The best businesses 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), at first made it so you could rent DVDs without visiting a video store, then it more or less ended the concept of DVDs with its streaming service.
A problem is that many companies launch to solve problems that aren't actually problems. They may seem like big issues but in reality they're at best niches or at worst the answer to a question nobody has asked.
That's what Wayfair (W) and Stitch Fix (SFIX) are and what Peloton (PTON) may be. The first two address what their founders see as big issues that actually just aren't. Both companies were built to address what its founders saw as a mass problem -- and investors believed them -- but neither addresses a real pain point felt by millions of people.
Peloton is sort of a different story, but the end result will be the same.
Image source: Stitch Fix
Wayfair and Stitch Fix Addresses Tiny 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 will be both stylish and comfortable. The reality is that the actual audience for the company is people who want to look a certain way who don't like shopping or don't have the time to shop.
Add in that clothing is inexact and you get a system where some items don't fit, you don't like others, and some may just not be right for you. That leads to having to return things which is much more of a hassle through the mail than just bringing something back to the store (or not having bought it in the first place because you saw it and maybe even tried it on).
Wayfair has a similar logic flaw. The company sells furniture over the internet. That's things like beds, chairs, and couches which people generally want to touch, sit on, and lay on before buying without any chance to do that.
And, if you hated returning a pair of pants, imagine the hassle of sending a couch or a wall unit back?
Both companies are supposed to make something unpleasant easier and mostly, they don't. Yes, there's an audience that simply hates shopping for clothes and people who buy furniture for rentals or rooms they don't care about that much, but both of those audiences are niches, not mass market.
Peloton Is a Product, Not a Company
Peloton launched 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 -- exercise bikes and treadmills for the home have been a thing since the 1970s -- and really, all Peloton did was add streaming classes and a sheen of exclusivity.
The problem is that working out at home has not -- in the 50 or so years this idea has been around -- supplanted working out in gyms. Sure, at-home workouts were really big during the pandemic, but once people could go out, they went back to the gym (or at least knew they could and used that as an excuse to not work out at home).
Peloton has a best-in-class product, but as they often say on "Shark Tank," it's a product, not a business. The company doesn't really make money 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 can get them from Apple (AAPL) for a few dollars a month and, yes, Peloton may have more or better classes, but that's only a differentiator for hardcore fans or people who like the waning snob factor of owning a Peloton not an exercise bike.
Peloton's products would fit nicely with Apple's business model of selling best-in-class, expensive devices then making money selling services. As a standalone, however, the company, like Stitch Fix and Wayfair, simply doesn't solve a problem that enough people actually have.
