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Lessons from Quibi’s closure

Media streaming service Quibi closes - Your Startup Guru
Media streaming service Quibi closes

Media streaming service Quibi shutting down six months after launching. Their closure is not surprising because Jeffrey Katzenberg, the former Disney studio head and DreamWorks co-founder missed one important lessons when selling something new: make it familiar.

Katzenberg missed one important lessons when selling something new: make it familiar.
People were not going to shell out $5 per month to watch something they’ve never heard of with commercials.

In a previous post, we discussed how industrial designer and marketer Raymond Loewy created the concept of MAYA — Most Advanced Yet Acceptable. 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.

What is Quibi?

Quibi is a media streaming service that promised to reinvent television by streaming high-quality content in ten-minute-or-less episodes to “the TV in your pocket.” Quibi, is short for “quick bites.” Katzenberg believed enough mobile-phone users would use their spare minutes of downtime — while waiting in line for coffee, riding the bus or subway — to watch bite-sized episodes of premium, Hollywood-quality video.

The concept itself is great except all of their content was new and it cost $4.99 (with ads) or $7.99 (without ads) per month. People were not going to shell out $5 per month to watch something they’ve never heard of with commercials. Also, the short episodes might not be long enough to engage the audience. Ultimately, their revenue model did not match their pricing strategy (1, 2).

What Should Quibi Have Done?

Using Loewy’s lessons, in order to make the shows on Quibi familiar as well as its short format, they should have gone with the freemium model by giving one month free with an additional month if they get someone to join. This will give time for people to bond with the shows before introducing the paid no-commercial version. Hulu used this same pricing strategy and it worked out well for them.

According to Vulture article Is Anyone Watching Quibi?

Quibi was to launch in the spring of 2020 with 50 original shows, and another 125 were to be rolled out by the end of the first year. Recognizing the risk of making something for an unproven platform, Katzenberg typically offered to pay producers’ costs plus 20 percent. “People on Quibi have $100,000 a minute to make content,” Katzenberg tells me. “That doesn’t exist on other platforms.”

This production pace and cash burn is difficult to sustain and now, in a fire sale, they are giving out free 6 month trial memberships in an attempt to gain viewership but it was too little too late.

Business PLAN vs. Business MODEL

Control Leave Mark Production Planning Marker Hand
Image courtesy of Max Pixel

Sometimes my clients ask for a business plan but aren’t yet seeking funding or aren’t beyond the ideation/conceptualization stage.  This is where a business model is helpful.

“I have an idea for a product/service.  How do I monetize?”

At this stage, you don’t need to exactly know the details of marketing strategy, distribution channels, location, etc. unless it is crucial to your business model.

At the ideation/conceptualization stage, you need to know who your market (i.e. customers) is, growth rate of the industry, who your competitors are, the major costs to bring your product/service to market, and any other major hurdles (e.g. regulatory) that might be a barrier to entry.  Business models are 30,000 foot views for seeing how the business will run: who the customers are, selling price of the product/service, who the competitors are, etc.

Business plans go further into depth than business models by including details of the operation, marketing, product/service, financial projections, investment ask, and other pertinent information specific to the industry/sector that your company will occupy.  A business plan can then be presented to investors and lenders to raise capital to launch the business.

Business model should not be confused with revenue model.  Revenue model is a piece of the business model.  In other words, how the company generates revenue:  production, subscription, advertising, commission, etc.

No matter where you are at the business development process, contact us to help map out the strategy for your business launch.

Adjusting to the new normal by pivoting

In changing times, you have to adapt to the new normal in order to survive. Your Startup Guru

Pivoting in Business

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.

Make the right choice

Money is extraordinarily tight for most people right now so starting a business is a pipe dream that has been put on hold indefinitely. However, you can make the choice and do the many things you can do with little or no money to continue to make incremental progress.

One of the most important yet least expensive things you can do is gain knowledge. Research into who your customers are, who your competitors are, what it costs to launch, who can supply raw materials for your product, etc. is relatively inexpensive with a simple online search but a critical. Research is an important task because it also tells you if your idea is feasible. A feasibility study is done to consider the various aspects of a business to see if it is a viable undertaking. Very briefly, feasibility studies are curtailed business plan-like documents where you outline your product/service, the business model, your competitors and your customers, expected revenues/expenses/startup costs. A well done feasibility study can save hundreds of hours and thousands of dollars in sunk costs.

Your Startup Guru offers price matching, discounted fees, and revenue sharing options to work with tight budgets. Contact us to get started on your feasibility study.

Make the right choice — do not go back to sleep and just dream.

Old school business model

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 CEO Jennifer 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:

World Economic Forum: This is how millennials are fueling the rental economy

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.

Adjusting to market demand

zara_-_london_uk_27

This is what allowed Zara founder, Amancio Ortega to become the richest man in the world (for at least a couple days).

