Many struggle with that little voice that tells you if you don’t finish your to do list, something really bad is going to happen. That’s because this wrong-thinking message got programmed into us in our early school days. You know the message. “You aren’t going to succeed if you don’t get it all done.” Continue reading
Like I wrote last week, Millennials, weighing in at roughly 80 million strong in the US, are now the largest generation since the Boomers. If you want to know who marketeers think are the most important generation, you only need to follow the data. There are reams of it on this generation. Millennials make up the largest portion of today’s consumer spending. That’s despite record high unemployment within this group.
In 2010, The Pew Research Center released a comprehensive report on the Millennials, roughly defined as those born between the late 70’s and early ‘90’s.
According to the report, this generation came of age in a culturally diverse world, they are tech-savvy, enthusiastic, self-centered, confident, well networked and achievement-oriented. Very important to note is that Millennials are one of the best-educated generations in history.
If there’s one thing you need to remember about Millennials when you’re crafting your brand, it’s this – they are the most connected consumer group in history.
Their constant use of technology and social media has given them nearly unlimited power to voice their opinions about brands.
The Boston Consulting Group (BCG), in a recent study, determined that Millennials are far more likely than their older counterparts to identify with brands and act as advocates for them.
BCG’s survey results confirm two important pieces of information that you can use. First, half of younger US Millennials (18-24) concur that brands say something about who they are, what their values are, and where they fit in. Second, this group is willing to share their brand preferences over social media.
Given this, your opportunity is to harness the social media chatter and turn it into marketing for your brand. Look around at what’s worked for other hugely successful brands, especially those in apparel, entertainment and action sports equipment.
Engage Millennials by encouraging feedback on your brand through online games, tweeting, writing online reviews, posting photos of themselves with your product on Instagram and Pinterest, and of course “liking” you on Facebook. When trying to attract them, remember that music and fashion are highly appealing to this very image driven generation. Think tattoos and piercings.
Want a few examples of brands that are capturing this consumer spending behemoth?
Nike. Millennials associate this brand with being the best in sportswear and athletic gear. It also doesn’t hurt that Nike signs tops athletes for their campaigns.
Then there’s Red Bull. This brand appeals because its personality screams take risks in pursuit of living the dream, with a strong dose of “no parents allowed.”
You can tell from my examples, and from much of the research on Millennials, that they favor brands that offer novelty and prestige.
The attraction to prestige might seem counterintuitive because generally this younger generation is less materialistic than Boomers and X-ers. But they can be more focused on quality, and less on quantity. Since we know that Millennials earn less money than their predecessors, we can surmise that when they do make purchases of quality it’s possible because they’ve been saving up. The good news is your brand doesn’t need to be a bargain basement item to grab some of this market share.
As this generation continues to move away from materialism, studies seem to show that Millennials, even more than Gen X-ers, are moving instead toward a search for a deeper meaning from life. Again, this is valuable information for your brand’s personality.
For example, we know that these younger consumers want to be passionate about their careers. Chef jobs are really hot right now. The prestige of being a foodie appeals to this generation.
As an aside, I think we can credit the TV show “Friends” for helping start this trend. Remember the brunette Monica? She was a chef, albeit an oddly thin one. Then came the Food Channel. The food industry has exploded from there partly on the strength of these younger job-seekers searching for a career where they can really be in touch with what they do for a living.
How do you do that?
Position your brand as a change agent. Make sure they see that your brand’s mission statement goes far beyond the bottom line. That you care about what they care about, like being a global citizen and global warming.
Most of all appeal to the Millennials’ belief that they can make the future better. Who knows? Maybe they can.
As a business owner if you want to know the single most important word today to keep in mind when crafting your brand vision, I can tell you.
As in Baby Boomer, Generation X and Millennials.
The Baby Boomers, born during the post-war baby boom, are one of the largest populations in history at 79 million in the US. As they age, they’re growing into consumers whose purchasing habits are shifting to be more centered around medical care and assisted living than McDonalds and Toys ‘R Us. Boomers have been a powerhouse, driving the economy for decades. Brands like Levis and Noxzema rose and fell at the purchasing whim of the Boomers.
But that’s changing rapidly.
Boomers now don’t generally live in a mainstream consumer society. Brands that they’ve been loyal to for years are going to struggle in the coming years, as their consumer champions focus less on consumption and more on retirement and planning ahead for end of life decisions.
As Baby Boomers edge toward retirement, they take with them nearly $400 billion in annual spending. This leaves a spending void that will be difficult to fill.
What does that mean for your business? Opportunity.
The brands, some old some new, that the younger generations favor have a massive growth opportunity.
To help understand why, we just need to look to the Boomers for answers. Statistically, they have well-established careers, often in positions of authority. Think lawyers, executives, and managers. Very long work weeks are standard and they often define themselves less by their own professional accomplishments and more by their employer’s prestige. They often have stuck with that employer, even if it meant leaving a state they liked, moving across the country chasing promotions. They are loyal. And they are also loyal – blindly loyal sometimes – to their brands. It doesn’t matter if another newer brand is better.
