The digital native

Dion Appel is the 34 year old chief executive of the youth marketing agency Lifelounge Group. SmartCompany last spoke to Dion in 2004 when he was emerging from the shock of the dot-com collapse that nearly claimed his business.  

In the last few years he has doubled revenue to more than $7 million on the back of a clever strategy. Dion shares about how he has taken the business from small to medium, and tells us about the new trends in the youth market.

Amanda Gome: Tell us about the major challenges of taking your company from around 10 staff, a small company to a medium sized business with 34 staff.

Dion Appel: We hovered around the nine or 10 mark for a few years as the dot-com crashed in 2001.

We had set up a youth and young adult lifestyle portal at lifelounge.com and when the advertisers lost confidence in the internet as a medium and we found ourselves with minimal revenue coming through and minimal ability to syndicate our content, we found ourselves at a bit of a T-intersection.

One way was going to shut the business down and the other way was to be quite entrepreneurial and innovative. And that is the angle that we decided to take. We had an audience that we knew was very valuable so we started to survey that audience, and with those surveys we were able to understand what the attitudes, the behaviours, the perception of the young adults and lifestyle markets were.

At first we used that data for our own benefit, to help shape our product in a way that is was going to continue to access an audience. And from there we were able to productise that research into trends, influences, behaviours of the young adult market that corporate Australia and government agencies have been subscribing to.

I am interested in hearing the innovate process. Was it a gradual “why don’t we try this” or did you have a light bulb moment back then?

The decision to do the research was definitely a light bulb moment, because at the end of the day advertisers weren’t ceasing to advertise to the young adult market, they just weren’t confident in the internet being the right channel to be able to do that.

They still needed to understand what motivates the purchasing and decision making power of the young adult market. So for us it was kind of like a bit of an epiphany; hey we have got access to thousands and thousands of young adults, these are very important people in terms of marketers, they spend a lot of money on research.

We can actually bring in the smart people that have research experience to help us navigate the business to be able to deliver on that particular revenue stream and business stream and that is exactly what we did.

We did a deal with AC Neilson at the time to help us build the right sort of methodology and then we bought an experienced analyst into the business which helped us to start grow our staff and our service offering so that we were ultimately looking at building multiple revenue streams.

We then found another need: corporations buying into our knowledge. They understood the value of our community and they were seeing the design and the aesthetics of what we were creating. They started to ask us, hey can you create similar things for us, which lead to the third offering of our business and the natural evolution of our company into advertising agency services.

So that then helped us grow our staff pool again and we ended up with a company that specialises in community. Community is the only economy of scale, we then have the knowledge component of our business and then we have the ideas component and all of them work symbiotically together to be able to deliver solutions to corporations that help them understand the market and speak the language of the market in the environment of the market.

How did you move from basically one business to another? As you changed your strategy did you have to change your staff?

I never really saw it as moving from one business to another, I saw it as a holistic offering. So when we set up the business in 1999 our core objective was to credibly and relevantly connect corporations and government agencies with Australian young adults and lifestyle market. And that doesn’t change through anything that we’ve done in this business. So we’ve stayed true to our objective, we’ve just evolved our services.

What are the biggest mistakes that corporations make when trying to get to and talk to this youth market?

I think the biggest mistake is lack of knowledge on how best to connect with this market. It is very competitive out there in the advertising industry and in saying that there are a lot of companies that believe that they have the right tools to access this particular audience.

Tell us how you segment the youth market.

We’ve got what we call the core which sort of sits at the pointiest end of the segment and they remain true to whatever lifestyle interest they’re into regardless of whether it’s hit the mainstream or not. Then style surfers which are early adopters.

Then we’ve got brand winners, brand followers and then we hit the mainstream. So ultimately brand winners are like early adopters/innovators and then it sort of diffuses through to the mainstream from there.

And which is the biggest segments?

The biggest segment is mainstream, representing 50% of the young adult lifestyle market but the most influential segments are the style surfers and brand winners. And the most commercial are the brand winners and the brand followers.

And what age group are we talking?

We’re talking 16 to 30 by demographic, but we also measure the psychographic as well because we recognised over the last seven years of doing all of this research that it’s more of a mindset and a behaviour than it is an age.

So we ask a number of questions about self perception. So how you perceive yourself and how you want others to perceive you to help you establish your identity and enable you to express yourself. And those questions of perception enable us to understand whether somebody that is 34, 35, 36 or 14 or 15 years of age still fits within the mindset of 16 to 30 year olds.

And what is that mindset?

There’s no easy answer to that question other than propensity to spend quite large on hedonistic pursuits and largely the deferring of responsibilities so that you can enable yourself to spend on the things that you choose to do rather than the things that you have to do.

Is that a big difference between the Gen-Xers?

I would say a very big difference, yes absolutely.

How is the recession changing their behaviour?

Surprisingly it hasn’t really affected it enormously. Last year we recorded a $45 billion spend on young adults’ hedonistic pursuits and this year we’re at $42.4, so it’s slightly reduced but not enormously. And their attitudes towards the recession are quite opportunistic because they don’t have an enormous amount of responsibility, financial responsibility that is. The government is providing an enormous amount of hand outs, that they see as a real opportunity.

So at the end of the day they are lower income earners but they have got high propensity to spend, so that makes them a very important market for advertisers and brands to connect with. The government handing out $900 stimulus packages and also extending the first home buyers grant out to a minimum of October this year, it’s happy days for the young adult market.

But what about their HECS and their mortgage? I know I sound like a grumpy old woman but we never had a cent to spend when we were that age.

Yes, well they’re at home until just over the average of 26 as well. By 26 you would have already had a couple of children.

