The best companies often solve real problems. Amazon (AMZN) for example, first made it possible to buy books without visiting a bookstore and eventually made it easy to buy anything from pretty much anywhere. Netflix (NFLX), first made it so you could rent DVDs without going to a video store, then pretty much ended the DVD concept with its streaming service.
One problem is that many companies are starting to solve problems that actually aren’t problems. They may seem like big problems, but they’re actually niche issues at best, or the answer to a question no one asked at worst.
That’s what Wayfair (W) and stitch fix (SFIX) are and which peloton (PTON) may be. The first address what their founders see as big problems that actually aren’t. Both companies were formed to address what their founders saw as a mass problem — and investors believed them — but neither addresses a real pain point felt by millions of people.
Peloton is kind of a different story, but the end result will be the same.
Image source: Stitch Fix
Wayfair and Stitch Fix appeal to small audiences
Stitch Fix sounds like a great idea. The company uses a mix of human stylists and artificial intelligence (AI) to send people clothes that are both stylish and comfortable. The reality is that the real audience for the company is people who want to look a certain way, who don’t like to shop, or who don’t have the time to shop.
Add that clothing is inaccurate and you end up with a system where some items don’t fit, you don’t like others, and some just might not be right for you. This leads to things having to be sent back, which is a lot more hassle than simply bringing something back to the store (or not buying it at all because you’ve seen it and maybe even tried it on).
Wayfair has a similar logic flaw. The company sells furniture over the Internet. These are things like beds, chairs, and sofas that people generally want to touch, sit, and lie on before they buy, without having the opportunity to do so.
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And if you hate returning a pair of pants, imagine the hassle of sending back a couch or closet?
Both companies are designed to make something uncomfortable easier, and most of the time they don’t. Yes, there’s an audience that just hates shopping for clothes and people who buy rental furniture or rooms they don’t care that much, but both audiences are niche, not mass-market.
Peloton is a product, not a company
Peloton started with the idea that the company could revolutionize working out from home because going to the gym is a hassle. This isn’t a new idea — home exercise bikes and treadmills have been around since the 1970s — and really, Peloton just added streaming classes and a touch of exclusivity.
The problem is, in the 50 or so years that the idea has been around, home workouts haven’t supplanted gym workouts. Sure, home workouts were huge during the pandemic, but as soon as people could get out, they went back to the gym (or at least knew they could, and used that as an excuse not to workout at home).
Peloton has a world class product, but as they often say in Shark Tank, it’s a product, not a business. The company doesn’t actually make any money from selling hardware. It sells bikes and treadmills to get people to pay for its live classes and library of old classes.
The problem is that fitness classes are a commodity. You get them from Apple (AAPL) for a few bucks a month and yes, Peloton might have more or better classes, but that’s just a differentiator for hardcore fans or people who like the fading snob factor of owning a Peloton, not an exercise bike.
Peloton’s products would fit well with Apple’s business model of selling premium, expensive devices and then making money from selling services. However, as a standalone company, like Stitch Fix and Wayfair, the company simply doesn’t solve a problem that enough people actually have.