A new wave of start-ups is courting an unprecedented swell of cash-rich teens. But even if these teen-obsessed ventures strike the adolescent mother lode, can they secure sustained success?
Searching for the mountain of youth
A new wave of start-ups court an unprecedented swell of cash-rich teens
Entrepreneurs have always enjoyed a certain level of immaturity. But recently a growing number of them have taken to paging through Tiger Beat, hanging around in skateboard parks, and watching marathon sessions of Backstreet Boys videos on MTV. Rather than reexperiencing their ever fading adolescence, those CEOs are desperately trying to gain insight into the widely touted, white-hot teen-consumer market.
Because kids are hot. And start-ups with young brands are often better positioned with teens than venerable corporations like Levi Strauss and Reebok. "The very, very small brands are selling like crazy," asserts Michael Wood of Teenage Research Unlimited, a Chicago-based market-research company. "There seems to be a backlash against some of the big brands that appeal to everyone."
Why the backlash? Well, teens by their very nature are rebels, a fact often reflected in their choice of clothing. The pimply set of today shun their mothers' Paleolithic Levi's simply because their mothers wore them. This natural change in tastes is amplified by the sheer size of today's teen market. By 2010, its ranks will swell to 35 million, making the cohort a larger chunk of the population than even the fabled baby boomers.
Another wrinkle: teens today differ from their rebellious progenitors in that all they've ever known is the new economy. They expect unflagging customer service, speed-of-light E-commerce, just-in-time delivery, generous return policies -- oh, and deep discounts. Simply put, says researcher Wood, they're the toughest, most demanding, and most fickle customers in the world.
And no one knows that better than the folks at Artemis Innovations Inc., a three-year-old footwear company based in Torrance, Calif. Artemis's brand -- Soap -- feature soles with a three-inch molded-nylon plate positioned along the instep. The plate is used for "grinding" -- a decidedly teen-based activity that involves sliding down stair rails, park benches, or any available concrete edge in parks and other public spaces, typically on skateboards or with in-line skates. Since grinders are at the pinnacle of teen social hierarchy, Soaps have been selling briskly among boys aged 10 to 15. The company racked up a spectacular $7 million in sales in 1998 and more than doubled that in 1999. Next year's sales are expected to hit $25 million.
Soap's association with grinding may be both a blessing and a curse, however, as it presents Artemis with a dilemma that many companies face in selling to teens. The trendsetting core audience that discovered the brand, although crucial, is too small to sustain the company over time. "There's an expression in our industry: the core is poor," says Artemis cofounder Jerry Gross. But by marketing to a broader audience, Artemis risks having it appear that its brand has "sold out." Grinders may eventually decide that Soap has become too mainstream and divert their dollars and acolytes elsewhere. To continue to thrive, the company must convince grinders that Soap is still the bad-ass brand, even as it achieves mass-market volume. "Right now our mission is to keep the core kid coming back to check out what's new from Soap," Gross explains.
A mere seven miles away from Gross's office, Hunter Heaney is building a start-up that elegantly sidesteps that branding trap. CEO Heaney, 30, runs a three-year-old company in Manhattan Beach, Calif., called MXG Media Inc., which sells achingly trendy clothing, beauty products, and other fab goods to achingly trendy teenage girls. MXG products include Trophy Girlfriend Nail Polish, the Vixen Makeup Kit, and the Boyfriend-Beater Tank Top. The $3.2-million company sells other companies' wares through a slick, highly trafficked Web site and a catalog-cum-magazine that reads more like Teen People than like L.L. Bean.
Unless you're 17, you've probably never heard of the labels MXG carries -- and that's the way Heaney wants it. Like his counterparts at Soap, Heaney relies on the continued backlash against traditional brands. But unlike the Soap folks, Heaney is less concerned with building a new brand than he is with continually identifying and exploiting the ever changing appetites of teenagers.
So Heaney watches MTV. First, the Harvard M.B.A. and former Goldman Sachs banker thinks that's a good way to monitor the day-to-day changes in teen slang, fashion, and consumerism. And second, Heaney emulates the MTV business model. Just as MTV doesn't rely on any one recording artist, MXG doesn't need just one brand of cargo pants or T-shirt to hit pay dirt. What Heaney is banking on is a steady stream of next big things.
To fine-tune his smoldering-waif antennae, Heaney employs 75 high school girls as "trend spotters." The teens photograph and profile their classmates and then send MXG a complete dossier on each fashion group at schools in New York, California, and Ohio, among other locations. Most of the girls report from home, but about a third drop by the company's headquarters each week, tweaking headlines and critiquing the product mix. "Nothing leaves this office without a teen seeing it or being involved in its production," Heaney says. "Frankly, I'd be terrified to do it any other way."
Dawson's wallet
Teen spending is twice what it was a decade ago, says Michael Wood of Teenage Research Unlimited. In 1997 teens spent $122 billion. Last year their pockets bled $141 billion -- a healthy 16% increase . Here's how that sum was divvied up:
