Giving "disruption" a second thought.

LEARNING FROM SMALL COMPANIES WITH BIG THINKING

May 2014

Kristin Mommers

“Disruption” is a business-buzzword.

Marketers and journalists throw around the term “disruption,” applying it to every industry, every tech development. They confuse “new” with “disruptive.” !

Startups become threats.

That’s defensive. !

We’re overlooking what drives these brands. Instead, let’s ask what can we learn from them? !

These “disruptors” are often well-vetted by VC’s. They: • Indicate areas of growth • Built upon consumer insights • Highlight trends • Demonstrate a younger generation’s thinking. !

Those are key to staying relevant, for any brand.

GETTING TO INSIGHTS:

This report identifies “disruptions” within the banking, retail and travel industries. !

Each example will cover: • The strategic opportunity • The impact of business • Insights for broader application

Banking “Disruption”

A recent study called out the banking industry as the most ripe for disruption. Why?

• 53% of Millennials don’t think their bank offers anything different than other banks.

• 68% believe the way we access money will be totally different in 5 years, and they’re counting on tech startups to deliver the future

• Underemployed, $1 trillion student debt, smartphones, life in flux

CULTURAL SHIFTS SPARK DISRUPTION

Source: Scratch, The Millennial Disruption Index 2014

The following three startups are using these changes to their advantage.

1. Simple

JANUARY 9, 2014

An online “bank replacement” that makes managing your finances easier. Simple gives users a debit card, free access to ATM’s, and fine-tuned smartphone app to help manage their money. It removes the label of traditional banks from the process and builds trust by simplifying otherwise complex exchanges. !Initial Success: • 19,000 customers in 2013; 100,000

in 2014 • $1.7 billion in transactions in 2013 • Majority of growth through WOM,

not marketing

Source: DealBook New York Times 2014

SIMPLE•Data for consumer benefit. Simple analyzes users’ transactions, providing insight and transparency on spending patterns. Data for consumer-benefit helps combat privacy concerns.

•Know how people will interact with the product. One of the most talked about features of Simple isn’t actually a feature - it’s the slick app interface. Brands don’t need to develop something new to stand out.

2. Venmo

JANUARY 9, 2014

Source: Forbes, Venmo: The Future of Payments For You and Your Company

A simple and social approach to mobile payments. Venmo helps friends exchange money and settle tabs from their phone contact list - a common need otherwise unmet. The company offers a simple and secure way to make these peer-to-peer payments. !Initial Success: • Mobile payments predicted to

reach $90 billion by end of 2017 • Owned by Braintree, which has 40

million credit cards on file. Acquired by Paypal in 2013.

• Plans to monetize through API platform - working with brands

•Use social to show, not tell. Venmo uses social media to demonstrate how people use the app, rather than a tutorial. The Venmo newsfeed is full of user-generated descriptions of transactions.

•Brands are consumers, too. Brands can send payment with personal messages to customers - a new form of customer service. Venmo gains presence through these brand-exchanges.

VENMO

3. Loop

JANUARY 9, 2014

A mobile wallet free of near field communication (NFC) and wireless carriers. Mobile wallets are typically limited by cellphone design - they don’t support NFC activity. Loop bypassed this issue by creating a fob that transmits a signal, connecting to an app and credit card terminals. !Initial Success: • Loop works at 90% of credit

card machines in the US • Kickstarter funded

Source: CNN Money Loop Review 2014

•Prototyping in public. Loop welcomed consumers into their design process. The brand shared the fobs and listened to feedback, making the design an ongoing, consumer-shared process.

•An alternative is not a solution. Loop lacks a single vision or message. The multi-functioning product competes with several existing behaviors, rather than solving one.

LOOP

Retail “Disruption”

Technology empowers consumers and changes behavior. In a recent study among retail executives, 71% say social media has a significant impact on their business, and 52% for mobile/online shopping. !

The following startups used these tech trends to build their business.

Source: KPMG, Retail Industry Outlook, 2013

RETAILERS MUST ADAPT TO TECHNOLOGY

1. Warby Parker

JANUARY 9, 2014

From eCommerce to brick & mortar. Retail experts debate the future of standing stores. Major retailers are reducing their locations. Meanwhile, Warby Parker found a way to run a successful eCommerce site and convert it into a growing brick & mortar business. !Initial Success: • Over half a million frames sold • Raised over $100 million funding in 2013

• Flagship store does $3,658 sales/sq ft. - more than Tiffany & Co.

Source: Warby Parker Annual Report

• Emphasis of simplicity, beauty, and good design. Consistency made

Warby a trusted badge-brand.

• An experience primed for WOM. The site, the packaging, the try-on

system are worth talking about.

• Business as a consumer-solution. Warby Parker talks openly and frequently

about their reason for being.

