This article comes from WeChat public number: Qingshan Capital (ID: cyanhillvc) , author: oak rock, original title: “Castle capital Zhang Ye: Consumer investment logic” from the title figure: Figure worm
Introduction:
Aoyama Capital, China’s first-line angel investment institution, has always focused on the areas of consumption and TMT. As the earliest angel investment organization focusing on the consumer sector, Qingshan has now become the industry leader in angel investment in the consumer sector.
Since its establishment, Qingshan Capital has invested in a number of star projects such as Liangji, Youke Factory, Yushi Technology, Original Life, and Xiaoying Technology, maintaining a high investment success rate. Especially on the consumer track, in recent years, Qingshan Capital has continuously invested in consumer projects such as PIDAN, spending time, bosie, FIIL headphones, and LANDBASE, and has made a lot of layout in the new consumer field.
Chang Ye, founder of Qingshan Capital, said, “The next 10 years will be China’s new consumption of gold for 10 years, and there is still a great opportunity to follow the trend.” At the same time, several core issues in investing in new consumer circuits were shared:
1. Why can China produce very good new consumer brands today?
2. How does angel investment screen brands?
3. How will the new consumer brands of the future break through the ceiling?
I. Why can China produce a good new consumer brand today?
1. Four major changes determine huge opportunities for China’s consumer market
Looking back at China ’s consumer sector over the past decade,It has not settled well in the traditional sense of the brand. But why at this node today, everyone thinks that there can be very good new consumer brands in China?
There are many reasons for this, mainly focusing on four major changes:
The first is the logic of the dealer.
A company’s strategic focus must be inclined, or inclined toward products, supply chains, or channels.
In the past, the entire Chinese economy leaned towards channels, which was determined based on China’s original form. China has a large population and great regional differences, which has led to the development of a large dealer system in China, with a high markup rate for all products.
The markup rate is high, and it is necessary to meet the user’s conditions in the retail price of the terminal, which means that your product cost reduction is very low.
Low product cost compression will directly make it difficult for companies to design sincere products or good products through market insights. In this way, it is difficult to achieve cost-effective products at the user’s end, which is one reason.
For this reason, according to the logic of the distributor, it is necessary to display the items on the shelf through the distributor system, and focus the strategic focus of the company on the channel side.
The key point of the past two companies fighting is how to occupy the channel.
Distributors only focus on whether the channel can be dug deeper and whether the channel can be closer. Naturally, the product will not be greatly or better optimized.
In the past, Chinese companies had huge differences in their products from overseas. This is why many Chinese people tend to buy overseas. Even daily necessities such as toilet seats have to go to Japan for purchasing.
For companies like Japan and the United States, even small products are built around user demands. The focus of these companies is on cost power, because their dealer system has not been greatly troubled.
China is not the same. E-commerce penetration rate is relatively high, and it is growing year by year. In particular, the e-commerce penetration rate of daily necessities increased by 20% in the first three quarters. The high penetration rate of e-commerce easily destroyed the original dealer system. Any enterprise that produces an item will have the opportunity to deliver it directly.
Compared to the logic of the original complex dealer system and shelf boundaries, this situation has been completely subverted. There were so many shelves originally, you put them here, otherThe enterprise cannot enter. Originally there was no possibility to even put it on the shelf, and of course it will not be found. This is the channel logic.
E-commerce is now borderless, and everyone can put unlimited products. As long as the product power is good enough, it will naturally be discovered.
So, the e-commerce borderless shelves now give companies the opportunity to win through product power, and the company will pay more attention to product power. The company’s strategic positioning on product power will naturally lead to good products. Products may drive good brands.
The second is the upstream supply chain.
In the past ten years, the entire production end of China has been in a very strong state, and it is almost difficult for emerging companies to leverage the upstream supply chain.
Entrepreneurs are young entrepreneurial teams and a new company. No matter how good the market insights and product design are, it is very difficult for the products produced to leverage the upstream production leverage.
But in recent years, the upstream trend is obviously not as strong as in the past. The first reason is that the entire upstream supply-side reform has been well done, which has led to the continuous improvement of upstream efficiency.
The increase in overall upstream efficiency, coupled with export leverage, has led to an overflow in upstream capacity. In addition, in recent years, the indoctrination of the Internet generation to the new generation of people, we can clearly feel that the upstream market’s consumer market insight is extremely misplaced.
