Category: business model

How to Beat Amazon

vs amazon

With Sport Chalet closing and even Walmart showing losses, Amazon is the clear competitor to beat.

So far no one has a clear winning strategy:  click and mortar, brick and mortar, online, no one is safe when it comes to retail.  However, there are some that are surviving and thriving by offering something online purchasing cannot match, a visceral shopping experience.

Retailers have to make their stores into a destination.  Funky decoration, unique customer experience, seminars/lectures, a sense of community, etc.  This is really where the personality of the business (the “brand”) is shown.

One example is The Last Bookstore, a bookstore in Los Angeles.   The photos below show a stark difference from Barnes & Nobles.  These aren’t Bookstore temporary holiday decorations but long-term attractions that draw crowds.

This piece invokes a sense of fantasy and imagination that some fictional works brings to readers.

Like other bookstores, there are stationery/craft goods for sale.  The wheel doesn’t have to be reinvented…just tweaked to a unique way.

This “nonperforming” space, in the traditional retail paradigm, would be scrapped in conventional stores.  The book tunnel is a big draw for shoppers.

The current version of The Last Bookstore is actually its 3rd stage.  First opened in 2005 in a loft, it quickly expanded into the former Citizens National Bank’s 22,0000 sq. ft. downtown space (an insane space for any retailer let alone an independent one).

Experiential shopping obviously has a bunch of challenges; you may need a unique space, maintenance of store fixtures, uniquely trained staff, only local reach (for the time being which I will get into at the bottom of the article), possible higher insurance, and other differentiating factors which all can result in tighter margins.  However, having a challenging strategy is better than having none at all.

Implementation

  • The Last Bookstore:  They are known as the largest independent bookstore in Los Angeles.  They have a crazy interior.  They also sell used books for $1.  This price point is important because buying a used book online will not be cheaper after shipping is factored in.  Also, books offer a fundamentally different tactile experience from eBooks.  So customers walk in to check it out.  They wander the vast selection, and take pictures of the funky decor.  They  wander through the store they touch items, a psychological factor in sales.
    • Now they’re are not just a consumer.  Now they’re a consumer at a super hip, independent, small business.  They feel good about themselves.  They tweet to their friends about it.  Repeat.
  • Clothing Retailers:  Using my client Maitri Yoga as an example, a yoga clothing retailer; don’t sell too many existing/famous brands.  About 40-60 (name/unknown) mix.  You’re not going to be able to compete on price and there are also covenants on discount pricing for name brands.  People already know the sizing for these brands so they will use your store as a showroom (like Best Buy used to be before offering price matching).  Sizing and other factors are not uniform throughout clothing, so the product needs to be felt and tried on.  Therefore you have to offer goods that aren’t known and aren’t sold on Amazon.  They come in for a Prana top but see a new unknown brand.  Now you’re the hip store that sells up and coming brands that aren’t offered on Amazon.  In order to do this, you and your purchaser/procurement officer has to know market trends, know which brands have good quality, nice design, etc.

The work doesn’t stop there.  The store has to be laid out in a manner that draws in the customer.  New items in the front.  Focal decor near the front and in the center/back.  You’re going to have to go to estate sales, yard sales, furniture store liquidation sales, etc. to purchase furniture, decorations, accent pieces that fit the company’s brand.

Additionally, you have to build community engagement.  If you’re a Williams Sonoma, you have to offer cooking events.  If you’re a Nike, you have run Clubs to build engagement. Potential customers will come in for the event but may purchase something that caught their eye.  The costs for holding public relations activities such as events can grow beyond the return on investment so keep an eye on public awareness expenses.

The good news for small business owners is that the unique, boutique atmosphere each independent retailer has cannot easily be matched by larger companies.

Every industry is different so I would have to consult with you on an individual basis; then look at industry & market trends, the culture of the brand, the company’s financials (look at its performing items and overhead), etc.  This is all under my strategy consulting services.

 

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What is Strategy Consulting?

Strategy

One of the services we offer is strategy consulting.  However, the name is quite vague so what is strategy consulting?  It is a lot of things.  It varies by the needs of the client.  Some clients need help developing an overall strategy for the business.

