Small Brands Are Cool! How Can They Stay That Way?

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Actually, the question is not how small brands can stay cool. It’s how they can stay at all. As in stay here- alive, in existence, solvent. Not toast.

I have been so encouraged by the number of small brands I’ve seen in snowboarding recently. I love them. There was a bunch at the SIA show in Vegas. There were some of the same ones at ISPO and some different ones that I’d never heard of. At ISPO there were some small brands with skis and snowboards with the same branding and graphics.
 
There were even a couple of new kinds of snowboards. I have to admit that I don’t think they have a chance in hell, but it was great to see somebody trying and may they prove me wrong.
 
If snowboarding is going to be something besides a sport, which is good for business, then we need the enthusiasm and excitement that these small brands represent. But, I wouldn’t want all this enthusiasm and excitement to overwhelm good business practice.
 
That’s the other thing I’m seeing that I like. When you talk to the people running these brands, they refer to balance sheets and cash flow without being prompted and without their eyes turning brown from trying to bullshit you into thinking they know why that’s important.
 
Josh Reid, one of the founders of Rome Snowboards, demonstrated the benefit of a solid financial approach when he told me, ” Our close attention to our budget and balance sheet allowed us to come out with our binding a year early than we expected to.” 
 
So some of these smaller brands, partly because of a businesslike approach to financing, have a real chance to succeed. Here are some things they might want to consider doing to improve their chances and a few ideas about why that’s important to us. I can’t believe I missed the strippers in the Atomic Booth.
 
Normal Business Stuff
 
Just a reminder- building a quality product with great detail and finish, pricing it right, delivery it right, servicing accounts right, and supporting it with appropriate advertising and promotional programs gets you nothing more than the right to try. Market positioning and branding is what will make you successful. Along with having enough working capital to get through the year.
 
Adopt a Shop
 
If I were a small brand, I’d identify one, or maybe a handful, of really successful retail shops and I’d adopt them. By which I mean it would be just my first goal to have my product in those shops. Then I’d be all over them weekly or daily to figure out how my product was doing and why. I’d work like hell to learn from that shop or few shops. I’d watch their sales people sell my product. I’d try to talk to the customers who bought my stuff. I’d talk to the retailers about what they bought and why. I wouldn’t leave it only to my rep- I’d do it as the owner of the brand. I’d take these bits of information and develop a short manual about why the brand was successful in the shop, identifying anything that was unique about that shop’s situation. 
 
Then I’d take whatever I learned and develop it as training and selling tool for my sales force, doing my best to create a shop development approach that in some ways was the “signature” of the brand’s approach to working with shops. In the meantime, I’d probably try to convince the shop owner that he should be an investor in my brand.
 
I’ve heard too many retailers complain about this brand or that brand, their reps, and a general lack of attention once the products in the door. Here’s a chance to distinguish yourself in a way that maybe larger brands can’t and to learn a few things in the process.
 
The Buying Cycle
 
 Not the trade show buying cycle we all agonized about some years ago. The consumer buying cycle for snowboard goods. I’ve heard that skiers buy equipment something like every six years. Maybe it’s less or more. But whatever it is, I think (or maybe I hope) that snowboarders buy stuff more often. Or at least they use to. My guess is that they are moving towards the ski model. Products are all of solid quality right now. They just don’t wear out as quickly. Expansion of distribution, price declines and general product availability means there’s not quite the same urge or need among many snowboarders to get the newest thing.
 
If the number of snowboarders doubles, but they only buy half as often where are we as an industry? Do the math.
 
I see this as a big problem that nobody is really talking about. From a strict financial point of view the skateboard guys have it right. Make sure the product wears out pretty quickly and that it’s cool to break it. Of course, it’s also a lot cheaper to replace, so we can’t quite follow that model.
 
Small brands obviously can’t change this trend, but they have a role to play in resisting it by being cool and not quite so easy to get. It is, obviously, also a way in which they can differentiate themselves- at least for a while. So, small brands help themselves and the industry by restricting their distribution. It needs to be the big brands- who have encouraged retailers to buy with pricing and volume discounts and terms- whose product is left to be discounted after the holiday season. The small brands’ retailers need to more or less sell through at full margin if the small brand is going to differentiate itself and succeed. Further, the shops that carry the small brands need to be a destination for customers who want to buy that brand. What’s the value of the brand to the shop if the customer has to come to their shop to get the brand because it’s the only place in town that carries it and the shop has the chance to sell them some other stuff as well?
 
Obviously, the small brand and the shop have common cause here and it is a source of advantage for small brands. At least for a while.
 
