The cycle time from the small seed of an idea to successful scale has shortened dramatically. Barriers to entry have never been lower. Capital is plentiful.
This may sound like the start to another technology startup story, but actually we are talking about startups in consumer packaged goods. Steve Demos, the founder of Silk Soymilk, used to joke that Silk is a 25-year overnight success. Today, scaling a company like Silk can take only one-fifth of that time.
Consider Koel Thomae, who ran purchasing for Izze, the widely successful natural soft drink that was sold to Pepsi. After the sale, Thomae was on vacation in her native Australia, where she tried a yogurt unlike anything she had ever tasted. She and some partners self-funded to scale Noosa Yoghurt to over $50 million in revenue in less than five years before selling it to Advent, a private equity firm. That example illustrates how speed to scale is accelerating.
How can this be? After generations in which large consumer package goods companies (CPG) dominated the conventional retail landscape, now smaller companies are experiencing success. Over the past four years nearly 50% of the growth in the U.S. consumer food and beverage segment has come from 20,000 companies below the top 100 largest companies.
Part of the issue is that in CPG, as in other industries, staying on top is harder. It used to be that products would last for years, brands for decades, and companies for eras. Now products come and go in a matter of months, brands are launched and shuttered in years, and companies may count themselves lucky to last more than a decade.
One of the root causes is the shifting role of retailers, which have gone from being gatekeepers for big brands to welcoming new brands with open arms. Large retailers have realized that their stores are filled with brands that largely appeal to baby boomers, and that they need to do something different to appeal to Millennials. The result is huge change in their brand portfolio. These large retailers are reducing the cost of entry and other expectations, and they are providing targeted social marketing programs to drive activation of the next generation of brands – ones that resonate with younger shoppers.
A Gallup study of all Americans found that big business is one of the lowest-ranked institutions for trustworthiness; the only institutions lower are Congress and the news industry. Part of the issue is that big brands in many industries are upping the ante on trust. Uber provides far more transparency regarding the car, license plate, name, face, and rating of the driver picking you up, none of which you know when hailing a regular taxi. Starbucks CEO Howard Schultz regularly wades into social issues from gun control to race, unlike most big company leaders. Netflix has chosen to drop an entire season of a series at once to enable binge watching, instead of “windowing” content as most of the industry does. Transparency, motivation, and generosity all build trust in ways that most big companies – CPG or otherwise – are not good at. Big brands can’t assume they have customers’ trust; they must assume they are guilty by association and rebuild trust from a deficit.
But it’s not just about branding – it’s also about benefits. Millennials value different products and qualities, many of which do not scale well, such as authenticity, clean ingredient statements, and unique super food ingredients. Some of these newer ingredients, such as ancient grains, coconut oil, and humanely treated animal proteins, are harder to scale.
The true north of big CPG business model has to be fixed. The tell-tale signs here are their metrics and mental models. For example, market share is the dominant metric CPG focuses on, but share of growth or share of Millennials are far better metrics because the standard market-share metric evokes unhelpful emotions. Being number one creates an arrogant defense mentality, where you play not to lose. Being a second-tier player creates helplessness and a self-fulfilling prophesy to minimize resource allocation. In contrast, share of growth sparks much more useful emotions, such as curiosity: Why is it growing? What is common about the things that are growing? How much bigger can it get?
Co-opting the next great brand is far better than competing with it. And exponential thinking will always trump incremental thinking in the long term.
originally posted on hbr.org by Eddie Yoon and Steve Hughes
Eddie Yoon is the founder of Eddie Would Grow, a think tank and advisory firm on growth strategy and an advisor to VC and PE backed, high growth companies. His book, Superconsumers, was published by HBR Press. Follow him on Twitter @eddiewouldgrow. His is a co-creator of the Category Pirates Newsletter.
Steve Hughes is CEO of Sunrise Strategic Partners, a private equity firm for emerging food and beverage businesses. Steve is founder and former CEO of Boulder Brands and former CEO of Celestial Seasonings.