As a small business accountant I love to hear stories of innovation and the bold approach to get into the market and rattle the cage. Being comfortable in business breeds complacency so anything that makes a company think about what it needs to do to stay in business is always a good thing.
The Dollar Shave Club is an interesting business. For years now going to the supermarket I have always wondered why half decent razor blades were so expensive. Yes you can get the cheap disposables but the amount of aftershave and tissues I spent not to mention the ruining of collars on my shirts made it pretty much a grudge purchase or otherwise I would regularly get confused for Norman Gunston on the way to work.
Basically Dollar Shave provides high grade razors for a monthly subscription rate ranging from $4 a month to $10 a month. Now I haven't tried it but the $10 a month gives you the handle and then 4 cartridges a month (6 stainless-steel blades). A Gillette or Schick at the supermarket for 4 cartridges range from $25 to $37 last time I looked. Whether the blades are the same quality, time will tell but I was interested in the model and it obviously avoids the middle man of supermarkets, retail stores etc through its online platform.
Founder Michael Dubin recently gave the following tips in an article on Medium.com which can be applied to any business and here is a summary of his key thoughts.
Figure 1: Using cheap razor blades can make you look like Norman Gunston. Dollar Shave decided to take the industry on.
1. Get Margins Right On Launch
Big brands have high margins usually in excess of 50%. Businesses with margins less than this will have trouble scaling.
2. Subscription Models If POssible
Having a subscription model has all sorts of benefits including:
- spreading out of income (cash flow);
- customer retention;
- higher business valuations from business valuers Sydney.
If you are instead going to be a single business transaction then your product must have a very high transactional value.
3. Focus On A Single Channel
Use one marketing platform initially until it gets going then try others. Trying to spread marketing dollars over several platforms early is a bit like having a bet each way and harder to get recognition and consistency until you're established.
Figure 2: Even Elvis had to shave.
4. Customer Acquisition Gets Dearer After The First 1,000
Dubin found that the first 1,000 customers cost $10 per unit but doubled from 1,000 - 5,000. If you can find that there is large pool of inexpensive customers upfront then the market is large and ready for your solution.
5. Cash Is Different From Profit
Readers of this blog site will recognise this observation! Dubin states that if you sell inventory, make sure you allow for it when performing your cash flow projections and three way budgets. Your small business accountants Sydney and Dubbo should be able to assist you with these.
6. Be Different & Bold
Again this is a common theme of this blog site but definitely still so important. You need a point of difference or you will just end up competing on price which is dangerous if you take on a big conglomerate with very deep pockets.
Figure 3: Two talented guys who knew why being different made success.
7. Be On A Mission
You need to be passionate about what you do whether you are a small business accountant Sydney or Dubbo or a plumber in Tullamore.
Have you got the passion?
Having been a business valuer for many years there is no doubt that industry disrupters are real and present in the market place that could have dire consequences for your survival and size of your small business valuation if you don't keep on your toes. Even if you don't plan on being a disrupter, consider some of the above tips with your existing business to stay ahead of the pack.
Would you rather stay in business with something to sell and make more money now or take the risk of experiencing a close shave to survive?