We love a good story and a quick cash infusion, but when it comes down to it, we’re far bigger fans of businesses built on a solid foundation – those that can weather the economy’s fits and starts; that can embrace what’s trendy but don’t crash when kids move on to the next big thing; that address the wants and needs of America’s increasingly diverse population.
Our list of the trends we’ve got our eyes on will help anchor your business, present or future, in reality. From cooking up goodies that satisfy America’s growing taste for all things spicy – a sign of our shifting demographics – to helping workers who are locking the door on traditional office setups, these trends are built to last (at least for a while).
Consider this a jumping-off point as you envision new products and services – and look at it as a heads-up on evolving ways to manage your current business. Now, to your future.
The Rise of Big Data
Cutting-edge entrepreneurs are stepping up to crunch the vast (and ever-growing) stockpile of information too large for companies to store and analyse in-house.
By John Patrick Pullen
A massive abstraction with a cute little name, Big Data is the vast (and ever-growing) stockpile of information too large for companies to store in-house – let alone analyse. All that info offers potential to cutting-edge entrepreneurs willing to step up and do the crunching.
According to IBM, 2.5 quintillion bytes of data are born every day (enough to fill more than 531 million DVDs), and 90% of the world’s digital information was produced over the last two years. “For so long, we’ve focused on human-powered businesses, and now we’re transforming into data-driven organisations that are bringing a level of customer centricity that we’ve never seen before,” says Graeme Noseworthy, marketing director for IBM’s Big Data Solutions Software Group.
And this is just the Cro-Magnon stage of the info boom. By 2020, the annual data-generation rate will balloon 4 300% to 35 zettabytes of intelligence, according to Virginia-based Computer Sciences Corporation. (That’s 7.35 trillion DVDs, in case you’re keeping track).
From yesterday’s Dow Jones industrial average to a GPS tag on today’s Instagram image to tomorrow’s pollen count, every bit of information will be collected, catalogued, distributed, stored and analysed by a rapidly evolving segment of companies. According to Reuters, venture capital firms invested $2.47 billion in fields around big data in 2011, nearly 10% of all money distributed. That’s up from $1.53 billion in 2010 and $1.1 billion in 2009.
“Big Data represents a transformation of the entire IT industry and a $300 billion to $500 billion wealth-creation opportunity for entrepreneurs,” says Matt Ocko, co-managing partner at San Francisco-based investment fund Data Collective. “It’s as sound a bet for us today as investing in PC-related technologies in 1981 or in internet-enabling technologies in 1994.”
Entire funds, like Data Collective, have popped up to support the category, using technology to inform investments in start-ups like California-based Continuuity, which helps developers make data-based cloud applications, and Oregon-based Cloudability, a cloud-computing dashboard that enables companies to monitor their online computing expenditures.
And these investments appear to be solid bets. According to a report by the McKinsey Global Institute, the potential value of big data, if used creatively and effectively by the U.S. healthcare industry, would be worth more than $300 billion in that sector every year. Currently healthcare providers throw 90% of that information away.
And that’s just one of many market segments Big Data will revolutionise. In June Ford Motor Company opened a Silicon Valley lab to process data from more than 4 million cars currently spitting out information. Twitter recently hooked 12 partners up to its massive fire hose of 340 million tweets per day, allowing fledgling firms like New York-based Dataminr to sell global event predictions and Colorado-based Gnip to parse and resell post-related data.
No matter how you look at it – as a consumer, marketer, investor, administrator or inventor -the numbers don’t lie. Big Data isn’t just changing business; it’s changing everything.
Domestic Production Makes a Comeback
Factors like more affordable labour, higher shipping costs, a better financial climate and a surge of homegrown innovation mean the U.S. manufacturing start-up universe is experiencing a renaissance.
By Jennifer Wang
Grandpa can stop complaining: “Made in the USA” is making a comeback. Early this year a New York Times poll revealed that 52% of the public thinks it’s “very important” that products they buy are made in America. This past summer Starbucks generated all sorts of feel-good headlines for its Create Jobs for USA Fund.
In one instance the corporation chose one of the last remaining U.S.-based pottery manufacturers, American Mug and Stein, to create merchandise for its new “Indivisible” brand, which donates a portion of sales back to the fund.
Same deal on the mass-production side. In September a PricewaterhouseCoopers report alluded to a “renaissance” in U.S. manufacturing stemming from factors like more affordable labour, higher shipping costs and a better financial climate – and the fact that “re-shoring” (returning production stateside) could mitigate $2.2 billion in losses from supply-chain disruptions in 2011.
