Economic Headwinds Are Great For Business Innovations

foreign [Applause] [Music] welcome this is a session on how economic headwinds fuel creativity and I'm sure many of you in the audience no matter where you work agency side client side you run a business you're an entrepreneur you're probably wondering what's happening in the world we're hearing about economic headwinds we're hearing about increases in inflation and then at the same time we're also hearing about the job market being stable and it's a confusing picture but I'm joined by two incredible guests who can actually help us navigate some of those questions to people that have driven both entrepreneurship Innovation and creativity from leading marketing Communications all the way through to funding businesses and big ideas as many of you will be aware so please join me in welcoming my two guests entrepreneur and Mr Wonderful Kevin O'Leary thank you and the EVP of marketing and Communications from MasterCard Rustin Disturbed please welcome all right okay so we're going to jump straight in um if you can see you can see on the screen here there are as I said the it's a confusing picture the story is mixed for the last six months plus we're hearing this is the world's worst economy ever um as I said in the US the job market seems stable if you're in marketing you're on the P L's at cost center you're probably the first thing that's being cut if you're in an agency your clients are telling you how can you optimize Performance Marketing has never been more important data drives every decision what are you going to do about it so the most important thing to remember is that Innovation is at the heart of every crisis and what comes out of a crisis and what comes through Innovation are some of the best ideas but let's kick it over to Kevin first to tell us about what's happening in the world and how you see this and how would you advise everyone in the room on how to think about this economic Whirlwind that we're in well I agree with the idea that perplexing because each recession and I've lived through and I've seen this movie many times before has its own personality this one's unique it's very hard to contemplate a recession at full employment yet that's what we have and in my portfolio of companies private all of them um about 56 of them they're across all 11 sectors of the s p and almost every geography in the U.S we see the tear sheets for revenue and cash flow on a very orderly basis often once a week we were here's the challenge for any small business right now so full employment we haven't seen a Slowdown in consumer demand I don't care what it is is it insecticide is it grading cards is it commercial Kitchens cupcakes gym equipment wireless charger we have all that stuff we haven't seen a Slowdown yet and at the same time you're watching all this Doom and Gloom and I see it too and so do the CEOs of these companies and their decision the hard part of all this is what to do about inventory going into holiday and q1 do you pull back because you think this recession is going to hit us in Q4 which we're basically in right now and holidays coming up in a few weeks extended holiday this year by over three days which if you're doing 200 million 150 million sales a lot of inventory and so you're trying to gauge the pessimism out there as the stock market tries to forecast the future in 2023 Meanwhile your sales are humming so do you want to leave anything on the table and more of a perplexing situation coming out of the pandemic is most of these companies have gone past 50 percent direct to Consumer models big succulent margins direct to Consumer bypassing retail advertising digitally acquiring customers economically they know their CAC they know their subscription Services they know the attrition rates they're making money and if they sell product online that they don't have to ship well you should burn in hell in perpetuity for that and so you know that's basically the challenge this that most small businesses have there is no evidence of a recession yet yet clearly the market is telling you it's coming you just don't know when the last speculation I'll make the reason this is happening is we printed 6.7 trillion dollars basically for free in 30 months and then we say oh there's inflation well no there's inflation because extra cash chasing fewer Goods creates higher prices which is what's happened but all that cash is still sloshing around which is why the consumer is not dead yet that's my two cents on it awesome well rustam you're looking at consumer spend data every day this guy should know yeah tell us what you're saying look we we look at as a payments company this is our lifeblood so we look at consumer spend data very closely for the month of September we're still seeing data look very strong for consumers and consumer spend retail data online and traditional it's not just strong relative to this year it's strong relative to two years ago pre-pandemic so there's a lot of pent-up demand that is bursting through into retail spend the question is how long that pent-up demand lasts now one of the things we hypothesize is that some of that is just because household savings was so high during the pandemic and there's that sort of burst to get out to spend to consume again and as Kevin said there's all this extra money floating around in the economy but what we've got to be sort of a little bit conscious of is that that phenomenon may be coming to an end where especially at the lower end of the spectrum that incremental household cash that existed might start drying up and as we start going into the holidays and into next year with lending also tightening and no physical help coming from the FED for for borrowers into next year you might see some of this demand contract and level of Priceless prices prices and cool things down a little bit so there is some sort of uh belief that as we go into the fourth quarter and early next year we might get a truer picture than what we're seeing today it's really interesting um we were just talking in the back about what we're seeing at meta and for small businesses in particular we just released our 10th state of Small Business Report globally uh similar Trends you know businesses are not reopening at the rate that