Say they have a product but not much else.  So they need everything from naming of their product, research on where to sell their product, team building, etc.  Naming might require a psychographic analysis of branding.

If they are a little farther along, it can be an audit of what they’re already doing, or analysis of where to go next.  A business might be looking at weighing the pros and cons of expanding to a new market, introducing a new product, do a product overhaul, etc.  Product overhaul might require a net present value calculation of multiple alternatives.

Every situation is unique so contact us and let’s figure out what you need.

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12 businesses you can start now

dog_walker_-_buenos_aires

Here’s an interesting article from Inc. Magazine about businesses that almost anyone can start.  The reason why many people can do these is that they can have low barriers to entry (e.g. startup costs, regulatory hurdles, etc.), moderate competition, and decent industry growth potential.  The list is:

1. Meditation studio

2. Consulting

3. QA testing

4. Online research

5. Virtual assistant

6. Corporate cleaning service

7. Dog walking

8. Lawn care and snow removal

9. Homemade gourmet foods

10. Green consulting

11. Assembling Ikea furniture

12. Personal organizer

The article misses the most important thing:  Passion.  That is why entrepreneurship is NOT for everyone.  If you’re going to start a business you have to be willing to work very very hard at it.  So if dog walking is a calling for you, go  out there and make some money!

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Business of Holidays

Last weekend was Halloween and business was good.

jack o lantern $

According to the National Retail Federation, American consumers will have spent $6.9 Billion USD on Halloween costumes, decorations and related items this year.  This includes haunted houses, and candy.

top-2015-halloween-trends-2-1024

So, wow did it go from a niche holiday to the 2nd most lucrative holiday behind Christmas?

Halloween used to be only popular among school aged children because they get candy.  Now, the holiday is not just for kids.  Adults are embracing it full-on.  Some 13% of Americans ages 18-44 say Halloween is their favorite holiday, reports DDB Worldwide.  There are just as many adults costumes are here are children’s costumes in the stores.  Including “Sexy Pizza Rat“.

It probably started like most trends: Organically.  A small bunch of young adults in relatively isolated enclaves throughout the nation that wanted to partake in costuming.  Then other people saw how fun it was and then the number of participants grew into a measurable amount.

Slate has a pretty interesting article theorizing about its beginnings at the Halloween parade in New York City’s Greenwich Village.  This parade for all-ages, first started in the early-70’s, began as a neighborhood event organized by a local puppeteer and mask-maker.  Its fun and popularity then spread to San Francisco and Los Angeles.

The appeal to adults is not a difficult concept to grasp.  “There are several reasons [for its adult popularity],” says Denise Delahorne of DDB Worldwide, a global marketing communications network in a recent 2012 Forbes article, “There’s no stress to it. You don’t have to travel or deal with relatives. There’s not the holiday pressure to find a date if you are single. You can wear whatever you want and not be judged. There’s the fantasy, role-play element.”

Businesses saw this trend (the power of market research!!) and seized this market opportunity.  Voila! Halloween as we currently know it came to being.

Not Just Halloween

Because of these reasons, ancillary (niche) markets have begun reaping the benefits of costuming.  Now, dressing-up has gone from beyond Oct. 31 to dates throughout the year at comic book conventions, anime expos, etc. and throughout across the United States and beyond.

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anime character at 2012 Anime Expo

The commercialization of Halloween isn’t unique though.  In fact, Christmas wasn’t always about retail.  An event that might have happened in the Spring over two millennia ago eventually became linked to a 4th-century Greek bishop known for gift giving.  This act of gifting, over centuries, became more commercialized.  In even in the 1800’s letters were written lamenting that “Christmas wasn’t the same as it used to be.”

We also did it with Valentine’s Day.  For better or for worse, the next step might be commercializing Thanksgiving.  Then we can have 5 uninterrupted months of “holiday” spending.  If I were commissioned to do a marketing/PR campaign to commercialize Thanksgiving, I would investigate the underlying psychology that differentiates Thanksgiving from the other holidays (see the Denise Delahorne quote above).  Maybe a little DIY, a little up-cycling/repurposing, gluttonous eating, etc.  Then craft an activity/event that addresses these elements.  Next craft the marketing communications that implies the psychological elements in the advertising of the product/service I’m selling.