Also helping the cause: a surge of homegrown innovation in the manufacturing start-up universe, including Tesla Motors’ release of the world’s first all-electric luxury sedan from its Silicon Valley headquarters earlier this year. (Robots help keep operational costs down.)
“One of the things we learned in the downturn is how to do things leaner and greener than we used to. We can get the same kind of revenue figure with less cost,” says Karen Burns, co-founder of California-based East Bay Manufacturing Group, an organisation that counts start-ups and multifactory operations among its members.
A recent group survey revealed that 69% of members were “very positive” about the current business outlook, with 38% expecting sales growth of more than 10% in 2013.
By keeping production close to home, companies reap benefits on the connectivity front, translating into better products and systems. Case in point: San Francisco-based Everlane, which makes luxury apparel and sells it directly to consumers online, manufactures half its product line in the U.S. Founder Michael Preysman believed staying stateside would give him speed and more control over his inventory.
He was right – over the summer, an endorsement on the popular lifestyle blog A Cup of Jo caused a flash sellout of 2 000 black V-neck T-shirts in a single day. If the tees had been sourced from overseas, rapid restocking would not have been possible.
“It can take a minimum of 12 weeks to get something shipped from overseas, but we can do it in a month,” Preysman says. “It’s maybe a buck more for a T-shirt, but here you can sit and go over the design details and touch the product.”
Sites like Etsy and Kickstarter also have made it easier to buy and promote local goods and services. For example, Susan Sarich, founder of SusieCakes, a self-professed “All-American Bakery” with eight locations in California, sourced hand-sewn holiday aprons from an Oregon-based Etsy artist.
The relatively high price point for the aprons – $49 for a set of two – reflects the use of organic cottons, incorporation of thoughtful design elements and the labour of custom embroidery, done in San Francisco. “I could have gotten it done for 3 cents an apron,” she says. “But customers appreciate the quality.”
Indeed, customers who appreciate “Made in the USA” tags are in good (and historic) company. In 1815 Thomas Jefferson announced, “I have come to a resolution myself as I hope every good citizen will, never again to purchase any article of foreign manufacture which can be had of American make, be the difference of price what it may.”
The Workspace of the Future
The office is getting a new look – or being phased out altogether.
By Matt Villano
Wondering about the office of the future? It might take more imagination than you think. “Who says there’ll be an office at all?” asks Tom Austin, vice president at Gartner, a Connecticut-based technology research firm. “Already we work from Starbucks, in the car and at our kids’ softball games.”
Sure, experts like Austin have predicted the obsolescence of the workplace for years, but as technology empowers people to work from any place with an internet connection, it’s starting to look like more small- and medium-size businesses could very well decide to go without on the physical office front.
Take, for instance, Floor64. The media and consulting company maintains a brick-and-mortar space, but also runs a bunch of Skype-powered chat rooms for remote workers -many of which are buzzing for most of the day.
“These [chat rooms], more than anything else, represent our ‘office,'” says CEO Mike Masnick, “and they don’t exist in physical space.”
Several developments have facilitated the rise of a virtual workplace. Nearly 6 million Americans work from home, according to the U.S. Census Bureau. Cloud computing enables data backups and remote collaboration in real time. And group video chat – videoconferencing 2.0, if you will – has become dirt cheap (or, in the case of Google Hangouts, free).
Even traditional back-office departments are moving toward virtualisation. Recently a number of third-party companies have popped up to provide services such as human resources, payroll and benefits. Some of these providers, including Algentis and Insperity, offer customisable online portals for each employee.
Of course many companies – big ones, especially – won’t give up on physical offices entirely. But experts say that in order to succeed, these firms should completely rethink their layouts, creating work environments that provide employees with a range of options.
Gartner’s Austin predicts that rather than the cube farms and conference rooms of yore, workspaces will come to evoke areas of the typical home – open floor plans with couches and soft rugs; cozy, kitchen-like spaces with waist-high countertops; and covered outdoor patios with chaise lounges.
Or, says Kevin Kuske – chief brand advocate and general manager for Turnstone, an office-furniture company in Michigan – office planners will start to think more like city planners, clumping purpose-built spaces into distinct portions of a building. “Urban centres have entertainment zones, dining zones, even residential zones,” Kuske notes. “For an office to work it needs to take this approach, too.”
Managers Who Understand the Importance of Goofing Off
CEOs get the message about the value of fun in the workplace and its contribution to the bottom line.
