The Next Leap

Are we surfing hidden tailwinds?

I used to work for LivingDirect, an online retailer. I started with the company in 2001, when I was an undergraduate in college. Tech companies were dropping like flies. The dot-com bust was real.

But LivingDirect survived. It’s because we operated like a real business. We sold compact appliances, and we followed old-school business rules: Buy a product for a certain amount, sell it for more, and keep your expenses in check.

Times were lean in 2001. With so many companies failing, many people thought ecommerce was just a fad. We knew it was here to stay, though.

And from 2001 until 2008, times were good. I assumed we were smarter than everyone. Many so-called pundits thought the bust proved that dot-com companies were bad. We knew better, or we thought we knew better.

But then 2008 rolled around, and we realized that times could get tough for us as well.

What happened?

We were surfing three major tailwinds and had a significant business advantage that we took for granted.

Internet adoption

The first tailwind was U.S. internet adoption. In 2000, 52 percent of U.S. adults used the internet. In 2008, that number reached 74 percent. Thus the number of consumers that we could sell to via the internet increased by tens of millions of people in just a few years. This made it easier to sell more products — every year millions of people became potential customers.

After 2008, the number of adults in the U.S. who used the internet continued to climb. But it was not the rapid growth of the late 1990s and the early 2000s.

Broadband

The second tailwind was closely related to the first: broadband adoption. It was critical to the success of ecommerce. Imagine waiting minutes for a single image to download. It’s tough to sell a product if a customer cannot see it.

In the early 2000s, sales on the weekend were low. The reason was simple: Many people did not have broadband at their house. They had to wait for Monday to buy products online using their employer’s broadband connection!

From 2000 to 2008, home broadband went from 1 percent of U.S. adults to 57 percent. Sales at LivingDirect benefited. After 2008, weekends produced real revenue.

Housing boom

The final tailwind for LivingDirect was industry specific. We sold mostly home appliances. There was a housing boom from 2000 to 2008, fueled by easy lending practices. This was good for a company selling appliances. New homes, condos, and apartments needed refrigerators.

But then the bubble burst. And the easy growth dried up. Fewer houses were built, and the adoption of internet in general and broadband specifically grew more slowly.

We survived, and, after a recalibration, even thrived. But that easy growth had passed.

Moreover, since the real estate growth had been supported by poor lending practices, credit became much harder. This hurt us, too. We had financed our growth with an ever-expanding credit line.

Need more money? Call the bank, and our line was extended. It worked every time. Until 2008.

In 2008, the bank called us. It reduced our credit line. That was tough. But, again, we recalibrated and survived. Many of our competitors did not.

We did not recognize all those three tailwinds at the time. We thought we were smarter than everyone else. But once the tailwinds slowed, we suffered. We had to work harder for our growth.

Hidden tailwinds

The lesson I took from this was that tailwinds are amazing! I look for them whenever I can. But I always try to see them for what they are: temporary boosts.

For example, when I started FringeSport, the CrossFit movement was in full swing. Times were good. If we offered a decent barbell and rubber weight plates, consumers would beat a path to our door.

But starting in 2013, the movement began to plateau. This created a shake-up in the competitive landscape. A number of our competitors went out of business.

The survivors — like us — were hardened by the change.

I knew the change was coming. I just didn’t know when. So when the CrossFit tailwind died down, we pivoted our business model.

Likely we are all surfing some tailwinds.  We just don’t know what they are and when they’ll go away.

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