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What Flamin’ Hot Can Teach Us About Entrepreneurship

What Flamin' Hot Can Teach Us About Entrepreneurship

Very loosely based on actual events but Flamin’ Hot can teach us a few things about entrepreneurship.

Flamin’ Hot is a fictionalized dramatization of how the wildly popular Flamin’ Hot line of products was created. A more detailed account of the creation of Flamin’ Hot Cheetos and related products can be found in this LA Times article. Although it is very loosely based on actual events, the film can teach us a few things about entrepreneurship.

Warning Spoilers Ahead

Entrepreneurial Spirit

Richard Montañez, the supposed creator was a natural entrepreneur since childhood. In the film, he was bullied by his classmates about his burrito lunch. He persuaded them to try it and got them to buy burritos from him. Richard then sold burritos to the entire school. Richard also showed interest in machinery early on which helped him understand the chip manufacturing process.

Not everyone is born with the traits and proclivities to create something new, but if you are, it’s a big advantage.

No Shame

Selling drugs got Richard in trouble with the law which limited his career options. So he pleaded his way into a janitorial job. Richard swallowed his pride and did the work.

Our perceptions about our self, how we think others perceive us, where we think we should be in life, pride, shame, etc. are all factors that can sometimes limit us. Overcoming this is probably more important than being a natural entrepreneur.

Industry and Market Research

Richard learned his job as a janitor but also learned how the chips were made. He also asked questions about chip manufacturing to people that were not in his department; thus crossing over departmental “cliques” — sanitation doesn’t mingle with engineers, etc. This allowed him to learn more about chip manufacturing than almost anyone. His willingness to overcome shame/embarrassment, in this case overcome corporate culture, also allowed him to access knowledge that others were unwilling/uninterested in learning.

Additionally, Richard’s Mexican-American background gave him exposure to spicy food and awareness about the large Latin-American population. In 1980, 6.5% of the US Population was Hispanic; by 1990, it grew to 8.8% as the total US population grew 22 million in that time. He saw how his friends and family would add spicy seasoning to their foods. Richard also saw, when he was on a delivery run with a coworker, that mainstream snacks were the only option in neighborhoods like his. A large and rapidly growing market did not have a spicy option.

This is all part of industry and market research.

In reality, Fred Lindsay, a Frito-Lay salesman that worked the Chicago and Great Lakes region noticed spicy products from regional competitors out-selling Frito-Lay.

Learn everything you can about your business, other people’s businesses, your customers, their customers. Knowledge is power.

New Product/Service Creation

It is important to note that Flamin’ Hot Cheetos (according to the movie) did not happen over the course of a couple of years. Richard was working at the plant for over 8 years when the idea came to him. Also, in the movie, Richard’s wife Judy, developed the recipe in what seems like less than a year.

In reality, Lynne Greenfeld and a team of product developers at Frito-Lay was assigned in 1989 to create a snack designed to compete with spicy snacks sold in the inner-city mini marts of the Midwest. Greenfeld would go on a field marketing tour throughout the Midwest and bring back 50 different bags of snacks that were all new to her. Eventually, she and her team honed in on a flavor combination and chubby devil branding that we know today. This process took around a year.

Bootstrapping

With the recipe in hand, Richard needed to acquire chips to coat the newly developed spicy slurry with. At the Frito-Lay factory, brown chips were thrown out because they only wanted the lighter colored chips. Richard took the discarded chips to create his first batch.

Finding inexpensive solutions is a crucial task in entrepreneurship.

Pitching

A pivotal moment in the movie happened when Richard looked up the contact info of Roger Enrico, CEO and Chairman of PepsiCo Inc., the corporate owner of Frito-Lay, to pitch the idea to him.

In the movie, Richard stumbles when asked about market share and product yield. This is where our services come in. Our industry leading pitch decks come with industry and market overviews, projected sales, and much more. Companies from a wide range of industries have used our pitch decks to raise funds from banks, SBA, and angel investors.

Guerrilla Marketing

Even after convincing Enrico to launch the Flamin’ Hot line, it was not all smooth sailing. In the movie, Frito-Lay did not launch an advertising campaign as most companies do for most products and services. As a result, the products were not selling.

To raise awareness for the product, Richard resorted to guerrilla marketing. He rallied his friends, family, and coworkers to start giving away unsold bags for free to anyone in the neighborhood. This strategy, more specifically, is called product sampling, and is commonly used by companies to raise awareness and increase the chances of initial purchases.

In reality, the Flamin’ Hot line of products had the full force of Frito-Lay’s marketing department. Unfortunately for most entrepreneurs, they do not have a large corporation driving awareness for their newly launched product.

Contact us today for help with your new product development.

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.

Live by the sales projection, die by the sales projection

Creators of the board game The Contender: The Game of Presidential Debate raised $140k on Kickstarter but ended up $40k in debt due to inaccurately predicting future sales.  This caused them to order more games than they could sell and ultimately caused them to go into the red for some time.

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So how do you predict sales?  Forecasting is as much art as it is science, finding a right method that is accurate will greatly enhance the efficiency and profitability of any business:  over-ordering materials, under-allocating resources, etc. all undermine a company’s operations.

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The selection of a method depends on many factors—the context of the forecast, the relevance and availability of historical data, the degree of accuracy desirable, the time period to be forecast, the cost/ benefit (or value) of the forecast to the company, and the time available for making the analysis.

When a company forecasts for a particular product, it must consider the stage of the product’s life cycle for which it is forecasting. The availability of data and the possibility of establishing relationships between the factors depend directly on the maturity of a product, and hence the life-cycle stage is a prime determinant of the forecasting method to be used.

All Your Startup Guru business plans come with projected financial statements.  We use a combination of industry growth data, historical sales data (if the client has any), seasonal adjustments, advertising expenditures, and other factors pertinent to the specific client.

Which method is right for you?  Contact us here and let’s figure out how to plan for your company’s future.

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Internet marketing overview

internet-marketing

A lot of my clients want a marketing strategy that involves internet marketing. Usually just online advertising is fine, but to more fully utilize the tools available to a small business, an internet marketing component should be part of a marketing strategy.

Internet marketing sounds straight forward enough and to some degree it is.  However, it can get quite confusing when one goes beyond simple advertising on one website.  Mix in compensation methods, market segmentation, success metrics, etc.  then it gets fairly complex.  As such, I put together an overview of internet marketing.

This post is a 30,000 foot outline of internet marketing (online advertising).  As such, it is just an overview and not meant for detailed explanation.  Each concept can be more deeply studied.  Some of the terms are interrelated, meaning they are not mutually exclusive and can be blended with one another.  Please keep in mind, marketing =/= advertising, although the two terms are frequently interchanged advertising is a component of marketing.  Therefore, some of the concepts are more directed about marketing the company and/or product rather than just advertising.

This overview is pretty broad so skip to the end to find out what you as an entrepreneur/small business owner can do to utilize internet marketing for your company.  The first two sections are:  Delivery methods and Compensation methods