By Christopher Hann
These days more CEOs are getting the memo on the value of fun in the workplace and its contribution to the bottom line. The prevailing wisdom is that a spirit of playfulness builds teamwork by bringing employees together in a collaborative setting. Just look at one of Zappos’ core values: “Create fun and a little weirdness.”
Southwest Airlines has been the poster child for playfulness in the workplace since its founding in 1971 by fun-loving Herb Kelleher. More recently Cartoon Network CEO Stuart Snyder – named the “Most Playful CEO” of 2012 by Playworks, a California-based non-profit – can be seen gliding about company headquarters in Atlanta on an oversize tricycle.
“For me,” says Playworks founder and CEO Jill Vialet, “it’s a constant effort around getting the message out that work is not the antithesis of play – by no means at all. The opposite of play is depression.”
Stuart Brown, founder of the National Institute for Play, says a positive spirit should start from the top. “The key to leadership is being flexible and open and playful … in a way that is really natural to your own personality,” Brown says. “When work and play can be joined in a way that works and is sensible, that, to me, is an ideal.”
Each spring Brown teaches a course at Stanford University titled “From Play to Innovation” with Brendan Boyle, a partner at Ideo, the California design consultancy known for promoting play to inspire imagination. Boyle touched on this idea during a presentation at the 2011 Creative Innovation conference in Australia.
“If you can incorporate [play] into your innovation process,” Boyle told the gathering, “you’re going to make it more enjoyable, and you’re going to be better at it.”
These days playful leadership may be most famously reflected in the businesses of Silicon Valley – but not just in the grand, in-house gaming arcades and bowling alleys of the early internet days. Fun-based leadership has gone in a decidedly more grown-up and community-anchored direction.
At Thumbtack, a San Francisco firm that helps consumers find and hire local service professionals online, employees sit down to lunches prepared by a professional chef. “Eating all our meals together is a great way to build camaraderie,” says co-founder and CEO Marco Zappacosta.
The company culture grew organically from Thumbtack’s origins, Zappacosta notes, when most of the founders all lived – and worked – in his brother’s house. “We keep things casual,” he says. “We work hard and care about what we do. But at the end of the day we’re not so wrapped up in it that we can’t joke about it.”
Beauty Seekers Favour ‘Cosmeceuticals’
Consumers take a shine to advanced personal-care products.
By Jennifer Wang
Botox, schmotox. When it comes to anti-aging solutions, beauty seekers are starting to thumb their noses at injections in favour of “cosmeceuticals,” personal-care products with supposed skin-enhancing ingredients.
Market research group IBISWorld estimates that cosmeceuticals accounted for 13.4% of the $54.9 billion wholesale cosmetics and beauty-products market in 2012 – a whopping $7.4 billion. Another research firm, Freedonia Group, predicts that demand for cosmetic chemicals will jump 4.9% per year to reach $9.4 billion by 2016.
This growth will be driven by products advertising “active and natural” ingredients like rice-enzyme powders and rainforest plant extracts, such as those from Lily Herbceuticals – which uses exotic ingredients like the Tibetan Snow Lotus, a flower that survives in the Himalayas at 21 000 feet above sea level and 70 degrees below zero – and Personal Cell Sciences’ U Autologous, a skincare line that incorporates customers’ own stem cells in the service of anti-aging.
Lindsey Guest, founder and CEO of San Francisco-based BeautyArmy, a year-old tech company that uses algorithms to match individuals with personalised beauty samples, says the number of skincare lines on the market has quadrupled over the last five years.
It’s an especially lucrative category because of an urban and affluent customer base willing to pay a premium for the latest innovations. “They don’t want to use what their mothers and grandmothers used, and a new algae or deep-sea ingredient really resonates,” she says.
Dan Obegi, CEO of Los Angeles-based DermStore, the largest e-tailer of physician-strength skincare products, agrees. “There’s new demand as beauty influencers and tastemakers get older and become more interested in these types of products,” he says.
DermStore has seen annual growth of 50% for the last three years. Its parent company, Intelligent Beauty, which expects 2012 revenue of $450 million, has introduced a cosmeceutical slant into other verticals, such as shampoos that treat split ends.
Katia Beauchamp, co-founder and co-CEO of Birchbox, a New York City-based discovery shopping service for beauty, grooming and lifestyle products, says that no matter the age of the consumer, spending is trending toward higher-performance products.
A recent company survey revealed that BB creams – all-in-one products that work as a serum, moisturiser, primer, foundation and sunblock and were originally developed to protect skin after cosmetic surgery – are now finding mainstream use as a daily skincare option and are most popular among the under-21 set.
And let’s not forget the ever-growing opportunities in the ethnic and male-grooming markets, worth $3 billion and $2.6 billion, respectively, by some counts.
