Launching a business is always a risk, but not all sectors are created equal. Take one glance at recent retail sales figures or analyst reports, for example, and you’ll see plenty of fire, brimstone and collapses.
Just this week research firm IBISWorld blamed fierce competition and the emergence of online players for the collapse of local brands including Pumpkin Patch, Payless Shoes and Marcs and David Lawrence, saying shoppers now have too much choice for even formerly strong operations to survive.
But despite the pessimism, new ventures continue to get launched into choppy waters by entrepreneurs who say they’ve found that magic formula. There’s plenty of hope to be found in pockets of the business community that are facing challenges — even upon the announcement of Amazon’s launch in Australia, SMEs told SmartCompany they’re excited by the prospect of competition from the online giant.
So why would you launch or try to grow a new venture if sentiment about your sector is less than rosy? Business consultants and founders tell us it can be done — you just have to follow the numbers.
There was no shortage of furniture retailers operating in 2014, but that didn’t stop Ivan Lim and his co-founders from launching another homewares option.
Three years ago they took designer furniture marketplace Brosa online, offering easy-to-order homewares designed to beat Ikea’s more mass-produced aesthetic.
Lim says he wasn’t afraid of the competition because despite the crowded space, he’d come up with a way to solve a customer frustration nobody else had touched.
“I think the retail sector is challenging and definitely not for everyone, but we came to it with the sense that we could solve a problem,” he says.
“What if we could connect consumers with designers directly throughout the world?”
To Lim’s mind, the Brosa business offers two elements that won’t go out of style no matter how challenging the market conditions: an appeal to customers interested in design, and a strong sense of service.
“The world of amazing customer experience is here … those that can build the best customer experiences will win,” Lim says.
“And there’s always going to be an appreciation for design.”
Founder of Sydney-based supermarket data insights startup Aglo, David Wong, says his business was founded with the knowledge that despite challenging market conditions, small suppliers still want to launch new ideas into the big supermarkets.
Aglo is a retail analytics app that gamifies shopping by giving customers “retail missions”. Everyday consumers are given incentives to collect data on things like where products are stocked in stores, and this information fed back to Aglo’s clients.
Wong says he sees plenty of SMEs keen to take on big consumer brands in the big supermarkets, and the reason they’re so optimistic is they see trends that can still be exploited.
“In groceries in particular there’s been consolidation on the supplier side. There are probably seven or eight companies that run many of the brands people buy,” he says.
“But there’s also a big push into organic and niche products, and we’re seeing a lot of new suppliers coming on to the market there. That’s very important to us.”
Serial entrepreneur Tanya Titman says she helps many businesses launching or looking to grow in areas like retail through her business incubator program Acceler8 Academy.
However, she says too many of them often get distracted by emotion when they hear bad news on things like market conditions, instead of being able to see where their own businesses fit into these trends.
“What we find is so many business owners make decisions based on emotion, as opposed to actually going back to the facts,” she says.
This is a big worry, Titman believes, because when SME and startup founders do face bumpy conditions, they often don’t know how to predict whether their business is equipped to handle them.
“When we talk cashflow, we say you have to know what that will be 12 weeks out [from where you are]. But most businesses, and some really experienced businesses, don’t do that,” she says, saying instead some only look a week or so ahead of the present moment.
Wong agrees that for many new businesses trying to launch a product, nobody has actually crunched the numbers after coming up with a new idea, which makes the prospect of expansion challenging.
“Small suppliers usually don’t do any research and then they spend any shopping research dollars unwisely,” he says.
Titman advocates for better financial literacy overall for company founders, saying a lot of the stress companies face when staring out in choppy conditions evaporates if you can see the big picture.
“I’ve got a great retail business that I’ve worked for now for a number of of years. The owner used to go through that December and January period and then come through to February when cashflow is really tougher,” Titman says.
“But after going through and giving her processes to do cashflow forecasts, after being able to see her way clear to the end of February, the stress levels were so much less.”
“A great idea doesn’t necessarily mean you have the best business model if at the end of the day, nobody’s going to pay for it,” Titman says.
This truth is all the more important if you’re competing against the big players, and so those wanting to succeed should be able to articulate exactly why, says Lim.
“I think the model we built up is transformatively different, because we control the whole supply chain,” he says.
“We control the whole experience, and it’s just up to us to be able to execute it.”
In broader discussions around disruptors like Amazon, Lim says businesses that simply see their competitors as offering more “convenient” service are missing the point when it comes to the importance of customer connection in the face of tough conditions.
“What’s important is to really understand your customer — to unlock the things customers don’t even know what they want,” he says.
“If you look at Myer and David Jones, they’re a bit of a QUASI landlord at the moment for other concessions … And they’ve lived on the fact people [previously] didn’t have anywhere else to go.”
Wong’s startup sees the challenge of entering a disrupted sector from two sides: Aglo is trying to grow as a new company fighting bigger data providers, while also talking to its SME clients about their priorities and challenges.
Wong previously worked in customer management reporting for big consumer brands at Oracle. He says he is using that background to define the one thing that will make his startup relevant: saving time.
“I’ve been able to understand the whole industry and how it works, and I thought it should be more connected that ever,” he says.
Whereas other market research relies on people hitting shop floors with clipboards, Wong says his model finds efficiencies by using shoppers that are already going to stores as “virtual” data collectors.
His business plays on an important truth for small suppliers in particular: “The thing is that you just have to do your research. And it’s affordable, to do that now.”
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