Startups Are The Canary in The Coal Mine For Big Business
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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowMany industries, particularly those of the largest Blue Chips, have been relatively stable when it comes to the fundamental markets in which they compete. Car ownership did not really change from 1950 to 2000. Neither did the act of grocery shopping or fast food. In fact, this stability is what allowed many of today’s Blue Chips to become the dominant global leaders they are because they could focus on expansion rather defending their core business.
This stability has disappeared in the last few years. The result is that many Blue Chips are now in a game of high stakes business that they were not anticipating. The leaders of yesterday have to learn the rules of an entirely new game of business in order to maintain their position as the leaders of tomorrow.
The issue for big companies is there is no rule book for this new game. High stakes business is not necessarily confined by rules, the game board is constantly changing, and the future rarely looks like the past. This change is actually what creates the opportunity, but it requires a new approach.
The first step is to build market intelligence. At a fundamental level, market intelligence is developing a sense of how and when the future will happen in a given industry. It is about understanding that in today’s business environment, your industry and competitive set is likely much broader than the one you know today. In many cases, startups and the venture capital used to fund their early growth, can be the canary in the coal mine that hints to where this future might be headed.
Consider the changes in Consumer Packaged Goods (CPG) thanks to Subscription Commerce. The business model of signing up for a monthly program where a product is delivered to your house is not a new concept in retail. For years, the wine industry relied on wine clubs, which account for a significant percentage of the industry’s revenue. In the mid-1990s, the music club Columbia House accounted for 15 percent of all CD sales, peaking at $1.4 billion in revenue.
Around 2011, this old business model was given the new name of Subscription Commerce. In Subscription Commerce, a box of products or samples is sent directly to a customer on a recurring basis, often monthly. Think companies like Dollar Shave Club, Ipsy, or The Honest Company. During 2011 and 2012, $300 million in venture capital funding went into fifty Subscription Commerce startups across a wide range of industries. Just five years later in 2016, Dollar Shave Club was bought by Unilever for $1 billion marking the increased important of Direct to Consumer business models for CPG brands.
CPG was just one of the first categories impacted by subscription commerce. Netflix has changed how we watch video, Spotify has changed how we listen to music, and Amazon Prime has changed how we shop; all because of subscription commerce. The startups that were funded in 2011 and 2012 around subscription should have been the early warning for big business that a change was happening. These entrepreneurs were the canary in the coal mine that consumer behavior was shifting and a new business model was being embraced.
Every company and every industry is in a new game of high stakes business. In this new game of business, startups will emerge not only as competitors, but also as inspiration for how and when the future will happen in our industry. It is up to all of us as business leaders to use that inspiration to get in the game.
Dave Knox is the Managing Director of WPP Ventures and CMO of Rockfish Innovation Group.