In this way, the willingness to cooperate between manufacturers and enterprises has become higher, which has allowed more entrepreneurs and small companies to develop their products through product power and have the opportunity to produce good products.
Many manufacturers see entrepreneurial teams with very strong brand power or strong product power, and are even willing to give entrepreneurs the first batch of new products to test the water market.
Why have so many brand companies ran out in China in the past? Because the possibility of foundry becomes greater, the product power is completely released.
The third is the possibility of reaching users.
Originally, a brand startup has no possibility of reaching users. The reasons are as follows: First, the technical threshold is high, large initial investment is required, and your entry into the market is determined.
But it’s different now. Whenever your startup has a little ability to produce content, you have the opportunity to reach consumers universally and let consumers know the existence of your brand.
The second isMost enterprises now no longer have a centralized approach to reaching users. Originally, the only way to place advertisements was to run local TV stations. The submission of the advertisements was reviewed and approved by the TV stations at various levels, and only when the conditions were met could they be released.
But nowadays, advertisements are basically recommended by machines, whether they are screencasts or live broadcasts. All information streams are recommended by machine algorithms, not by people.
The operation of the machine algorithm is to automatically match different content to the corresponding consumer. Since it is called a machine algorithm, its exposure is definitely limited, which gives start-ups or small companies the possibility to master machine algorithms.
Startups can play games with machines and break through machine algorithms to bring content to greater exposure. In other words, when the downstream commodity information reaches consumers, the original low universality is changed to a high universality.
The fourth is the standardization of interaction.
Although the customer service of different e-commerce online shopping is completely different, the interaction time between different logistics is also different. But from a macro perspective, the interactions now are quite equivalent compared to the past.
What was the previous interaction? Product guides or waiters ask consumers and introduce products to consumers, and consumers pay after choosing products.
Where the product is displayed and how the shopping guide recommends it to consumers is uncertain. There are many factors that cause this difference. The educational level of the shopping guide, the regionality, etc. are all completely uncertain factors.
But now, as long as orders are placed on e-commerce platforms and delivered to consumers by logistics, the entire interaction process is extremely standardized.
Standardization of delivery has dramatically changed the business model of the enterprise. Enterprises no longer need to invest a lot of energy, material resources and strategic tilt in the interaction, especially for start-up companies, which is equivalent to knocking out a very difficult link.
With interactive standardization, startups can devote almost all their energy to product and brand power. The increase in product power of all start-up brand companies has convinced more people that China can produce very good new consumer brands in the future.
2, why is there no consumer brand accepted by the public in the Amoy ecosystem?
Looking at the entire Tao ecosystem, all brands seem to be able to sell, but very fewCan become a good consumer brand.
This is mainly related to the structure of employees. In other words, it has something to do with the attributes of those who started out as brands. Those people focus their attention on selling goods, wondering how to sell more goods, and are unwilling to work hard at the level of product power, which itself hurts the brand a lot.
From another perspective, why is there a great opportunity for the rise of new consumption now? In my opinion, This is also related to the phenomenon of talent overflow in the Internet technology industry.
In the past ten years, the Internet technology industry has gathered a large number of media platforms. Most of China’s best talents have chosen to flood into the Internet industry. This is a convergent effect. This effect of gathering talents at a high speed has never been seen in Chinese history, so the Internet industry is breakthrough.
But from 2015 and 2016, there was a phenomenon of talent spillovers in the Internet industry. Most of the first spillovers from the Internet industry were consumer talents.
These people have a stronger sense of mission, a deeper understanding of capital, and they are more inclined to organize group operations. They use the most advanced Internet thinking methods to create new consumer brands, and promote the overall quality of people who make new brands. This is quite different from those who used to make brands in the past.
So, in essence, Taoism Ecology did not run out of consumer brands accepted by the public. The key lies in the employment talent structure.
Second, how does Angel Investment screen projects?
Whether an early brand can rise depends on the founder’s ability. Therefore, angel investment selection of brands first depends on the founder or startup team.
There are two important key points in identifying founders. One is a sense of mission. A sense of mission is one of the best qualities. Of course, we cannot require everyone to have a sense of mission, but stepping back, if you go out without a sense of mission, you must have at least ambition, and it is best to be a person with a sense of mission.
The second is strong learning ability. Why the angel investment is also investing in people because people are the biggest variable.
