Niches

Kraft announced that it was splitting up; separating its groceries from its snacks, 18 months after acquiring the candy giant, Cadbury.  Or as this article puts it;

"The plan, which would create a $32 billion international snacks business, including Cadbury, Oreo and Trident brands, and a $16 billion North American grocery business, which will include Kraft Macaroni and Cheese, Oscar Mayer, Philadelphia, Maxwell House, Jell-O and other non-snack brands, seems to be a financial move, designed in part to please activist investors who have called for the company to separate its high-growth global snack brands from its slower-growing, more mature grocery brands. But it also holds lessons for multinational marketers, looking to drive value in fast-growing emerging countries."

Basically,  for small businesses this is a very interesting and hopeful trend among dominant players in particular industries.  It is an acknowledgement that sales growth in the future will occur in emerging countries and that the United States is a mature market.  It also acknowledges that globalization does not bode the end of local and or regional differences; most of what Kraft considers to be brands with international appeal are thus because they do not require refrigeration and or further preparation.

This  will create a tremendous amount of opportunities for small businesses as it will create niches; or segments of a market/industry that are under served.  No dominant player in a market and or industry can be everything to everyone, and that can create opportunities for small businesses.

Being small or specializing can be intimidating; its hard to fathom, in a world of Facebook, Walmart, and Wall Street, how one can be successful as a small, niche provider of a service and or a product.  But remember, in less than four weeks, the Occupy Wall Street protests have expanded from NYC to 951 protests in 82 different countries.

Serving a niche market in an era of "too big to fail," a term that applies to so many companies in a variety of industries today, has natural barriers of entry or moats.  Serving a niche market in an era of "too big to fail" is also a great way to establish and ensure consumer loyalty; there is only brand recognition when one is everything to everyone but their is product loyalty when one is special to a few.

Niches are nothing more than obvious communities; a term in vogue in the "changing the world" mentality of the innovation leaders of social media and the internet.  Niches, just like communities, can be defined by geography, demographics, or shared interests.

In a world where companies are accustomed to annual sales of hundred of millions of dollars a year, or billions a year, a niche market that can generate millions in sales is just something that they cannot exploit to their benefit.  Regardless of how obvious, how logical, and or how profitable.  Thus, "too big to fail" becomes a barrier of entry!

Technology, Retail, and Ecommence

Women account for roughly 75 cents of every dollar spent at retail and women are early adopters of the IPad tablet; in less than a year the IPad, or Tcommerce will revolutionize retail.

The IPad, or tablet, is not just an ebook reader, or something to surf the web with, it is;

If you're fortunate and hip enough to own an iPad -- or have otherwise experimented with one -- the preference for this shopping device will come as no surprise. The nearly 10-inch display offers a comfortable environment for web-surfing and product consideration, overcoming the size restraints that can frustrate shoppers on mobile phones. Compared to point-and-clicking from a laptop, the touch-screen functionality provides a more immediately satisfying and tactile shopping experience. Lightweight and compact, tablets with 3G/4G connectivity are also inherently free from the constraints of the desktop; they can be comfortably schlepped from commuter trains to airport lounges to kitchen counters, facilitating purchases at every venue.

Now, Mark Zuckerberg would have you believe that Fcommerce is the next thing to "blow up"  and Facebook even commissioned a study that showed that while Facebook showed a 92% increase in referrals in August 2011 over the same month a year earlier the reality is that Facebook only accounts for 1.2% of Ecommerce conversions.  Twitter only accounted for .5% but it did achieve the highest purchase average of $121.33.  Social Media conversions represent impulse purchases, not planned purchases; planned purchases are the domain of Google and search.  An explanation of an "impulse purchase" is:

Consumers on Facebook and Twitter don’t intend to make a purchase, but rather share information. A spontaneous shopper might see an ad and get pulled into the retailer’s Web site. The shopper’s personality, combined with impulse and influence from the ad, prompts the sale or conversion.

The IPad or tablet, will totally change retail from a radically different perspective; now a consumer, armed with an IPad, can shop at any brick and mortar establishment and use their IPad to scour the internet for the same product at a cheaper price.  Thus even impulse buys will become rational.

