Running A Business: Lessons From Instant Pot?

In My Humble Opinion
1

People who cook with Instant Pots love them. They combine plenty of useful things that make daily basic cooking easier, and so many people bought one. The people who bought one five years ago may see little reason to update to the latest model. So the company is supposedly in trouble.

The original maker sold out to a capital firm that also owns Corelle and tried to extend the Instant Pot brand to other food preparation products. This strategy was unsuccessful.

Yet people presumably still love their Instant Pots. It was a real unicorn, a quality product finding a niche in a crowded market. But the mantra of business is that it supposedly needs to grow and grow. The manufacturer sold a decent number, and with its good reputation supposedly could be counted on to continue selling smaller numbers periodically. Coming out, WordPerfect style, with newer versions doing more esoteric things of little use did not help sales much - for a device where one is not forced to upgrade.

So what should Instant Pot have done? Surely having a stable profitable business can still have a lot of benefits?

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Paywall.

I’d just be guessing at the basic point, but it does make me wonder: what’s the most successful current business that sells a single product with little to no practical variation?

4

Isn’t this an issue any well made kitchen appliance company would face? I have a microwave and a blender that are both over 10 years old and both still work. I see no need to buy a new one of either.

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Short excerpt from the article

…Therein lies the problem, or at least one of the problems. A device developed primarily to address a particular food-prep inefficiency has a natural ceiling to its potential market, and when one catches on as quickly and widely as the Instant Pot, it can meet that market ceiling in pretty short order. Arguably, it can exceed it—people who wouldn’t have otherwise seen themselves as Instant Pot owners buy into the hype. Predictably, after a decade of lightning-fast sales in the United States, things seem to be cooling off. Instant Brands does not release detailed sales figures, but from 2020 to 2022, sales of multi-cookers as a product category [dropped by half] according to [market-research]. Instant Pots dominate the category. Very few people seem to need or want a second IP within five years of buying a first one. Why would they?

From the point of view of the consumer, this makes the Instant Pot a dream product: It does what it says, and it doesn’t cost you much or any additional money after that first purchase. It doesn’t appear to have any planned obsolescence built into it, which would prompt you to replace it at a regular clip. But from the point of view of owners and investors trying to maximize value, that makes the Instant Pot a problem. A company can’t just tootle along in perpetuity, debuting new products according to the actual pace of its good ideas, and otherwise manufacturing and selling a few versions of a durable, beloved device and its accessories, updated every few years with new features. A company needs to grow.

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Wonderful object lesson for the business world - make a good product and go under. More incentive for them to design in planned obsolescence. It’s supposedly already come to major appliances like washer / dryers and refrigerators.

Honda is going to realize they’ve been doing it all wrong. How long until they give up and we’re keeping our cars for just a year or two?

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Why is it a problem for businesses to stay small and reap more modest but substantial profits?

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Well, we were early adopters and our original one bought 9+ years ago finally died. We now consider it indispensable, so we upgraded. I imagine the same will start happening soon to others who were slightly less early adopters, and so on. And the new one we bought was larger, more expensive, and has more features than the original.

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Which of the new features are you most likely to use?

10

…its the debt. Its always the debt.

I don’t know why the media always bury the lede here, but its the debt. Private Equity companies buy these companies, load them with debt, pay themselves big money then watch as the company collapses, blaming everyone else but themselves.

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Because a hot rising star company becomes a product itself and it’s owners would be fools to resist the payoff that awaits losing control of the company to owners who will not patiently work hard over the years for the return on their investment.

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True. But they could profitably sell it to people without a KKR history of corporate raiding?

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But who would want to a buy a business that doesn’t have a future of continuous quarterly growth?

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So basically what the mob does with the restaurant in Goodfellas, but without having to physically set anything on fire in the end?

15

I believe the same thing happened to the Holland Grill company.

From an article about their demise:
Unfortunately, it seemed that a properly cared for Holland Grill could last for decades. Some of the earliest models are still in use today. While customers remained loyal, they seldom needed a replacement unit. […] Ultimately, quality played a part in the death of the Holland Grill.

