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thinking outside the box

Why _______ fails

FAILURE

When thinking about your business, it is paramount to think of the downside risk: bankruptcy.

Everyone knows the basics: not enough customers, expenses are too high.  However, the devil is in the details.  That’s why a simple Google search of why businesses in your industry fail.  The “unknown unknowns” are critical.  Considerations you haven’t even thought of considering.  Whether it be, having a little extra cash on hand, or a different advertising strategy; this little bit of research will help you learn from the mistakes of others, and hopefully not repeat yourself.

 

From the Real Life Tony Stark

The hundred millionaire next door

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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.

Maximum efficiency for your effort

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A lot of my clients (and generally all people) have difficulty juggling work, life, and starting up their business.

I find for me, not watching TV helps.  I do other activities (surf, Brazilian jiu-jitsu) for relaxation/stress relief.  I get my news online, eat clean/take vitamins to keep my energy up, and stay focused while working by listening to music that helps me zone in.

Of course everyone is different so you gotta find a schedule/method that works for you.

Here are a list of other things you can do to be more productive with your time.

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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MBWA: Master By Walking Around

In one my business school classes we had Mr. Leonard Lavin come speak to us about entrepreneurship.  Mr. Lavin is an American businessman, who founded the Alberto-Culver Company in 1955.  Alberto-Culver was a corporation with international sales whose principal business is manufacturing hair and skin beauty care products under such brands as Alberto VO5, Andrew Collinge, St. Ives (skin care products), TRESemme, FDS, Consort, and Nexxus.  Alberto-Culver was purchased by the Anglo-Dutch consumer goods company Unilever on September 27, 2010 for US$3.7 billion.

When asked about his education Mr. Lavin said his business education came in the form of an MBWA, “master by walking around.”  This means that everyday Mr. Lavin is speaking with his employees of all levels and directly observing how things are run.  Words cannot express how important a ground-level understanding of the day-to-day operations.

Business shouldn’t be run from the boardroom using only preformance reports and metrics to steer its direction.  However, as companies grow, leadership finds it difficult find the time to do this crucial research.  In one episode of Undercover Boss, Gina Rivera, Founder and President of Phenix Salons INC., a franchise which offers independent salon and business professionals the opportunity to own and operate their own luxury salon suites, goes undercover to see if it will color her perception of how the company is running.  As this company is making that difficult transition from small to medium sized enterprise, Ms. Rivera realized she was losing ground-level knowledge of what her franchisees are experiencing.  A must watch!

Not enough time? Try telecommuting

Finding time to do everything on one’s list is difficult enough, let alone finding enough time to start a business. Studies show that the number one drainer of personal time is commuting to and from work.
Fortunately, the traditional 9 to 5 might be losing some footing according to an NPR article.

Now the trick is to get your boss to OK this work arrangement. One method that might be helpful is outlined in Tim Ferris’s book, the 4 Hour work week. Your mileage will vary but it might be worth a try

Just be careful they don’t saddle you with more work.

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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