640px-amancio_ortega_e0a485e0a4aee0a4bee0a4a8e0a4b8e0a580e0a493_e0a493e0a4b0e0a58de0a49fe0a587e0a497e0a4be

Fast fashion:  Customers wanted the latest fashion, yesterday.  Zara’s competitors were taking too long bringing the latest designs to market.  Other retailers try to decide what to make, then produce it.  A push-model of product development.  For example, GAP and H&M will take 5 months to make, design, and distribute new products.  Zara listens to what their customers are asking and buying.  A pull-model of product development that takes Zara 3 weeks.

Of course it’s not as easy as just asking what each customer wants.  Lots of times, people don’t know what they want until it’s shown them.  Henry Ford once said if he asked what his customers want, they would’ve responded with, “a faster horse.”  Also, changing from a push-model to a pull-model requires overhauling a company’s supply-chain.  Raw materials purchases buy 6 months out or more.  Trying to get a refund on 100 gallons of dye is not as easy as it sounds.

Although Zara is not considered inexpensive, lower-market competitor Forever 21 has taken it to the next level.

Cheap:  In addition to fully embracing fast fashion, Forever 21 offers their products at very low prices.  This has allowed Forever 21 to have revenues of $4.4 billion in 2015.

 

Take away

So how do you incorporate market feedback in your business?  Generally, smaller companies have an easier time making adjustments because it is a more agile company with more one-on-one contact with vendors and customers.  In business school I asked billionaire Leonard Lavin, founder of Alberto-Culver (maker of Alberto VO5 hair products) about his education background.  He said he had an MBWA.  Master By Walking Around.  This meant, he walked around his business and talked to his employees, his customers, his vendors.  He conducted market and industry research everyday.  If you don’t take the time to talk to your customers, it might be detrimental to your company’s success further on down the road.

How Quiksilver (and surf brands in general) can save it/themselves

Last week I highlighted aspects about Quiksilver’s bankruptcy.  So this is what Quiksilver and other surf brands do should to save themselves.

Sector downturn

Looks like the other big surf brand, Billabong is also hurting too with diminishing revenues and net losses from 2012 to 2014.

billabong financials

Recently Billabong also sold its other assets: DaKine, Swell.com and Surfstitch to enhance liquidity.

Billabong also thought about selling RVCA but didn’t.  I’ll get to that in a bit.

As I discussed in my previous post, Quiksilver bankruptcy is partly due to surfing not being as cool as it used to be.

So what is cool?

If extreme sports was cool in the ’90s and ’00s, extreme athletics is cool now.  MMA and CrossFit is cool.

In March 2015 WWE announced a 50/50 joint venture partnership with MMA brand, TapOut.  Founded in 1997, the brand had $200 million in revenues in 2010.   Later that year the founders sold it to Canadian company Authentic Brands Group LLC for an undisclosed sum.

CrossFit had 8,000 affiliates in October 2013.  As of January 2014 the company had 9,000.  In May 2014 it hit 10,000 affiliates.

As shown by strategyandanalytics.com’s graph featured in Fast Company’s article, CrossFit’s popularity growth is amazing.

3035118-inline-i-1-infographic-the-popularity-of-trendy-workouts-over-ten-years

Of course, most people don’t actually want to do WODs and armbars.  They only want to dress like they do, much like surfing and snowboarding.

This is why it’s no coincidence that Reebok (doing well financially with 5% growth in 2014 and seven consecutive quarters of growth) has its hand in the UFC and CrossFit.

Under Armour is so popular.  Under Armour which also makes products for MMA and CrossFit enthusiasts were named as one of the most valuable American brands by Fashionista and as one of the top 10 MMA brands by FightState.

Heck, even Adidas (Reebok’s parent company) makes judo gis!

But Reebok isn’t a surf brand!!  Quiksilver isn’t an MMA/CrossFit brand!!!

So going back to RVCA.  RVCA, is a popular surf brand that is also popular amongst the brazilian jiujitsu crowd with its sponsored athletes such as MMA star BJ Penn amongst BJJ stars.  RVCA recently did a collaboration gi with uber popular gi brand Shoyoroll.  Billabong decided to keep this brand.

As RVCA has shown, it is possible for a surf brand to do a brand extension into other lifestyle activities.

So what should Quiksilver do?

Change their marketing communications.  Surf ads right now are blondes in exotic tropical locations.  Unfortunately for Quiksilver and other surf brands is that demographics are changing:  wealth discrepancy is large also Hispanics and Asians are the fastest-growing minorities in the US.  This growing market segment might not have the money or time to travel to exotic destinations nor do they even look like a pro surfer such as Alana Blanchard.

