Click to read the original article for details. Recently, while collecting innovative products for the upcoming 2019 China FMCG Conference – "Moving Sales in China · FMCG 2019 Food & Beverage Innovation Competition" hosted by New Distribution in Shanghai, I noticed an interesting phenomenon. There are many innovative products, but quite a few excellent ones come from very small startup brands. Especially in 2018-2019, many internet-famous products have sprung up like mushrooms. While these products are extremely popular, consumers may not care whether they have heard of them before or whether they are produced by big brands; their enthusiasm remains undiminished. For example, niche brands like Yuanqi Forest, Zhong Xue Gao, AKOKO, Single Grain, and Lamian Talk have consistently appeared on the bestseller lists of e-commerce platforms during 11.11 and 6.18 in recent years. The Rise of Niche Products Public data shows that Yuanqi Forest, founded in April 2016, had a registered capital of only 1 million RMB. By the end of 2018, it had only disclosed one angel round of financing with an undisclosed amount. From a macro perspective, Yuanqi Forest lacks the capital and channel background of large food and beverage companies, nor does it have an independent supply chain. It currently relies on contract manufacturing by Changshu Toyo and Uni-President's Tongshi factory. Since the second half of 2017, Yuanqi Forest's products have ignited the market with their sugar-free healthy ingredients, unique taste experience, and high-appearance bottle design. According to statistics, Yuanqi Forest's annual sales profit growth rate exceeds 300%. Zhong Xue Gao, founded on March 14, 2018, received angel investments from Matrix Partners China, ZhenFund, and FreeS Fund before its official establishment. Six months later, it secured Pre-A round investments from Tian Tu Capital and Toutou Shidao Investment Fund. China's ice cream market is crowded and competitive. In April 2018, Zhong Xue Gao topped the ice cream category on Tmall within two weeks of its launch. During the 2018 Double 11, it launched a popsicle priced at 66 RMB, and its daily sales exceeded 4 million RMB, ranking first in the ice cream category. Within just 14 months of its founding, Zhong Xue Gao became the focus of attention for leading companies like Yili and Wall's, which launched competing products. AKOKO, affiliated with Hangzhou Yuanpin Catering Management Co., Ltd., is an emerging brand in the domestic snack food industry. Founded in June 2016, it received nearly 100 million RMB in financing from Eagle Fund, Joy Capital, and GSR Ventures in just five months from August 2017 to January 2018. It is the brightest new star in the domestic snack food track and is praised by users as the "National Bakery Brand." Within one month of its establishment, AKOKO achieved sales of 50 million RMB. Within three months of launch, the repurchase rate of target consumers reached 60%. Within two months of its Tmall flagship store opening, it ranked first among 1,700 cookie stores. In 2017, it achieved nearly 100 million RMB in sales. During the 2018 11.11 period, according to Tmall data, AKOKO ranked first in the cookie category, with sales increasing 600% year-on-year. Why can niche products like Yuanqi Forest, Zhong Xue Gao, and AKOKO survive in a market dominated by giants, and even show considerable momentum in their early stages? Innovative Advantages of Niche Products Niche brands can develop rapidly in a short time due to changes in the market environment, the development of the internet, and the flexible organizational systems of small enterprises. They possess the unique advantage of combining three networks: the ground network, the human network, and the sky network. Ground Network: An "All-in" Organization Recently, the term "All in" has become popular. The teams of niche brands have this "All in" mindset: succeed or perish. The driving core of the entire organizational system of niche brands is twofold: product-driven and brand-driven. According to industry insiders, the original intention behind Yuanqi Forest's popular sparkling soda water was that founder Ma Lin was driving on a trip when it was very hot. He opened the trunk, took out a brand of soda water to quench his thirst, but found it tasted terrible after being exposed to high temperatures. He immediately called his R&D director and demanded the development of a soda water that could quench thirst at room temperature. The R&D director quickly organized a team to develop it. To ensure a refreshing taste even at high temperatures, the team came up with the idea of combining sparkling water and soda water. The bubbles in sparkling water are naturally formed and rich in carbonic acid, giving it the taste of carbonated drinks but without any sugar. It is cool and refreshing and can carry away body heat, perfectly matching Ma Lin's needs. When the sparkling soda water was launched, it became a hit online and then offline. It is predicted that sales of this product have reached over one billion. Human Network: Diversified Consumer Demands Beyond achieving perfection in craftsmanship, raw materials, and packaging design, the core of niche internet-famous products is to start from consumer needs and discover a small need beneath a large