As I mentioned in my last blog, I haven’t been so optimistic about growth and investment opportunities for several years. While you can never time a market turning point, if you wait for every piece of the puzzle to be unambiguously in place, you’ll likely be too late and miss out competitively. So, I am firmly of the view that we are entering the era when the sin of omission will be greater than the sin of commission. So, what makes me so confident in growth? It is the power of three. Three big dynamics converging. Unsolved megatrends awaiting solutions. The possibility of business reinvention. The paradox of change.
First, several trends can support growth for the next 1-2 decades. I have been fortunate to work on over 250 brands and over $40bn of M&A, so I have seen a great many businesses from all walks of consumer goods. There was never an example of saturated innovation potential. In every case, important consumer trends remained underserved significantly. Some were harder to solve or serve than others, but there were always clear illustrations of what the consumer would want tomorrow. I started my career at Unilever, and it was drummed into us over and over again that the best ideas can change behavior and grow markets. So, I have always looked beyond today’s market sizes and product solutions to tomorrow’s possibilities. There are huge platforms for growth in today’s markets. Expectations are being raised via technology and services and this fuels a receptivity to innovation across all your product experiences. Innovation will make the difference. Pick platforms that fit the trend tailwinds.
Second, the consumer has learned in recent years to engage with many new brands. The industry was historically strangled by distribution being locked up by a few big retailers and a few big brands. The convergence of eCommerce, digital media/CRM and variable cost business models allowed thousands of insurgent brands to spring up. Some made it into store, many existed exclusively online. In aggregate it created a lot of new experiences for the consumer. However, just like when there are too many IPOs or SPACs, the market drives a reset. We are in that phase. The lofty valuations and cash burn associated with semi-formed ideas got to a top and we are working through a flight to quality. When our team was doing research for my book Pick A Lane, we found 10,000+ insurgent brands across US consumer products but 98% didn’t ever reach half a point of market share. Many were built on unsustainable economics and with generic levers that anyone else could apply. There was too much focus buying consumers rather than earning them. Not enough attention to brand position and sustainable points of difference. The big brands did a variety of tactical defenses, most of which didn't last very long. We are coming through the reset and some great brands in great categories with great ideas are caught up in the fallout. The market will fix this, and the emerging businesses will be fewer but stronger. I suspect many will need to reinvent strategy to sustainable brand building and economics, but if that reinvention is paired with continued innovation for the consumer, a great deal of value may be created.
Finally, whether your brand is big or small, you have had a tough few years. The paradox of change is highly relevant and a positive legacy of those challenges. I have always found it to be true that the more you change, the more you are able to change and the more you want to change. We wouldn’t have volunteered for the last few years, but we got through them and what we have learned is agility, opportunism and determination get you a long way. The teams that can sustain that passion and ingenuity in a more benign environment will be the ones that innovate and reinvent. You must reset and reappraise opportunity in this changed world. Make an opportunity of the megatrends and consumer desire for innovation. Invest real time in a breakout strategy that is forward looking, bold and ambitious. Leave the last 5 years behind and design the future. For investors, when you find teams able to embrace this challenge and articulate their potential, back them to the hilt.