With the announcement of the new Amazon Tablet for $199 Amazon could have become the internet based "Walmart" if their new tablet had included 3G/4G rather than Wifi.

Then of course, you will have the experts going on about "the shopping experience" and multi-channel retail, but I always refer back to an article, Don't Compete On Price, from 2007 that made the same claims and then used Circuit City as a successful case in point!

The reality is that technology, especially the tablet but also mobile technology, have the ability to turn brick and mortar retail stores into nothing but browsing catalog showrooms, much like Service Merchandise, where the purchases are made online from ones cheaper competitor.

The forces of innovation and technology always start out creating more choices and opportunities but they always end up favoring the bigger lower cost competition.  Whether one is talking about trains, automobiles, or the internet, the opportunities once created for many end up leaving only a few.

The only way a manufacturer or a retailer can compete is to focus on a niche, specialization, and  exclusivity.

Politics and Economics

I guess tonight is the night that Barack Obama makes his big speech about jobs!  Pretty much more of the same, tax credits, extended unemployment benefits, infrastructure investments, and funds for states and local governments so that they do not have to lay off teachers and first responders.

No need for me to tune into the speech, because the reality is none of these prescriptions will deal with the economic issues we are currently facing.

In a recent column Jeremy Siegel notes that the S&P 500, which "...represents nearly 80% of the market listed value of U.S. stocks, and U.S. economy..." derive almost 50% of their profits from overseas.

So, simply put 80% of our economy is focused internationally because that is where the growth is and where their futures lie; the days of these business entities creating jobs in the U.S. is over.  Since we do not tax foreign profits until the money is brought to the United States and as they are expanding overseas and have no need to repatriate these profits we will continue to see a reduction in corporate tax collections.

The other day I participated in a debate at a tech venture capital blog, A VC, and of course the sentiment was that technology could solve all of our problems and that government just needs to get out of their way.

The reality is that technology does not create as many jobs as the technology that it creates replaces.  

Then I came across this article this afternoon, What 10 small business owners would tell the President, and one comment in particular stuck out;

"I used to do a lot of the baking and now my partner and I have moved to other aspects of the business. We have stepped out of the kitchen. It is nice to see the business is growing. We started in 2005. We have 20 employees, pretty much full time at this point.


We have a cobranded line of mixes with Williams-Sonoma: brownie mixes, a Bundt cake coming out, and a whole line of breakfast treats. We had this urge to move on and away from the cupcake to prove that American baking is more than just about the cupcake.


We have been hiring more people. It has been a slow, steady climb. We will hire when the need arises. So far, we have never had to let anyone go ever since we opened, actually.


I would like to hear that President Obama is going to continue to back small business owners. There are ways to encourage growth. The number one thing is making credit easy to get. At the moment it is so difficult. It is almost comical. They need to figure out how to extend credit to small business without it being such a hassle.


We actually did go through the process in the very, very beginning of trying to secure startup money. The paperwork required a lawyer and an accountant. The SBA loans are beyond complicated: It is so much paperwork -- so much of a hassle that I could see a lot of people not applying because it is so labor intensive. It is not worth it in the end. It is almost worth it to go outside the SBA."

 I have worked in the world of small businesses, companies with 15 to over a 1,000 employees all my life, and never in my life have I seen a time when financing was as hard to get as it is today.  Its not hard to get, its impossible.

I see all the opportunity being created by technology and the internet for small businesses, for old economy start ups, and niche products, and I wonder how long we can continue to invest in technology when the natural consumer, the creators of advertising for social communities and such on the internet, of all that is being created, are disappearing.  Small businesses are the income stream for most of what today is called social media and without funding they cannot maximize the potential of what our cutting edge technology can create.

Our government cannot see past the lobbyists and special interests that represent the major firms to even notice that we could have a very vibrant job creating environment, if they could find the small innovative companies within the old economy.

I have all but given up on seeking funding, sometimes you just have to accept that you are trying to fit a square peg in a round hole; not enough tech for the folks looking for the next big thing and too much of a niche product to be of interest to old economy investors.

