Click the image for details [Introduction] Those who know Longmao Jun are aware that his recent articles stem from questions posed by readers in the background. Today is no exception; a user asked a thought-provoking and interesting question. The reader's question was: "I feel there's great opportunity in new consumption in China, but in my category, I can't compete with big brands on channels, capital, advertising, cost advantages, or production capacity. I feel lost. Is the consumer goods sector unsuitable for small entrepreneurs? How can we defeat strong big brands like Master Kong and Belle in their respective segments?" "But another question contradicts the first: I see more and more small and new brands getting funding, like Le Chun and Xing Ke Duo. How do they survive in the shadow of giants?" These are excellent questions, and many people are likely curious about them. This is a typical issue that concerns most small entrepreneurs. The essence is: how can small enterprises defeat large ones, or why don't big companies, despite having money, eliminate small ones? Let's explore this interesting topic together. The full text is about 6,200 words and takes about 7 minutes to read. / 01 / Why Do Big Brands Fail? Before discussing today's topic, we need to clarify: what is a big enterprise and what is a small enterprise? This is easy to answer, even without Baidu. By definition, small enterprises have less capital, fewer resources, lower visibility, and smaller sales. Conversely, large enterprises have more capital, resources, broader channels, and higher sales. We all know that big enterprises are closely watched; any move they make, even a casual post on new media, easily gets over 100,000 views. They invest tens of millions or even hundreds of millions in developing a product, and it's common for them to spend tens of millions on sponsoring popular variety shows. In contrast, small enterprises struggle to get even a small ad spot, often in the most obscure corner of a subway station. Comparing their strengths is like the Battle of Guandu: Cao Cao's few thousand troops versus Yuan Shao's massive army—no chance of winning. If the world operated this way, the strong would always prevail, and the weak would never rise. Then innovators would never appear, and brands like Zhou Hei Ya, Three Squirrels, and Heytea, which started with minimal resources, would never have emerged. Is that true? Obviously not. You'll find that many once-revered big brands are declining, fading, or even exiting the stage. Meanwhile, new brands that once seemed to lack resources and money rise in ways you know, using methods that big brands overlook or don't understand. Why is this happening? How do small brands defeat big brands and dethrone those with channel and capital advantages? / 02 / The Dividend Theory of Brand Rise No matter how small an individual, it has its reason for existence. Every innovative individual or new brand entering a market cannot escape relying on dividends. This dividend could be a traffic dividend, like the early Taobao traffic or the early public account dividend. Longmao Jun remembers clearly that three years ago, if you wrote a public account article, you could easily gain followers by just posting on a hot topic. Because the platform had scarce content, if you could produce content, you could easily find users. Also, since traffic was easier to obtain, the cost of selling goods and attracting attention was lower. If you can seize the dividend window when new changes occur, even as a newcomer, you can be unafraid of giants. So, if you're a small brand wanting to rise, you must leverage dividend release. For example, when a new feature like Yitiao appeared on WeChat, few brands collaborated with it; if you dared to try, you seized the dividend. But later, when all brands tried selling on Yitiao, there was no dividend left. So the first rule for a new brand to rise, or to defeat big brands, is to seize dividends. This dividend could also be a category dividend. Generally, big companies are reluctant to innovate when they're performing well because innovation is costly and has a high failure rate. Small brands have nothing to lose, so they can experiment freely. There are many blank markets that giants haven't noticed, which may initially look like saline-alkali land. For example, new categories like matcha and avocado spread on social media; if you seize these blank markets, you have a chance to rise. If you enter these categories, you'll have a first-mover advantage. If big companies do tea and you also do tea, you're likely to die. They can compare with you on cost and cost-performance, and they can crush you on channels. But if you find an innovative category, giants won't easily enter your territory, and before they understand it, you'll have a huge dividend period. Finally, this dividend could be a channel dividend. I know a brand whose product is average, and the founder had no prior brand or store experience, but he had long-term dealings with real estate developers. He developed a strong ability to assess the value of commercial properties, so he could judge which store locations were valuable. With good relationships with developers, his brand achieved a monopoly in his city's commercial circles. He could get store locations others couldn't, and at a cost-performance advantage. To some extent, he was also enjoying a dividend. This dividend might not be available to big companies in that locality. So, you'll find that a new venture or brand always seizes some kind of dividend. This dividend theory also applies to investors evaluating projects. When you examine a brand or project, you should repeatedly ask the entrepreneur: What dividend are you seizing? Category, traffic, or price? If you haven't figured this out, you'll definitely be defeated by big brands. Because without a dividend point, you have to compete on hard strength, which in military terms is hand-to-hand combat. That is, comparing numbers and strength. The big guy will beat you; a skinny person should never fight a taekwondo expert. Let me give another not-so-appropriate example: a man without money or looks pursues a beautiful girl. If he competes like a rich, handsome guy by buying gifts and showing off, can he win? His competitive advantage might be that he has more time, so he should accumulate momentum in the time aspect, not compete by buying more gifts. If you use that method, you'll end up as a spare tire. You must seize your dividend. / 03 / The Explosiveness of Edge Innovation Earlier, I said small brands need to seize dividends. Some might argue: you think you can seize dividends just because you want to? How do I know where the dividend is? Actually, dividend is another