Not in my day.

That’s why I didn’t say in your day Amanda.

So Dion, if you think about that, where is their wealth generation going to come from if they are leaving everything so late? You talk about the baby boomers who had two children at 26 but they also had a property.

You did have a property and a mortgage and huge financial responsibilities, but your ability to earn a higher income at that stage was far less. So if you sort of shift the clock and rather than getting married at 22 and starting your financial burden then, fast forward that by eight or 10 years and your ability to earn by that stage is much higher, so your ability to save is also far greater which means you become a pretty important group.

So by the time you are in your 30s, you have a mortgage, kids and you’re probably still paying off your HECS.

If you graph propensity to spend by age, you see a big sort of peak around the early 20s to late 20s, then as you start to become a little bit more responsible and start a family, it starts to dip and then in the mid 40s it starts to increase again. So it’s like a double hump if you will.

One is around the 20 something and then another one in the mid 40s to mid 50s, and then it sort of keeps going up a little bit from there. But what we’re predicting actually is that this audience we’re talking about will become the larger consumer group by 2020 for the exact reasons that we are talking about now.

Because it’s just engrained in their make up to spend.

Correct.

And also the government is telling them to spend…

Exactly, here’s 900 bucks go and spend it on something. And they’re not paying off debt, they’re going out and they’re buying leather jackets or they’re going out and going on a holiday thanks very much. So it’s not going towards bills or savings or anything like that, which is exactly what the intention of the government was to sort of help stimulate the economy.

What are the differences between a 16 year old and a 30 year old.

A 16 year old is still very much about defining themselves. So they look for outer expressions, methods to be able to do that like their peer network. So a 16 year old is very much looking to establish their identity and in doing so they will subscribe to brands, they will wear brands on the outside to be able to help their friends understand which sub cultures they belong to and help define them.

Whereas a 30 year old is already established. And a 16-24 year old are less likely to be brand loyal, they’re looking for brands to provide them with a memorable experience so that they can then become loyal. So 25 plus they tend to have already been able to establish their identity.

It becomes less about how they are perceived by others but more about how they perceive themself. And with that self perception it becomes loyalty towards brands.

And how does the 16 year old today differ from that 30 year old when they were 16?

I think there’s quite a lot of nostalgia. Thirty year olds are definitely thinking about what it was like back in their early 20s and referencing that quite frequently.

And that younger market are also aspiring to be a little bit older as well and with that age comes a little bit more experience and with that age comes the ability to earn more and to have a higher ability to spend.

How’s the internet changing the younger generation?

The internet is innate within the younger generation. They are what we call digital natives. If times did get tough and they did have to start looking at where they would cut their costs, my prediction is they would lose their mobile phone before they would lose their broadband connection.

Which are the companies that connect with this youth market?

There are a number of companies that do it well. I think in particular I’m a big fan of a company called American Apparel. I think they’ve been able to establish a very good brand personality that is somewhat underground still but a very, very big company. So they’ve managed to be a large company but still have the perception of being quite personable, having the right sort of attitude, having the right sort of brand values that deliver on what young adults are looking for.

Who does it really badly, who doesn’t get it?

Some companies still think that the best way for them to generate sales is just to do broad mass market advertising to try and connect with the young adult market. And they don’t understand that in order to really generate the loyalty, you really need to be able to seed the brands correctly and you need to be able to allow the market to discover the brands for themselves.

Then you need to be able to fuel that discovery and amplify it out into the mainstream. There are a lot of companies that will just go out and just go “it’s on television, it’s on outdoor, it’s on radio, it’s on the internet because we need to be on the internet because all the young adults are on the internet”.

What they’re sort of missing is the ability to plan accordingly so that you sort of put it into their environment first so that they’re the first to know and then let it amplify out into the broader mainstream mediums, which are still very important and still very powerful and very much part of the mix.

What strategic plans do you have for your company?

One thing as I mentioned before, community being the only economy of scale for us, that area of our business is very important.

A year and a half ago we did a joint venture with Fairfax Digital, Fairfax Media, and we launched a website called thevine.com.au. Those partnerships are very important where partnerships with a company like Lifelounge can provide an enormous amount of opportunity.

So they’re into music, they’re into fashion, they’re into gaming, they’re into film, they’re into travel, they need financial products, communications, a number of industries. So from our perspective in building community, there are a number of partnerships that we are exploring and we’ll continue to explore to help build that community.

At 600,000 unique browsers every month our short term goal is to reach a million. At a million that will give us critical mass and it will give our brand partners some great opportunities to do big things, bigger things.

How big do you want to get?

Hopefully we’ll continue on the trajectory that we’ve been growing at: 95% year on year is what we’ve recorded over the last 12 months with 150% of that growth coming from the community side of our business, 40% from the knowledge and the ideas side of our business.

We are in a position now to continue on this trajectory and continue to deliver strong profits to the organisation. So where I see the business and the opportunities for this business certainly is in continuing on this curve of organic growth within this local market here but we certainly have a model that can be replicated and is scalable into other markets as well. So looking overseas is something that we would be interested in.

You have a commerce degree. And at 25 years old, you sold one of your first businesses which was a sports management business for $1 million. What was the biggest thing you learnt from that first experience?

To really stay focused on what your core objectives are as a business because if you remain true to your objectives, you will continue to deliver the results.

And we’ve always stayed true to our objectives here at Lifelounge and we’ve had plenty of opportunities to do things that this business is not primarily defined by and it’s sometimes better for the business to be able to say no.

So that’s my learning. Working with the right people to be able to identify the opportunities that can enable the business to continue to grow.