Any aspiring entrepreneur hoping to get “Shark” Kevin O’Leary’s attention with a business pitch better be able to answer this question: What’s the next big thing for small business?
Though O’Leary has recently invested in the crypto space and said he thinks it is “important,” if you think it’s bitcoin or blockchain, guess again. The “Shark Tank” co-host and host of CNBC’s “Money Court” says the Covid boom in direct-to-consumer sales is the key business shift and it is equally important to small companies and business giants.
Speaking at CNBC’s Small Business Playbook event on Wednesday, O’Leary said rapid acceleration in direct-to-consumer (DTC) sales have shown up in “behemoth companies” like Nike. He said DTC sales shifted from being 10% to 50%-60% for companies during Covid, but it’s not the sales success alone that is the key to the future — it’s the data that comes with reaching the customer online directly.
Companies are starting to collect data on preferences of customers that go beyond the basics like physical location during times of the day and purchase preferences, and that will matter as the technology which giant corporations use to mine the data for insights — cloud-based AI — becomes economic for all companies.
One of his portfolio companies, Wicked Good Cupcakes, which was recently acquired by Hickory Farms, became the No. 1 “gifted cupcake” in the U.S. shipping through FedEx, and O’Leary said the company learned about the purchase behavior of consumers, even things like flavor preferences and when parents buy cupcakes for college-age children during holiday periods. “The data was pouring in and then they could push offers,” he said, based on what they had learned about each individual.
O’Leary says the success of the model goes beyond that one example. “Some of my small businesses are doing better than ever with much higher margins because of DTC.”
Cloud-based AI will lead to an increase in sales, as well as other business benefits. It will lead to enhanced margins and better forecasting of demand. The adoption of the DTC and AI approach will allow managers to deploy capital much more efficiently and not end up with “a bunch of inventory sitting in big box retailers not making you money,” O’Leary said.
“I tell all CEOS now to start investing in what you can do with AI and data management,” he said. “I’m really excited about this for small business.”
O’Leary said what we learned through this pandemic is that business both large and small went through an incredible digit pivot, and the delta variant will only compound that shift.
“I don’t care whether you’re Nike or a business doing $5 million in sales,” he said. “That’s what happened in the pandemic. Nike got to 50% DTC in five months.”
Forming a direct-to-consumer business and using cloud-based technology to perform AI on customers is a strategy “even a small company can afford,” he added.
O’Leary linked the DTC boom, which removes multiple tiers of distribution that cut into business margins, to the booming stock market during Covid and “a much more efficient, profitable industry in every sector.”
“We have moved out on into a much more efficient place and going forward you want to have a direct relationship with the customer,” he said.