Expectation Management
 
There’s never enough marketing dollars and there are always too many ways to spend what you have. If a new brand does everything right, and it grows in the correct way, it will create expectations on the parts of its customers, its retailers, its employees, its investors. But do too little, and you disappoint. Do too much, and you go broke. How to manage that? Well, my experience is it’s more an art than a science. But you can start by spending some time- actually a lot of time if you do it right- on developing a quality brand positioning statement for your brand. If you do it right, it will be a filter through which all your opportunities are passed, and you won’t waste time trying to figure out which one is right or money on the wrong ones.
 
Like Nikita’s “For Girls Who Ride.” Best one I’ve ever heard. I wish somebody would send me their brand positioning statements so I could plug them. I keep using the Nikita example and I’m giving them entirely too much free publicity.
 
Growth Problems
 
Someday, if you succeed, you won’t be a little brand any more. You will lose some of the possible competitive advantages I’ve described above. As every company wants to grow, those of you who prosper are likely to face this to some extent. So there you are- too big to be small and too small to be big. What are you going to do?
 
Interestingly enough, the answer is almost completely financially driven. I don’t care about marketing, I don’t care about distribution and pricing, I don’t care how cool you are. None of that will drive your strategic business decisions when you get to that point of being somewhere between big and small.
 
What you’re going to find is the extreme seasonality of the snowboarding business means that the risk return ratio is out of line if you are just in snowboarding. Most of you already know that because while you probably love snowboarding, you aren’t naïve kids who only want to be in the business because it is cool.
 
Working capital comes from either debt or equity. Okay, from retained earnings too, but that’s just another form of equity. In snowboarding it doesn’t make financial sense to finance with equity, because you don’t need it year around. But lacking all that equity and the strong balance it give you, debt that isn’t prohibitively costly can be damn difficult to find.
 
So you’re going to try and find a way to become, or become part of, a company with year around cash flow. Because for most companies, it’s the only solution that effectively balanced risk with return and makes working capital requirements manageable.
 
I would dearly love to get an email from some new small brand telling me I’m crazy and explaining what their financial plan is and how it will work differently. Because it would be great if that plan were out there. In the meantime, all you small brands keep up the good work but remember the wonderful problem of too much growth that you’re going to have when you succeed.

 

 

Living in the Past- Or Not; The New Old Skateboarding

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I can’t be the only one it’s occurred to that skateboarding seems to have dodged its historical cycle of disappearing and being reborn every ten years. I think that’s a good thing, though shrinking to nothing and more or less starting over had the advantage of letting everything be fresh and rediscovered.