Beauty may only be skin deep, but consumers’ desire to chase it offers endless potential for companies’ bottom lines.
Hot Sauce Goes Mainstream
Move over ketchup, hot sauce is now one of the 10 fastest-growing industries in the U.S.
By Jason Daley
Hot sauce has caught fire. In April research firm IBISWorld declared manufacturing of the spicy condiment to be one of the 10 fastest-growing industries in the U.S., with average company revenue jumping 9.3% per year over the last decade.
Even though the segment is small – roughly 5 500 people employed by 218 sauce companies, an industry valued at $1 billion – it packs an entrepreneurial punch. Beyond established companies, thousands of kitchen and garage cooks have begun decocting their own spicy blends, with dozens of new sauces hitting local shelves and mail-order catalogues each year.
A quick survey of recent entrepreneurial sauciers included a 13-year-old boy from North Carolina, a formerly homeless veteran who used sauce to rebuild his life and a California firefighter who grows his peppers behind the station. Even the industry’s largest player – Avery Island, La.-based Tabasco, which has an estimated 34% of the market – has been privately held by the McIlhenny family since 1868.
Dave DeWitt, producer of the annual National Fiery Foods & Barbecue Show held in New Mexico, and the authority on all things spicy, likens the hot-sauce explosion to that of craft beer. “It’s similar because it’s an industry in which people have a vision of a product that they want to create,” he says. “So just like in microbrewing, people are using innovation as much as they can.”
So what has transformed Americans from ketchup slaves to salsa-swilling heat addicts? IBISWorld and DeWitt both point to the increasing popularity of and exposure to international foods. With that comes demand for zippy condiments like Vietnamese sriracha, Korean chili paste and more complex versions of Mexican salsas.
Research firm Mintel reports that sales of sauces and marinades – including hot sauces – jumped 20% between 2005 and 2010 and are expected to increase another 19% by 2015, mainly because people are increasingly cooking at home to save money and want to re-create those international flavours they have come to enjoy while eating out.
At the same time, DeWitt says, hot sauces are maturing. Instead of focusing on extreme heat or crude names like Slap Your Mama and Blow It Out Your Ass, companies are doubling down on flavour, experimenting with fruit-based sauces and toning down some of the heat to appeal to a wider consumer base.
“The micro-hot-sauce industry and all the new brands are slowly eroding Tabasco’s market position,” DeWitt says. “These new chili-heads are trying to come up with a line of products that will appeal to people who like all kinds of cuisines.”
Blair Lazar, who founded New Jersey-based Blair’s Sauces and Snacks 23 years ago (and holds the Guinness World Record for the hottest product on Earth), believes technology is a major driver of the sauce boomlet. “When I started it was hard to even find bottles.
Now people can order bottles and get labels off the internet,” Lazar says. But the most important reason for the trend, he contends, is that Americans, like much of the rest of the world, have simply fallen in love with heat: “We’re not a bland society, that’s for sure, so why not turn it up a bit?”
Energy Drink Market Gets a Boost From Young Consumers
Energy-enhancing products have grown into a multibillion-dollar industry fuelled by young consumers.
By Katherine Duncan
Whether it’s synthesised caffeine in a mass-produced beverage or a naturally occurring jolt in an organic snack, energy products are lifting off.
Since flying in on Red Bull’s wings in the 1990s, energy-enhancing products have grown into a multibillion-dollar industry fuelled by young consumers. Sales for the industry’s largest segment – drinks and shots – surpassed $8 billion last year, an increase of 124% since 2006, according to market research company Mintel.
Tom Vierhile, innovation insights director for Datamonitor, a business information and market analysis firm, estimates that the energy drink category will grow 8.9% from 2010 to 2015, while the food and beverage industry overall will increase by just 2.9%. He notes a recent survey in which nearly 30% of U.S. consumers said they are highly influenced by energy-boosting benefits when choosing a soft drink.
Supercharged food products are also on the rise. A PricewaterhouseCoopers market report on functional food divides the $20 billion-plus industry into categories according to health benefit, such as weight management, heart health and memory improvement, but the largest segment (29%) is made up of products claiming to boost energy.
“Looking toward the future, you’re starting to see companies getting outside the beverage area and [talking] about energy as a viable benefit for food products,” Vierhile says. But he isn’t referring to novelty items like caffeinated waffles. “One of the trends we’re seeing in food these days is [that] consumers are seeking out products on the basis of what they naturally contain,” he says.
