22nd January 2019
The global tech community’s continued rise appears to show no sign of slowing. Growing tech businesses are enjoying the boom times – investment continues to flow and even early stage startups find themselves basking in the spotlight as the media celebrates innovation.
But we know from experience that an industry’s good times can quickly turn bad. When political factors and other market conditions take effect then no growth is easy, even negative growth is possible and while the tech sector has certainly earned the right to enjoy its success, it should also be mindful that disruption, evolving consumer habits and external economic pressures all have the potential to hit the industry hard in the future. So where can tech turn for inspiration on how to navigate troubled waters?
The performance of the retail sector has been much maligned, but we're also continually reminded of traditional retail brands who have rolled with the punches. It’s true that in many cases, the reason for this has been technology – but the underpinning factor has been the ability of brands to adapt their offer and not only survive but, in many instances, thrive. So what lessons can the tech sector, and startups in particular, take from retail’s failure to fail?us
Fundamentally, retail success boils down to obtaining a product at reasonable cost, selling it to consumers at a higher price, and continuously tweaking and improving the stages in between. Shrinking margins have required brands to narrow their ambitions in recent years and ‘return on investment’ rules the roost in all aspects of retail, from production and marketing to supply chain. Even today’s physical shop layouts rely on optimisation, with cross-merchandising and point-of-purchase displays all designed to squeeze the most amount of money out of each and every opportunity. Retailers have moved to experiential seling and tech should be no different.
This may sound like redundant advice – after all, aren’t tech startups famed for operating within notoriously skinny margins, and isn’t optimisation baked into the DNA of every digital firm? You’d be surprised. Tech firms find many varied ways to burn through funds, whether through hiring too many too early or overly-extravagant marketing campaigns, and even essentially subsidising their own product in order to build a customer base.
However, the most common issue is in actually getting a product to market, with many firms eager to release the perfect first offer. This results in severe delays as a product is continuously tinkered with, reviewed and tinkered with some more, all while vital money swirls down the drain. Of course it’s important to make the best first impression, but tech should remember that their success depends first on making a product and then on selling it – and the lights only stay on for a limited time while no sales are being made.
The sharp drop in store footfall continues to hit retailers hard, and this has forced many to tailor their offer to evolving customer habits. Most traditional retailers are investing heavily in their ecommerce presence in order to capture the increasing number of digital shoppers. However, others are also challenging the traditional concept of instore shopping.
This has led to the rise of the instore experience – department stores such as the UK’s John Lewis now offer nail and eyebrow styling, blow dry bars and personal styling appointments, all curated by an instore concierge desk. Macy’s – having parted ways with a number of underperforming sites – recently signalled a huge push for experience which saw an acquisition of Story and a 270sq ft ‘experience space’ unveiled at its flagship New York store.
This may sound like needless fluff, but it’s all aimed at giving the customer what they want and receiving money in return. Retailers are all too aware that people can shop online – and so have had to find a way to entice customers back into the shop by offering them something they can’t get while sat in front of a screen.
Startups have proved adept at tapping into changing customer habits – many have been able to overtake older businesses precisely because they saw an opportunity to disrupt and cater to customers in a better, more efficient way. However, there are still lessons to be learned.
Retailers have taken steps to really get to grips with customer experience and curate their offer to satisfy the needs of the consumer. Startups, meanwhile, have been known to innovate for innovation’s sake. Your new product may combine dozens of interesting features, but if most customers are only purchasing it to use one then you’re in trouble. You’ve likely spent too much time and resource on product development, eating away at your margins, and to counteract this you’ve probably driven up your price. Neither endears you to as much as a functional, well-costed customer experience.
With increasing competition and decreasing footfall, traditional retailers have had to reemphasise and strengthen their own brand values in recent years in order to stand out from the crowd. These values inform how the business operates and are continuously conveyed to customers.
These can be CSR-related but also hang on the retailer’s offer. Whole Foods built a brand around the love of using natural ingredients, while putting its money where its mouth is and pushing for sustainable seafood standards and clean energy initiatives. Target recently mounted an enormous push to move beyond its established ‘cheap & chic’ brand as a way to combat the threat of Amazon, adding ‘Convenient & Connected’ to highlight changes to store accessibility and omnichannel offer.
Tech startups can often be big on brand, but less focused on values. This is understandable – nobody has time to consider a sustainability mission statement when trying to bootstrap their way out of their kitchen. But whether you’re b2b or b2c, it’s likely you’re not the only one selling to your audience, and competition is only set to intensify as more companies enter your market.
Drawing up basic values and a brand for your business not only helps you stand out, it can also provide a useful guide when determining how you want your business to develop. Remember, a brand can evolve, but it’s very tricky to completely change as you’ll confuse the customer. Settling on your brand and values early will keep them entrenched as you grow, but it should also provide a North Star that guides your product’s development. What do you stand for? Why – beyond making money – have you developed your company, and what problem are you solving?
Many tech startups have played a role in helping traditional retailers adapt to the modern world, helping them reassert their relationships with consumers through ecommerce and marketing or providing a much-needed injection of efficiency with backend solutions. Startups deserve credit for helping turn retail on its head in many regards. But the lessons should not go in just one direction. Traditional retailers are the aged masters of buying, selling and keeping the customer happy – and above all, many have shown themselves to possess the same agile thinking that startups are famed for.
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Andrew Watling and Carl Jackson of Quantuma LLP, were appointed Joint Administrators of the City Lounge Ventures Limited T/A Central Working (“the Company”) on 18 October 2019. The affairs, business and property of the Company are managed by the Joint Administrators, who act as agents of the Company and contract without personal liability.