we would have expected about 19 still remain closed in the United States and 20 globally but what we are seeing in terms of positive Trends are hiring 74 of businesses told us that they are they've hired a lot more in the last six months than ever before and also the use of digital tools you know that continues to increase and I was just saying to Kevin in the back that the trend we're seeing is women-owned businesses are actually leading the way in terms of their sales through digital versus men which you know big it up for the women in the room I think that's a really fantastic way to lead but you know if you're walking into the c-suite and you're a marketer or a small business and you're looking for investment what are you saying to CEOs and CFOs to convince them that this is a good place to spend money well there has been a change in investor sentiment regarding investing in small business and here's what it is because of what occurred during the pandemic this remarkable digital pivot I call it you know America 2.0 where companies that pre-pandemic if you look at the pie chart of Revenue it would have been 50 through retail 40 through Amazon just another retailer except you don't get the data from them 10 your own website that's completely changed the successful companies that went through the pandemic even Amazon went to essential Goods only if you remember in February March April and May of 2020 so those companies had to build out their own platforms and start acquiring customers so if you look for an a round or B round or C round in a small business now and you go to the investor community and say look I'm looking for money the first question every investors analyst asks you and we're no different do you know your CAC your customer acquisition costs do you know your attrition rate of customers do you know the lifetime value of that customer and are you now past 50 direct to Consumer because when you get past 50 direct to Consumer you get something more valuable than anything you get data your own data size preference flavor frequency of purchase price Point regional disparities on flavors and all kinds of sizes and differences in people's preference just like the wine business for example what people drink in Florida is completely different than what they drink in Ohio and if you're selling direct which you can to 42 States now you have that data and that data is priceless it's the new oil data is the new oil so if your company can't analyze data you're not collecting data you don't even understand what I'm talking about no chance in hell you're getting an investment you're just going to go out of business because your competitors are so much better than you that's what's different in the last two years data companies that know how to mine data and understand it because that's the first thing we ask if you understand your CAC I can pour four five six million dollars onto it and grow the business dramatically because we already know I'm just pouring gasoline on the fire if you don't know we don't even read the deck that's so interesting it's about knowing your consumer tell us more you're in a marketing position and data obviously is critical to how you think about it I mean just building on the theme cabin uh LED off with is that a small business today has to be a digital business there is no option and we see that in our data large digital businesses grow about three times as fast as small businesses online simply because they're better set up to do so and this is a societal problem this is not just a small business problem we cannot have small businesses fail because they're not digital businesses so in many cases it is that education it is those tools it is empowerment it is mentorship it is enabling them to mine data the way Kevin's talking about so they have a legitimate competitive proposition in the digital space now what we also see is that when you are a service business your digital proposition is a little stronger as a small business than a large business so for example tax accounting or any small business that that affords or offers a service tends to do larger than a commoditized large business in the online space so while data is important taking that data and applying a service proposition around it is also incredibly important yeah I actually think that's super interesting you know we you think about the businesses that have built their business on Facebook or Instagram when you think about Instagram you often sort of quickly go to retail and fashion and cosmetics and you know things that you like to see in your feed but it's actually the service Industries the accountants the hairstyles the legal advisors that are actually doing phenomenally well by creating community and talking directly to their customers through our platforms so let's talk a little bit about risk um you know again how would you advise people in this room to think about in this world where everybody's feeling a little bit risk-averse and buttoning down the hatches what would you say is a reasonable risk to take we'll start with you from a marketing perspective would be great to hear sure you know I always cringe a little bit when we die marketing with budgets I always get that Converse that that question how do you go and talk to your CFO about money I don't want to talk to my CFO about money I want to talk to him about opportunity marketing is a competitive Advantage for a business and more important than money is ingenuity and when the money tightens the Ingenuity has to grow even more so what I'm looking for from my teams for the next year is not to worry all day and night about what the budget is but it's what are you going to do with the money you have how are you going to make it work harder because I think that's where the real magic happens not just in the budget on its own so when it comes to risk taking there are many things we will do differently next year than this year if the if the ability to spend contracts which we expect it might then we'll do more targeted work we'll get better on segmentation we'll talk uh less to fewer people but more effectively we'll find loyalty and retention as a bigger objective than acquisition so there's a lot you can do to manage these moments but you've got to show Ingenuity