Monday, 7 December 2015
Who won, the Tortoise or the Hare?
We seem to be living in a world of amaranthine discounts attuned to unrealistic expectations.
This is a problem if you want businesses to make money.
We have already written about businesses making claims about their staggering customer acquisition numbers - see Flavourly post. The problem for investors is that if the businesses dont tell us they are using an aggressive campaign with Groupon to artificially boost these numbers, it can be very hard to tell. The platforms promoting these businesses do not bother to check.
We see another Crowdcube pitch , Kabee, has been using promo codes to boost business. This comes down to same thing - selling your service or product at close to cost to woo customers. It all seems to be wound up in our modern day desire to have everything yesterday. Where businesses used to take time to grow and gain traction, Groupon et al now allow the illusion of traction immediately.
However building up businesses with customers gained through discounting is like building your house on a sand bank. These customers have no loyalty - look at Kabee's retention figures. They flit from one bargain to the next and there are plenty of them out there. Meanwhile your costs grow as planned until a time when falling revenues dip below them and then its bye bye. Its a new form of over trading but unlike the classic SME curse, it is entirely preventable.
We need a change in the mindset of our entrepreneurs. It maybe a story from a bygone era but the hare did not win the race; the tortoise did.