Black_Friday_ definition

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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.

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Competitive advantage and coffee

Competitive advantage and coffee at one 7-Eleven location

When you are asked what your competitive advantage is, what do you think?  Processes?  Patents/Intellectual property?  Cutting-edge algorithms and data analytics? Those are all valid ways to have a leg-up on your competition.  However, not all competitive advantages are high-tech and modern.  Some are old-school.  Tried-and-true methods for (in this case) building customer loyalty/satisfaction/based and making the sale.  There are many areas in which a company can improve effectiveness, but that is for another post.

One of 7-Eleven’s competitive advantages allows one location to sell over 2,500 cups of coffee a day.  2,500 cups. A. Day.  This location sells the most coffee out of any other 7-Eleven location in the world.  Think of every single 7-Eleven you’ve ever driven by in your life.  This 7-Eleven sells more coffee than that one.

How?

Store manager Delores Bisagni.  Delores, who is on kidney dialysis, has been working at her location in Shirley, NY 7-Eleven for 18 years.  Delores’s secret is knowing virtually every single customer’s name.  That’s it.  You go there, and she greets you (by name if you’re a regular) sometimes with a hug, you get your coffee and get on your way.  If you’re new, she greets you and asks your name.  Over time, she’ll remember you, make you feel welcome for coming to her store, and causes you to come back.  That is it!!!  That is how she sells 2,500 cups of coffee a day!  No traffic flow algorithm, CRM software, etc.

Delores might have profound name memorization skills and whatnot.  However, I believe it’s more that she cares about her customers.  “Care for our customers” is a slogan most businesses don’t understand and/or believe in.  However, if you can truly understand and apply that concept, I think it will help you.  Maybe not make you the #1 seller in your field, but will help you nonetheless. That is why I offer my services at a deep discount, give free editing for the life of your business, often give free advice, will work with clients that can’t pay right away, and follow up on how your start-up is doing.  So far, it’s been working very well!

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David vs. Goliath the story of Netflix vs. Blockbuster

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. This reminded me of David vs. Goliath the story of Netflix vs. Blockbuster.

So what do you do when you’re 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 was the proverbial Goliath with about 9,000 stores globally and revenues of over $6 billion.  Netflix was David and 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 makes recommendations for other films that they might like, including movies that the viewer may have never heard of.  This rating-based recommendation is very commonplace 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 increase, and money comes in.
  • Constantly Improve – One of Netflix’s criticisms is that DVD delivery is often slow.  Creating a logistics and inventory management system that receives orders and quickly sends out products, 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 immitation.  In 2005, they finally did away with late fees.  In 2009, they introduced 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 offload their many stores.
    • Additionally, Blockbuster did not consider the rapidly expanding prevalence of broadband internet in US homes. By 2009, 68.7% of US households had broadband internet. Also, in 2008, the Broadband Data Improvement Act, a bill to improve the quality of federal and state data regarding the availability and quality of broadband services was passed, ushering a digital highway for movie streaming.
  • 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.  They filled their stores with not just movies but video games, candies, and other goods.  Unfortunately, all these stores require operating expenses.  Operating expenses that were greater than the gross profit (i.e., Revenues minus 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. David had defeated Goliath.

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

Contact us for help with Industry and Market research so you can make the right decisions for your company.

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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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Crowdfunding could grant greater access to capital

crowdfundingescenseThe Securities Exchange Commission, the body that enforces federal securities laws and regulates the securities industry, the nation’s stock and options exchanges, among other functions have agreed to propose a rule that would allow the average-Joe to invest in startups.  The “Regulation Crowdfunding” proposal would allow a company to receive money directly from nonaccredited investors in exchange for equity-ownership of the company.  Without this law, smaller companies had limited options for raising money from investors (typically accredited investors, commercial banks and VCs).  Now they can raise money similar to that as if they were a public company.

There are conditions to crowdfunding:

1)  Companies can only raise up to $1 million per year from crowdfunding

2)  Investors can only invest upto 5% of their annual income.

3)  Investors must invest through crowdfunding portals like CircleUp.

Read the rest of the article on TechCrunch.

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