practical need. They step out of the mainstream circle and create a new consumption scenario. For example, Zhong Xue Gao did not arise because consumers lacked ice cream or couldn't get it. Instead, it discovered a home or office storage consumption scenario and then cultivated and expanded it. In the traditional immediate consumption market for ice cream, Zhong Xue Gao tapped into a new incremental market. Similarly, Single Grain explores an emotional scenario; its snack products are just a carrier, with the core being to attract single people through differentiated packaging and naming. Using products and brands as carriers, it connects with target users. These are all products that became popular in new consumption scenarios. Sky Network: The Power of the Internet This is an era when mobile internet and content self-media are thriving. Through mobile internet, brands' sales channels are no longer limited to traditional pathways, and niche products have entered their golden period of development. In the past, producing a product involved a long process from R&D center to sales branches (distributors), then to stores, and finally to consumers. Now, through e-commerce platforms, brands can directly connect with consumers, gain insights, and deliver products in just 2-3 days. Real-time online feedback makes product adjustment cycles very fast, accelerating product iteration. The proliferation of mobile internet has undoubtedly given wings to the rise of niche products. For example, in its early days, AKOKO used Xiaohongshu KOLs or content media to help sell products. Its investment was not a one-time push with many partners, but rather a step-by-step approach: first, the brand assists KOLs in content creation to ensure conversion rates, and based on the results of one campaign, it adjusts products and content for the next, including selecting different types of KOLs. It continuously seeks KOLs and social platforms suitable for distributing AKOKO, guided by sales performance. In contrast, big brands often plan a promotional campaign, prepare all content, and then invest a large sum for a one-time rollout. After execution, it may take a month or even half a year for the company to see the campaign's results and user feedback. If the benefits and results do not meet expectations, they conclude that the advertising was not good or the chosen carrier was problematic, and the final reflection is to change the advertising format or carrier. The Innovator's Dilemma for Big Brands Genes determine destiny. Enterprises are locked into their existing value network and find it difficult to enter small niche segments. Entering a new incremental market often requires matching a new value network. For big brands to cross or break the existing value system is often very difficult because the new value network competes for resources with existing vested interests. Professor Li Shanyou of Chaos University explains the value network as follows: within a value network, there are at least three roles: customers, competitors, and investors. The primary goal of an enterprise is survival, and the resources for big brands' survival come from existing customers. All product resource allocation is centered around existing customers, which is not wrong. This leads to their innovation being only incremental, centered around existing customers, rather than disruptive innovation that caters to a small group of niche users. Customers are the most important asset of big brands, but they may also be the main blind spot for innovation. So it's not that they have the ability to create a new product and have enough resources to support it; a niche new product may go through a lengthy approval cycle from R&D to production and launch, and even after launch, the company may not invest many resources, with the focus remaining on existing customer value products. The second is competitors. Often, when a competitor launches a product that sells well and shows momentum, big brands immediately feel restless and have their R&D departments follow up to develop a competing product to counter the competitor. Competitors are the driving force that stimulates progress, but at the same time, their stimulation leads to blindness in big brands. If you focus solely on competitors to evolve and upgrade, you often obscure your vision. If you're busy fighting competitors, how can you calm down to develop and promote those insignificant niche products? The third important role is investors. This applies only to some listed FMCG companies. The pressure from investors is a key factor that makes companies afraid to innovate. The growth demanded by capital is a curse. Under capital pressure, large companies find it difficult to enter small markets. Robin Li of Baidu once said: "Markets with less than 1% of revenue share are not considered." Big brands need performance growth and beautiful financial statements, which inevitably comes at a cost. As a result, big brands can only allocate resources to existing mainstream products, and the entire company's focus is on the most profitable product. Even if an innovative product emerges, it may be killed in the cradle due to multiple obstacles in the value chain. Iteration Capability Requires an Evolutionary Organization A big company's value network is not wrong; what is wrong is the organization's mental model. When an enterprise from top to bottom is trapped in the same value-bound system, innovation moves further away. Therefore, internal optimization and evolution are needed. 