So abandon their existing surf model?  No, look at the other elements of surf.  The aspects of the lifestyle that are more relatable to this large, young, and growing market segment:

  • Surf spots:  Urban surf spots such as old Huntington Beach (it wasn’t always the gentrified “Surf City USA” it is now), Long Beach, Rockaway Beach NY, San Pedro, etc.  Even urban Honolulu can be a little edgy.
  • Embrace their connections with the skate world.
  • Athletes:  Add famous MMA and/or CrossFit athletes that also surf.  Especially with the Reebok-UFC deal, lots of MMA fighters are looking for more sponsorship money.  UFC middleweight contender Luke Rockhold surfs in Santa Cruz.
  • Other lifestyle images:  Tattoos and asphalt instead of sunsets and palm trees, turntables instead of ukeleles.
  • Diversify:  Buy or strategic partnership with boxing/muay Thai brand Fairtex/etc. or Brazilian jiujitsu brand Gameness/etc.

We’ll see what the future brings.

David vs. Goliath

Over the weekend I was doing some industry analysis for a client. She had a great idea and a novel one at that. Well it turns out that there was one other company in the same niche. A direct competitor…that has the early mover advantage.

So what do you do when your the new kid on the block?  Like anything else, with lots of hard work and a great deal of luck.  Let’s look at the case of Netflix vs. Blockbuster for guidance.

In 2004, Blockbuster had about 9,000 stores globally and revenues of over $6 billion.  Netflix had started just 7 years prior.  Fortunately it had several things going for them:

1.  Hard work

  • Competitive Advantage – Netflix’s algorithm takes user ratings on movies they rented and then make (i.e. compute) recommendations for other films that they might like, including movies that the viewer may have never heard of.  This rating based recommendation is very common-place now (seen everywhere from Pandora to Amazon), but in 1997, Netflix’s algorithm was a competitive advantage.  Viewers get recommendations they really enjoy, customer retention & satisfaction increases, money comes in.
  • Constantly Improve – One of Netflix’s criticisms is that DVD delivery was often slow.  Creating a logistics and inventory management system that receives orders and quickly sends out product, in addition to receiving returns and repackaging for reshipment was key to customer retention & satisfaction.  Netflix is still staying current by moving from DVDs to streaming VOD.

2.  Lots of luck

  • Competition was Flat-footed – Blockbuster kept the same mentality of a 1985 video rental shop.  They held on dearly to their late-fee revenue source, and its high fees and strict enforcement soured customers’ views of the business.  The late-80s/early-90s business model put them behind.  All they did was copy.  In 2005, they finally did away with late fees.  In 2009, they introduce Blockbuster Express, a DVD rental kiosk designed to compete with Redbox.  By now customers are streaming videos and renting DVDs at kiosks, while Blockbuster is trying to off-load their many stores.
  • Competition Thoughtlessly Expanded – Blockbuster rapidly expanded adding its 1,200th store by June 1990 and 9,000 stores worldwide by 2004 .  They wanted to be the biggest.  And fast.  The filled their stores with not just movies, but video games, candies, and other goods.  Unfortunately, all these stores require operating expenses.  Operating expenses that where greater than the gross profit (i.e. Revenues – Cost of sales).  Also, among many stumbles (which is much too long for this post but I put some references below so you can read to your heart’s content) is they failed to anticipate how media consumption will change.  From analog to digital.

Fast forward to today, Netflix has a share price of over $400, revenues of $4.37 billion USD, and over 2,000 full-time employees.  Blockbuster is bankrupt.

netflix v blockbuster

However, like most engaging stories, the end is never the end.  Dish Network purchased Blockbuster and its remaining 1,700 stores on April 6, 2011 for $233 million and took over Blockbuster’s $87 million in debt and liabilities.  Dish now continues to license the brand name to franchise location, and keeps its “Blockbuster on Demand” video streaming service and the “Blockbuster@Home” television package for Dish subscribers.  Maybe this strategy to resuscitate a nearly-dead brand  sounds foolish.  However, so did mailing out DVDs.

For more info:

http://www.referenceforbusiness.com/history2/93/Blockbuster-Inc.html

http://www.ibtimes.com/sad-end-blockbuster-video-onetime-5-billion-company-being-liquidated-competition-online-giants

http://www.fastcompany.com/1690654/blockbuster-bankruptcy-decade-decline

http://www.getfilings.com/o0000930661-02-000951.html

Click to access BBI_10_K.pdf

Once you have a rough idea of what you want to do…

It’s time to hash out a business model. What’a business model? Glad you asked!

It’s a (generally) one-page chart that addresses key elements of your business: Key partners, Key activities, Key resources, value propositions, Customer relationships, Channels, Customer segments, Cost structure, Revenue streams.

Each element takes a considerable about of work to define, refine and establish but that comes later in the business development process.

Before diving head-first into a business plan or into all the many many MANY pages of info on starting a business, start out generally and work down to the details.

Here’s an example of the Nespresso business model.

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