YouBar, a Los Angeles-based manufacturer of customised energy bars, has been filling that need since its 2006 launch – and has grown every year since. At YouBars.com, users build bars from scratch by selecting from a variety of natural, healthful ingredients (including those with intrinsic energy enhancers); a nutritional label on the page automatically updates to reflect their choices.
Owner Anthony Flynn says sales increased 100% in 2011, and he expects them to double again this year.
Other companies are pursuing the all-natural energy path, too, even if it means diverging from their core business. Pyure Brands, a Florida-based supplier of organic stevia products, branched out from the natural sweetener industry after founder Ben Fleischer saw an opportunity in energy shots.
“We found a niche in the marketplace,” he says. “Our product is the first certified-organic, sugar-free [and calorie-free] energy shot.” Six months after introducing Pyure’s Organic Energy Optimization shot to distribution channels, Fleischer anticipates selling 250 000 to 500 000 units per month.
Whatever the reason, staying awake to complete a business plan, cramming the night before a presentation or just remaining alert throughout the workday, clearly, says Datamonitor’s Vierhile, “there is an interest in energy.”
Health Care Goes Digital
The digital health technology market will be worth $5.7 billion by 2015, with chronic care, wellness and medication management leading the charge.
By Jennifer Wang
Market research firm Parks Associates reports that the digital health technology market will be worth $5.7 billion by 2015 – up from $1.7 billion in 2010 – with chronic care, wellness and medication management leading the charge. Meanwhile, consultancy ABI Research estimates that sales of wearable wireless health-monitoring devices will grow from less than 3 million units in 2011 to 36 million by 2017, pushed by rapid growth in the senior in-home care market.
Early players in the mobile-health space include Happtique, an app-management company that helps healthcare professionals integrate digital technologies into their treatment programs, and Proteus Digital Health, inventors of a sand-grain-size ingestible sensor that monitors physiological and behavioural metrics from within a patient’s body.
Start-ups, of course, want in. “Regulatory challenges still pose a problem, but the ability to scale healthcare absolutely has to happen,” says Leslie Ziegler, chief evangelist at San Francisco-based health-dedicated accelerator Rock Health, which is nurturing promising ideas like Cardiio, a $4.99 touchless biofeedback app that uses mobile-device cameras to measure pulse via light reflected off the face (changes correspond to the flow of blood underneath the skin), and Podimetrics, maker of Wi-Fi-connected mats that can detect burgeoning foot ulcers in diabetics.
“Technology has finally caught up to the need, and the solution finally fits into people’s lifestyles,” Ziegler says.
The money has caught up, too. According to Rock Health, nearly $1.1 billion has been invested in digital health start-ups this year, up from $626 million last year, marking an 84% increase in deals.
In November 2011 Chris Hogg, co-founder and CEO of 100Plus, raised a $1.3 million seed round from big-name investors like Peter Thiel of Founders Fund and John Lilly, former CEO of Mozilla. Hogg’s company is developing an app that uses large data sets to assess behaviour and spur healthier living habits – only now possible because of a sea change in the way people collect and share their own data.
“People are hungry to learn more about themselves. They haven’t had this power and access to the tools and services to make it possible before,” he explains. So don’t be surprised if, in a few years, your (virtual) doctor’s visit ends with a prescription for both pills and apps.
Using Transparency to Build Consumer Trust
Weary consumers have had enough of false promises and conflicting marketing claims and are simply seeking brands they can trust.
By Paula Andruss
Experts agree: Weary consumers have had enough of false promises and conflicting marketing claims and are simply seeking brands they can trust.
“In most categories, products are essentially the same and offer the same rational benefits,” says Jim Joseph, branding expert and author of The Experience Effect for Small Business. “It’s the emotional benefits that make you a brand and get you into people’s lives so they come back time and time again.”
Jim Gregory, CEO of New York- and Los Angeles-based CoreBrand, a full-service brand consultancy that works with corporations, says, “Trust is a critical component of overall brand reputation today. People are more likely to do business with a company they trust, which means [trust] generates revenue and increases the enterprise value of the company.”
A survey conducted by Concerto Marketing Group found that when people trust a brand, 83% will recommend it to others; 82% will use its products and services frequently; 78% will look to it first for the things they want; and 78% will give its other products and services a chance.
How do you earn that trust? Start with a brand story containing a human element to which consumers can relate, says Mark Lawrence, co-founder and CEO of SpotHero, a Chicago-based online parking reservation provider. “A lot of people associate negative feelings with parking, and we started this company because we’ve had those same feelings and wanted to make them positive,” he says. “We’re building a brand based on a personal problem of ours that others also identify with.”
