. on occasion.
Professional services: Accountants, lawyers, and other administrative professionals still needed for the economy to run.
Funeral / Memorial services: A natural consequence of life is death. Particularly with the unsettlingly high mortality numbers associated with COVID-19, demand will likely be high for a very long time.
There are many more industries and even sectors/value-chain-links within floundering industries that are somewhat insulated from recessions. Your Startup Guru provides industry/market research as well as a wide range of other services for businesses to help navigate this turbulent economic climate. Contact us and let’s figure out a plan for you.
I just saw a commercial for Rent-A-Center and thought to myself that their old school business model is nearly a half center ahead of the times.
Founded in 1974, Rent-A-Center is an American public furniture and electronics rent-to-own company based in Plano, Texas. The company was incorporated in 1986 and as of 2014 operates approximately 2,972 company-owned stores in the United States, Canada, Puerto Rico and Mexico, accounting for approximately 35% of the rent-to-own market in the United States based on store count.
“A convergence of trends—including the Mari Kondo-sparked enthusiasm for cleaning out closets, increased concern over the impact of climate change, and a movement toward smaller, urban apartments—has made millennial consumers more conscious of how many items they’re accumulating.“
Rent the Runway CEOJennifer Hyman.
As you may know, companies are taking a similar business model and expanding it to other consumer sectors such as clothing and jewelry. This model has already been applied to transportation with Lyft/taxis/vehicle leasing and with housing with AirBnB/hotels/apartments and intellectual property with game rentals/public libraries. Entering into the fray are companies like Rent the Runway, which rents unlimited designer styles to subscribers and Fat Llama, which rents electronics (in the UK).
A convergence of trends—including the Mari Kondo-sparked enthusiasm for cleaning out closets, increased concern over the impact of climate change, and a movement toward smaller, urban apartments—has made millennial consumers more conscious of how many items they’re accumulating, according to Rent the Runway CEO Jennifer Hyman.
The spending habits of millennials, the largest single consumer group out there with 83.1 million (a full quarter of the U.S. population), was surveyed. The survey found that the main reason why they rent is to “test things before purchasing” at 57%. This makes sense with money being tight and space being limited, every purchase has to be scrutinized. The results of the survey are shown in the infographic below:
Old school brands such as Play it Again Sports and Rent-A-Center are riding the boom of the change in consumer sentiment and behavior. Rent-A-Center’s revenue grew $9M between 2018 and 2019 to $2.6B, operating income balloon an astounding $197M between 2018 and 2019 to $253M, helping net income to increase by $165M to $173M.
Loewy had an uncanny sense of how to make things fashionable. He said to sell something novel, make it familiar; and to sell something familiar, make it novel — Loewy called his approach “Most Advanced Yet Acceptable” – MAYA
Raymond Loewy is one of the most influential industrial designers / marketers that you’ve probably never heard of.
His firm designed mid-century icons like the Exxon logo, the Lucky Strike pack, the Greyhound bus, as well as Frigidaire ovens and Singer vacuum cleaners. Even the blue nose on Air Force One was his idea.
Loewy had an uncanny sense of how to make things fashionable. He believed that a balance must be struck between two concepts: the curiosity about new things and a fear of anything too new. He said to sell something surprising, make it familiar; and to sell something novel, make it novel. Loewy called his approach “Most Advanced Yet Acceptable” — MAYA.
Loewy wasn’t the only one to embrace this marketing strategy. Alfred Sloan, the CEO of General Motors, saw that changing a car’s style and color every year, trained consumers to crave new versions of the same product. To sell more stuff, American industrialists worked with designers to make new products beautiful and cool.
MAYA doesn’t just apply to new product design…
The Power of Habit by Charles Duhigg
In The Power of Habit by Charles Duhigg, he describes how the song “Hey Ya!” by OutKast failed to gain traction with listeners. Hey Ya! was by all measures supposed to be a hit. A company named Polyphonic HMI, formed by artificial intelligence experts and statisticians, created a program called Hit Song Science that analyzed the mathematical characteristics of a song and predicted its popularity. Hit Song Science predicted Norah Jones’s Come Away with Me would be a hit after many industry experts dismissed the album, as well as “Why Don’t You and I” by Santana. Hey Ya! scored one of the highest scored recorded at the time. However, when stations would play it, people would switch stations during the song.
It wasn’t until DJs sandwiched Hey Ya! between two familiar songs, people stopped switching stations. After a few weeks, listeners became familiar with Hey Ya! and it gained the traction that Polyphonic HMI predicted it would.
…MAYA Also Works in Reverse
Spotify logo
Inserting a familiar song within unfamiliar songs also works. This was the case for Matt Ogle, who, helped build Spotify’s Discover Weekly, a personalized list of 30 songs delivered every Monday to tens of million of users. The original version of Discover Weekly was supposed to include only songs that users had never listened to before. In its first internal test at Spotify, a bug in the algorithm included songs that users had already heard.
