The Reinvention of Everyday Things
Posit: one of the next moonshot opportunities for entrepreneurs and the people that invest in them can be found in the mundane. The boring. Specifically, physical goods that we have utilized, consumed, and otherwise taken for granted throughout our everyday lives. The people who double down on the sector that I’ll loosely describe herein are bound to emerge in the top quartile of performance in their chosen profession over the next 20 years, whether it be via company building or investing in builders. You can easily scale a diversified portfolio in the sector as a venture or angel investor by committing a goodly amount of capital to these companies, although this author would over-index on Seed/Series A investments mixed with public stocks of the large conglomerates that play in the market. What will ensue is a combination of, of course, some failure, but also a heavy dose of acquisitions by said conglomerates of said early-stage companies, public offerings, and a tremendous amount of growth and value creation in the collective expansion of the industry.
It’s a well-known adage in the venture industry that there exists a constant undercurrent of “what’s old is new again,” particularly in 15–20-year cycles. Of course, there are a number of totally new, breakout technologies and inventions that were seemingly conceived of in a bubble, but a reliable stream of return has been made rewiring old machinery. There will be an enormous opportunity in the reinvention and rebranding of physical goods in the next 15–20 years. And most of the harbingers that exemplify the shifting landscape, or the “reinventors,” even now show themselves to the world on a daily basis. You see them on TV, hear about them on podcasts, from friends, in mailers, or at local stores. Your fantasy football mates or Facebook friends, colleagues, your reading club buddies, or yoga pals are discussing them more frequently.
Has anyone here bought a Casper mattress? What do you think?
Who here owns a My Pillow?
Is that an Untuckit Shirt?
That DollarShaveClub guy cracks me up.
I love my HydroFlask, I take it everywhere.
Tommy John Underwear is the best, it’s all I buy.
RXBar. Bevel. MVMT. Harry’s. Spindrift. Hubble. FrameBridge. Quip. The list goes on. Peter Lynch of Magellan Fund fame once said in his book, One Up on Wall Street, while describing his stock investment strategy: “Invest in simple companies that appear dull, mundane, out of favor, and haven’t caught the fancy of Wall Street.” I’d say the same in relation to what’s to come for the reinvention of the consumer goods sector.
There are three main drivers behind what’s made the beginning of this movement successful and so promising, perhaps to the chagrin of the conglomerates mentioned afore. It narrows down to these core functions: cost savings passed onto the consumer, branding, and delivery. All are vital to a winning strategy for our “reinventors.” For the sake of brevity, I will describe an example of one company that exemplifies each category; but note that every company and product I mention is differentiated in some way from the incumbents across all functions. If you take a moment to think about it, you’ll find how all of the innovators are playing on those core functions in some way, shape, or form. To wit:
Cost Savings: the incumbents have been charging far too much for far too long across a broad spectrum of goods, without a recent check in pricing. As their COGS have seen the benefit of economies of scale or productivity increase, or merely a drop in materials pricing, they haven’t passed on the savings to their customers in an efficient or perceptibly fair manner. They’re poised for a reckoning. Take Gillette vs. DSC/Harry’s. Razor blades and handles are a long-ballyhooed B-school case study in related-item pricing. Gillette notoriously discovered that if they sold their handles on the cheap, they could create stickiness in selling their disposable blades for an exorbitant vig. The practice bled into a number of different industries and technologies and rippled across decades of commerce (take inkjet cartridges or cable box on-demand programming, for example). Subsequently, as they ate up market share, the entire scheme began to take on the look of a monopolistic pricing gambit. In 1909, the list price for a dozen Gillette blades was $1[1]. Pretty expensive, even for back then. Fast forward to the present, blades for the most standard Gillette model ring in at about $3.34/blade, or $40 per dozen[2]. It may not seem like much, but when DSC and Harry’s hit the market they landed at about $2 or less per blade[3]. They marketed heavily as a more sensible alternative to the long-standing incumbent. As hipness factor also started to creep into play, and as the old mantra of “You can’t go wrong buying IBM (or any big brand)” started to fade, GenXers and Millennials began to move their spend to companies like Harry’s and DSC. What followed is still occurring right before our eyes in the changing of the guard in a $20.52B market[4]. Other notables: Hubble, Caspar, FrameBridge.
Branding: MVMT Watches is a particularly good example of a clever branding play in an old, staid market. Watches have long been a story of haves vs. have nots, but I’d argue that even with the luxury goods pricing bifurcation of the market in brands like Rolex, Patek Phillipe, and Breitling et. al. vs. the Fossils and Skagens of the world, and with the advent of using one’s cellular phone as their timekeeper, many people still consider a watch to be an essential good. What plays out in watch pricing then devolves into a case study in the mechanical vs. fashion value of a timepiece, and people choose to place different coefficient weights on which bucket they’d like to zone in on, depending on what stage of life they are at. MVMT is toeing a clever tightrope play of pricing their product as a mechanical good, but portraying themselves as a fashionable, luxury-equivalent product. They can then make up for discounting their “fashion” by increasing their sales volume. It becomes a numbers game. This is an important distinction to note across the theme of this entire article. You’ll see over and over again that the new entrants are branding themselves as luxurious or hip and fashionable (or perhaps relatedly focused on “design”), but at the same time as pragmatic purchases for the modern-day consumer. They’re combining the cool factor of a Patagonia or Virgin Atlantic, or a #vanlife on Instagram, with the utilitarian, smart aesthetic of John Deere tractors, Levi Strauss, or Dewalt Tools. It’s a poignant new paradigm. For as long as I can remember, as products become more commonplace and ubiquitous, they become less cool. Modern “reinventors” are turning that theory on it’s ear by saying “we’re ubiquitous and cool at the same time,” and consumers are accepting that logic. It’s a fascinating development in the dynamics that govern purchasing behavior. These products are becoming “necessary-to-own,” a commodity. At this moment, MVMT is still a tiny entrant in a growing (8% CAGR by 2021) $72B industry[5]. There is, however, lots of room to grow. Other notables: MyPillow, Bevel, Spindrift.