Once an emotional connection is made, it’s important to stay true to that brand promise to prolong the sense of trust. “Authenticity is coming back as an emotional connection that people want to make with their brands,” Joseph says. “It’s about speaking truthfully; doing what you say, saying what you do and not exaggerating who you are.”
For Lawrence, a big part of that delivery comes in the form of 24/7 customer support–which has paid dividends for SpotHero. “We want our customers to feel comfortable, so if they have questions, if they’re lost or if they want to get a hold of an actual human being, they can call us,” he says.
“We take that engagement very seriously, so parking is not scary or frustrating, and we’ve found that in doing so, our customers get so excited about their experience they tell their friends all about it.”
Unique Vending Machines Drive Stagnate Industry Forward
Recent innovations like touchscreen technology, electronic payment options and unique products could give the vending machines industry a boost.
By Kara Ohngren
When high heels start to rub, consumers today can take the edge off with a visit to a vending machine – and not just for a soul-soothing candy bar. “Our customers love that they can walk right up, put money in and instantly get a pair of shoes,” says Ashley Ross, who sells ballet flats out of four Rollasole machines in Los Angeles and Las Vegas. “There’s no hassle or sales pitch. It’s simple, and they can go on their way.”
Last year Ross and business partner Lindsay Klimitz bought the U.S. rights to Rollasole from its U.K. founder, Matt Horan. They plan to place seven additional machines in New York, Miami, Los Angeles, Las Vegas and Chicago in the coming months.
The size of the U.S. vending machine industry has stayed steady over the past few years, pulling in about $42 billion last year, according to the National Automatic Merchandising Association (NAMA). And while nearly 95% of that revenue came from traditional options such as beverages and snacks, NAMA president and CEO Carla Balakgie believes recent innovations like touchscreen technology, electronic payment options and unique products could drive the industry forward.
Savvy entrepreneurs are engaging the always-open kiosks to offer everything from $5 works of art (artist Clark Whittington’s Art-o-mats, which utilise retired cigarette machines) to fresh-cut flowers (Raleigh, N.C.-based 24-Hour Flower).
The U.S. is still a ways away from the vending machine dominance of Japan – where more than 5.2 million machines generated about $65 billion in 2009 from sales of everything from eggs to pet rhinoceros beetles. But new companies are bringing new products to stateside machines all the time.
Machines in Las Vegas, New Jersey and New York peddle pieces of 24-karat gold under the name Gold to go. The Semi-Automatic machine at New York City’s Hudson Hotel is stocked with a rotating array of quirky items, such as copies of The Catcher in the Rye, designer threads and a rental agreement for a Ferrari 599 GTB.
The Sandbox’s Beach Shop in a Box dispenses essentials like sunscreen, sunglasses, beach balls and towels. And Greenaid’s seedbomb vending machines – part of the company’s “guerrilla gardening efforts” – dispense balls of clay, compost and seeds that can be thrown into sidewalk cracks or barren parking lots to grow a little green.
“Gen-Y, who has grown up with technology that allows them to define their own experiences, is driving much of the innovation in the industry,” Balakgie says. “They love the anonymity and to be able to get what they want, when they want it.”
Creative Financing Grows in Popularity
Traditional business lending is still faltering, but more people are starting businesses, which means borrowers and lenders are getting creative.
By Michelle Goodman
It’s no surprise that creative financing is on the upswing. More people are starting businesses than before the economy tanked – but traditional business lending is still faltering.
“The majority of small businesses don’t need to borrow $1 million. They need to borrow $25 000 to $50 000,” says Charles Green, executive director of the Small Business Finance Institute, a non-profit that educates entrepreneurs about financing. Little wonder that alternative financing methods – crowd-funding, peer-to-peer lending sites, online pawn shops, you name it – have become so popular.
Take microlending. In 2011 Accion East, a leading U.S. provider of $500 to $50,000 microloans, granted 1% more loans and lent $2.2 million more than the previous year. According to Accion East CEO Paul Quintero, it’s the same story at the four sister organisations in Accion’s national network: more entrepreneurs applying for loans and more microloans disbursed.
Also gaining in popularity is revenue-based financing (RBF), which is repaid based on the lendee’s monthly sales. Since forming in 2010, Seattle-based RBF lender Lighter Capital has gone from making three investments per year totalling $250 000 to 13 totalling $1.5 million, says CEO BJ Lackland.
HireAHelper.com, a booking site for moving and day labour, got a $200 000 business-expansion loan from Lighter Capital a year ago. “It ended up being a pretty important catalyst for our growth,” says Mike Glanz, the site’s co-founder.