and not just depend on a budget and check I love that that's really helpful what do you think about that Kevin and you know any advice well I take I take a slightly different approach because if I look at a company and they're spending 12 to 18 percent of their income statement on marketing essentially I want to know what the return of that is and so to me that is measured by customer acquisition costs because I don't care who you are what you sell it's as you said with some that it's about digital I mean it every business is successful even Nike a giant Behemoth during the pandemic they claimed it was going to take them six years to get the fifty percent direct consumer in all geographies they did it in five months and as a result survived the pandemic at much higher margins and free cash flow because the only cost you have if your director consumer is manufacturing Logistics of shipping and customer acquisition costs that's it now if you have that situation you're bypassing the traditional distribution saving 40 percent and that goes right back into the business so for me it's if you're spending money on marketing are you constantly experimenting with new ideas so I all I've always said to my companies I want a third of marketing to be experimental every quarter because if you're just sitting on your laurels doing the same old crap you're missing out and your competitors are going to do something else so start experimenting because the value of something that works that you find through just creative chaos is extremely higher than what you've already even doing because you start losing yields right away whatever your strategy is and let's say you're getting a two percent response on it watch six months from now it'll be 1.7 or 1.5 what's the next thing what's the next idea what's the next drop what's new because it's so noisy out there as you all know you've got to keep creating and everybody has the tools to do that obviously yields are way down from two years ago because of what Apple did on privacy but that doesn't mean you can't fix it by Smashing data together if you're using meta you can buy other services the target your customers in various geographies and we do that a lot and I'm shamelessly promoting them but I'm using C squared social in a lot of my companies now because they're small they're entrepreneurs and I'm a paid spokesperson that's true but it's because I eat my own cooking I spend money on them to get my yields up on meta and I do let's say you've lost 28 of your yield because of Apple which is approximately what you lost you can get back half of that when you start smashing data from other sources including yours I mean there's data out there the credit card companies and banks have that help you do this now if you don't know what I'm talking talking about you're screwed anyways so this is a standard procedure right now in terms of putting together good campaigns I love that well I really agree with the experimenting um points you're making you know we we have a pop-up around the corner here for meta you should go and check it out but we're showcasing sunglasses company called Desi which is a founder and Creator owned um they have beautiful products the whole line has been built through Instagram and Facebook and they sold three thousand pairs of sunglasses in 48 hours through a campaign that they um you know they tried through different formats on reels and Instagram stories and so on so I totally agree with the sentiment you've got to keep experimenting to be one step ahead and it's a little bit about the what we talk about with our new company name meta and the metaverse you know that is a longer Road out but there are certainly ways that Brands and businesses can start to experiment with ar filters and using 3D ads and starting to understand how consumers of the future are going to connect with brands in these new platforms and areas so I'm going to put up a slide now and I'm going to have some audience participation so what you can see here is about 14 different companies and um the question for all of you is that you know it's hard to imagine getting back to growth in a time like this you know in a time of Economic downturn and so the question for everyone is how many of these companies do you think started in the recession so I'll do a show of hands five about five of them start in a recession eight this is a tough crowd 10 is 14 10 okay 14. okay there's only 14 on the slide one all right well the answer is we can do the reveal all of them and so the point here is you know restaurant said it really well continue to innovate continue to be um you know experimental marketing should be ingenious and you should be taking these ideas through to the c-suite as much as you can so if we go to our next question um you know we talked a little bit about um creativity and how can you you know we talk about performance and CAC and data but how can Brands continue to be creative in this environment and I'll ask you Russian when you think about Big Ideas and everything that MasterCard has stood for over the years what's the right balance there between brand versus performance sure look as a payments company our ambition or goal is to make payments as safe as possible and as frictionless as possible and we're constantly innovating to do that it starts with the consumer and how do we make that consumer experience at the point of payment just that much better and no one wakes up in the morning thinking gee how am I going to pay today no what you want to do is enjoy your life you want to book that vacation you want to buy a new pair of clothes you want to buy a car you want to make the payment moment as fictionless as possible so everything we do with Innovation is to try and make that happen now as devices exponentially become connected devices the the opportunity to build payments mechanisms into these devices just grows so I see Kevin wearing a watch or a ring that if it's a connected device can become a payments device you can simply embed the Payments Technology in there and you can tap it on on a NFC code and you can go from there so that makes the the payment moment frictionless now what we saw during covid is that a couple of things we were trying like getting contactless cards more prevalent