In an enterprise, the most immeasurable things are entrepreneurship and human variables. This is exactly the nature of angel investment.
What money does Angel Investment make? Logically it is not earningAn enterprise’s money from scratch is the value created by an entrepreneur as an entrepreneur. In other words, the premium is the value of the entrepreneur.
Let’s look back at the field of angel investment. The angels of companies like BAT and TMD have seen very different growth and changes since the initial angel investment.
In the final analysis, this is the issue of the founder’s own growth, and of course, the learning ability is an important prerequisite for the founder’s growth. Therefore, we prefer young people, because you are only young and full of possibilities, and your learning ability will be relatively strong.
Of course, when we choose a brand, we will not include all entrepreneurs with a sense of mission and strong learning ability in the market, because the investment must be relatively concentrated, that is, a small number of people.
In addition to identifying the founder and founding team, angel investment must also have a keen judgment on the category.
There are many frames of reference in brand categories, and we generally choose the simplest and rude method- Incremental categories .
If a category market is in a state of non-growth, we are unlikely to invest, and a downturn is even more unlikely. Because in the incremental market, the birth and growth of an enterprise is relatively smooth and relatively integrated.
For example, a 50 billion-scale market, assuming that his annualized income is 18%, 5 years later it is 114 billion yuan, which is an increase of 64 billion yuan in 5 years.
As a result, you want to gain 10 billion market shares in a 64 billion increase, which is much simpler than a market that has originally grown to 114 billion, but has not gained 10 billion market shares. Because in the growing market, the market share of enterprises is very smooth, and a share of 10 billion is equivalent to 0 to 1. But in a non-growth market, the 10 billion share is equivalent to from 1 to 100, which is the difference.
Why do you say that? The hardest thing for all companies to accept is downsizing. Enterprises will have their own market share in an industry. Factories or brands can accept slow growth, even without growth, but they will never accept scale reduction.
Enterprises will use every means to protect their own scale from shrinking. In such a competition in stock, if a company strives for a little, it must deduct a little from the share of others. The space will be very narrow. But in the incremental market, everyone is growing.Long, so you cut your share in growth is actually very smooth.
Why the beauty market has attracted much attention recently. The reason is that beauty is a high-growth market with an annualized income of about 14%. In a market with such a large volume, such an increase is equivalent to an annual increase of about 100 billion.
A company in a 100 billion incremental market, let alone a 10% share, is 5%.
So, increment is also a point that we are very concerned about. Investment projects need to judge whether this category is incremental, of course, the base number should not be too small.
The example I just cited is the scale of the traditional market about four or five years ago, which has maintained an increase of 18%, and the new company has also gained a lot of dividends from the increase.
Finally, what we choose to vote and not to vote, there is another important reference factor, which is brand power.
We want to invest in any brand premium. In the consumer field, most brands are at a stage before VC, and the consumer input-output ratio is too low and slow.
If you don’t stack a brand premium element in it, then this model is not a model suitable for VC investment. With reference to brand premium and spiritual attributes, this logic may make it easier for VCs to invest in good projects. This requires our investment team to be very aware of market trends, to be able to judge brand power, and avoid making head-shot decisions. We attach great importance to pre-investment research work, such as just released the “2020 China FMCG Early Investment Opportunities Report”.
In my opinion, the vast majority of consumer goods in China have the opportunity to create new brands. I do n’t know whether to redo it. At least the opportunity to make a new brand is too big.
From the first half of 2019 alone, the entire terminal consumption has increased by nearly 2 trillion yuan. Such an incremental market can certainly accommodate many new brands. And in the existing market, there are still a lot of brands that can no longer meet consumer demands and word of mouth, occupying a large share, which is unreasonable.
So, the next 10 years will be the golden 10 years of new consumption in China, and there is still a great opportunity to follow the trend.
3. How will the new consumer brands of the future break through the ceiling?
Where do future consumer trends come from? In the simplest terms, after every technology cycle in history, there will basically be a certain number of new consumer brands. Now comes just after the era of the mobile Internet, many new consumer brands are poised to take off.
We have invested in many consumer brands in the past, but many brands have encountered great growth difficulties up to this point today. They may reach 100 million, or they may not be able to go up to two or three billion. How will the new consumer brands of the future break through the ceiling? Now let’s talk about it.