Gen X-ers and Gen Y-ers, the Millennials, have moved away from that blind brand loyalty. That has changed the face of the business world. And most importantly for you, when you are engineering your brand, it has created enormous potential for your business.
Now of course I’m not saying Gen-Xers and Gen-Yers are the same as each other. Definitely not. Numerous studies on this seem to reveal that each generation has their own unique consumer characteristics.
Know those characteristics and you begin to understand how to attract these consumers.
Generation X was born after the post-World War II baby boom. Their birth dates range from the mid 1960s to the early 1980s. At only 46 million members, this generation has barely half the market share of the Boomers and Millennials. That means that their buying power, as a group, is less than the generations that preceded and came after them. But statistically they collectively earn more than Millennials, coming close to Boomers’ wages. So it kind of evens out. There are less of them, but they have more spending money than their younger counterparts.
Research shows that X-ers are much more skeptical of brands and advertising than people in their twenties. And far less loyal to the old school brands that Boomers favor. Probably the reasons for that reside, in part, in the era they’ve come of age in.
They’ve grown up with corporate downsizing, huge layoffs and plenty of government scandal. X-ers became adults in tough economic times. Success for this generation has been less certain than for Boomers. These are latch-key kids who grew up quickly, with rising divorce rates and escalating societal violence. Probably because of these factors they’ve taken greater responsibility, than in other generations, for raising themselves.
After seeing their hardworking parents burn out and maybe lose their jobs, data shows that X-ers are often independent and resourceful workers who prize their freedom. Statistically, unlike Boomers, they don’t seem to be up for sacrificing quality of life for career advancement.
Gen X-ers tend to be less traditional than any other generation and are highly entrepreneurial.
No surprise then that the brands this generation lean toward also display those independent characteristics. Think magazines like Maxim and cars like the Mini Cooper.
Don’t expect blind brand loyalty from this generation. Gen X-ers are extremely skeptical and cynical, and they value authenticity. They also expect change.
When you’re creating a brand presence and you want to attract this generation, focus on a brand personality that says “you’re different and we respect that,” “there aren’t a lot of rules here,” “this is not a formal place” and “do it your way.”
Next week I’ll finish this blog by looking at the Millennials who, weighing in at roughly 80 million strong in the US, are now the largest generation since the Boomers.
Q: I’m an entrepreneur with what I think is a great idea for a startup. But how do I know if it really makes sense to pursue?
A: The good news is there are concrete financial benchmarks that can help answer this. Nearly every industry has ratios that define the likelihood of success.
1) Begin by searching association publications and investment research specific to your enterprise. Be sure to examine the profitability metrics posted on your trade’s association websites, and study comprehensive industry overviews from reputable sources that present relevant models and statistics.
My early entrepreneurial career began in food, so here are a few examples from when I was starting my own restaurant business:
Projected revenue divided by startup costs needs to be better than 1.8%.
Fixed costs, which are recurring costs that don’t vary like rent and management salaries, divided by sales should hover around 8-12%. Of course the lower the better on that. The more sales dollars per year, the higher you can afford to be on the percentage.
Adjust this based on your market and business category, but fixed costs should not exceed a certain percent of sales. You can figure out that percentage by consulting credible resources from your industry.
Thoroughly analyze variable costs. The big two in restaurants are food and paper costs combined, and labor. You want to hold these at 60-62% of revenue. If your fixed costs run lower, the 60-62% can edge a little higher.
Some restaurant segments, like pizza, have costs specific to them. Pizza concepts generally run 2% lower on food and paper, but there’s an offset because of the very high outlay to acquire customers using direct marketing, like door hangers and mailers.
To project sales, multiply your predicted customer count by anticipated ticket average, less dollars spent to get people through the door. Be conservative on these estimates to insulate against unwanted cash drain.
2) Decide whether your idea is a financial performer by focusing on measureable factors. You can buy comprehensive industry research that publishes data on your competitive landscape. For instance, the National Restaurant Association has data available for a membership fee.
3) Not only should you review that data, you could hire an accountant who specializes in your field to crunch those numbers and produce a model P&L.
But buying industry data can be expensive.
4) Here’s a no-cost option. Ask those who own businesses like yours to share their P&Ls. Obviously not every business owner is going to be generous like that, particularly if you’re seen as competition. You might have better luck if you drive across town and ask business owners who aren’t going to be in your trade area. If you can get this information, it will be invaluable.
5) Avoid the market share game. Chose what you see as a growing segment for your startup. Going back to the restaurant example, if you open a traditional burger joint you’re in a more mature segment because there are lots of traditional burger places. You have to steal market share from those guys, like McDonalds, if they’re in your trade area. As you can imagine, that’s hard to do. But, if your startup is in a growing segment, for example craft burgers, you can probably count on shifting demand, or even new demand. That can be true even in a down economy.