1. "Bottom-Up" Organization Let me tell a short story. Many people may know that Zhang Xiaolong of WeChat is an excellent product manager with profound insight into human nature, once revered as a god. But did you know that WeChat was born out of competition among many similar products within Tencent? This stems from Tencent's organizational form, which is a bottom-up organization. Within Tencent, anyone can be a project initiator, and you can form a project team with colleagues to develop products. At that time, there were many teams competing with Zhang Xiaolong. Because they were all from the same company, there was a suspicion of information sharing between teams. To allow his team to focus on product development, Zhang Xiaolong rented a separate house outside, and the group worked hard behind closed doors to create WeChat. WeChat's launch also defeated all similar teams within the company and stood out. It is worth noting that Tencent also spent heavily to cultivate and develop some products, but most of these failed. Instead, applications like WeChat and Honor of Kings, which were born bottom-up, became popular. Therefore, big brands need self-generating teams, not a large empire. Because an empire often equates to top-down management, which often means losing democracy and freedom. 2. Change in Assessment Mechanisms From the decision-making level to the grassroots, big brands basically assess the work results of each position based on core value KPIs. Due to the value orientation of big brands, they think about how to increase sales and how to distribute products faster. So everyone's KPI assessment is centered around sales results. When a product performs poorly, small brands think: "Is there a problem with my product? Is there a problem with my brand?" Big brands think: "Is my sales team not performing well?" Lin Sheng, the boss of Zhong Xue Gao, once said that within their company, if the product center is excellent, all departments revolve around the product; if the brand center is excellent, all company resources revolve around the brand. But the sales department must never be the core department of the entire company. So everyone believes that brand and product are important. 3. Growing Through Trial and Error Innovation and iteration require small-scale trial and error. Big brands must give their organizations the right to continuously try and occasionally make mistakes in new product development. If a company is afraid of making mistakes or does not allow mistakes, it can only hold on to what it has, locked in its own value system, and it is not far from "death." In 2015, AB InBev established a disruptive growth division, internally called the secretive ZX department. Z stands for Zythology (beer research), and X stands for Experience. ZX develops new products and businesses such as craft beer, e-commerce, and brand experiences to tap new market potential for this evergreen industry. Compared to other departments or branches, the ZX department is very mysterious, comparable to Apple's car R&D department—quiet but constantly absorbing talent and radiating energy. In April 2018, Shanghai craft beer house Kaiba closed after being acquired by AB InBev for over a year. Public opinion quickly pointed out that AB InBev had "ruined" Shanghai's best craft beer bar. After acquiring Kaiba, ZX Ventures had been working to turn Kaiba into the Starbucks of beer. It opened five more stores, launched bottled Kaiba beer, and changed the original supply of over a hundred craft beers, mainly Belgian-style, to only 16 beers belonging to the AB InBev group... The closure of Kaiba is well-documented and closely related to ZX's wrong decisions. Discovering mistakes, stopping losses in time, finding correct experiences from errors, and growing through trial and error is a major advantage of ZX. As with Goose Island Craft Beer Restaurant. In early 2017, ZX opened China's first Goose Island craft beer bar and restaurant, focusing on creating a "craft beer bar" experience. While preserving Goose Island's local brand characteristics, it also made slight adjustments for the Chinese market. The immersive and impressive brand experience provides consumers with a channel to understand new brands, categories, and beer culture. Today, Goose Island has nine bar locations in Beijing and Shanghai, with plans to expand to other cities. Progressing through gains and losses may already be the secret to ZX team's success. Big brands are often passive innovators in the face of the times. This lagging response leads to their poor iteration capability. However, all products have a life cycle, and rapid market changes are shortening product life cycles. Some categories may even face extinction. Big brands that only think about protecting market share and no longer try to lead the market may lose to the times even if they have done nothing wrong! Tips will be paid 400-2000 RMB once adopted. China FMCG + Internet Professional New Media Committed to FMCG manufacturer and distributor transformation and channel digital solutions