True, sales fell from their peak by maybe a third. But a third is better than nine tenths. And sales are growing again though inevitably not at the rate of three or four years ago. And I suspect, though I can’t quite prove it, that they’d be growing even if it wasn’t for the BAM phenomena.
Somehow, skateboarding has broken through and is established and accepted in a way it never has been before. At the same time, at least for the moment, it’s still got a bit of an underground, urban edge to it.
Strangely enough, the fact that skate didn’t follow its pattern of completely cratering is both a good and, in some ways, a bad thing.  This article will expand on that (guess I better since it sounds a bit crazy to suggest that there are benefits to crashing) and look at some ways that maybe our business model has to change given that we didn’t crash. No doubt I will have thought of some before I get much further along here.
In The Beginning
The cosmologist, mathematicians and particle physicists tell us that the universe began in a “Big Bang.” Whatever that is. It started as a point particle of infinite density and temperature. Whatever that means.   It’s been expanding in all directions since then and if the string theorists can get their nine dimensional act together they may be able to unite electromagnetism and the weak and strong nuclear forces with gravity and tell us if there’s enough dark matter to ever stop the expansion and I’m sure you all understand that as well as I do.
Yikes, that sounded like something Jim Fitzpatrick would have written. I miss reading his stuff.
So anyway, in a few billion years we could have a real problem (I mean aside from the sun dying) but my point is that when you start from nothing, like skateboarding kind of has done in the past, you can create whatever you want and a lot of people won’t understand it. Or care. Or even know it’s there.
You can see why that might be kind of a good thing for a small industry. The people and companies who are the bedrock of the industry are in control.   The 800 pound gorillas don’t even know you exist or, if they do, they don’t care. Customers, retailers, and brands share certain common interests and perception. As competition emphasizes marketing, prices and margins tend to remain high.
Clubby little deal isn’t it? And it works great until people start to discover you, or somebody wants to grow.
Our Universe Expands
Skateboarding has had its Big Bang and there’s no going back. Skate parks, cheaper, quality hard goods, fashion focus, national media attention, maybe the Olympics, blah, blah, blah. You know it all. Good or bad? I don’t know, but apparently it’s irresistible. But, to continue the cosmological analogy, when Copernicus announced that apparently the earth went around the sun and wasn’t the center of everything, some people weren’t anxious to accept the new reality and the same may be true in skate,
To be honest, I’m not all that anxious to accept it either. I liked the business model where skaters controlled skating for skaters and, in the process, could make a few bucks themselves. I thought it kept the industry about the act of skating, rather than blowing it up into the echo of a fashion trend I’m afraid it might become. I don’t want skating to be just a sport.
On the other hand, I tend to be a bit of a green eye shaded kind of business guy and I’ve learned that sometimes when industries change you either have to go with the flow or go away. What does that mean?
Remember Snowboarding?
  • After a phenomenal period of growth, snowboarding consolidated down to the point where five or so large, multibrand companies sell most of the hard goods.
  • Hard good prices have fallen and continue to fall. Everybody makes good product differentiable only by marketing and most of them make some of in China, or somewhere like China, as a competitive necessity.
  • Sales of pro rider snowboards now account, I’m told, for only around five percent of total deck sales.   It use to be more.
  • Soft goods and accessories are an important- maybe the most important- source of income and potential growth for snowboard companies. Seeking opportunities for growth that hard goods won’t provide, some snowboard companies interested in moving into the much larger and more profitable fashion business. That means they are running into some heavy duty competitors with more resources and fashion industry knowledge.
  • Distribution was allowed to expand dramatically. Looking for growth, or with the rationale of building market share, brands became available at more and more locations, causing some decline in the perceived value of the snowboard product in spite of the brands’ marketing campaigns.
  • Snowboarding started as an outlaw sport, with some resort’s first action with regards to snowboarding being to ban it. In short order they embraced it and started building terrain parks all over the place.
  • Snowboard shops became multiactivity action sports shops. Hard goods were no longer as profitable as soft goods but were critical to the shops market position. Sales of apparel, shoes, and accessories to non participants interested in the lifestyle, or just in the trendy clothing, because critical to shop success.
I didn’t think I’d get seven items when I started the list. But the comparisons are compelling.   I don’t claim snow and skate are “the same.” Snowboarding is a highly seasonal, destination sport with generally older participants requiring a big cash outlay. Still the comparisons are obviously valid to some extent and we’ve been seeing those trends in skate to a greater or lesser extent.
So What?
Shit, I’m out of clever cosmological analogies. Oh well.
Most of this you already knew this stuff and probably didn’t really enjoy being reminded of it. Don’t blame you. But besides sit, suffer, and bemoan industry evolution, there are some things I think we should try and do.
Let’s agree that any brand, distributor, or retailer that starts arguing with another about how the other guy has screwed up distribution or pricing has to immediately donate $1,000 to IASC.   Elvis has left the building on this one. Cheap decks are going to keep coming in from China and retailers are going to carry blanks and shop decks if their customers want them. Every shop and brand is going to do what they perceive to be in their own best interest.
Cherish, identify and follow those customers who still buy branded decks at full (whatever that means) retail. Give them a discount they didn’t ask for because they come in so often. Be nice to their friends. Give them first shot at new products. The companies and maybe their pros should be contacting them and thanking them. Imagine the loyalty a single email might build. These kids are worth a fortune not just in what they spend but because they are the bedrock of what keeps skateboarding cool.
Go and look at your marketing budget from three years ago. How much have you cut it back and where? Were there some things you should have cut and didn’t, and some things you did cut, maybe because they were easy to cut, and wish you hadn’t? Which ones are working and how do you really know? Tough to figure out, but worth the effort. If you can’t do as much, at least make sure you’re doing the right things.
Where a brand is part of a larger company, try and insulate the brand from the larger corporate circumstances while stealing all the marketing resources and other forms of financial support you possible can. We aren’t starting from nothing anymore and inevitably the “larger corporate structure” is going to cramp your style a bit.
But what I know is that a hand full of relatively small companies have had an amazingly high level of influence and control over skateboarding. Because the people who ran those companies were skateboarders, they did good things for the industry and for their companies. As we grow, and get diluted by the 800 pound gorillas, that influence and control will be reduced to some extent.
On the one hand, no matter how much it’s fought, the cool/urban/underground factor in skate gets diluted by over exposure and mainstreaming. On the other hand, with growth and general awareness of skate, the industry acquires some strength and survivability it didn’t have before. What’s the net? I don’t know. But there’s some business opportunities in there if we don’t automatically stick to what worked before.