When Paul Davis joined Coinstar Inc. in 2008, the leading provider of automated retail solutions had recently acquired 18 different businesses and was at an inflection point, capable of moving in several directions. The Bellevue, Wash.-based company had gone from a single line of business — coin counting — to five lines — money transfer, electronic payment services, Redbox DVD rental, entertainment and coin counting.
Davis had the task of reining in these different businesses that the company had acquired and deciding where to go next.
“One of the first things I did when I joined the company was a deep dive to understand and get alignment throughout the organization about what our core was,” says Davis, CEO of Coinstar Inc.
As a result of that deep dive, Davis landed on the automated resale platform as the company’s core, which two of Coinstar’s businesses — Redbox and coin counting — were focused on. Davis and his team then did an analysis of the remaining 17 businesses, which revealed that they weren’t the right fit.
“Of those 18 companies that were acquired, we sold off 17 in the first two years, so it was a major reshift,” Davis says. “We ended up with our two core businesses today, which are our coin-counting business and Redbox.”
With a much clearer focus on the company’s future direction, Davis was able to play to the strengths of Coinstar. His execution on the strategy to grow the coin-counting business and Redbox earned Davis a No. 4 ranking on the Fortune 500 list for technology visionaries in 2012.
Here’s how Davis evaluated the company and placed Coinstar on a path that would leverage its strengths.
Find your direction
Coinstar, a more than $2 billion, 2,700-employee company had primarily been growing through acquisitions before Davis became the CEO in 2008. By divesting the majority of those acquisitions, Davis shifted the focus of the company and its growth strategy to a more organic one.
The company was a clear leader in the DVD rental space, not No. 1 at the time, but it had the clear potential to get there, and in coin counting, it had more than an 80 percent share of the market.
“In these other businesses, they really didn’t leverage what we knew,” Davis says. “Money transfer had very little to nothing to do with kiosks. E-pay had very little to do with kiosks. In the business that they called entertainment, it was a fairly antiquated business that was capital-intensive and we weren’t seeing any growth.”
When Coinstar focused on Redbox and its coin-counting business, it found that all of its money and all of its growth were coming from those two businesses. The other businesses were drains on the bottom line.
“They were prohibiting us from doubling down on those growth sectors and realizing our potential,” he says. “It meant that we had to get rid of these other businesses that had not been integrated.”
Davis’ biggest key to finding Coinstar’s next direction was asking what the “core” of Coinstar was and how the company could leverage that.
“I see a lot of companies, and we were the same way, doing a lot of things that were outside of the core,” he says. “If you think in concentric circles, once you’ve identified the core, we were two, three and four jumps out in terms of concentric circles.
“What ends up happening is it creates a culture where you’re not winning, you’re not in the leadership position, and you start to potentially lose some credibility with your retail partners because you’re not coming to the table as the true leader.”
In Coinstar’s two core businesses, the company was the clear leader and Davis saw great opportunities if the company could leverage that, take advantage and grow that circle.
“The first thing we needed to do was gain alignment around the fact that we thought there was decades of growth in this (automated retail) space,” Davis says. “We did a lot of analysis and saw that there were all these macro-trends around consumers not having time available. Time-starved consumers are comfortable with technology and they love to control their own destiny.”
Coinstar also found that its retail partners could greatly benefit as well.
“We concluded that this was a great space for us to be in and there was a lot of growth potential,” Davis says. “We thought of the category as the intersection between brick and mortar and e-commerce.”
Grow and innovate
To build on the opportunity in that space, Davis and his team started their new strategy by focusing on Redbox, because it was a business with immense opportunity. Coinstar had a joint venture with McDonald’s on the Redbox business, so its first step was to buy out the rest of the company.
“We doubled down on Redbox,” Davis says. “At the same time, we said, ‘We’ve got to shift the focus of the company from all the growth through acquisition and instead focus more on organic growth.’”
Coinstar started a new ventures team and put leadership in place to start vetting ideas. The company got ideas from venture capital firms, private equity firms, idea contests, whiteboard contests and an inventor’s network.
“We started getting ideas from all sorts of different pockets and corners of the country,” he says. “Once we saw ideas and thought this had some real potential, this team that we put in place started vetting them.”
Today, Coinstar has eight new ventures on top of both its coin-counting and Redbox businesses. Six are organic and two are strategic investments.
“We looked around as we focused on this automated retail space and there really weren’t a lot of people doing things in there that would be companies we would acquire, so we needed to create the category on our own, and we’ve had quite a bit of success at doing that,” Davis says. “The seeds are at various stages — some are in their infancy with just a few kiosks and others we have multiples of hundreds.”
The company follows a very similar launching process for each of its new businesses.
“We go out and vet it and we look at the size of the category and see if we think that there’s ways or an opportunity for a new solution that’s more convenient and leverages what we know,” he says. “Then we go out and hire someone with deep domain expertise and give them a bucket of money that we tightly control and we put a clock on them to go out and prove the concept.”
The new ventures start with one kiosk and are compared to Redbox and Coinstar in their infancy before being allowed to grow.
“As they clear the hurdles, they get permission and more money to go from three kiosks to 30, 30 to 300 and 300 to 3,000,” Davis says.
The process Coinstar has made so successful is a result of having an innovative culture that breeds creativity.
“You have to be pretty disciplined about creating a culture of innovation,” Davis says. “We really encourage people to try stuff. The way we have managed innovation internally is we think really big. We start small, and once we land on an idea, we scale quickly. But if you fail, you fail cheaply. That’s what we have tried to do over and over again.”
Under Davis’ leadership, Coinstar has grown tremendously. The company has more than 42,000 Redbox kiosks and 20,000 Coinstar kiosks. Redbox recently celebrated its 10-year anniversary.
“Our market share now is 10 points over the next closest competitor in the physical space,” Davis says. “That business at the end of 2007 was about a $500 million business, and we are projected to be over $2 billion for 2012.”
The company’s success in its two main businesses and its new ventures stems from maintaining an innovative, hardworking environment.
“There’s a certain paranoia we have inside the company and a need to constantly innovate and stay focused to deliver,” Davis says. “That’s the mindset that we’ve adopted across the company.” ?
How to reach: Coinstar Inc., (425) 943-8000 or www.coinstar.com