We are in a period of transformation and without small business we have no way to bridge the gap between today and our future economy.  So we will build roads and borrow money hoping that something changes while our major corporations continue to focus on the global economy and our innovation will be squandered with the burden of rising taxes and more entitlements.  

When The Best Of Times and Worst Of Times Collide

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way..."

   --From Charles Dickens, A Tale of Two Cities


One of the benefits of years of experience in a basic commodity business like tee shirts is that you grow very accustomed to "...the worst of times...." because it becomes obvious after a while that your best years are those years when the general economy suffers.  When the overall economy is "frothy" then you will struggle and when there is a general recession your opportunities for success grow.

You develop a totally different perspective toward business and you are constantly looking at your return on your investment (ROI) for any new endeavor; the concept of 'lean manufacturing' is ingrained in you out of necessity not because you took some class or seminar on the subject.

You come to realize that employees are truly stakeholders in your organization because they sacrifice along with the company; you realize that stability, security, and being a stakeholder are just as important of a motivation for employees as is pay, fringe benefits, and advancement.

I participated in an online discussion last week where the topic was ecommerce, inventory, and efficiencies and I have to admit that I was shocked at how what I considered to be basic common sense was treated as expert knowledge.  Yes, you want to layout your inventory so that order fulfillment is efficient, logical, and error free.  You want to lay it out with a starting point then have the organization match exactly how the goods will be listed on the packing list, from left to right and top to bottom; that way you have a constant forward movement of product.

Can't wait till we get to the session on turning one's inventory!  Not too many folks have any idea how the carrying cost of inventory is such a killer to a company.  Of course, I have to remember that the term is "just in time....."

I can't help but wonder how many screen printers, how many of these new lines of embellished tee shirts, actually know how to price the cost of screen printing into their product?  That would involve time studies...

The hardest thing to get across to ones accounting, sales, or IT, is that while they are critical aspects of the company under no condition will their tasks ever impede and or stop production;  if the computer system has to be brought down then it will be done after hours, if a month end audit has to be performed it will be done after hours.  The reality is with plants in Los Angeles and in Germany you end up with about a 4 hour window in the early morning hours when the computer system can be shutdown or everything waits till the weekend.

I really have no concept of what it feels like to work for a company at "...the best of times..." or to be a wash in cash to where decision making not just involved making a good decision but rather necessitated making the best decision.  Every decision should be made as if the future of the company is on the line.

I spend quite a bit of time monitoring business trends and the world of technology/internet start ups fascinates me because I have no idea what it would be like to have someone invest $20 million dollars into an idea; I always operated on the assumption that a start up should be 6 to 8 months and then you better have a self sustaining income stream.  At which point your goal is to grow your business and increase your margins.

In my industry, your goal is to turn your inventory six times a year at a minimum and never have your cost of goods total more than 60% of your net sales.  Obviously, with B2C sales the goals change and your cost of goods should be dramatically lower than 60%; but you should be able to establish the ideal based upon what percentage of sales are B2C vs. B2B and adjust your ideal cost of goods accordingly.

Customers become real important because keeping an old customer is a lot cheaper than finding a new customer and with the ever increasing pressure of rising wages, fringe benefits, and other commodities, you have to control any costs that you can.  Keeping great employees is also cheaper than attracting and training new employees.

Yes, outside the technology/internet start up industry there does not seem to be much sense of excitement, which probably explains why my views are such at odds with the majority of my counterparts; hey, if it was easy then where would be the sense of accomplishment?

The Subversive Business Model

The word "subversive' is one with negative connotations;  For many small businesses it is the only way to survive and grow.  I have spent a lifetime in the world of "small" and I currently market a niche product to a niche market; thus I find my company wedged between three major niche retailers and we have to differentiate ourselves from a variety of indirect competition in regards to product:  One could not ask for a better position! 

The big keep getting bigger and the small keep disappearing; but that is only because the small do not exploit niches; they do not find the 'archilles heel' of their much larger competitors.  I know that no matter how great our success, and at projections of 50 million in annual sales in 5 years, I plan on growing rapidly, but in the big scheme of things that will not even equal 10% of what any one of my major competitors will achieve.  In fact, for a year I was an affiliate of one competitor and we were earning over $2,000 a month from the affiliation which we invested back into them by buying their consumer mailing list! 

