How to Make Innovation Happen
In our latest podcast episode, Ty Hagler, who founded Trig, an innovation and design firm, talks about what he’s learned brainstorming with solopreneurs, small businesses, and Fortune 500 companies.
Good Morning!
Here are today’s highlights:
Gene Marks says he’s found the first killer AI app for businesses.
Are Walmart shoppers ready for curry chicken empanadas?
Small business rent delinquencies are on the rise.
As many as 30 percent of U.S. veterinary practices are now controlled by private equity and big corporations, which is having a predictable impact on pricing.
THE 21 HATS PODCAST
The wrong way to make innovation happen, Ty Hagler says in this week’s special bonus episode, is to have a great idea and then go all-in trying to create it. That, he says, is a really expensive way to find out if your idea works. The right way to pursue innovation, he says, is to take your idea to customers so you can assess the pain points and opportunity spaces before proceeding. Hagler, who is founder and CEO of Trig, an innovation and design firm in North Carolina, also says he’s learned that the problem with focus groups is that the more people you have in the room, the less valuable the conversation tends to be. In fact, he says, one-on-one is best.
He also says that brainstorming remotely can actually work better than brainstorming in-person. Oh, and by the way, if your Mom tells you she loves your idea and will definitely buy your product as soon as it’s available, she’s probably lying.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
ARTIFICIAL INTELLIGENCE
Gene Marks says customer-service chatbots have emerged as the first killer AI app for businesses: “It’s where the big corporations are spending their money. It’s where software companies are investing. And it’s where businesses of any size should be leaning in. These are not the pre-2022 chatbots. The ones that needed specific commands and could only respond in very precise, robotic and narrow ways. These were limited, and unfortunately there are plenty of those chatbots around (try filling a prescription with CVS on your mobile device, for example). But that’s changing fast, thanks to generative AI.”
“Within just the past two years software leaders like NICE, Salesforce, ServiceNow, Zendesk and even marketing platform HubSpot have announced their own or partnered with AI driven chatbot functionality that allows their small and mid-sized customers to answer queries, analyze data, predict outcomes, suggest products and services, train and advise human reps and overall get answers faster to their customers than ever before.” READ MORE
And yet, fear of an A.I. bubble is growing: “Artificial intelligence startup Imbue has hoodies branded with its circular orange logo, an office in the heart of San Francisco and marquee investors who lavished the company with more than $210 million. Work and life blend together for its few dozen employees, who share their emotions with one another at a weekly event called ‘Feelings Friday’ to build trust and connection. More than two years into its founding, what the startup doesn’t have is a business—or a product that could create one.”
“Despite a broad downturn in the startup sector, investors chasing the stock market successes of Nvidia and Microsoft have deluged AI upstarts with record levels of funding, minting dozens of companies with billion-dollar valuations in the past year. The investment frenzy is already fueling concerns of a bubble as startups struggle to translate the hype into revenue.”
“Venture capitalists are betting that some of these startups will be the pioneers in a tech revolution that could outshine even the birth of the Internet. They point to the meteoric rise of OpenAI, whose chatbot ChatGPT became the fastest-growing consumer app in Internet history. OpenAI went from zero to more than $1 billion in revenue last year, a brisk growth rate even by the breakneck standards of Silicon Valley.”
“Venture capitalists including [Sonya] Huang predict that revenue will take off as the technology becomes cheaper and more reliable. There are also early signs that businesses are beginning to embrace generative AI: in February, the buy-now-pay-later app Klarna said that an AI assistant powered by OpenAI was doing the same work as 700 customer-service agents.” READ MORE
MARKETING
Can Walmart sell better food? “Already the country’s largest grocer, the company is introducing a line of premium food called Bettergoods this year, aiming to attract new, often higher income shoppers more frequently and to encourage current shoppers to spend more. The new brand took years to develop and will include foods such as cardamom rose raspberry jam for $5.24 and curry chicken empanadas. Walmart plans to add more than 300 Bettergoods items to shelves this year—many of which will cost $5 or less. ‘We didn’t always show up for customers that were looking for this range,’ said John Laney, head of grocery for Walmart U.S.”
“It is a big strategic bet for the retailer as it competes for customers with Costco Wholesale, Trader Joe’s and Amazon.com’s Whole Foods, which also have extensive store brands. It is likely to rankle food manufacturers already fighting for space on Walmart’s shelves. And it is part of Walmart’s efforts to keep bringing people to its stores even when they aren’t on the hunt for inexpensive necessities.”
“Getting Bettergoods on shelves took years. To generate fresh ideas the team ate at hundreds of restaurants from fast-food chains to fine dining around the world, said Denise Wright, vice president of private brand foods for Walmart U.S. The trips ‘sound like a lot of fun, but they are painful in that we eat eight meals a day,’ said Wright. Restaurants tend to produce new food ideas ahead of packaged-food companies. During the trips, executives made lists of the flavors, formats, and textures they ate, she said, then compiled those into broader trends to guide new ideas.”
“The brand name Bettergoods emerged from thousands of contenders. Executives chose it because the term wasn’t too narrowly focused on health claims or adventurous food, but could encompass all those ideas. Walmart’s sensory and quality team worked with internal product developers and external suppliers to further test ideas and verify the consistency of recipes. Walmart also works with flavor houses, companies that help formulate recipes and sell ingredients used across the industry.”