Delivery methods

  • Display advertising:  This is the most common and probably what everyone is most familiar with.  The process can be straight forward or quite complicated.
    • Example: Pretty much every website you’ve ever visited.
    • Related:  Web banner advertising, frame ad (i.e. traditional banner), pop-ups/pop-unders, floating ad, expanding ad, trick banners, news feed ads
      • Display advertising process overview:  This is where the real difference between traditional vs. online advertising is seen.  In traditional (and simple online) cases, the advertiser contracts with the website publisher and the ad is displayed. This is hardly done anymore beyond small relatively unknown websites.  In a more complex case, the advertiser hires a marketing firm that might handle everything including content creation and placement (this is not the case many small startups face. Scroll down to the end for actionable info).  The component that separates online advertising with traditional real-world advertising is the real-time bidding process at an ad exchange.  An ad exchange is a platform that facilitates the buying and selling of media advertising inventory from multiple ad networks. Prices for the inventory are determined through bidding. The approach is technology-driven as opposed to the historical approach of negotiating price on media inventory.
        • General diagram of the display advertising processad-exchangeSource:  Wikipedia – Ad exchange
        • Ad network:  An online ad network is  a company that connects advertisers to web sites that want to host advertisements. The key function of an ad network is aggregation of ad space supply from publishers and matching it with advertiser demand.  The fundamental difference between traditional media ad networks and online ad networks is that online ad networks use a central ad server to deliver advertisements to consumers, which enables targeting, tracking and reporting of impressions in ways not possible with analog media alternatives.
  • Interstitial:  Ads that appear before the main content of the site is loaded.  Kind of like a pop-up, but the ad appears in the same window instead of a new window.
    •  Example:  Bvlgari’s ad on Forbesinterstitial
    • Related:  Text ads
  • Search engine marketing:  You type in ‘auto mechanic’ and the first search result that comes up is a doctor’s office, usually near you.  This isn’t necessarily an “advertisement” (remember marketing =/= advertising) but it brings awareness of the business to the customer by displaying it in a list of other auto mechanics.  What rank it shows up on a search engine’s result is a mixture of keywords, backlinks, tags, page titles, daily bidding budget, etc.
    • Example:  Google Adwords, Bing/Yahoo Adsysg-adwords
    • Related:  Search ads, SEO, sponsored search
  • Social media marketing:  Advertising on…social media!  Each platform has their own pricing, terms and conditions.  However, their reach is expansive and consistent.  Facebook, for example charges as little as $5 per day and you can choose your target market, key words, photos, etc.  I wouldn’t recommend social media marketing for startup B2B companies, but a great resource for businesses in other sectors.
  • Email advertising:  Often synonymous with spam.  Success is mixed but a resource to consider.  Unsolicited emails are not encouraged unless you are very sure the target is receptive to your product/service.  However, if the recipient is a former customer, it is a great and direct method of communicating deals, specials, updates, etc.  You can easily create your own email list or hire email marketing companies such as Constant Contact to do this.
  • Online classified advertising:  Online classified are relatively inexpensive but less targeted.  An engaging headline, attractive photos (if attachments are allowed), and a persuasive yet succinct text body are essential for success with this advertising channel.  This is not a suitable advertising channel for high-end/luxury brands’ products/services.
    • Example:  Craigslist, eBay Classifieds
  • Affiliate marketing:  Sometimes called lead generation, affiliate marketing is when advertisers organize a 3rd party to generate potential customers for them.  Third-party affiliates receive payment based on sales generated through their promotions.  The affiliate earns a commission when the visitor completes a desired action such as a link click, email submission, filling out an online form, completing an online purchase, etc.
    • Example:  Product review blogs affiliate-marketing
    • Related:  Affiliate network, CPM, CPC, CPA
  • Content marketing:  An article, video, how-to-guides, quizzes, etc. (i.e. content) that is meant to market a product or business.  This can be a relatively expensive strategy suited for more established companies.  Companies can hire “brand journalists” to write articles about a wide range of subjects relevant to their company.  The articles I post on this website is a very simple version of content marketing.
    • Example:  GoPro’s page on YouTubegopro
    • Related:  Earned media, custom media, brand language, inbound marketing, interactive marketing, content strategy
  • Native advertising:  A type of “disguised” advertising that matches the form and function of the platform upon which it appears. In many cases, it is displayed as either an article or video, produced by an advertiser with the specific intent to promote a product. The word “native” refers to the similarity of the content with the other media that appears on the website.  The post the link takes you can be the company’s page or an article discussed in the Content Marketing section above.
    • Example:  “Articles” that show up in a feednative-ad-exampleearn-graphic
    • Related:  In-feed ads, search ads, recommendation widgets, promoted listings
  • Online marketing platform:  This is software designed to help manage all of your marketing in one platform.  Your marketing manager or hired marketing firm will most likely utilize software of this sort.  As a startup, depending on your marketing strategy, using an online marketing platform is probably not necessary.