WARBY PARKER

2. Birchbox

JANUARY 9, 2014

Creating an online beauty experience. Beauty brands struggle to build an eCommerce platform as the experience largely differs from an in-store interaction. Birchbox took advantage of this and created a new experience - one that enables consumers to try before they buy. !Initial Success: • 800,000 customers in March 2014 • Over 9 million boxes shipped • 50% of subscribers regularly

purchase a full-size item • Expansions in France, Spain and UK • Rise of subscription-based

companies:

Source: NY Times, Birchbox steps out with a store, March 2014

•Demonstrate expertise. BB gets credit for finding less popular but high quality products, for their instructional videos, blog content and soon makeup classes.

•A store is a brand experience. Like Apple, BB is designing its first store as an experience - about interaction, not buying product.

BIRCHBOX

3. Nasty Gal

JANUARY 9, 2014

Scrappy eCommerce with a cult-like following. Nasty Gal positioned itself as an independent style source, not a mass retailer. It quickly outgrew its eBay and MySpace origins, expanding across social platforms and developing a site. The brand continues to grow through its fans, absent of a marketing department. !Initial Success: •$128 million in sales in 2012 •$240 million company in 7 years •60% gross margins •25% of shoppers visit the site daily;

6 million visitors a month

Source: Forbes, Nasty Gal’s Sophia Amoruso: Fashion’s New Phenom; WSJ, Sophia Amoruso Expands Nasty Gal

•Identify existing tribes. When it first launched, Nasty Gal founder Sophia Amoruso reached out to fans of Nylon - a magazine that shares her aesthetic.

•Crowdsourcing is more than content creation. Nasty Gal hires models that look like their shoppers. They recruit from their fans, and take their advice on styling.

NASTY GAL

Travel “Disruption”

Worldwide, Millennials take more leisure and business trips than any other age group. They are more interested in international travel and rely on smartphones, reviews and experiences when booking travel. !

The competition for their attention will grow as this group comes into greater discretionary income.

EXPERIENCE-HUNGRY MILLENNIALS

Source: BCG, Millennial Spending to Boom in the Coming Years, March 2013; Expedia, The Future of Travel, October 2013

1. Airbnb

JANUARY 9, 2014

Sharing economy as a business model. Airbnb is the “cool” alternative to hotels. The company makes travel more affordable, turns an overnight stay into more of an experience, and, thanks to its startup/tech community popularity, it has social cache. !Initial Success: • $632 million economic activity in

NYC alone • Supported 4,580 jobs throughout

5 boroughs • Over 150,000 guests every night • $2.5 billion enterprise in 6 yrs • Expect to become world’s largest

hotelier in 2014 !

Source: Poweredbysearch, Digital Marketing Success Story: Airbnb, January 2014; Skift 2013

•Telling your own story. Airbnb is continuously met with criticism - driving up rent costs, stealing from hospitality taxes. The brand is controlling the narrative through research and actively repositioning themselves in an established category. They reach out to their members and ask for support.

•People trust people. Airbnb has optimized their site to improve the review process and find ways to increase the review content.

AIRBNB

2. Hipmunk

JANUARY 9, 2014

Redesigning the travel booking experience. Hipmunk is tight-lipped about their funding, success, and revenue but experts compliment the company for incorporating human behavior into the platform. From a design perspective, Hipmunk defeats all competitors. !Initial Success: • Leader in market love among OTA

sites • Over 1 million Android app installs • Over 1 million fans on Google • Covered in Bloomberg, WSJ,

Forbes, NYT, Inc, FastCo., Wired, Mashable, TechCrunch

Source: Skift, We Know We Can Be Bigger Than Kayak, May 2013

•Love your users. Hipmunk minimizes the ads they serve, finding revenue elsewhere. The experience is designed around doing right by users. And the company is very vocal about that.

•Don’t be the X of Y. Hipmunk doesn’t think of itself as “Kayak with better visuals;” it’s “like Kayak, but better.”

HIPMUNK

3. Uber

JANUARY 9, 2014

Bringing style, comfort and convenience to commuting. Uber has come a long way since its “timeshare for limousines” launch. It solves the widely plaguing issue of hailing a cab. !Initial Success: •20% revenue growth each month •$3.5 billion valuation in 2013, up

from $330 million in 2011 •$125 million annual revenue in

2013 •Available in 65 cities, vs. just 12 a

year ago •Rise of car-sharing competitors

•Marketing worth talking about. Delivering puppies, kittens, and ice cream cones is a match made in social-media heaven.

•Mask promotions with events. Uber offers promotions without tarnishing the brand by leveraging events - the status of the event makes up for the discount. This relentless marketing also ensures Uber’s top of mind.

UBER

What disruptive companies are

doing well

Four key themes emerge from these startups.

1. Leveraging tribes/communitiesThese companies utilize social groups in two ways - targeting and influence drivers. They understand the values and behaviors of tribes, and adapt to them.

2. Delivering simplicityTransparency and minimizing the steps in a process - fewer clicks, simple pricing structures - demonstrates respect for consumers.

3. Empowering the consumerIt’s more substantial than inviting consumers into the brand. These companies empower consumers, giving them control.

4. Letting the product talk

The nature of the products and services - their innovation - drives WOM. They’re not making it up through advertising.

The Challenge

Can we monitor our industries in a way that values “disruptors”? Can we take note of what’s working for startups, and apply that insight?

THANK YOU.