Entrepreneurs are also flocking to collateral-free loans, particularly short-term ones. Consider merchant cash advances, in which restaurants, retailers and other businesses doing a high volume of card transactions receive a lump sum in exchange for a cut of future credit or debit card sales – often about 25%.
This year these advances will total $1 billion, up from $800 million in 2011, says David Goldin, president of the North American Merchant Advance Association.
All this is good news for entrepreneurs seeking capital. “Alternative lending is becoming more mainstream,” says Rohit Arora, co-founder and CEO of Biz2Credit, an online credit marketplace. “And as it becomes more mainstream, the cost of those products is going down.”
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Max finished school with a Grade 10 education, and was expected to become a miner like most of the men in his community. Instead, he focused on becoming a business owner. It’s been a long, hard road, full of challenges, but today he heads up a R120 million business. Share in his journey as Matt Brown interviews him in person, and unpacks his journey, the hardships he’s faced, and the lessons his learnt in overcoming those obstacles, including:
- Wanting more out of life than being a miner in his hometown, like his peers and seeking alternative opportunities to make money and uplift his community.
- The power of persevering even in the face of closed doors – they eventually opened up because he pushed through for long enough.
- The importance of starting, even if you start small, by initially focusing on breaking even before buying into the fancy additions to presumably make business faster and easier.
- Banking on a new business and losing it all, with the added responsibility of paying employees’ salaries and pension packages with money he didn’t have
Max will join a list of some of South Africa’s most successful billionaires, entrepreneurs and the CEOs hosted on The Matt Brown Show, on Tuesday morning. Matt’s 20 years’ experience in business strategy, technology and marketing communications and over a dozen local and international awards make this a discussion worth participating in.
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Franchising Sector Ready To Lend A Hand
How business can use franchising to improve jobs and support entrepreneurship throughout South Africa.
“We are at a moment in the history of our nation when the people, through their determination, have started to turn the country around.
Now is the time to lend a hand…
Now is the time for each of us to say ‘send me’…
Now is the time for all of us to work together, in honour of Nelson Mandela, to build a new, better South Africa for all.”
Cyril Ramaphosa, SONA 2018
The Presidents commitment to small business
The SONA speech by President Cyril Ramaphosa and his commitment to supporting small business and entrepreneurship has been welcomed by Tony Da Fonseca, the Franchise Association of South Africa’s Chairman, who in 2017 had already met with the chairperson of the Parliamentary Portfolio Committee for Trade & Industry to pave the way for greater co-operation between government and the franchise sector.
“We are encouraged by the President’s promise to increase co-operation with business and look at ways to encourage entrepreneurship, youth training and job creation” says Tony Da Fonseca.
“We are confident that the franchise sector can play a pivotal role through innovations like the development of social and micro franchising which hold enormous and largely untapped potential for the development of the economy and improve service delivery.”
Confirming that the growth of the economy will be sustained by small businesses, “as is the case in many countries”, President Ramaphosa confirmed that government would honour its undertaking to set aside at least 30 percent of public procurement to SMMEs, co-operatives and township and rural enterprises and would continue to invest in small business incubation. “It is our shared responsibility to grow this vital sector of the economy.”
Franchising is ready to play a larger role
As a sector that already contributes 13, 3% to the country’s GDP generating an estimated R587 billion through its 845 franchise systems, 40 528 franchisees and employing 343 319 people, franchising is perfectly poised to play an even bigger role in furthering small business development, skills transfer and job creation.
“As a successful businessman and former franchise owner himself, Cyril Ramaphosa is familiar with the far-reaching potential that franchising has in small business development, skills development and job creation, says FASA Chairman Tony Da Fonseca.
“We are hopeful that he will look to us in the franchise sector to assist in building that ‘small business support ecosystem that assists, nourishes and promotes entrepreneurs’ that he referred to in his SONA speech.”
That, together with the welcome measures by government to reduce the regulatory barriers for small business and the introduction of an innovation fund targeted at start-ups and small suppliers that could become supply chains to the franchise sector, will go a long way to opening the doors to small business expansion and the benefits to the economy that will flow from that.
The Franchise Association of South Africa (FASA) has always been a proponent of small business incubation and has, over the years, embarked on various public/private initiatives to grow the franchise sector. Their efforts have included youth cadet schemes through the Jobs Fund, developing micro businesses to become franchise-ready through the Department of Small Business Development’s Micro Franchisor Development Project and through various private initiatives with funders and franchise members.