 

Compensation methods

Due to the accurate data on views, various types of multimedia, and other metrics that digital advertising allows for over traditional channels, several compensation methods have come into favor in the industry.  Furthermore, because advertisers can track action online (unlike if a radio advertisement has been heard or a TV commercial seen) compensation methods is largely separated into impression and action.

  • Cost per mille (CPM):  With this impression method, advertisers pay for every thousand displays (a.k.a impressions) to potential customers.
  • Cost per click (CPC):  Advertisers pay each time a user clicks on the ad/link with this action method.  CPC is recommended as a compensation method if you want the customer to visit your site.  If your goal is just to build awareness of your company then CPM is recommended.  CPC is growing in popularity though, with two-thirds of all online advertising compensation methods being CPC.  One concern with CPC is accidental clicks.  Thus, click rates using CPC has to be lowered to account for accidental clicks.
  • Cost per engagement (CPE):  This action method aims to track not just an impression but if the viewer interacted with the ad.
  • Cost per view (CPV):  This is mainly for video advertisements and is appropriately the primary benchmark used in YouTube ad campaigns.
  • Fixed cost:  This is the most straightforward and arguably the most cost (in)effective compensation method.  This is mainly time duration dependent and as such the cost is measured in cost per day (CPD).
  • There are other, less common methods as well as hybrid methods but as a startup it is unlikely you will see them.

Wow this is great and all, so how do you as a small business owner use this to advertise online?

It’s pretty straight forward:  Search engine marketing (Google Adwords and Bing Ads) and Social media (typically Facebook).  If you do that you’ll probably be ok and have most of your bases covered.  The trick is getting your demographics, budget, and keywords on point.  Internet marketing is an art that almost anyone can do but takes a skilled professional to do well.

All my business plans come with a basic marketing plan which can be expanded into a full fledged marketing plan that breaks down a company’s full marketing mix including branding, timing, advertising channels, pricing, and more.

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Sport Chalet is closing

Vestis Retail Group, the parent company of sports equipment and apparel stores Sport Chalet, Eastern Mountain Sports, and  Bob’s Stores has filed for Chapter 11 bankruptcy protection today.

I don’t have the financials for Bob’s Stores or Eastern Mountain Sports, but if the numbers for them looks like that of Sport Chalet, it looks like it’s another victim of passing trends and Amazon.  I wrote about the bankruptcy of Quiksilver and how it can save itself, and about Amazon‘s effect on Walmart.

sport chalet

Mountain sports presents another challenge above its sea-level cousin, surfing.  It costs a LOT more money to go skiing.  Skis, jacket, goggles, beanies, gas, food, etc.  The list goes on and on.  With the slow economic recovery putting Vestis’s holdings on a slower expansion pace, downsizing and keeping only strategic stores in wealthier markets would have slowed the cash flow hemorrhage.  Another factor unique to snow sports is the abnormally warm winters with little snowfall.  This climate factor greatly hurt sales.

Who knows what the boardroom meetings were like when CEO Mark Walsh, CFO Susan Riley, and others were meeting; nonetheless they should’ve listened to the decision-maker that had a closer eye on industry, market, and environmental trends.

In every business plan, I include industry and market analysis that covers the trends, threats, and emerging opportunities for every business.

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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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Coachella and Advertising

Sunset

Of course almost every company needs to advertise.  But where?  Targeted advertising is most effective.  So just put a sign at where your market hangs out (what’s “market”?  check out my article on some commonly mistaken business terms)?  You can put up a sign but it comes off as inauthentic and lazy.  You have to deliver the brand message/concept in a way that will be received.

