Startups Are the New Canary in the Coal Mine for Big Brands and Marketers

Emerging sectors can predict shifting consumer behavior

In 2015, 90 of the top 100 largest CPG brands in the U.S. lost market share.
Illustration: Brittain Peck

In the late 1800s, John Scott Haldane dedicated himself to improving the safety of coal miners by studying the effect of gases on human physiology. One of his experiments led to the discovery that methane gas was lighter than air and miners could escape dangerous conditions by crawling on the floor. Another experiment allowed miners to use the flames of their safety lamps to determine risks in the mine.

Dave Knox
Headshot: Alex Fine

Through his studies, Haldane was also the first scientist to realize that the mysterious deaths of miners who emerged with their faces flushed red was the result of carbon monoxide poisoning. Much like using the flame of the safety lamp, Haldane looked for a solution to help miners deal with this invisible enemy. He found it in the common canary, realizing that the unique anatomy of a bird—and the particularly fast metabolism of the canary—could be a carbon monoxide detector. With that insight, miners began the practice of carrying caged canaries while at work in the mines. If there was any methane or carbon monoxide in the mine, the canary would die before the levels of the gas reached those hazardous to humans.

In addition to saving the lives of hundreds of miners, Haldane’s work also led to one of the most common metaphors in the English language—the phrase “canary in the coal mine.”   This phrase has become a metaphor for any warning of serious danger to come, just like the warning that the canaries gave the miners.

In today’s business world, startups are the new canary in the coal mine, the early warning of danger for big brands. What danger? Consider that in 2015, 90 of the top 100 largest CPG brands in the U.S. lost market share. Or that in 2017, over 8,600 retail stores are closing their doors. If big companies had been paying closer attention to the world of entrepreneurship, they would have seen the emerging business models and consumer trends that would be predictive of this dangerous future.

When Amazon’s Jeff Bezos was once asked if he was worried about large competitors, he responded, “Frankly, I’m more concerned about two guys in a garage.”

One such example comes at the intersection of CPG and retail. In 2011, the old business model “… of the month” clubs (á la Columbia House) was given the new name of subscription commerce. In subscription commerce, a box of products or samples is sent directly to a customer on a recurring basis, often monthly. The rise of subscription commerce started in women’s beauty products (Birchbox is often credited with being the first breakout success), but has since diversified into over 30 categories including arts and crafts, pets and fitness.

Fueling this growth during 2011 and 2012, $300 million in  venture capital funding went into 50 subscription commerce startups across a wide range of industries. The result was that in 2014, just three years after the trend started, subscription box services earned over $5 billion in revenue and grew over 200 percent in that year alone.

This inflow of venture capital should have been the canary in the coal mine for big brands that a market shift was occurring.

While big companies decided that subscription commerce was merely going to be a new retail channel and possibly a marketing channel for distributing product samples, investors had a different view. David Pakman, the investor who led the Series A and B funding round for Dollar Shave Club, said after the acquisition by Unilever: “To us [Venrock], we didn’t see DSC as an ecommerce company, but instead as a model for new full-stack consumer products companies.”

Investors realized that subscription commerce was the emergence of a new set of rules in business. Big brands should have been doing the same. They should have taken a step back and spent time to analyze why investors—and many consumers—were so interested in subscription commerce. These big companies should have been asking how they could apply it to their own business. Instead, they looked at the one or two startups in their industry that were launched around subscription commerce and made the decision in their minds if it was a good business or a bad business. They forgot to check on the health of the canary.

When Amazon’s Jeff Bezos was once asked if he was worried about large competitors, he responded, “Frankly, I’m more concerned about two guys in a garage.”

Bezos realizes that startups are the real signal of a potential danger to the health of his core business.

It’s a belief that every business executive should take to heart—and why every big company should be watching the canary like a hawk.

Dave Knox (@daveknox) is the managing director of WPP Ventures, CMO of Rockfish Innovation Group and co-founder of The Brandery.

This week’s illustration was created in partnership with students from the Baltimore Academy of Illustration. Check out their submissions below, and click on the images to view their websites:

Adam Jones

Adam Jones

 

Taylor Henry

Brittain Peck

Adam Jones