When considering the two industries, the parallels are obvious – consider the wine industry structure but with your financial services hat on:
– There are multiple producers in each wine varietal, who are attempting to sell their product in a market controlled by a small number of very powerful distributors,
– Very large wine producers care more about maximising volume and scale, than they do about producing the highest possible quality in their category,
– Over capacity in many grape varietals has lead to cut price competition and insourcing (e.g. white labelling and house brands),
– Individual customers have very little buying power when negotiating a discount with their favourite wine producer, although discounts are a major selling tactic used by distributors that can do great harm to the wine “brands”,
– The barriers to entry are significant in launching a new wine label given the industry structure, capital intensity (not as great in funds management) and high level of competition, and
– There are very high levels of regulations.
Given these similarities, what have very good boutique wine makers done to grow their market share and what can boutique fund managers learn from them? (And these thoughts are not just limited to boutique fund managers).
An exemplar: Rockford Wines
If I think about Barossa based Rockford Wines as one example – and there are plenty of others – of a very successful boutique wine maker, the following observations can be made:-
- They have a wine making philosophy that is adhered to religiously,
- The chief wine maker is mentioned on their website – it is personal and intimate – they are prepared to put their names on the line,
- They have a fastidious focus on the quality of their product (because of point 2!),
- They speak courageously and authentically with their audience through engaging newsletters,
- They don’t discount – the price is the price,
- They offer a great cellar door experience,
- They have received high ratings from key influencers in the market e.g. Halliday’s,
- They carefully manage capacity because they know that it is harder to produce great wines over larger areas versus maximizing scale,
- Their distribution model is generally direct to public, premium restaurants (on their payment terms), and high end bottle shops but only with limited supplies.
Here is wine writer James Halliday’s summary of Rockford: –
“Rockford can only be described as an icon, no matter how overused that word may be. It has a devoted band of customers who buy most of the wine through the cellar door or mail order (Rocky OCallaghans entrancing annual newsletter is like no other)!” (Source: James Halliday Australian Wine Companion).
And Houn Hooke’s summary of ‘Rocky’ O’Callaghan says it all: –
“Robert O’Callaghan is someone who is always doing something interesting – and usually totally original. The founder and owner of the Barossa Valley’s unique winery, Rockford, is an irrepressible individualist, a creative spark…” (Source: Huon Hook, SMH, 22 June 2010)
Using the marketing mix and the 4P’s, we can see that Rockford’s marketing mix elements are aligned through their Premium Price, Premium Product, Scare Place in terms of where the product can be purchased and authentic and Original Promotion.
Equally important is the description of Rockford’s chief wine maker – “irrepressible individualist, a creative spark, original, interesting.” Sound like any fund managers you know? Often the very best share these attributes – it is what makes them tick.
So what can boutique managers do to create the same type of loyalty amongst their investor base?
Keeping performance and key investment team quality at a constant, there are two key behavioural characteristics from a communication (Promotion) point of view that boutique fund managers can focus on to get cut through, but it does require constant effort and a certain personality type to make it happen.
- Courage of ones conviction, and
- Insightful analysis over widely available information.
Courage of ones conviction
John Hempton at Bronte Capital writes a very entertaining blog. In reading his blog you get a sense of how he thinks and how he makes money – you form a relationship with him through his writing. He is also courageous enough to call out management teams whose businesses he might be shorting in his fund – I am not sure if he looks over his shoulder when the lights go off each night but I doubt he cares too much.
Consider an excerpt from John’s latest report
“We short frauds and promotes. Biotech is full of frauds and promotes. This is natural – the area has very asymmetric pay-offs, which attracts gamblers who tend to be willing to bet and lose considerable money.”
I used to work for a manager that used to score the CEOs of the companies he visited in that year – today he would be sued, but it was memorable and courageous! And isn’t this what you want as an investor – an insight in to why investments did not make it into the portfolio?
The key to marketing is differentiation – being courageous is one way of standing out. You may upset some people along the way but they will move on and you will stand out – I am not talking about being obnoxious, rude or arrogant but courageous. If a manager sees something that should be commented on that people might be missing in the market – say it!
Insightful analysis over widely available information
I recently read a fantastic newsletter from one of Australia’s leading emerging market managers in Northcape. They provided a very thorough and orginial analysis on Argentina that was the result of a recent visit, where they conducted numerous meetings with multiple market participants. It was not the usual stuff that we might find in our media here, but deep insightful analysis – in providing this insight, I was comforted as an investor that they are on top of the detail and were seeing things that others seemed to be missing.
One of my favourite fund managers for providing insight can be found in the Absolute Return Letters by Niels Jensen – a UK based boutique manager. You can get the drift by reading his letters on the link above.
But as John Hempton writes in his latest report…
“We have a deep desire to make some serious money for clients. We think it will happen but we can’t say when. There will over-time be a correlation between quality research and returns – but that isn’t seeming to happen now.”
In summary, it takes more than just insight and courage to create a loyal fan base – you have to perform!
Adopting the above behaviours in terms of how you communicate will help to create brand cut through, but in of itself, will not guarantee fund raising success. We know it takes more than this but this is a good start – people will start following you in time, the media will reach out and soon the funds will flow (assuming performance stays solid).
The surprise element
In addition to the above, the element of surprise can be powerful – of course, we all expect to get our monthly, quarterly and annual reports – but why wait. If there is something interesting to say, get on with it – this is where having a Twitter account, a Blog or LinkedIn page can be very useful in quickly and informally communicating with your investor base.
Whilst there are barriers to capturing flows, boutique managers have the greatest advantage of all, and that is their size and hunger…
With many large financial institutions, a financial adviser (and forget about an individual investor) generally has to call a BDA, who speaks to a BDM, who speaks to a National Account Manager, who speaks to an Investment Specialist, who speaks to a Portfolio Manager who then speaks to the Chief Investment Officer before the adviser gets their question answered.
Of course, this is overblowing it but you get the point.
The distance between the financial adviser and the person managing the money can be vast and non-personal. Further, as funds grow, the originally energetic CIO might counsel the marketing team in terms of how many investors they can speak with each year – this makes sense, after all, we want them managing money. But this is the difference when a manager is driving for scale versus managing capacity to preserve returns, whilst maintaining personal relationships with their investors.
In addition to the above, here are some useful tips that boutique fund managers (and not just boutique managers) can learn from wine makers like Rockford’s: –
- Tell potential investors what your capacity limits will be upfront,
- Be available to talk with investors and hold regular forums where investors can come in and meet you and your team,
- Let your investors know what you are thinking and tell it from the heart – be courageous!,
- Ensure your office is tidy and presentable and that your front office staff are pleasant and helpful (e.g. the cellar door experience is first class),
- Tell investors how much of your own money you have in the portfolios that you are offering the public – show them that this is more than just a job,
- Ensure your branding is engaging ad applied consistently across all of your communication channels,
- Develop relationships with the journalists that cover your asset class – give them some ‘tit bits’ that they may find interesting,
- Be available across social media platforms – a blog is a minimum requirement,
- Don’t be afraid to share your intellectual property – as I often say to many fund managers, show me how Jamie Oliver’s cookbooks have killed his restaurant business and then I will be convinced that sharing IP is a bad thing. It actually enhances your brand!
Andrew Fairweather, Founding Partner and Managing Director