getting e-commerce with card on file more prevalent I mean just the best first that we got out of covet because that became such an important consumer moment and such an important hygiene moment for consumers not to have to touch devices Etc and unfamiliar places that our innovation of the last 10 years just blossomed in that environment so we're already starting to think about how do we continue to make payments frictionless so no matter what the environment the consumer will gravitate towards safer easier faster ways to pay that's so interesting what are you seeing on the payment side of some of the businesses that you've supported on I am using a use case I teach a lot of graduating cohorts of Engineers I always go to the graduating cohort because a third of the class is very entrepreneurial and they do deals and I get to see them before the VCS do them so I'm doing this on a selfish basis but it really works there's a use case I want to show you and this is a shout out for rustam um here's a payment systems are so brutally competitive in fintech it's impossible let's take a use case of a credit card the chance that you could launch a credit card in this market in my mind as an investor zero probability of success because you'll never acquire customers here's one built this is a MasterCard what this guy did first time I ever invested I own a piece of this company he came to me and said I'm going to use Community I'm going to go to Every renter in America and let them pay their rent on a credit card how crazy is that idea because I said it'll never happen you can't shave three percent out of out of a landlord he said no the landlords pay nothing we're going to make this work for the landlords and make our money on all the other things people do with this card very had a plan to go to a community and use social media say you pay rent you want to increase your credit score you was built this thing is the fastest growing card in America his cack is low because if you rent you want this I knew it was going to work when my daughter and son called me and said there's a waiting list you got to call the guy up you're an owner I need the card they were screaming to get their rent paid on it because it's two three four thousand a month that they're getting credit for brilliant brilliant idea that's using Community that's using social media that's a payment system but the key there is he figured out CAC everybody else is trying to launch credit cards goes to zero almost immediately they can't compete with MasterCard American Express Visa it's impossible to gain share against those guys unless you're in bed with them and you have a different approach which is what built did that's Innovation that's entrepreneurship and boy does that guy spend on social media he's insane because he knows his CAC he can pour gasoline on it when I invested in it it was a 5 million valuation we just did another round of 1.5 billion that was 18 months ago that's what I'm talking about here that's innovation in payments does everyone know Kevin's whole wallet is here so if you've got an idea I just noticed that to meet us in the green room let's talk a little bit about community and then I'll wrap it up but um again Moscow does some tremendous uh work across the community and I love hearing these stories where business ideas are sort of borne out of what the like we're a brander company answers back tell us more about MasterCard and what you're doing there yeah I'll give you a small example uh you know one of the things that so if this is the 25th anniversary of our Priceless campaign 25 years ago we came up with this idea that there are some things in life money can't buy for everything else as MasterCard and it's kind of been the the philosophy on which the company has been built over the last 25 years and we saw a community idea that came from actually one of our employees that has been a huge success it's called the true name card it's a card that allows you to put your chosen name on the card now if you are a person who is who is going through a transgender transition and are transgender the worst thing possible is to put your credit card down at a shop or a restaurant and have the stigma of someone looking at the name and questioning whether that's really you now the reality is we don't need the name to process a transaction we just need the 16-digit code and the and and the security code we don't need the name so why is the name so important for the card at a point of payment so we give people the option to put whatever the whatever name they want whether it's because they're going through a gender transition or whether it's because they want to use uh a maiden name or a professional name or any name that they might want and this is just opened up such a host of possibilities for people that were otherwise stigmatized by a product feature that wasn't needed so it's not Technology Innovation but it is tactile simple life Innovation that has just made life that much better for a consumer no example similar to what you know we when we think about avatars and you know we've been talking a lot about d2c but think about D to a which is going to be direct to Avatar and what identities people can create in the future world where you can be whoever you want to be and move across different platforms and express yourself in ways that matter most to you in that environment and I just think this is we're just at the start of this as marketers who really have to understand what the future of segmentation looks like in a world where you know you describe that we can be whoever we want to be and I'm super excited to to see where we go with that if you like that video will you see my next one don't forget to click right over here and subscribe

Channel: Kevin O'Leary

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Keywords: Kevin O'Leary, entrepreneurship, entrepreneur advice, success tips, success habits, millionaire habits, millionaire tips, how to make money, how to invest, shark tank Kevin O'Leary, ask Mr. Wonderful, stock market, value chain, how to make money online 2022, stock market analysis, business strategy and tactics, investment strategy during recession

Id: rvbzD_7FZbY

Length: 23min 57sec (1437 seconds)

Published: Wed Oct 26 2022