Taking a pick ’n’ mix approach to helping startup founders

Tonight I spent some time at York Butter Factory, Melbourne. I was speaking to an audience of startups, entrepreneurs, and retailers — along with a small group of panelists on retail technology innovation.

Given it’s now 10pm, and as I don’t blog quite as much as I should, I thought I’d put together a rough outline of what was spoken about — hopefully it is useful to some.

It was a bit of a free form conversation, and in the organisers own words it covered:

• What sort of retail tech startups do you see in the market often?
• What works? What doesn’t? What solutions do retailers actually want (Gaps) & Why?
• How should startups think about retail tech in general?

So Dan. What are the answers?

Well because I’m often engaged to help retailers develop their innovation agenda, and define how they manage portfolios of bets (experiments) that could scale into more radical change… I’ll answer with a set of options.

In short, you can be successful at almost any startup idea that you have. Below is my pick ‘n mix of lenses to help you get started.

Pick ‘n mix number 1. If you think about the changing consumer, you will see hundreds of ideas that could be successful:

• Consumers who are time poor, love brands, and are failing to stay connected in the face of media fragmentation. Give them an aggregation of all of the content a brand creates. Curate it. Scale the best bits out to new potential customers. Welcome to MarTech.
• Worried about the ageing population, and the growing digital divide between those under-45, and the over-45s. Help brands reach across the digital divide without duplicating effort.

I could go on, however there was a lot more to cover from the night.

Pick ‘n mix number 2. If you think about the ways in which technology is rapidly creating new possibilities for society. Wow.

Most people with limited exposure to many of these technologies significantly underestimate the complexity of developing the core technology into a novel, useful, and executable commercial solution. Alternatively, they mistake the level of readiness in their target market.

Sensors are amazing. However even with sensor costs reducing by many maginitudes they are still complex to integrate into physical environments. They fail, there is often a signal-noise problem, and they require smart people to turn sensor data into actionable insight — So can you solve these problems, or can you utilise sensors in a novel way to transform retail?

If you combine #1 and #2 there are many interesting spaces to play. Although consumers won’t generally go out of their way to protect their privacy, giving it up information routinely for convenience… they are incredibly sensitive of surveillance. So why not combine privacy, with space analytics — develop the capability to manage loss prevention, customer conversion, and sales proficiency through change rooms like the folks at density.io — using laser scanning to build an anonymous picture of how people are using retail space.

Pick ‘n mix number 3. Finally, the retail ecosystem is complex. There are a variety of ways to enter it — transforming suppliers, transforming retailers, building a retailer & consumer platform etc.

One of the things I have seen regularly during the early stages of product development, is to shape the product in a way that forces you to bite off too much of the retail value chain to deploy your product.

Generally the more successful early stage startups build their product strategy to deliver for a specific retail function, or retail touchpoint. It is much easier to engage and implement dealing with marketing, operations, or merchandise in isolation.

As you mature, you can extend into supporting an entire channel, which now might require collaboration between marketing, operations, and technology. Having the right stakeholders — such as CDOs that are used to cutting across the organisation can be critical here.

If the value of your product is predicated on delivering an end-to-end experience, or driving transparency across the entire retail supply chain — then you better be prepared for a significant degree of retail knowledge, deep consulting expertise, great connections and the ability to run a sophisticated business development process. With the corresponding capital to sustain these capabilities as you build.

Orchestration across an organisation is hard. Treat it with the respect that it deserves in the early stages of your business.

What about retailer size?

Which brings me to the size of the retailer and the sector. The Australian market is small. If you are solving a problem experienced by ‘Discount General Merchandise retailers looking to move high volumes of inventory to their customers’ you are looking at around 4–6 companies. Your product maturity, pricing model, timing and connections all play into whether you can break into these retailers.

Could you pivot, and take the inside learnings of high-volume retailing and make them accessible to the local newsagent, guaranteeing increased returns from their store inventory. Chase it. There are 1,000s of suitable businesses to test and learn with. Globally, there are millions of SMBs, and buying groups who can gain great value from getting access to sophisticated retailing skills through technology.

Finally?

My final tip — Get great advisors. I’d suggest someone with intimate knowledge of the consumer trends, how retailers operate, and a successful set of tools for selling to your potential targets. Not always found in the one person, diversity here is powerful.

Open Questions

There were a wide range of open questions from the audience, the Q&A went for some time. Below are a couple of the unique ones I captured.

Are there opportunities to innovate in product? Are we too focused on technology innovation?

