Unique Small Businesses Have Become Highly Desirable to Multi-National Companies

by: Geoff Ficke

Unique Small Businesses Have Become Highly Desirable to Multi-National Companies

For over 50 years Estee Lauder has been the pre-eminent luxury Cosmetic, Fragrance and Skin Care Company in the Beauty Product world. Since the founding of the firm by Mrs. Lauder in the early 1950’s, the Company has prospered by constantly developing line extensions and new categories that it Markets to specific demographic targets. Clinique (Skin Care), Clinique for Men and Aramis (Mens Skin Care), Prescriptives (Problem Skin Care) and Origins (Bath & Body Care), along with numerous Perfume Brands made this Marketing jugge
aut the envy of competitors.

Estee Lauder had developed, quite rightly, a reputation for having the magic touch. Then a funny thing happened. The Company hit a development wall. The men’s lines sales leveled. Prescriptives suffered the indignity of being sold on QVC. New brands stopped coming or experiencing startling growth as enjoyed in the past. The Company then had an epiphany: it was faster, more economical and easier to buy interesting, small entrepreneurial brands and integrate them into Estee Lauder’s vaunted Logistic and Marketing systems than to develop brands in-house.

La Mer, Jane, Bobbi Brown, Mac, Smash Box, Aveda, and numerous Fragrance licenses have been added in recent years to the Estee Lauder stable of brands. Theses Brand purchases and strategic alliances have rapidly extended the Company’s reach into many new areas of distribution.

La Mer is an interesting example of how a small brand can have a unique importance to a powerhouse like Estee Lauder. The La Mer Skin Care line enjoyed very limited distribution in a few exclusive department stores for many years. The sea algae-based product had a cult following. The sales of La Mer were much smaller than the reported price that Estee Lauder paid for the line. Why was such a small minnow of interest to such a mammoth multi-national Company and at such a steep purchase price multiple to actual sales?

Large Companies must feed the monster and the monster is an insatiable distribution chain. Estee Lauder is sold in over 120 countries around the globe and at about 50,000 outlets. The initial pipeline production order to fill distribution requirements covered the purchase price paid for a brand like La Mer several times over. This model is constantly being repeated.

Proctor & Gamble, the Cincinnati-based Consumer Product giant has undergone a similar re-invention. For most of the 20th century the Company was renowned for in-house creativity and the Brand Management system that the Company pioneered. In the 1990’s P&G hit a wall. Growth flattened. A number of competitors began to take market share in important categories.

A new management team was brought in to P&G and this group decided that new direction was essential for kick starting growth. They announced that a target of 40% of new products that P&G would launch in the next decade would be discovered and purchased from outside sources. This was a shock to the hide-bound corporate culture of staid Proctor & Gamble. But it worked. Today over 50% of new product introductions have resulted from acquisitions. IAMS Pet Foods, Spin Brush Toothbrushes and numerous Cosmetic Brands such as Max Factor, Cover Girl, Hugo Boss Fragrances and Giorgio Perfumes have led the Company’s resurgence.

Jones Apparel Group (Shoes, Clothing), Nestle (Food, Drinks) Unilever (Personal Care), Phillips (Small Electrics), Hasbro (Toys, Games), General Mills (Foods), Pepsi-Cola (Drinks, Snack Foods), Shiseido (Cosmetics), Electronic Arts (Video Games) and Rubbermaid (House Wares) are only a few of the multi-national Companies that are aggressively searching the marketplace for the next great addition to their line-up.

What is required of a Small Business, Inventor or Entrepreneur to be a target for their attention? Your product must have an easily recognizable niche. It should have Features and Benefits that offer separation from the competition. It must be perfected. An idea or unproven technology is just a glimmer, it is not marketable unless wrapped in due diligence and supported with performance data.

The hardest hurdle to overcome is to get your product in front of decision makers from acquisition hungry companies. We do this in a number of ways for our clients. Attending industry specific trade shows are an excellent vehicle to receive exposure. Test markets and focus groups are invaluable for creating proof of product concept. Customize a Business Plan that is built on assumptions that are accompanied with hard data that is quantified, qualified and well narrated.

Remember, if it was easy everybody would be successfully doing it. Do not take shortcuts. Be passionate about your product or service. Make a great first impression. Estee Lauder started by making creams in her kitchen. Now the great Company that she founded and built is looking for products that offer a performance advantage to her Companies customers. So are many other multi-national enterprises. You must be in play in order to be discovered.