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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.

Lipstick on a pig and recession-proof businesses

Lipstick on a pig and recession-proof businesses - Your Startup Guru
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.

Chart showing Real GDP: Percent change from preceding quarter

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.

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 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.

Just a friendly reminder

To buy local today if possible

Another successful launch

raffle rush

Raffle Rush is a useful app where if you’re at an event, you can enter draws to win exciting prizes throughout the day.  All you need to do is download the app, sign up and scan the relevant QR code. And voila! You’re ready to up your chances of scoring big. Your email is your sole ticket to success!

Your Startup Guru worked with Anthony to create a business plan which allowed him to find financing to help launch Raffle Rush.

A great episode from a great podcast

Peloton - Your Startup Guru

NPR’s How I Built This is a fantastic podcast that brings the stories behind some of the world’s best-known companies. How I Built This interviews innovators, entrepreneurs and idealists about the movements they built.

Peloton co-founder:  John Foley

In this episode, they interview John Foley, one of the co-founders of Peloton; the fitness and media company that you’ve probably seen commercials for.

In the interview, they greatly undervalued John Foley’s network and experience but nonetheless, this episode touched on several relevant topics my clients often face.  I picked this episode because it was a little more in-depth and enlightening than other episodes in that Foley he talks about:

  • having the discussion with this wife about moving in with her parents if the company fails,
  • how everyone is similarly able including Harvard MBAs,
  • the CEO being the janitor when starting out; something I discussed in a previous post about bootstrapping
  • how VCs are not very adventurous,
  • how Peloton is only recently profitable after 7 years

There are also great questions asked by interviewer that touches on market trends such as arcades no longer thriving due to user experience-to-price dynamics (i.e. video game consoles vs arcades due to quality of experience), penetration/awareness strategy which led to their distribution model given that malls are making an industry correction, and lastly the trademark question: “How much of this was because of your intelligence and hard work, and how much of this was just luck?”

FYI, I always discuss market and industry trends, launch and penetration strategy, as well as bootstrapping in all my business plans.

The entire podcast can be heard here

The Importance of Planning

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Excess inventory, cost management, and other issues are a reality for most businesses.  When uncontrolled, a business can face inadequate cash reserves and even bankruptcy.

To mitigate these issues, proper industry and market research coupled with financial planning for contingencies is crucial for any business.  Whether you’re in the ideation phase or are already up and running, knowing how much to allocate to the various activities a business engages in is difficult so contact me and let’s create a strategy that works for your business.

Festivals, Farmer’s Markets, Conventions, oh my!

ultra-music-festival-week-1-miami-fl-2013
Ultra Music Festival – Miami, Florida

It’s summer and festival season is here.  Events are big business with over 87 million people attending trade shows, conventions, & conferences; while 32 million people attend music festival.  Some annual industry and market stats:

  • Trade shows, conventions, conferences
    • Number: 284,600 annually
      • There are 248 convention centers in the US with a total of 56.29M prime exhibit space.
      • The majority of conventions (21%) have 1,000 – 2,499 attendees
    • Participants: 87,728,000
      • Average attendee spends 8.3 hours viewing trade show exhibits
      • 81% of trade show attendees have buying authority
  • Music festivals, fairs, and other festivals
    • Number: 1,413 annually. Music festivals alone total over 800 annually
    • Attendees: Over 102 million people annually. 32 million people go to at least one music festival annually.
      • Attendees spend on average, $207 a year on live music events and digital music/streaming
      • 1/3 of all festival fans go to more than one festival per year
  • Farmers’ Markets
    • Number: +8,400 markets that convene regularly
    • Attendees: 310,800,000
      • Farmers’ market shoppers spend a mean dollars/week was $25.38
      • Shopper visit an average of 6.12 times/month

What It Means To You

Events are targeted.  So attendees are in your market, many in your target market.  Renting a booth, depending on the event, can be fairly inexpensive.  This is an economical means of raising awareness for your product/service for the following reasons:

  1. You are not locked into a commercial lease contract
  2. Can test the viability of your product/service
  3. Get targeted market feedback

Some of what you may need depending on the event:

  • Mobile merchant services such as Square
  • Email collection method
  • Banners and booth appeal
  • Ready-for-market product/service
    • Or compelling marketing materials (videos, images, samples) of your product/service.

Read more about festivals and marketing.

Contact me and let’s see what strategy works best for your business.

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