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1/ I get asked a lot : “what categories in consumer are most interesting right now?” Last week someone asked me to talk w/ a Fortune 400 CEO about which categories they should be investing into.
Here is my email response (unedited except name). Time to make friends....
Here is my email response (unedited except name). Time to make friends....
2/ “I want to be transparent in our thinking. I think this is exactly the wrong question for XXXX to be asking. IF we look at the most important 100 (?) consumer companies built in the last 15 years very few were obvious categories….
3/ Examples like Chobani built the category, and examples like Halo Top helped redefine the category. There are very few 5 Hour Energy Drink companies that launched in an already obviously sexy category and still built a big business.”
[end of email]
[end of email]
4/ So here is my thinking. In other industries investors and strategics source by looking at category first (or early in analysis) for several reasons. One is that sometimes there are very large categories that are also growing very quickly. Think social media a few years ago.
5/ Another reason is that sometimes a category isn’t huge yet but it’s clear it will be. Think ride-sharing 5+ years ago. Or Crypto.
6/ In consumer those dynamics don’t really exist. There really aren’t large categories that also grow quickly (take snack bars in 2004 when Kind Bar started).
7/ In addition, there aren’t small categories (take Greek yogurt in 2005) that are obviously going to get big.
8/ So when a strategic or another investor asks this question I just kind of cringe. For years I tried to dodge it - I felt stupid.
9/ Then for a few years I said “that isn’t really how we think about investing.” Now I just flat out say “that’s the wrong question”.
(I’ve gotten crankier over the years)
(I’ve gotten crankier over the years)
10/ To be clear, we do look at a few factors related to category including concentration by stale incumbents. But it’s not the starting place, it is one of many factors in consumer to understand and rarely (if ever) is a determining factor.
11/ For a strategic to focus on category as the starting spot misses the forest for the…….single tree stump? Anywho- my point is not only is it focusing on a less helpful factor, it is also focusing on a counterproductive factor.
12/ The large strategic needs a big industry. The large strategic needs growth. They want the big industry to be growing quickly. OH and of course there cant already be a lot of competition or big incumbents.
13/ Got it- so big, growing industry without much competition. Cool. Just give me a shout when you find a few? I’ll be over there doing something useful with my life.
14/ Have I ever mentioned what I think of corporate VC?
I always forget.....
I always forget.....