Ours lasted over 15 years, with zero problems. As the article mentions, customers were fanatical about them, but not many people want to learn a different way of grilling, and they were expensive. I guess they reached the maximum number of people who wanted one, and stopped growing.

FTR: They were single-temp, on/off only, diamond grate (no grill marks) stainless steel burner below a stainless drip pan. No flare-ups, nothing to do but turn the meat once. Users strongly encouraged to leave it alone once started. A metal plaque on the front said: "If you’re lookin’, you ain’t cookin’ " Advantages were consistency, and it was nearly impossible to screw up your meal. Just look up the cooking time in the manual, and come back when the timer dings. Also, the pan could be filled with water for steaming crabs, etc.

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Here’s what I’ve never understood – big lenders are perfectly well aware that this is the strategy of many private equity firms. So why would they ever lend to these firms?

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I wouldn’t call it a “mantra”, more of a imperative.

Businesses need to constantly sell products or services in order to stay in operation. It’s just the way they work- you have to bring in some baseline amount of cash to keep the lights on, pay everyone, and so forth. Anything above that is profit. (I’m simplifying some here)

The problem that the Instant Pot people faced is that at some point everyone who wants an Instant Pot will have one. And unless they’re really cruddy, there aren’t a lot of replacement purchases going on for a long time. If they are cruddy, people will steer clear of your company entirely.

The hope I imagine, is that they’ll get to a position in the market that new purchases (kids out of college, wedding registrants, replacements, etc…) will suffice to keep them solvent in some fashion.

So you have to branch out. And in the jack-of-all-trades Instant Pot world, that didn’t leave them much room, as they already included so much functionality into their devices- slow cooker, rice cooker, pressure cooker, etc… Maybe they could have gone into other small kitchen appliances- blenders, toaster ovens, and so forth. Or they could have gone a little further afield and gone into the cookware and flatware space. Or in a really out there idea, they could have gone into the prepped meal space, and sold branded “Instant Pot” frozen ingredient mixes- "just toss it all in your Instant Pot and click “2"” or something like that.

I don’t know what the best strategy might have been. For the owners, it was obviously to sell out to the Corelle people and let them handle it.

That wasn’t really the issue; it’s that the customer base needs to grow, just for them to stay small and reap those moderate profits. The company itself doesn’t need to grow, but they do have to keep growing that customer base on something like an Instant Pot.

Meanwhile, someone like Gillette works in the opposite fashion in a sense; they’re selling razor blades and cream, and in some cases literally giving the razor handles away. They have a built-in replacement market with the nature of their products.

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It is… I imagine, but don’t know, that some companies have just enough new sales to keep those units profitable.

Someone like KitchenAid probably sells just enough stand mixers to new buyers to stay in business, because those things last for decades. And I’d wager that’s because they are THE maker of stand mixers that people go to. Their market share has to be astronomically huge for stand mixers.

They also sell just about anything else for the kitchen while they’re at it - dishwashers, refrigerators, oven mitts, stick blenders, measuring cups, etc…

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This is also true of refrigerators. It may take 15 years, but refrigerators get old and need to be replaced, and there is a thriving market in refrigerators. At least, everyone who makes refrigerators sells them at a profit. They may sell a variety of other things, but it’s not hard to imagine a refrigerator only company doing just fine if they’re recognized as a market leader in refrigerators.

There’s no reason the Instant Pot people couldn’t just keep selling / improving the product and maintaining their market position. The only thing getting in the way is a demand for growth.

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I hear what you are saying. I don’t know why banks lend to corporate raiders either. And that may or may not be a fair description this time around - they tried to enter adjacent markets.

Obviously you need cash flow and profits and have expenses. And plenty of bigger companies came up with Imitator Pots. But people would eventually need replacements and people who like them recommend them or give them as wedding gifts or whatever. I struggle to see the market limitations for crap, and this was a well-liked thing. It’s hard, I guess, to come up with new functions people actually want.

The imperative you can always keep growing is not realistic for every business.