Rather than try to break into the luxury-goods market, entrepreneurs are starting service boutiques that cater to the wealthy
Before founding Aston Pearl, a small consulting company whose services range from finding the perfect sculpture for a private art collection to choosing the right summer camp for children, Natasha Pearl served as senior vice-president and worldwide director of relationship marketing at Sotheby's (BID), the renowned auction house. In her dealings with the rich and the richer, Pearl found a large number of clients looking for objective advice about everything from modern art to the next family yacht. So she founded her five-employee firm (Pearl declined to provide revenue numbers) in 2001 to address their needs. "Coming out of Sotheby's, I was seeing a lot of sophisticated, wealthy art collectors who wanted objective expertise. The resources available tended to be salespeople or brokers, who are paid on a commission basis, rather than people who are advocates," she says.
Aston Pearl has between 15 and 20 clients at any one time, provides 260 different services, and counts exactly four of the 400 richest people in the world as its clients. Pearl says the luxury services market is huge, but "your business has to be very targeted and focused, and you have to really understand the market. A lot of people think this is like shooting fish in the barrel, and it isn't. These people have extraordinarily complex lives and face so many more choices, because they're less limited by financial constraints" she says.
And their numbers are growing. In 2005, 8.7 million people globally held more than $1 million in financial assets—an increase of 6.5% over 2004, according to the Cap Gemini/Merrill Lynch World Wealth Report. Overall, the wealth of high-net-worth individuals grew at an annual rate of 8%, expanding to $33.3 trillion in 2005 from $16.6 trillion in 1996, according to the report
Seeking Legitimacy from Brands
"There is unprecedented wealth in the world, and people are more willing to spend it," says Reinier Evers, founder of trend-spotting Web sites trendwatching.com and springwise.com (see BusinessWeek.com, 1/9/07, "Smart Startup Ideas for 07").
Still, new small businesses have a hard time breaking into the luxury goods market, because newly wealthy people want to buy the established and well-known brands, says Milton Pedraza, chief executive of Luxury Institute, a ratings and research firm for the wealthy. "Once you make it, you want to be legitimized by goods already recognized as luxury," he says.
There are few exceptions to that rule, but that doesn't mean luxury and small business can't mix, Pedraza says. Like Natasha Pearl, entrepreneurs are targeting luxury services sectors instead of luxury goods. "Small players can enter luxury services. They can compete better with large firms, because they're neurosurgeons in what they do," says Pedraza, meaning the smaller firms are better at targeting niches.
Relationships are Key
While Aston Pearl specializes in offering advice for superluxe leisure goods and activities, Baltimore-based PinnacleCare is a firm that helps wealthy individuals find top medical care. Its founder and CEO, John Hutchins had worked at Johns Hopkins and Cleveland Clinic hospitals, pioneering "international VIP advocacy" for overseas patients. He could treat a patient like a VIP at his hospital, but he was tired of not being able to recommend the best possible doctors outside of his own hospital, especially to those from abroad without knowledge of how to navigate the U.S. health care system. So he formed his own company that works to give objective advice to the customer.
There are small service businesses that perform tasks such as gift-buying, event planning, even "wardrobe acquisition." Raven Kauffman, who specializes in performing such activities as part of her Los Angeles-based three-employee company, Raven Kauffman & Associates, says such acquisitions are more than just a trip to the department store. "It goes way beyond personal shopping—just going to Barneys and buying something. I have close relationships with designers all over the world, and I often acquire one-of-a-kind pieces for my clients," says Kauffman. Her company has yearly revenues between $10 million to $15 million, serving only five or six clients a year.
Another example is car detailing. Hassan Iddrissu, co-founder of ultra-high-end Roadstarr Motorsport, with around $6 million in 2006 sales and locations in Los Angeles and Ukraine, specializes in helping high-rollers trick out their luxury rides (see BusinessWeek.com, 1/4/07, "Hip-Hop Entrepreneurs"). With two more locations on the horizon, and celebrity clients such as Michael Jackson and Shaquille O'Neal, Roadstarr's business is definitely speeding up.
The firm's experience is instructive for entrepreneurs looking for luxury: If you can't manufacture it yourself, then you can probably make a good living servicing it for someone else.
Check out our slideshow for profiles on 10 small companies providing luxury services to the wealthy.