However, after Ogle’s team fixed the bug, engagement with the playlist actually fell. It turned out that having a bit of familiarity bred trust. According to Ogle, “If we make a new playlist for you and there’s not a single thing for you to hook onto or recognize—to go, ‘Oh yeah, that’s a good call!’—it’s completely intimidating and people don’t engage.” It turned out that the original bug was an essential feature: Discover Weekly was a more appealing product when it had even one familiar band or song.
MAYA is Everywhere but Comes in Steps
Notice the new hard seltzer craze? It’s everywhere. White Claw, Wild Basin, Truly, even Bud Light has gotten into the game.
Zima was too big of a step for consumers that needed something familiar first before making the jump to hard seltzer.
But before the bevy of new beverages Zima was the novel beverage about town. Introduced in 1993, Zima is a clear, lightly carbonated alcoholic beverage marketed as an alternative to beer, or coolers as they were called at the time. However, if the ill-fated Zima is any indication, hard seltzer was a jump the market wasn’t quite ready to handle. It had to take something familiar…namely, a subtly flavored, non-alcoholic beverage whose popularity took everyone by surprise: La Croix.
With the popularity of La Croix, the jump to hard seltzer was smaller to a more familiar product.
Although the exact formulation between sparkling malt beverages and hard seltzers may be different, the taste profile and market demographics are similar enough that if Zima came about 15 years later, it may have found greater success than it did.
Your Startup Guru provides in depth industry and market research as part of our Strategy Consulting services. Use the contact form here to start developing the best strategy for your business.
Things are quite difficult right now. When things are difficult it is best to keep going. As British Prime Minister, Winston Churchill once said at a time when Germany had a strong grip on Europe during World War II, “If you’re going through hell, keep going.”
Employment rose by 2.5 million in May and the jobless rate declined to 13.3%, according to data Friday from the Labor Department that was better than economists had been expecting and indicated that an economic turnaround could be close at hand.
Key takeaways:
Non-farm payrolls rose by 2.5 million in May and the unemployment rate fell to 13.3%.
Wall Street estimates had been for a decline of 8.3 million and a jobless level of 19.5%, which would have been the worst since the Great Depression era.
Much of the gain came from those classified as temporary layoffs due to the coronavirus-related economic shutdown.
Leisure and hospitality represented almost half the jobs gained.
The country is not out of the clear yet, especially with a possible second wave expected, but this is some positive (even if temporary) news.
I just got off a call with a client to discuss a brilliant pivot for the business he purchased using a business plan I created for him last year. The pivot was an adaptation to the new normal and to mitigate the losses from the delayed renovation and opening caused by COVID-19. A pivot usually occurs when a company makes a major change to their business after determining that their product/service isn’t meeting the needs of their intended market.
How to Pivot
This call reminded me of some other recent examples of businesses changing their operations to survive and sometimes thrive in the COVID-19 economy:
You might have heard of the now-famous Goat-2-Meeting. That is the creation of Sweet Farm Foundation, a non-profit animal sanctuary in Northern California that is offering videos of their animals to be used for Zoom meeting backgrounds. Due to the popularity of their service, sales are slightly higher than this time last year.
Lumen Couture makes wearables, which are fashion items that embed electronics and technology into stuff you can wear. They design fancy, red-carpet-type gowns that shimmer and sparkle when you’re walking for very high-end events and ceremonies. Because events and ceremonies are now on hold, they shifted most of their business to making masks, which people do want now. They designed a black mask that has a screen across the front almost like a scoreboard, saying things like, “six feet away.”
Golem Bookshop, an independent bookstore in Turin, Italy started free deliveries by bicycle in Turin in response to a shutdown order in March and began offering curated selections of books – themes like revolution, obscure authors you’ll love, indie books. Customers loved the selections so much they started shipping orders all over Italy. Normally Golem sells about $7,000 worth of books per month but in April, they sold almost $20,000 worth of books; it was actually their best month ever.
In times of crisis, coming up with a profit or even surpassing last year’s sales is ideal but anything to mitigate the cash hemorrhage is fine. To pivot, for example, a business might have to change its revenue model which means potentially canceling contracts with existing vendors. This is one of many crucial decisions that the business has to make because once the pandemic passes and the current new normal makes way for the new-new normal, it may be difficult to get supplies in time and at the original pricing.
Each business is different and solutions are not one-size-fits-all. Contact us and let’s figure out what the best steps your business should take to adapt to the new normal.
The Emergency Economic Injury Disaster Loan (EIDL) application from the Small Business Administration is fairly straightforward.
If you need assistance in filling it out, please contact me today as funds are limited and applications are coming in quickly.
4/16/2020 UPDATE: A loan officer from the SBA called me today to let me know that they will send an email with a .gov link (https://covid19relief.sba.gov/#/ do NOT click on any other URL extensions as there are many scams out there). Once I clicked on that, I resubmitted the same application which then takes me to the approval process.