I thought this was a great question. The answer is ‘yes’, and ‘yes’. I personally believe there is a significant amount of upside in focusing on product innovation. I’m sure there are an infinite number of possibilities, however I see 3 immediate ones:

1. The design process inside most fashion retailers isn’t data driven. Many retailers are connected with global fashion trends, build mood boards, design garments, and gather evidence from around the office before finalising designs for large production runs. Online players such as Threadless have perfected the art of gaining community feedback on a wide variety of designs rapidly before moving to prototyping. The car industry has used various techniques to test millions of variations before cutting clay. 99 designs generates a wide variety of concepts from the community. These ideas might be terrible — however the design process hasn’t changed for most retailers in years. It’s ready.
2. There is a genuine exit path for startups who develop new grocery concepts. Local examples are Carmens, and Thankyou. However globally there are 100s of startups raising capital, building brands that resonate, and selling their product into grocery. P&G and other large FMCG conglomerates are finding it harder to innovate — and they are acquiring. At high-valuations, and regularly. Building a food product, and being acquired by a large FMCG player who can scale your brand is a legitimate, and profitable exit.
3. Don’t wait to be de-bundled by another startup. De-bundle your own offering — use mass customisation. We are very fortunate to work with Domino’s Pizza Enterprises as one of ThoughtWorks wonderful retail clients. They are amazing. When confronted with wanting to improve pizza quality, they could have gone down a number of paths. Instead, they debundled the pizza offer — allowing customers to customise their pizza with extra toppings, or to design their own pizza. Now quality is in the customers hands, and they operate a very successful casual fast food business.

How do you approach innovation in supply chain, and what is the role of technology?

The potential upside in most retailers supply chain is immense. Moving product from design, development, sourcing, planning, ordering, manufacturing, transporting, warehousing, allocating to channels, and store merchandising is a complex business. One many retailers amplify by over-complicating their range and/or supplier base.

With that said, in my experience, technology is rarely the thing that solves these problems.

The best solutions come from a disciplined process improvement approach, and bringing together a smart group of cross-functional team members and suppliers, including those who do the work. Preferably something like Toyota Lean.

Where technology does play a massive role, is in making process change stick.

So, you’re a startup, and want to change the way innovative product makes it’s way to a customer. You want more innovation, and less waste. Awesome.

Think about — should you be building tools to help retailers more rapidly understand waste, innovate improvement, and scale the improvement through software — both organisational (people) and technology (code)? Or do you design a flexible solution to be deployed once waste has been reduced to automate and scale the solution. It’s your startup, so it’s up to you.

What is the one startup idea that you get pitched regularly that you wouldn’t like to hear about anymore?

This was an interesting question to get the perspective of Fabio — who is the Head of Innovation at Kmart. Fabio had the view that there were too many startups pitching ‘analytics’ solutions.

I’d have to agree with him. It isn’t because we don’t see value in analysis, being data driven, leveraging data science, or deploying algorithms — quite the opposite. It’s because it’s hard. It needs deep context of the business or the problem space, the data model, and in the best cases, it needs to be co-developed with those currently performing the task — without these things it is rarely more than a fancy dashboard, or a simple product masquerading as data science.

Onto my pick. I went with the first world “What’s for dinner problem”. For similar reasons to the above, this is a hugely valuable problem to solve brands — dinner is a chore in most households. It often lacks inspiration for consumers, it is inconvenient, and too many time poor people knowingly make bad life choices (I write, as I eat a late-night quarter pounder).

Ripe for disruption.

Except technology hasn’t proved to be the answer. It has probably had more venture capital invested in it than any other retailing problem, and all that is left to show for it is a food publishing business still going broke, and a sole unicorn in Blue Apron.

The purpose of this blog post isn’t to deep dive, so I won’t. This is a difficult problem, with a complex set of variables — like the constantly shifting and irrational taste preferences of a household.

If you think you have it solved in a way that has any chance to scale — I want to help you. I will be an investor. I will go to the ends of the earth to help you raise funding. But don’t pretend it is easy.

I am in {large corporate x} and I can’t get people to focus enough on the future when they see so many things that need to be done today. What do I do?

In my experience this comes down to a small number of factors.

1. Does the organisational culture value ‘doing’ over ‘learning’? In my experience both of these things belong in the ‘doing’ category.
2. Does the organisation have a disciplined approach to experimentation? Does it understand the purpose of experiments? Does it regularly experiment at low cost?
3. Are there wins from the above 2 points? Are they communicated clearly and linked to the success of initiatives that are trialed and scaled. In my experience retailers want to celebrate success — it takes a while to move past the scepticism of new ideas, however when people see signs of success retailers are quick to double down.

It’s hard though. Most people don’t understand how to scale down experiments. How to focus on rapidly learning, and how to engage stakeholders so that their perceived risks, assumptions, and dependencies can be designed as experiments to overcome future objections.

Doing this successfully though is the key to moving toward an organisation with an effective innovation engine. The pain is worth it.