Innovation

Learn to Tell a Hit From a Flop

Are you about to jump on a lasting trend or a fleeting fad? Both can deliver soaring sales, but require very different strategies

Written by David Pimentel

Illustration: Gluekit

Wristband technology is hot right now, and Karl Martin is banking on it. But the CEO of Bionym, a Toronto-based biometrics developer, is pretty sure that wristband tech won’t always be hot.

That’s OK. The company’s first prototype, the Nymi, features proprietary technology that identifies the wearer based on his or her heartbeat. “Initially, prospective investors think it’s cool,” says Martin, “but after talking about it for five minutes, they’re engrossed.” He can see it on their faces, he says: the moment it dawns on them that Bionym isn’t following the wristband fad; it’s riding the biometrics trend.

Whether you’re a wannabe entrepreneur seeking that one great idea or a small business owner in need of fresh inventory, knowing the difference between the two is critical. Jeremy Gutsche, founder of Toronto-based Trend Hunter, a leading cool-hunting website, says business texts are full of cau- tionary tales about companies large and small falling prey to fads. “The little guy can get too excited about an idea and jump on it too quickly,” he says. David Mattin is an analyst at trendwatching. com, a global consumer-trends firm based in London, England. He says that truly understanding the difference between trends and fads requires more than just a list of telltale signs; it demands a firm grasp of trend theory. That theory starts with the concept of unchanging human desires.

Core drives like the desire to be healthy, loved or knowledgeable don’t change, but the ways in which we go about pursuing them do. “Those needs,” says Mattin, “can find new expression because of technological change, societal change, attitudinal change.”

An obvious example is social media. “Mark Zuckerberg didn’t invent the fundamental human desire to connect to other human beings,” says Mattin, “but what he did was piggyback on technological change that allowed that fundamental human need to be expressed in a new way.”

Fads are also trying to serve an underlying desire, but there’s a big difference, says Mattin: Fads fail to do it successfully. Fads are failed trends, rising up in an eruption of hope and hype but quickly dying off—usually within 18 months—because they can’t live up to the expectations they establish.

Take the Atkins Diet craze, for example. The low- carb, high-protein nutritional regimen invented by Robert Atkins in the 1970s gained widespread popularity by the early 2000s. By 2004, one in 11 North Americans was on the diet, and retailers were tripping over themselves to get low-carb food on the shelves. And it wasn’t a scam: Drastically cutting your carb intake does result in weight loss. But the Atkins Diet was also supposed to be easy—and it wasn’t. And it wasn’t better than the alternative: simple moderation and exercise.

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Still, the fact that low-carb diets like Atkins work (albeit with some sacrifice) means that they won’t ever completely die off. Low-carb and its ilk will just get resurrected over and over, like a new politician offering the same old promise of gain with no pain. In fact, you can draw a straight line between the Atkins Diet and today’s gluten-free phenomenon.

There is another wrinkle in all this: fashion. According to Mattin, fashions start out dutifully serving the unchanging human imperative—for increased status, in this case—but are always doomed to fade. That’s because as a fashion becomes popular, the fact that everyone is doing it diminishes its value as a status symbol. “If you step back and the only deep-seated desire that you see being served is status, that’s a sure- fire sign that the example you’re looking at will rise and fall fairly quickly,” says Mattin. “Once other people start doing it, you have to change.”

But that doesn’t mean you can’t make money from fashions and fads. Bruce Cohen, a senior partner at global management consultancy Kurt Salmon, has practised in the consumer retail space for 25 years. He stresses that following fads and drawing inspiration from them—to modernize product lines, for example— can be a legitimate business model, so long as you know what you’re doing. The product developer has to be ready to respond when, all of a sudden, the fashion changes. “If I manage my cost structure, create relationships with manufacturers and distributors, learn how to operate in a retail environment and communicate with customers, then I can become a serial entrepreneur and hop on the next fad,” says Cohen.

Remember Crocs? In late 2007, millions of shoppers rushed out to grab a pair of the rubber clogs. Competing shoe manufacturers, such as Richmond, B.C.-based Holeys, jumped on the bandwagon and profited mightily. But by early 2009, the mania had passed. Crocs’ sinking fortunes created a vortex that pulled in Holeys and other clog makers, which had to quickly rethink their businesses and find new product lines.

SMEs are well positioned to assess new opportunities bubbling up in the zeitgeist. For one thing, they’re much closer to their customers than large corporations, so they’re better able to determine if buyer motives are sustainable (the product makes me healthy) or unsustainable (the product makes me look cool). However, Gutsche warns that entrepreneurs are also susceptible to the hype around fads because they tend to be impulsive risk-takers, which puts them at risk of overinvesting in short-lived manias.

Read: Hype Danger to find out which of the year’s most-talked-about trends are hits or just empty hype

Whether something is a fad or a trend, Gutsche says it’s already reached the peak of its popularity by the time most people become aware of it. “Popular and cool are two very different things,” he says. “Popular is mainstream and has already happened. Cool is something unique and cutting-edge. If the biggest competitor in the game is already in the market, they’re going to outmanoeuvre you.”

To be able to exploit a trend, business owners need “information asymmetry”—in other words, you need to spot the trend before your rivals do. “Things like social media or the rise of female purchasing power are obvious megatrends,” says Gutsche. “What you’re actually trying to do is find the sweet spot of one to four years of opportunity, where your competitors don’t really know about the trend yet.”

As for biometrics and wearable tech, it could be that the trend will evolve from wristbands to other acces- sories, such as rings or earpieces. For Bionym’s Karl Martin, it doesn’t matter. “All of those things are just vehicles for us,” he says. “The foundation of our business is really identity management.”

He is, in other words, riding a much bigger wave.

This story is part of PROFIT’s 2014 Opportunity Guide, full of trends, ideas and markets you can jump on right now

Originally appeared on PROFITguide.com