So, find a new way to offer that burger.
When I was getting my own small business off the ground, if I hadn’t taken my own advice here and figured out if the numbers made sense, it would have been one of the biggest guesses I would ever make.
What’s your entrepreneur question? Email me at RESblog@consumercp.com.
To get your business going you need money. Probably plenty of it. If you’re buying an existing business, you can make a cash down payment and pay off the seller over time. But when you’re starting your own business, it’s likely you’re going to need access to 100% of the startup capital needed to get going.
This may surprise you but the lion’s share of startups are funded either with the entrepreneur’s own money, or with money from friends and family. Failing that, new businesses look to SBA loans and conventional bank loans. But those loans are tough to get for startups these days, and they require significant collateral. And even if you were able to get an SBA or bank loan, likely they’d only loan you at the most 75% of what you need to get going. More likely it’d be closer to 50-60%.
So say you have $200,000 in startup costs. Then you, being a lucky person, get the go ahead for a bank loan that’s 60% of your costs. Before you can draw on that loan, you still need to show that you’ve put the remaining 40% in your business. For example by showing $80,000 worth of receipts for equipment you bought.
VC comes from professionally managed funds that are looking to make equity investments in emerging growth startups. They purchase a stake, anywhere from $25,000 on the very low end to upwards of $10 million, in selected industries where they have expertise. Their plan is to sell their investment within a few years and return their outside investors’ money, with a profit.
Professional VCs have very high standards. You need a killer business plan, a big marketplace opportunity, and a solid track record in a related industry. It isn’t easy. That means to have the best chance of attracting capital investments, you need to target the right VC firms to approach. Once you’ve considered the following factors use a search tool like Findthebest.com or Entrepreneur.com/vc100# to narrow your startup capital search.
Geography – where does the VC fund tend to invest?
Investment range – how much capital are you looking to raise? Generally, VCs have an upper and lower investment size limit.
Investment stage – VC firms often solely invest in companies that are in a specific stage of development. Only seek funding from groups that focus on your stage of growth. For startups, look for VCs that offer financing for that beginning “seed” phase. Or, if you’re just past that, find VCs that make “early stage” investments for, say, marketing or product development.
Industry focus – find firms that specialize in your industry. Tech by far has the most coverage, but most industries have some VCs in their field.
The good news is when you’re financed by a known VC, your company earns some credibility. VC investments also can bring value to your startup because these lenders have knowledge of your industry including important contacts with potential customers, suppliers, and so on.
Having said that, a venture firm will generally want 40% or more ownership of your company. When you’re growing fast, selling equity is very expensive because all of the gain on that share of the company goes to the VC investor.
Don’t raise more than you need.
But what if you do, later down the line, find yourself needing more than you originally asked for? It happens. You can go back to your VCs and ask for more. Though you’ll need to give them something extra, like a first right of refusal.
According to data compiled by Fundable.com, VCs write big checks, with an average investment size of $2.6 million for startups. Sounds good but the reality is VCs actually funded only half a percent of all startups looking for cash in 2013. So, they don’t invest in many new businesses, but when they do, they can invest big. Like I said, it isn’t easy.
Here’s a table with the ten most active seed-stage venture capital firms last year, according to Forbes.com. Many of these firms only do seed money, ranging from individual investments of $25,000 to $250,000. Probably worth noting is that, in many cases, these VCs teamed up with each other when investing seed money in startups.
10 Most Active Seed Money VC Firms for 2013
|Venture Capital Firm||Find Them|
|500 Startups||500.co [sic]|
|First Round Capital||firstround.com|
Who funds more startups than VCs? Angel investors. These are private individuals, or small groups of friends or members of angel clubs, who have enough money that they can afford to make higher risk, hopefully higher return, private investments. Did you catch the “higher risk” part? Depending on your situation, that can translate to a better chance of getting funding from angels than VCs.
Not all angels look alike. Sometimes the entry-level investors are simply high net worth people who just dabble in private investing. They’re probably not going to have the deep pockets of a super angel, but sometimes they’re willing to accept even higher risk investments.
To find the right investors for your angel financing, run through the same list of factors, mentioned above, used to select potentially amenable VCs.
Again, according to Fundable.com, in 2013 angel investors wrote about 16 times more checks than VCs, investing in over 61,900 companies. The average amount invested per startup was just under $75,000. There are currently about 268,160 active angel investors. Angels funded nearly twice the startups that VCs funded. But still, that’s less than 1% of all startups funded.
The top 5 angel investors of 2013 were busy making more than 165 combined investments. See the table below. The angel list was pulled together according to data compiled by the equity crowdfunding platform Fundable, and the entrepreneurship advocate Empact.
Top 5 Angel Investors of 2013
|Who||Investments in 2013||Investment Range||Famous Investments|
Remember, even though these are the top venture capital and angel investors, carefully explore the startup capital options that might be right for you.
If you have an entrepreneur question, email me at RESblog@consumercp.com.