word for opportunity. For those with foresight and excellent thinking, a stone is not a stone but a gem. For those who can't see opportunities and lack basic judgment, a gem is not a gem but a stone. Seizing dividends relies on foresight and action, but that sounds a bit like chicken soup. Sometimes, seizing dividends depends largely on luck. It's the luck advantage under accidental judgment that leads to the first-mover advantage of dividends. To form or discover a dividend advantage, sometimes you need not to have good luck; even bad luck can help. Why? If someone has very good luck early on, they might become an expert in their field early and make a lot of money. But an expert who has made a lot of money is less likely to enter a new opportunity area because the opportunity cost of trial and error is too high. Conversely, someone who has been unlucky and hasn't succeeded is more likely to enter a new field without constraints, thus establishing a first-mover advantage when few are cultivating that market. So where do dividends usually arise? They arise in areas others are unwilling to do, in niche markets that others look down upon, and in markets that many haven't reacted to after new changes. These areas are often rich in dividends, located on the fringes, ignored by giants and powerful players. Recently, Longmao Jun met a brand founder whose business case is worth sharing. This founder made a product that was good but couldn't enter mainstream channels. Mainstream hypermarkets looked down on his small brand, and he felt big channels couldn't match his product. The real reason was he didn't have money to enter big channels. But the product had to be sold, so what to do? He discovered a fragmented channel market that others were unwilling to pursue: small channels in small cities, not in his industry, like wedding candy shops, milk tea shops, and fruit shops, which normally couldn't match his product. He developed these small channels one by one, along with fragmented traffic on WeChat. The results were excellent; the initial channel disadvantage turned into an advantage. Because he served small channels, his quality product became a strong brand relative to them, so they valued him and were willing to sell his product with effort. Imagine if his product entered big channels: aside from the expensive channel costs, such a small brand wouldn't get any promotional effort from the channel. There's a Chinese saying: "Better to be the head of a chicken than the tail of a phoenix." That's roughly the idea. After establishing a foothold in these fragmented channels, with sales and sufficient profits, he can later leverage the scale sales from these small channels to force his way into traditional big channels. I believe when his sales and user base are large enough, and he has a good reputation among users, users will actively seek his product, and big channels will come to him for cooperation. This is the value of finding innovation opportunities on the fringes and then gaining momentum. As a side note, the various vending machines in new retail today are not traditional channels, nor an evolution of them, but new channels built on blank positions. They are also fringe channels relative to traditional ones. But once the accumulated momentum on the fringe is strong enough, combined with the compounding effect of mobile internet, the explosive power can be astonishing. So, seeking opportunities on the fringes is the only way for new brands to overtake. If they still rely on traditional methods and don't seek fringe breakthroughs, I think they remain traditional brands. And fringe breakers are often non-mainstream companies, founded by people who are often excluded from the mainstream value system. So, isn't it ironic? The innovation you desperately want might be born in a fringe area you completely despise, and the innovator might be someone you once looked down upon. / 04 / Single-Point Breakthrough and Compounding Effects A new brand, even with dividends and a strategic perspective of entering from the fringe, will fail without a sharp tactical approach. If you want to cut a breakthrough on an iron plate, what's the best way? Is it to use a sharp object like a knife? Or to hit it with a hammer? Neither works well, as iron and diamond are hard. So diamond cutters use a force called laser. Why is laser so powerful? It can cut hard diamonds. The key is extreme focus. So laser is the most penetrating force we know. Returning to building a consumer brand, to achieve focus, the ultimate approach is single-point breakthrough. Why single-point? Why single product? Many have read theories and cases, but still don't understand why to do a single product. Without understanding the underlying logic, you can't use the single-product mindset to transform your supply chain and organizational structure. Doing a single product, on one hand, creates local advantages. In military science, to annihilate a superior enemy, the best way is to divide them and concentrate superior forces to quickly eliminate them. The same applies to single products: a small company doing a single product can form a local advantage against a big company. More importantly, a single product aligns with professionalism under the social division of labor. When the product stage moves from early extensive to intensive cultivation, local professional advantage becomes crucial. When a company makes only one product, it can accumulate extreme professionalism in local details. Since you're doing a single product, your workers, technology, supply chain, and machine磨合 have advantages. In the social division of labor, any work requires learning. Learning, on one hand, accumulates human resources, but on the other, consumes time and money. So the shorter the learning time and the more skilled the worker, the better the production efficiency. Taylor's scientific management breaks down all worker actions into extreme standardization; workers just repeat. Workers only need to focus on their process and become experts in it. This minimizes learning costs. Under the single-product model, the learning costs for machines, workers, and supply chain are all minimized. What remains is the power of repetition. Speaking of repetition, we must mention the second concept: compound interest. Many investors know about compound interest. As we know, with mobile internet, the power of compound interest has shown great force. If an article is high quality, the compounding viral spread in Moments is terrifying because there are many transmission nodes. So the internet industry has the most obvious compounding effect. If you make a standard product, using the channel's compounding effect, you can quickly expand to a large scale. Mobile