Look for barriers to entry, or 'moats;"  a niche by definition has distinct barriers, and as a small business you can exploit those for your own benefit.  In my case, we screen print shirts, and all of my competitors sell screen printed shirts.  But, the fundamental difference is that they import theirs while we do our in house, thus we can react quicker, and offer more customization, which they will never be able to do.

A major competitors takes months or even a year to bring something to market, and a small company should be able to react overnight.  One of my competitors has 60,000 employees!  Can you imagine trying to implement a change in an organization that size?  The internet has totally revolutionized our world, and it has become the 'achilles heel' of the dominant businesses in industries.

The most critical factor of the subversive business model is to seek out collaborators rather than see everyone around you as competitors.  The reality is no one can answer the question, "how big is your market?"  

In my niche, there are 76,500,000 obese American adults and in another poll, the average American owns 26 tee shirts, which means that my   market could cap at 2 billion tee shirts!  But, that is just obese adults, it does not include all the world, nor does it even begin to define my market; some people are just big rather than obese.  All I want is a 10th of 1% of this market and I will surpass my goals!  Since the average plus sized or big and tall consumer has considerably less than 26 tee shirts and close to zero screen printed tees getting to my goal doesn't require competition with anyone.

The key is to always remember that you can only defeat yourself in the world today.  As Tom Anderson, the founder of MySpace stated in a recent comment in regards to Facebook/Google+:

"But quickly I saw that it’s really hard to layer in social to features after the fact. At MySpace we had the luxury of having social first, and building the products on top of that layer. Then I choked and Facebook realized that vision. ;-)"

If you know your niche, and you have defined your business model, then  execute....and don't become intimidated and choke.

Small Business Development - Part 1

Small businesses have historically accounted for well over 60% of all jobs created in the United States; while we sit here watching the stock market return to its winning ways, while we are informed that economists have determined that the recession is officially over, then you hear talk about a "jobless recovery" you can pretty much assume that the issue with our economy is that small businesses are struggling. 

There are regular announcements from state governments about tax incentives given to create jobs;  most of these announcements involve millions of dollars in future tax incentives for hundreds of jobs over a period of time.  Basically, they seem to average around $40,000 to $50,000 in tax credit per job created and most are based upon allowing the company to pocket the state and or local portion of an employee income tax collected; thus they cost nothing now but rather involve refunding of future tax revenues.  Which just might explain why so many states and local municipalities are finding themselves in dire financial straits; they "bought" jobs by enticing companies to relocate to their locale through rebates of future taxes. 

There are also 900 Small Business Development Centers in the United States and in 2009 and again in 2010 they assisted small businesses and or new start ups acquire 3.8 billion dollars in financing (debt, equity, and grant money)  which works out to an average of 4.2 million dollars in investment in small businesses annually; and obviously, as we are in a jobless recovery, that was not sufficient to have any meaningful impact on employment.  I note, upon a review of our local SBDC, that most financing was debt via local banks with an average loan value of $200,000; which basically tells me that banks are demanding 100% collateral as that amount would basically be what a second mortgage could secure.

Some SBDC's are doing interesting things:  America's 10 most helpful SBDC's

Then on the other hand we have venture capital and angel investors, who have been very active lately as on a daily basis it seems that some innovative idea someplace is attracting tens of millions of dollars; but they all seem to be jumping at the same thing.

So, how do we create an environment where jobs are "created" rather that "bought?"  Where does the funds come for small businesses who need more than what a second mortgage can secure ($200,000) and what would be attractive to venture capital and angel investers ($20,000,000)?  How do local municipalities make meaningful and self sustaining investments in jobs that create future revenue streams rather than deplete the tax base? 

Someplace in the economic matrix between a a citizen opening up a cupcake shop or a lawncare service with the funds derived personally, to states enticing major corporations to relocate, to the next Groupon, Facebook or Google, there is a HUGE opportunity that no one seems to be able to capitalize on and benefit from.

Part II   - Small Business Collaboration

Part III  - Small Business Dynamics Rather Than Incubation