Many executives are trying to make sense out of a world where everyone seems to be launching the next unicorn, and company valuations seem to have little correlation to revenue or profits. “I don't like to get caught in the valuation trap; I do not like the idea of a unicorn. They're not sustainable,” said Brian Esposito, CEO of EIE Rocks. “When a unicorn hits liquidity events such as an IPO, the current equity holders have the opportunity to cash out and they do quite well. But the new equity holders that come in, the public markets, usually take a big hit because the market knows that that company at that valuation isn't sustainable.” At a time when investors are chasing the next shiny objects, it's difficult for companies to avoid the trap of focusing on ‘new’ rather than ‘better’. <h3><b>Unicorn Hunting</b></h3> “I have seen many cases where companies get caught in the idea of, ‘let's just build something and get a lot of attention … somebody is going to want it’. They see other companies generating all of this attention and getting lots of VC funding. It looks like a successful strategy. “The market has been on fire, and at some point, there'll be a correction. It will go back to basics with real companies generating real earnings. I sound old school, but you have to build businesses that make money, because even those success stories that have crazy valuations will get corrected. For example, we’ve seen how when even companies like Uber and Facebook have these massive IPOs, the market quickly says this is not sustainable, these companies are not even making any money. And so after their IPO they crashed. Facebook lost half its value after the IPO. It has come up dramatically since.” <blockquote> “I don't like to get caught in the valuation trap; I do not like the idea of a unicorn. They're not sustainable." <footer> <cite>Brian Esposito, CEO of EIE Rocks</cite> </footer></blockquote> <h3><b>Identifying Products that Consumers Want</b></h3> If developing attention grabbing (at least from financial community) products isn’t a sustainable strategy, then what should companies be doing? The key is to find new use cases for existing products and services. “Is there a way to find new uses for dormant assets? Could we pair an existing product with something else to create something new? There could be a whole other need for your product that you're not even thinking about,” said Mr. Esposito. When it comes to product development, the challenge is to create products that the market wants. A bigger challenge is figuring out exactly what that is. “The advantage that smaller companies have is that they are closer to the market. I've always loved the ‘Mom and Pop’ market. It’s a great way to connect with consumers - by being there with them, which smaller companies tend to do. That's how you know if the market needs something. It’s more difficult to get those insights if you are far away from your end customer. I love that entire space. And I think that's going to continue to fuel a lot more opportunities.” <h3><b>3 Pillars of Successful Brands</b></h3> <b>#1</b> Get close to consumers and find out what they <i>really</i> want. <b>Action: </b> Physical stores (even pop ups) are opportunities to do market research. So are customer service hotlines. Take advantage of all points of contact with consumers to ask questions and get feedback. <b>#2</b> Nurture brand culture <b>Action:</b> For most companies it’s a matter of being careful to maintain that culture that built a loyal fan base. It gives some brands the ability to charge higher prices, avoid promotions and have better margins. <b>#3 </b> Winning brands succeed by continually investing in their products. <b>Action:</b> Be careful not to cut the parts of your product that your customers value. Things like reducing quality, service or design are always noticed by consumers. <h3><b>Why Culture is King</b></h3> Any consumer will tell you that when a brand they love is acquired it usually loses a lot of what made it special. With most companies growing through acquisition, are indie brands doomed to live short lives? “The reality is when a Fortune 500 company acquires these brands, they don't realize it's the culture of that company and that brand that made it so special, as well as that connectivity that the brand has in the market. “Ideally what should happen is that when these companies get acquired, they should be left alone and just be given more support and resources and advertising budgets and let the teams that built those companies, if they choose to stay on, continue to run the business. They shouldn't be meddled with, the acquiring company should just put more gasoline on the fire that they already created,” said Mr. Esposito. <blockquote> “Ideally what should happen is that when these companies get acquired, they should be left alone and just be given more support and resources and advertising budgets and let the teams that built those companies continue to run the business."</blockquote> <h3><b>The High Cost of Short Term Plans</b></h3> “When we work with mergers or acquisitions of brands, we look to keep what made that brand special. However, too often when big companies acquire these smaller brands, they immediately want to go to profitability, and they start to dilute the brand quality. They start to utilize their own pipeline of suppliers and components, but the consumer or the users are not stupid, they know immediately that there's something different. “What it comes down to is that the company acquired a smaller company for a lot of money. They have to justify that it was a profitable transaction. And they end up killing the brand. You see it all the time, these companies that sold for $800 million and a few years later they're resold for only $20 million. But that’s often what happens when a newly acquired company is handed over to someone who is tasked with justifying the acquisition as quickly as possible. “It’s a game of numbers. Somebody in an office is just looking at numbers and not looking at what the brand means to the market, what it's specialty is. They simply look at how to cut costs to make that acquisition show a return on investment in five, six or seven years - regardless of the longer term damage to the brand.” However, as one brand loses market share it creates a space for other brands to gain share. It also opens up new opportunities for larger companies with longer term visions to use their resources to build a portfolio of stable, high performing brands.