How to Get Business Growth by Taking Risks, and Other Lessons Amazon and Walmart are Teaching Us
August 1, 2017
My interview with Richard Kestenbaum was like a 30-minute MBA on the “tectonic shift” of the end consumer today.
Kestenbaum is a very active Forbes columnist, writing about the retail sector, including apparel, accessories and consumer products, and is a founding partner at Triangle Capital. He’s been an investment banker for three decades.
I reached out to Richard with a Hail Mary LinkedIn ‘Inmail’ for an interview after reading his Forbes.com column on the Amazon/Whole Foods acquisition, which ran in June of this year. His coverage of the acquisition underscored the very focus of Channel Mastery: To support and encourage businesses to take risks today through the pursuit of continually striving to be where — and what — their end consumers want them to be.
Every topic covered in the podcast, and there were a range, was tethered to understanding consumer preference.
Two examples we discussed were the Amazon acquisition of Whole Foods, and WalMart’s recent spate of acquisitions. All of the recent acquisition activity we’ve been seeing with these two behemoth players in our space can be distilled down into businesses needing new tools to reach their end consumers, and being completely willing to fail to acquire the right tools.
Regarding Amazon/Whole Foods, he wrote in Forbes: “In order to succeed in grocery, there will have to be a symbiosis of online and physical stores. I believe that not even Amazon knows exactly how it will work but they know that nothing else has succeeded so far and this has to happen. We have seen Amazon recognize the need for physical stores with their bookstores and now we see their recognition that being where customers are includes physical locations.”
Lucky for all of us, our conversation went far beyond the Amazon/Whole Foods acquisition. We discussed a range of points that all rolled up to one key focus: Getting closer to the end consumer is the absolute key to survival in business today.
On Change and Risk Taking
“It’s such an exciting, interesting time because so much is changing that allows us to understand what has value today and what doesn’t,” Kestenbaum explains in our interview. “And it’s not obvious based on the way that things have always been done in the past.”
Having just returned from the Outdoor Retailer Summer Market, 2017, this point couldn’t be more poignant. There wasn’t an exhibitor or show-goer I spoke with who wasn’t looking around the Salt Palace wondering if what they saw and were participating in would even exist going forward.
The sense of impending change was palpable in Salt Lake.
The speed of technology and consumer preferences cannot be controlled, so the only effective response is to adapt.
The twice-a-year tradeshow cycle that the outdoors markets have been adhering to like a pacemaker is not keeping, well, pace, with the speed of change.
Getting closer to the consumer is the KEY to survival. In our industries, we’ve grown accustomed to relying on retailers and reps to be their brand bridges to the end consumer.
Today, brands must own the relationship with their end consumer. Retail will remain a very important point of entry, but it’s not the only one anymore.
If your business has an aversion to risk, eradicate it. Each of us has our own version of the Amazon/Whole Foods acquisition, as well as many smaller steps we can take to continually be moving closer to the winning combination of channels and brand experiences for our target end consumers.
Every business in the Salt Palace – from brands to retailers – was feeling the need for evolution and change; do not go back to sleep. Take some calculated risks, analyze the results and then quickly take more risk on. This is how you hack your way to becoming more consumer-centric in how you operate your business today.
“If you are in business today, and you were in business five years ago, it doesn’t matter what position you’re in,” Kestenbaum says. “The risk in your business is greater today than it was five years ago. And you’re only recognizing reality when you say to yourself, ‘I have to take more risk because my position is more risk-laden than it ever was before.’”
Multiple times in the podcast, you’ll hear Richard applaud the potential spectacular failures that are just on the horizon for Amazon and Walmart.
These two enormous companies are taking huge risks in acquisitions right now. They have all the resources they could dream of and they’re still relentlessly trying new strategies.
In our passion industries, we’ve seen a lot of change. You know what else we’ve seen each other do in the face of this change? Sit and wait to see what the big guns are doing. I’ve seen this across outdoor, bike, wintersport and endurance. I know you have too.
I brought this up to Kenstenbaum in the podcast. He quickly addressed it by saying that far more often than not, the big companies in any industry don’t take the right direction. Smaller companies that are willing to take risk are continually coming out ahead.
Ultimately, when we relied on retailers as THE theater of our brands to our end consumers, it may have made more sense to be reactionary. Today, Kestenbaum says, “not taking risk is the most risky thing of all right now.”
Snowsports Industries of America (SIA)
Kestenbaum attended the SIA show in Denver in January 2017.
What he saw was a mix of small, entrepreneurial brands going up against the Goliaths of the industry. From the outside, Kestenbaum said, everything about this seemed fatalistic. How, he wondered, could those small upstarts even compete with those established players?
He quickly realized that the smaller brands are better positioned than their corporate counterparts.
“(Consumers) don’t want products from companies that are producing things mass and global and impersonal, purely for status,” he explains. “They want products that are local, artisanal, environmentally friendly, and transparent with values that (align with) the consumer’s values.”
Through the lens of the snowsports industry, Kestenbaum was able to see a physical representation of the change in consumer preferences. The smaller brands were tightly connected to their end consumers.
“Because they’re offering something those big brands can’t offer. And that is identity. Consumers will pay for that identify if the product is good and the story is true.”
How can large brands use this information? In his column about the SIA show, titled, “Sporting Goods Makers Will Have To Adapt To Face This Enormous Challenge,” Kestenbaum offers guarded optimism for large companies with capital. He wrote:
“If you’re working at a big sporting goods producer, now is the time to worry. Don’t ignore, don’t laugh, don’t even fight. Just create or buy and incubate these great small, ingenious entrepreneurs who understand what consumers want that big, lumbering companies can never address on their own. That is where the world is going and the big sporting goods brands that figure it out and act on it will be the winners.”
The Value of a Business Today
At the end of the day, Kestenbaum is an investment banker. He co-founded a firm 17 years ago that specializes in mergers, acquisitions and capital raising for companies in fashion, retail, apparel, accessories and consumer products in Triangle Capital LLC.
He and his colleagues at Triangle equate change to value when considering any investment.
“When you take companies that have been historically successful and you try and value them the way you did historically, they’re not always worth that anymore because consumers have changed what they want.”
As an ardent supporter of entrepreneurs and passion-driven innovation creating brands, the changing lens of the valuation of a business could be the most positive aspect of where our beloved industries are going. Here’s why.
Those small upstart companies that Kenstenbaum saw in the Denver Convention Center this past January at SIA represented living and breathing examples of where consumer preference was in that particular community.
Investor groups like Triangle Capital power brands from boot strapping to scale. If the lens through which investors view success is charging hard toward getting in front of consumer preference, our innovators should be able to keep their vision and approach in tact through funding and beyond. I cannot tell you how many entrepreneurs I’ve coached who desperately needed capital but were absolutely terrified that acquiring capital would forever change the course of their business and brand.
We only need to look to the many large corporations that have acquired and brought to public, several of our legacy, founding companies in our markets.
Kestenbaum’s point is that the venture capital community today is increasingly valuing a brand’s propensity to serve the end consumer first, not solely drive fast return on investment.
Because today if a consumer perceives his or her brand ‘selling out,’ there are no less than thousands of other choices out there for them.
As the older model of investing changes, our industries will be more successful and sustainable.
Change and risk are here – grab on and run with both. Ironically, doing so will bring us closer to the future we’ve always wanted (one that’s innovation driven, and not bound to investor return) through the vehicle of consumer preference.
What are your thoughts on change and risk taking in your business? Leave a comment below and let me know your thoughts. Thanks for being with me on the Channel Mastery blog today! Check out Richard’s podcast here.