The franchise sector to stimulate entrepreneurship and jobs
According to Tony Da Fonseca, much more can be done in the public/private development space. “The opportunities to transform government services, such as health care, water delivery, education and in many other areas, through the social franchise format, are enormous. Both locally and internationally, pilot projects in social franchising that operate on commercial principles, making enough profit to sustain operations and re-investing surplus profits into the community they serve, have proved to be viable.”
According to Tony Da Fonseca, the franchise sector is well-positioned to come together in a concerted effort to stimulate entrepreneurship and create much-needed jobs.
Franchising in South Africa currently services around 17 business sectors – way behind countries such as Australia, Europe, Canada and the USA who boast between 25 and over 70 business categories.
“The opportunities to expand into many more sectors and particularly in the social and services sectors of the economy are endless. We welcome the opportunity to work with government in creating an entrepreneurial environment that will grow investment confidence, introduce new small business concepts via the franchise system, accelerate BEE and enterprise opportunities, giving training to the youth and above all create those much needed jobs.”
Mr President, the franchising sector is ready and able to take on the opportunities for ‘renewal and revitalisation, and for progress to build the fair, just and decent society to which Nelson Mandela dedicated his life.’
How To Pick The Business Model That Works For You
So, you’ve picked your lane. You’ve decided what you want to do and why you want to do it. You’ve picked something you’re good at. You’re convinced the world needs and values it. You now need to decide how to make money. That’s where business model design comes in.
There are plenty of business model options for the same idea. For example, let’s say your idea is to offer historic tours of Cape Town. You could either do it yourself or hire professional guides to do it. Or you could use mobile technology to provide DIY walking tours. You could charge per tour or you could charge a membership fee. There are so many options. How do you pick the model that works for you?
The Lean Canvas is a great tool for entrepreneurs who are faced with this question. Adapted from The Business Model Canvas, it provides a simple, one page framework for brainstorming possible business models, prioritising where to start, and tracking ongoing learning. It walks the entrepreneur through the business model process logically and ensures the key elements of a successful business are considered.
My co-founders and I have used the Canvas extensively at Simply – for designing our business model, and for communicating it to partners and investors. The only thing you know with certainty when you start a business is that it’s not going to turn out as you expect it to. The Canvas evolves as you go – it was, and continues to be, a very useful guide in our journey.
Recognising an opportunity for disruption
We figured there was an opportunity to do something disruptive in the SA life insurance space. It was clear to us that lots of people were either not covered or getting a rough deal. Guided by the Canvas, we defined our first Customer Segment as adult South Africans, aged between 25 and 45 and earning between R5k and R30k monthly.
We then identified the 3 big Problems – specific to that segment – that needed solving:
- Most of the people in our segment have some form of funeral cover, but very few have life or disability cover.
- The cover they do have is often expensive relative to the benefits provided (i.e. a very small % of the premium goes towards the risk costs).
- There is no simple, intuitive way to buy good value life, disability and funeral cover online.
Developing a value proposition
Next came the Value Proposition. We believed we could use technology, digital marketing and human-centred product design to deliver simple, online life, disability and funeral insurance at a great price. We felt we could be for life insurance in South Africa what Takealot has been for retail.
We thought the world was moving far faster than incumbents realised; that millennials were ready to buy life insurance online; that we could build for the digital world and be in the right place at the right time.
And the rest flowed from there. I don’t have the time or the space to walk you through the other elements of the Canvas here, but you can probably fill in the blanks. Suffice to say, the process was invaluable and enabled us to build our business around a clearly considered business model. It’s early days, but the signs are good – we’re making a positive impact, having fun and keeping our investors happy.
Creating a Lean Canvas
So, how should you go about sketching your own Lean Canvas? The team at www.leanstack.com suggest the following approach:
- Sketch a canvas in one sitting. While a business plan can take weeks or months to write, your initial canvas should be sketched quickly.
- It’s okay to leave sections blank. Rather than trying to research or debate the “right” answers, put something down quickly or leave it blank and come back to it later.
- Think in the present. Business plans try too hard to predict the future which is impossible. Instead, write your canvas with a ‘getting things done’ attitude.
- Use a customer-centric approach. You may need to sketch one Canvas per customer segment. Start with the Customer Segment and go in sequence.
The Canvas has brought clarity and a common language to our business model design process. It’s enabled us to agree upon and communicate our business model effectively – both internally and externally. It’s also allowed us to tune and adjust our model as our story has unfolded – an inevitability for entrepreneurs. I highly recommend the Lean Canvas as a tool for designing your business model. Give it a try – I think you’ll like it.
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