internet amplifies this compounding effect. Since your product structure is a single product, each process is standard, fitting the compounding effect. With the acceleration of mobile internet's compounding leverage, a new standard single product can be rapidly amplified. The greatest value of mobile internet is faster information flow. If traditional media takes 10 days for one information flow, mobile internet might take only 1-2 days. Due to product professionalism, good reputation, and compounding spread, the amplified value of a product's good reputation is terrifying. To illustrate: a mediocre product, spread once via traditional channels, might be known by 100,000 people. An excellent product, spread via mobile internet, the first touchpoint might also be 100,000 users, but due to faster information flow, the secondary amplification could be 10 to the nth power. This compounding and word-of-mouth effect is not available in traditional media. To generate word-of-mouth, you must rely on product professionalism. To form professionalism, you rely on the power of repetition. To achieve repetition, your product structure and backend supply chain must be simple and standardized. So this is the value of single products and mobile internet's compounding multiplication effect. / 05 / How Does Time Resource Defeat Space Resource? Earlier, I discussed the conditions and elements for a new brand to defeat a big brand. You might wonder why this happens. Why can mobile internet and edge innovation theory defeat big brands? Before explaining and summarizing, let me share a side note. Recently, I chatted with a wise person about what is key to marketing victory. We discussed creativity, resources, and methodologies. Finally, the wise person said these are all tactics, not fundamental understanding. We must always seek the key and core resources. In the business world, there are two effective resources: space and time. In the era without mobile internet, space resources were most important, and time resources were subordinate. Why? Because all consumption scenarios were offline; you spent time in offline scenarios, and people had to move in space. So China entered the golden age of commercial real estate. Location was crucial; whoever occupied the most and best space was the strongest. But in the mobile internet era, space achieved equality, and space resources became secondary. Time resources became the primary resource. With abundant online content, the allocation of user time became the core. Whoever grabs more user time has more commercial value. So content entrepreneurship rose, content value was amplified, and spatial location became secondary. Commercial real estate is no longer golden. This is called time resources defeating space resources. Big brands that relied on capital to occupy core spatial positions in the previous era suddenly lost their advantage. In simpler terms, the collapse of traditional channels is a manifestation of this shift. Small brands began to rise by occupying users' time and mindshare through new media content. This is the first step in defeating big brands. Coincidentally, these fragmented media channel entrances were previously fringe media. That's why they're called new media, or even self-media. The fragmentation of channels, attention, and time also leads to fragmented consumer decisions. So consumers have many decision channels, like Zhihu, Douban, and various public accounts. The rise of these fragmented channels and decisions completely deconstructed the attention of big channels, giving consumers more opportunities to admire niche brands. The rise of professionalism, combined with mobile internet compounding and fringe dividends, all led to big brands' products not selling well. Ultimately, time resources defeated space resources. So these elements, layer by layer, finally provided small brands with an opportunity to directly compete with big brands. We must thank mobile internet and this era for giving ants the leverage to compete with elephants. / 06 / Summary: Investment Model for 100-Billion Brands In the final part, Longmao Jun will make a brief summary. I believe many investors are reading my article. You might be thinking how to apply this model to investment theory to guide new consumption investments. So I'll give you a model table: Finally, let's summarize how new brands defeat big brands like Master Kong and Belle, or under what conditions they can: First, focus on a category. Prioritize fringe areas that big enterprises and brands overlook, as they are easiest to form concentrated advantages. Second, form a single-point professional advantage and create compounding value. Compounding value mainly depends on professional product brands and good product reputation. Finally, have a mindset of being friends with time. After forming local advantages, the main task is to persist. However, these are easier said than done. Behind them are temperament and entrepreneurial obsession, or a bit of pure faith in one's product. Without product faith, you won't have momentum, and it's hard to find dividends. Without the dividend of the product as the '1', adding N zeros is meaningless. Conversely, putting zeros in front is also meaningless. It's that simple. Click the image for details The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in October 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting 1000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions to explore a new chapter of cross-border integration! Core topics of this conference:

  • How can the FMCG industry leverage B2B to achieve new growth opportunities?
  • How should the new supply chain behind new retail be built?
  • How can intra-city logistics help B2B achieve leapfrog development? Highlights of this conference:
  • The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"
  • Sharing of excellent transformation and upgrading distributor cases
  • Exhibition and conference upgrade: Hall 6 Internet Technology Exhibition strengthens connections
  • Leaders from Alibaba Retail Link, Global Logistic Properties Finance, Eternal Asia Supply Chain, Best Dianjia, Yijiu Pi, Unilever, Hisense Information, and Yunmei Co., Ltd. will deliver speeches and share pioneering views. November 8-9, 2017 Chongqing International Expo Center Registration is now open. Long press the QR code below or click "Read Original" to register. Early bird tickets before September 15 enjoy a 30% discount! Add friend with note "Conference Registration" Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: 2016 "FMCG + Internet" Summit Forum 2017 (2nd) China FMCG + Internet Conference Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: 2016 "FMCG + Internet" Summit Forum -END-