“In early tests, some food combinations went too far, including a jarred pasta sauce with cubed zucchini, as well as strawberry and cucumber salsas. ‘We don’t have the credibility yet to push that far,’ said Wright. ‘We will.’” READ MORE
REAL ESTATE
Small business rent delinquencies have risen to a three-year high: “The Small Business Rent report from Alignable, which provides an online networking platform for owners, found that 43 percent of small businesses were unable to pay their rent in full due to economic headwinds. That’s the highest rent delinquency rate since March 2021.”
“Independent restaurants are having the most trouble, with 52 percent not paying April rent on time. On the other hand, just 20 percent of small manufacturers are delinquent. More than half of small-business owners say that their rents are higher now than they were six months ago. Of those, 11 percent are paying at least 20 percent more than they did last fall.” READ MORE
Suburban retail centers are having a moment: “The challenges facing America's downtowns are frequently linked to the staggering amount of empty office space sitting in towers. But another important segment of the downtown revitalization conversation is how to fill a growing amount of vacant retail space in cities across the country. Once the core shopping hubs of cities and metro areas, downtowns for many retailers have lost favor to more suburban locations, even predating the Covid-19 pandemic, thanks to population and demographic patterns.”
“The post-pandemic landscape for retail real estate is still evolving. But retailers and restaurateurs increasingly are choosing to be in high-end, open-air lifestyle centers in the suburbs or in trendy urban neighborhoods that are near to, but not necessarily in, central business districts.”
“Atlanta's prime retail district has historically been Buckhead, a tony suburb about six miles from downtown. While major shopping centers like Lenox Square and Phipps Plaza still exist in Buckhead today, some of the retail energy previously felt in the district has moved farther out in the Atlanta metro — to Alpharetta, for example, Masinter said.”
“Even in legacy retail corridors like Michigan Avenue in Chicago, spaces aren't 100 percent germane to what retailers want today, said Ed Coury, senior managing director at New York-based retail advisory firm RCS Real Estate Advisors. ‘They're not looking for 20,000 to 30,000 square feet; they’re looking for smaller space,’ he said.”
“Business owners in the market for retail space today are generally attracted to either urban districts with an authentic feel — think the Bishop Arts District in Dallas, Coury said — or centers that are what he called ‘highly curated, somewhat homogenous and architecturally controlled.’” READ MORE
HUMAN RESOURCES
As promised, California’s big fast-food chains reacting to the state’s minimum-wage hike by raising prices: “Consumers picking up burgers, burritos and chicken sandwiches at chains in the Golden State are grappling with prices that for months have been rising at a faster clip than in other states, according to market-research firm Datassential. Since September, when California moved to require large fast-food chains to bump up their minimum hourly pay to $20 in April, fast-food and fast-casual restaurants in California have increased prices by 10 percent overall, outpacing all other states, the firm found in an analysis of thousands of restaurants across 70 large chains.”
“The restaurant industry spent millions fighting the wage law and was ready to mount a referendum campaign but then negotiated a deal with backers last September. McDonald’s, Jack in the Box, Shake Shack and others said they would raise menu prices in California in response, with some McDonald’s franchisees estimating hundreds of thousands of dollars per restaurant in added labor costs.”
“A number of California consumers said they were shifting their restaurant spending to independent eateries, considering them a better value and experience than some chains. The California wage law doesn’t apply to restaurants with fewer than 60 national locations.” READ MORE
PRIVATE EQUITY
Rolling up vet practices, private equity is doing what it usually does: “In the United States, corporations and private-equity funds have been rolling up smaller chains and previously independent practices. Mars Inc., of Skittles and Snickers fame, is, oddly, the largest owner of stand-alone veterinary clinics in the United States, operating more than 2,000 practices under the names Banfield, VCA, and BluePearl. JAB Holding Company, the owner of National Veterinary Associates’ 1,000-plus hospitals (not to mention Panera and Espresso House), also holds multiple pet-insurance lines in its portfolio. Shore Capital Partners, which owns several human health-care companies, controls Mission Veterinary Partners and Southern Veterinary Partners. As a result, your local vet may well be directed by a multinational shop that views caring for your fur baby as a healthy component of a diversified revenue stream.”
“Veterinary-industry insiders now estimate that 25 to 30 percent of practices in the United States are under large corporate umbrellas, up from 8 percent a little more than a decade ago. For specialty clinics, the number is closer to three out of four. And as this happened, veterinary prices began to rise—a lot.”
“Americans spent an estimated $38 billion on health care and related services for companion animals in 2023, up from about $29 billion in 2019. Even as overall inflation got back under control last year, the cost of veterinary care did not. In March 2024, the Consumer Price Index for urban consumers was up 3.5 percent year over year. The veterinary-services category was up 9.6 percent.”
“One vet, who worked for an emergency-services practice that, they said, raised prices by 20 percent in 2022, told me, ‘I almost got to the point where I was ashamed to tell people what the estimate was for things because it was so insanely high.’”
“Others described mounting pressure to upsell customers following acquisition by private equity. ‘You don’t always need to take X-rays on an animal that’s vomited just one time,’ Kathy Lewis, a veterinarian who formerly worked at a Tennessee practice purchased in 2021 by Mission Veterinary Partners, told me. ‘But there was more of that going on.’ Prices increased rapidly as well, she said, leading to customer complaints.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Every Business Should Know about Apex Accelerators: Okay, maybe not every business, but this week, Gene Marks tells us about a little known program in the Department of Defense that is dedicated to helping small businesses find contracting opportunities at all levels of government and even with prime contractors. The service is free, it includes one-on-one counseling, and the advisors will help you through every step of the often-frustrating application process. You might be surprised by the opportunities out there. Plus: Is inflation still a problem for business owners?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren