Fad
A "Fad" type venture is distinguished from other types of ventures almost entirely by its lack of Persistence Over Time. Quite often a fad-based venture can yield substantial profits--these profits are just limited-lived. Essentially in a Fad, a strong Core Competence yields an improved product or service, with strong Product Market Match, Net Buyer Benefit, Margins and Volume, which in turn produce plentiful Resources and low Uncertainty.
But, because Scarcity is doubtful, and Hold-up almost certain given time, the Longevity of the product/service is doubtful, hence Ambiguity is high.
Figure 1: "B/K" Diagram
ADVICE:
With the understanding that comes from the utilization of the New Venture TemplateTM criteria, comes the realization that Fads, though not permanent, may nevertheless be very lucrative. Accordingly, ventures that are fad-based should be run as such. Attempts to prolong the venture beyond its short life-span waste Resources.
Instead, venturers are advised to minimize fixed and overhead-type obligations, and to concentrate on "profit-taking." In short, "Make hay while the sun shines!"
Figure 2: Target "Bulls-eye" Diagram
Venture Example:
This case was prepared by Team Lynx as an entrepreneurship project at the University of Victoria. It is designed to illustrate the venture archetypes used in the New Venture Template through story and case description. Though the case is based on a true story and actual businesses, its name and likeness has been altered. The case is quite brief, so you should be able to read it quickly
Pamela Nosivad was lying on a Caribbean beach, savoring the sound of gentle waves lapping on the sandy shore. Her husband, Gary, and 11-year old quintuplet daughters were presently snorkeling under the green-blue water. As Pamela sipped a fruity cocktail, she reflected on the incredulity of the last year of their lives.
It was a warm Friday afternoon in late August 1997, when Pamela was seething with frustration as she caught the girls sticking their chewed up bubble gum onto the living room coffee table again. Lately, the girls had developed a nasty habit of leaving their "trademark" all over the house--inside desk drawers, under chair legs, on doorknobs to name a few places. It seemed to be a phase her daughters were going through that no amount of cajoling or yelling from Pamela or Gary could break.
As Pamela boiled with anger, an old saying rang through her head: "If you can't beat them, join them." Suddenly, Pamela had an inspiration. If the girls were intent on sticking their gums to things, why not make something constructive from it... such as earrings?
After getting the girls to kindly remove their trademark, Pamela took them to the local arts and craft stores in Kellwood to pick up the pieces that they would need for the "tacky" idea. The girls were really excited about it. They thought their mom was really cool too, for thinking up something so far out! That evening, the girls chewed their gum, stuck it onto the ends of earring drop sticks instead of the furniture, and then dipped the gum "drops" in paint and shellac.
The girls wore their new earrings out to the teen dance held at the community center that weekend to keep kids busy during the summer vacation. After Pamela and Gary picked the girls up from the dance, they talked non-stop about how all their girlfriends just loved the cool looking earrings and wanted a pair too. The girls had promised to make earrings for all their friends as back-to-school presents. Pamela and Gary were pleased that the gum-sticking diversion had worked and that their meager furniture collection might be spared from that point forward.
That was basically the start of the amazing turn of events in the Nosivad's lives. Soon after school began in September, the girls were flooded with 100 purchase orders for gum "drop" earrings of this size and that color. Pamela began charging for the earrings, pricing them at $4.00 a pair to make a 50% margin. The $200 total profit could be used to pay down some of the credit cards that Pamela and Gary had let run up since the slowdown at the plant where both did shift-work.
A couple of weeks later, Pamela received a phone call from a buyer with a national fashion jewelry chain, asking for a supply of 1,000 units in a week's time! The chain had heard about the tacky idea and was encouraged by its popularity to sell the earrings on a trial run in a few of their stores. Pamela and Gary consulted with a family friend, Tom, who was in business. Tom advised them that if the earrings sold well in the stores, Pamela and Gary might just have a winning idea on their hands. There was money to be made if the family set the venture up properly, as a fad. The first step was to provide the chain with the sample supply, and then wait for the consumers' response.
Since the five girls could not possibly chew enough gum to make 1,000 earrings in a week, the Nosivad's would have to outsource the "job" to increase productivity. The girls invited their friends for several "gum-chewing parties" where they would be paid by the "gumwork." Some friends, who had promised to come, failed to turn up because of homework or lack of commitment to chewing gum for hours on end all week. The Nosivad's small house was transformed into a temporary factory, with everyone chewing up a storm of earrings.
The 1,000 units of Gum "Drop" Earrings sold out like wildfire to teenagers and young girls within the first two weeks of hitting the shelves of five major locations. The Nosivad's received purchase orders from the national chain for 50,000 units to be supplied until the end of Christmas. The Nosivad's agreed to supply the promised units and consulted with their friend Tom again. Tom advised that the cost of automation was too high, given the short-lived production. Outsourcing the entire job to a factory would also be too costly. So the Nosivad's set about filling the orders as they had done for the sample order, adhering to the appropriate employment law issues. Being such a small, short-lived venture, Tom felt that there was no need to purchase key person insurance, as should normally happen with a larger, permanent venture. However, the Nosivad's did purchase liability insurance in the unlikely event that kids would harm themselves with the product.
The national chain agreed to net 30 terms at $6 wholesale price (40% profit margin to the Nosivad's), and the timing of the cash inflows to the Nosivad's was such that it covered the cash outflows. The profits from the original 1,000 units were spent to the purchase of materials required to get the next set of purchase orders in production. This worked out perfectly for the Nosivad's, who did not want to run up their credit cards any further.
Friends and family got involved in the production. Sometimes production fell a little short because of common children ailments and lack of commitment. Some people even thought about copying the idea since the earrings were so easy to make and they were not patented. But the undertaking lost its appeal to the people after second thoughts.
While there were walls of fashion earrings competing for the target market's dollars, the teenagers and young girls loved the fashion statement they made with the Gum "Drop" Earrings. The consumers readily paid the $12 per pair that was charged in the stores.
So the Gum "Drop" Earrings became a one-season wonder, bringing in profits of over $100,000 to the Nosivad's. Pamela and Gary paid off their credit cards, moved into a larger rental house and splurged on a Caribbean vacation this summer. As Pamela watched her family emerge from the water, she noticed that one of her daughters was carrying a little rock in her hand. A flashback from the 70s came to mind, as Pamela suddenly had another inspiration....