1. Form a multi-brand line matrix
Someone asked me, in the future, if a brand wants to break through the scale limit of 120 million to 300 million, what will it rely on?
To judge the quality of a brand, you must not use absolute value to measure it.
How much the brand sells, you need to look at the whole category. For a category with a trillion-dollar market size, you ca n’t get up to 100-200 million, so it ’s true that you did n’t do well. However, if you have a market of only a few billion in size, and you still have between one and two hundred million, that would be great.
Anyway, all consumer products have a certain ceiling. At a certain scale, there may be restrictions on scale breakthrough. Breaking through the ceiling of a category or the ceiling of the crowd corresponding to a brand should be achieved by a multi-brand line matrix.
Why a multi-brand line matrix? In the consumer field, consumer brands need to build market size and increase brand influence through product power. Finally, it is possible to optimize the industrial structure, and optimizing the industrial structure is also the biggest difficulty in making a brand.
From the perspective of VC, a multi-brand line company will reach the required volume, and a single brand will most likely fail.
But as investors, we can only judge by a single brand at the beginning. It mainly depends on whether the brand’s methodology can be reused and whether it can form a multi-brand line matrix.
2. Reuse methodology to be a brand management company and refuse to do traffic baggage
From a methodological point of view, we can determine whether the entrepreneur’s thinking model for branding is consistent with us. Many entrepreneurs, whether they sell consumer products or milk tea, sell everything that is explosive. They sing about how to do marketing, how to get traffic, and how to reach explosives all day long.
This is not the brand we want to invest in. The brand itself should be a brand management company. When you build your brand’s first model, you have to start thinking that this model can be reused, not just traffic.
Like around the Yangtze River Delta, there are a lot of Taobao brands doing marketing. These teams are very large, and the traffic is inexplicably high. In this way, the consumer product startup team will not be our target, because it is a traffic burden, not a brand management company.
Brand management companies must be guided by a methodology, and this methodology is replicable. If you use some of the gameplay in Tao to sell an explosive product, then it is not a replicable methodology. In other words, you create a explosive product through the form of viral marketing, or through the mechanism of low-price promotion and fission distribution. Getting traffic in this way will only greatly damage the brand.
Many consumer goods have run particularly large in the last one or two years. In fact, they have borrowed from the “Great Miracle” of the previous Internet era. This form of disguising subsidies makes the volume larger, and it is very large at the base of the user, and then finds ways to dig deeper into the value. This is the logic of the Internet.
This logic applies to consumer products. Some companies have indeed grown rapidly in the past year or two, but in fact we are questioning this brand. So far, we are still demonstrating whether this method is an important part of consumer goods in the new era, or it is the product of a staged ideology.
But for Qingshan Capital, we do n’t agree with the idea of “striving a miracle” as a brand, which is to do consumer goods in a traffic-driven manner.
Today, marketing methods and knowledge structures have become very similar. The method of traffic you do, others will do it, there is no special scientific reason at all. The important thing is that when your brand reaches the final fight, it can be found by netizens even without marketing.
The current consumer market has enough product channels and online celebrity buyers, not a very closed system like the dealers in the past. Now everyone has traffic, and any public account has a good aesthetic. Good products are actually easy to find through word of mouth and other methods.
A good brand should be selected in the market logic. Li Jiaqi does not need to be promoted, he can explode himself, because he is a good content product that meets the needs.
3, the founder needs to break through the boundary and walk online and offline simultaneously
In addition, a startup should walk online and offline at the same time before reaching several hundred million-scale ceilings, in preparation for using advertising to spread this “air force” brand strategy. It also depends on whether the founder can break through his own boundaries.
In the past, most consumer brands ran only one path, either only offline or online. As far as offline people are disdainful of the online traffic method, online people are disdainful of things like drinking with dealers. But in fact there is a huge square on the line, there is a great opportunity for brand precipitation.
At the end of the day, there are three important steps in brand building. The first step is that you will make a blockbuster. The second step is that you can be recognized on mainstream traffic platforms. The third step is to go online. Basically, after completing all three steps, your brand is basically better.
So, today ’s consumer entrepreneurs better understand both online and offline, and be able to do both in the same system, so that the brand can continue to grow bigger and stronger.
This article comes from WeChat public number: Qingshan Capital (ID: cyanhillvc) , author: Quercus rock