H&M is sponsoring Coachella for its seventh year.  Premier music festivals can make over $1 million by selling stage-naming rights to corporate sponsors.  However, other businesses are getting on the ground-level and making for a more interactive experience.  One way is experiential marketing / promotional events:  Levi Jeans’ Pool Party at Coachella.  Yeah, you know it’s commercial but it still creates a positive association with the brand.  Yes, the same positive association used on all animals to create habits.  Habits = sales, if ingrained deeply enough.

Where do you find where your market hangs out?  Google industry trade shows, magazine, clubs, etc.  Selling knitting needles?  Find influential people on Pinterest and send them a sample.  Opening a bakery?  Go get a booth at the local farmer’s market and get to know those in the neighborhood.  In Supermensch: The Legend of Shep Gordon, Shep sold out Alice Cooper’s show in London by having a billboard truck advertising Cooper’s show breakdown in Piccadilly Circus (one of London’s busiest roadways) during rush hour traffic.  So for hours people helplessly saw in person and on the news, Cooper’s ad while stuck in traffic for pennies on the dollar!!!  There are only as many ways to promote your business as the imagination allows.

So don’t just spend a ton of money and blow it into the wind.  Do a ton of research and then inject that into a targeted promotion as part of an overall marketing campaign strategy.

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Product extension

When you think of McDonald’s food you think of burgers.  Maybe other things too but mainly burgers.  However, back in the late-80s/early-90s the Golden Arches tried to expand into pizzas.

mcdonalds_pizza
Image Credit:  Collecingcandy.com

This was ultimately an unsuccessful expansion for reasons beyond a confusing palate.  They failed because they expanded beyond their core competency:  making hamburgers.

Operations

From an operational stand point hamburgers are different than pizzas.  Making pizzas require different equipment and ingredients.  One reason for McDonald’s profitability at relatively inexpensive pricing is due to cost efficiencies from economies of scale; every inch of a McDonald’s kitchen is optimized.  Fry pans have a designated size that fit with the size of the patty, that are heat up at a certain rate.  Pizzas don’t need frying pans.  They need ovens.  Ovens that are expensive to put into existing restaurants and take up valuable kitchen space.  Pizzas also took longer to prepare than the fast food burger.  People had to wait longer; an unusual thing for a fast food company to ask of their customers.  Lastly, pizzas not fit through the drive through window as easily as a bag of burgers and fries.

Marketing

They could’ve had success with pizzas if they approached it from a different angle.  McDonald’s found success with a production expansion with the Egg McMuffin.  Originally, skeptically received, breakfast is a McDonald’s staple now.  Burgers are lunch thing, but they successfully introduced breakfast.  Pizza is a dinner thing.  Therefore, instead of pizzas, McDonald’s should have brought in pizza by the slice (a very well-known concept at pizzerias) or at least personal sized /small pizzas.  A slice of pizza for lunch is not a foreign concept.  An entire pizza for lunch is.  

The difficulty in making and selling different types of food is probably why even large chain restaurants choose to differentiate different palates under different brands as Pizza Hut is doing with WingStreet and Carl’s Jr. with Green Burrito.

pizzahutwingstreetcarlsjrgreenburrito

Now it will be harder to reintroduce pizzas because McDonald’s is busy rebranding itself to health with marginal success.  Pizzas aren’t considered to be healthy.  Nonetheless, it is not hitting their market value with a 5 year high at $118/share.

mcd stock price

McDonald’s might set up for another go at extension but instead of a product extension (i.e. new product), they might go brand extension (i.e. new company).  The popularity of fast casual dining such as Chipotle (before the e-coli debacle) and Blaze Pizza might be an attractive direction to expand McDonald’s.

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Black Friday

Black_Friday_ definition

According to the National Retail Federation’s November consumer survey, 135.8 million American plan to shop this Thanksgiving weekend.

Last year, Americans spent $50.9 billion dollars on Black Friday.  This amount is down from $57.4 in 2013 and $59.1 in 2012.

You can find other interesting Black Friday statistics here.

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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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