When you see the word “start-up,” what comes to mind? Maybe it’s T-shirts and jeans. Or garage offices with empty pizza boxes piled up from late-night coding marathons.
Even beyond the garage office, you’re likely envisioning a small team making quick decisions about their product on the fly, unencumbered by layer upon layer of upper management. A leader with a singular vision that she knows is right, trusting her gut to guide important decisions. A small business that isn’t afraid to fail so long as they maintain the support of their venture capital. A lean team that is optimized to be agile.
From the garage office to that lean team, the common thread among these words we associate with start-ups is their size. Today, start-up is essentially a buzzword for a small business. And there’s a good reason to focus on that. While there are several challenges facing FMCG manufacturers, one of the biggest is that small players are generating 53% of the growth and cutting into the share of established manufacturers. And so FMCG manufacturers of all sizes are looking to the successful start-ups for inspiration on how to be more agile, but is it that simple?
Get a Reality Check
There are a few valuable lessons that bigger companies can learn from smaller ones. But before that, we need a reality check.
Firstly, despite the recent growth of small players, it’s important to remember that most new players in the FMCG world fail. We only see the survivors because many never achieve a size large enough to be tracked. The Ehrenberg-Bass Institute for Marketing Science calls this “survivor bias.” According to a recent report released by the institute: “Small brands are able to post higher percentage growth than large brands because any growth is from a low sales base. But they are also more likely to fall completely out of the market than big brands. ‘Survivor bias’ can cause another error in analyzing growth: it’s only the shares of surviving small brands that are tracked so the average performance of small brands is inflated.”
Secondly, once you’ve taken your seat in the boardroom there’s no going back to the garage. Established manufacturers are already out in the marketplace, with brands to cultivate, equities to protect, revenue streams to defend and existing consumers to retain while looking for new ones. Not to mention, they have investors to appease and large workforces to pay. They need consistent, repeatable and successful innovation to drive growth.
Avoid the Gut Check
Another important thing to keep in mind with small businesses is that they need to make money—often with very limited resources. They can’t afford to “go with their gut” and spend time on products that aren’t worth launching. So while many are indeed lean—both in terms of processes and sheer size—they know that being agile means gathering learnings early and often to guide decision making. This is their singular focus, because missteps can mean defunding or fatal failure.
Established manufacturers, on the other hand, aren’t as dependent on a single product and can afford to promote several products. But this also means that they may struggle to stop failing products from launching. Either they skip valuable predictive research ahead of launch and validate a product’s potential too late in the process to make a change, or they go with their own internal sales estimates.
When manufacturers anticipate a new product’s sales estimates based on gut instinct or using internal assessment, actual sales are often drastically lower than what was expected. BASES research shows that the gap between the sales of an innovation in its first year versus what manufacturers expect as minimum objective can range from 35% below expectations in the U.S. to 45% below expectations in other markets.
For a small company, this gap is more than they can afford, so they do opportunity research early and choose their battles wisely. For an established company, the consequences of a single failure may not be quite as dire, but they are still costly—and avoidable.
Successful start-ups make hard decisions. Being agile means spending time on the things that will drive growth and not wasting time on lost causes. To do that you need more than just organizational will to act. You need good data to show when to “kill the zombies” and invest in better opportunities.
Don’t Forget to Check In
Looking at the Tech industry—where agile principles originated and start-up culture permeates—we see that investment in research and development (R&D) is much higher than that of the largest FMCG companies, who focus much more on marketing. By investing in R&D, they put their money where the growth is.
Most successful start-ups don’t wait until they’re ready to launch before validating a product’s success. Research starts early on with identifying the right opportunities and continues with optimizing, refining, and validating a product. With the right data they can move faster, because the learnings allow them to make smarter decisions.
Many established manufacturers find the necessary research difficult and skip steps in the prelaunch validation process with the intention of moving faster. However, 37% of FMCG professionals felt that their faster process had no clear benefits (other than speed). And while speed is important, launching products before they’re ready can be costly.
If you want to leverage the best practices from successful agile startups, consider the following in your innovation process:
- Use your instinct and category knowledge to set the initial direction, but use quantitative forecasting to measure the potential outcome. Think “what if this was our only shot?”
- Don’t cut research corners, instead drive your decisions based on comprehensive data about the consumers reaction to your idea, and make sure to identify what key elements they value most before incurring in development costs of an imperfect product.
- Make sure you have a minimum sustainable product before hitting the stores. Our research shows that retailers have low patience for experiments.