The double-edged sword for consumer businesses in the digital world

In today’s digital world it has never been easier to set-up and scale a consumer business – in part because the internet has made every phone a shop window, democratising retail.

But also due to the abundance of partners and outsourced services available, off the shelf, to founders and management teams. The challenge has become identifying those core competencies to keep in-house to create a competitive advantage, versus what areas to outsource. Unfortunately, there is no hard and fast answer here and where you sit on the outsourcing spectrum will depend on the business model, consumer vertical and the unique selling point (USP) of your business.

For many consumer businesses, there is an abundance of outsourcing partners across the entire product (from design and manufacturing to fulfilment) and customer lifecycles (from acquisition to retention and engagement) meaning more functionality and expertise can now be found externally. This not only reduces the barriers to start-up by limiting upfront capital investment and so time to market, but it gives SMEs access to best-in class expertise and solutions.

As outlined at the start, the other feature of today’s digital world is the rise of e-commerce routes to market and global third-party fulfilment providers, helping even the smallest of businesses unlock an international customer base. Combining this with the rise of social media has enabled businesses to target, engage and sell to a specific demographic of consumers across the globe. With businesses increasingly opting to stay narrowly focused and look for like minded consumers overseas, rather than broadening their offering in domestic markets which can alienate early adopters.

However, it is not all plain sailing, and while there are opportunities, there are also risks:

1. Increased competition – businesses across the world can tap into the same eco-systems and global routes to market as you. In some markets and product segments, this has reduced barriers to entry and created a global competitor base.
2. Voice of the customer – social media, online forums and reviews have given consumers a platform to either champion or destroy a brand. Few brands successfully recover from a PR disaster, and even regional blow ups become global news.
3. Distinctive proposition – a digital world provides greater transparency for the consumer across all key purchasing criteria, resulting in an increasingly fickle consumer. Businesses must have a sufficiently distinctive proposition to attract and retain their customers or risk losing out to a competitor.

The result is that the old expression “the customer is always right” is more relevant than ever.

Livingbridge, believes this consumer environment will enable the best businesses and entrepreneurs to flourish and build category defining brands.

Livingbridge sees the digitisation of the consumer sector as a long-term structural shift, which we are committed to investing behind. Evidenced by our recent investments across a range of digital first business models, such as: subscription-based wellness brand Absolute Collagen, re-commerce platform World of Books and online travel agent Love Holidays. Equally, we see attractive investment opportunities across the broader digital eco-system, with recent investments in digital marketing agency Brainlabs, social media publisher Jungle Creations and eCommerce platform Visualsoft.

In summary, every consumer business is different and there is no right answer as to how much and what to outsource versus keep in-house. The best founders and management teams are those that figure out what their secret sauce is, whilst leveraging the capabilities of others for commoditised aspects and revisiting these decisions as the business grows and new solutions become available.

Livingbridge’s extensive experience investing across the consumer, technology and services sectors gives us a unique perspective on scaling businesses with exposure to consumer end markets. We would love the chance to discuss this topic in more detail so please feel free to drop us an email.