Delivery: companies like Blue Apron and ButcherBox immediately come to mind. I used to scoff a bit at the “put-stuff-in-a-box-and-sell-it” trend that started to gain traction in the 2011–2014 timeframe, but it now makes total sense and subsequently has taken the world by storm. Consumers want convenience and value. They expect every experience to be point, click, and receive. It’s a study in specific performance. Specific performance is an ideology in contract law that demands a party do exactly what it said it was going to do, or what it implied it would do, with precision and specificity, after initiating a transaction. With the astronomical growth of Amazon and entrepreneurs having benefited from observing and studying their logistical masterpiece, and add in a bit of DIY/craft/artisan economy, you end up with significant disruption. The quality and surgical precision of delivery is being “Amazoned” across industry, and even more so in physical goods. People not only want a good product, with high-quality components, but they also want those items delivered quickly, on-time, and in good condition. ButcherBox brings the farm right to your doorstep, with the highest-quality, grassfed/grass-finished beef, pork, and chicken, that you would normally need to source from a local butcher or high-end retailer like Whole Foods. They also do it at a high price-to-value ratio by effectively cutting out the middleman (to the tune of $129/month for a large box). Truly “farm to table.” The meat and poultry industry did $198B in sales in 2013, the most recent year that data was available[6]. This type of delivery model is being implemented rapidly and repeatedly across a wide variety of physical goods. When you have a good product with quality components, and you can tell the story of how it got to a consumer’s doorstep, it’s a differentiator. Chain of custody and product origin are becoming the real narrative here, and the “reinventors” know it. Other notables: SunBasket, Warby Parker, Best Made Co.
We sit at the intersection of yet another sea change and turning of the guard here in the Fall of 2018. It’s no surprise that some of the country’s best minds are turning their attention to companies like the ones I’ve mentioned. It’s always interesting to watch the shift in recruiting and job application of America’s elite educational institutions. Mirrored in the patterns of second-time-around entrepreneurs, or those that have already fought the battles of a prior startup shut down/acquisition/public offering, students that hail from Stanford, Wharton, Harvard, MIT and the like are finding themselves in mid-conversation with the reinventors. In 2004, you could find a preponderance of seniors in college aiming to conquer Wall Street at institutions like Goldman Sachs, JP Morgan, and their ilk. Some even went to hedge funds and consulting companies. Whether they chose to become an investment banking analyst or insert themselves into some rotational training program, it was finance more often than not. Fast forward to 2012, and adolescent upstarts like Pinterest, Instagram, and AirBnB were carrying the day. It was a palpable shift in attention. Conversations around equity participation, option vesting, and offsetting cash comp with skin-in-the-game became relevant and commonplace.
What is happening now is a logical evolution of that trend. Serial founders who have found some success in the Cambrian explosion of tech startups occurring more than a few years ago are “techifying” other industries. You can oft hear a venture capitalist say: “EVERY company is a tech company.” What they mean by that (admittedly I’m being a bit tongue-in-cheek here, and so are they when they say it), is that every company should be tech-enabled. You also hear them say that they’re seeing more and more entrepreneurs utilize what we’re once tech-centric operating and product management/delivery principles in non-tech businesses (like consumer goods). They also probably say these things so they can justify investing in more non-traditional companies on behalf of their LPs while still staying true to their original mandate. I think it’s a smart play. Good investors find opportunity, map trends, and create value regardless of the specific species of a startup, as long as they stick to the appropriate genus.
What we have now are hot, high-growth companies poised for significant return whether they expand product lines and go public or are paid a premium by said incumbent brands who can afford to drop $350M+ on an acquisition. Either way, pretty attractive multiples, stories, and markets. Whether it involves incumbent hubris, or a slow-to-action innovators dilemma it doesn’t really matter. It’s all happening, and it’s happening now. On the reinventors, I am a bull.
[1] https://hbr.org/2010/09/gillettes-strange-history-with
[2] https://express.google.com/u/0/product/15723270726461948828_8183656228104996144_10046?mall=WashingtonDC&directCheckout=1&utm_source=google_shopping&utm_medium=product_ads&utm_campaign=gsx&utm_content=control_30_45
[3] https://www.harrys.com/en/us/products/harrys-blades/16-pack?utm_source=google-b&utm_medium=sem&utm_content=16pack&utm_campaign=l1-us:sem:mtd:shopping-blades&utm_source=google-b&utm_medium=shopping&utm_campaign=GDN-SEM+Shopping+Brand+US+l_D1+2842&product_id=HPRB0005&gclid=EAIaIQobChMI8pf3rYfH3QIVB4zICh1WPQfjEAYYASABEgKHqPD_BwE
[4] https://www.statista.com/topics/1811/mens-shaving-in-the-us/
[5] https://www.businesswire.com/news/home/20170202005814/en/Top-3-Emerging-Trends-Impacting-Global-Watch
[6] https://www.meatinstitute.org/index.php?ht=d/sp/i/47465/pid/47465
