To begin, I’d like to say, “I’m back!” I’m committed to being a better, more frequent, blogger. Instead of simply stating publicly that I’m going to try harder (which I’ve done before…and failed), I intend to simply prove it. Stay tuned and see if I’m telling the truth.
My newest company is focused on scaling global technology teams for high-growth companies. Many of our earliest customers are eCommerce companies. (This is not purely coincidence: I was a Founder at ModCloth, an investor in Touch of Modern, and an advisor to Blank Label.) So I’ve done a lot of thinking lately about the future of eCommerce. My goal is to share the fruits of my research and analysis with you. With that thought in mind, this post is intended to get you up-to-speed. This is the stuff I already know, and much of it may not be new to you. Moving forward, I intend to dive deeper into the nitty gritty.
Before I jump into things, if you are totally new to eCommerce (or just want to have a little more background) I suggest that you check out this report from the National Retail Federation. It provides a brief history of eCommerce as well as an overview of the eCommerce landscape in 2012 and 2013.
This post is about the big picture. eCommerce has evolved a lot over the past seven years. Online retailers are reaching more people around the world (see the recent Wall Street Journal article on Russia’s emerging eCommerce market) through more channels. With more points of access to retailers, more retailers, and more product choice, consumers are gaining power at an unprecedented rate. And with more consumers with more personal choice, retailers have to compete more than ever to win that consumer’s custom. In order to compete, retailers have to up their game, and they’ve been doing so in a myriad of ways.
Trend #1: Flash Sales and Deep Discounts It’s not the newest trick in the book, but sites offering flash sales and deep discounts are still making headway in the eCommerce world. One point of success for these companies is that they require the consumer to sign up before he or she can see any of the offers. This allows sites like Groupon, TouchofModern, and Zulily to better track and identify their users. Whether you’ve visited once, twice, or fifteen times, they can customize their marketing to your apparent interest level.
Other sites like One Kings Lane and Wayfair (see here an interesting article on Wayfair’s approach to indecisive consumers) may not require you to sign in, but they publish their discounts on the page (see image) and on sites like One Kings Lane, sales only last for a certain amount of time, encouraging consumers to buy quickly or lose out on the deal.
Trend #2: ReCommerce Deals don’t only come in the form of sales. Companies like thredUP and Threadflip are bringing second-hand retail to the internet. Nor does it only apply to clothing. Gazelle is a site where consumers can selltheir used electronics. Offering verification services for used items brings the whole second-hand marketplace online. It also allows shoppers and sellers to directly communicate with each other about things like size and availability.
Trend #3: Social Shopping Although the social shopping trend hasn’t seen too much implementation amongst individual retailers, it may not be far off in the future. If friends share what they buy with each other through channels like Pinterest, Facebook, and Wanelo how long will it take before major online retailers implement their own social shopping platforms? A slightly different form of social shopping, Yardsale incorporates both secondhand and social elements. A mobile-only app, it makes your local garage sale available right on your phone.
Trend #4: Subscription Commerce In contrast, a trend that has taken off amongst online retailers and consumers is the subscription model. Companies like Birchbox, ShoeDazzle, BlueApron, and Fancy are all using it, to lesser and greater success. The appeal of the model for the retailer is that it solves the problem of CLV (customer lifetime value). For the consumer, boxes provide a sense of personalization, and for boxes like those from Fancy (who predetermines the content of each box along some basic themes), they also provide a solution to the paradox of choice. For a lot more insight andsome interesting reviews of the many subscription box options out there, check out My Subscription Addiction. You can get an even better of idea of who’s doing it well and who’s just making it work.
Trend #5: Digital to Brick In a world of pure-play vs. multi-channel, many eCommerce companies have opted for the online (and mobile) route in order to keep down the costs behind traditional brick and mortar retail. But one company has found a way to do both – and to both the company and the customer’s benefit. Bonobos, originally an internet-only retailer has begun opening “guideshops.” Recognizing a desire in their customers to try before they buy, customers can nowgoto designated guideshops to try out clothes and then place an order online and in-store. The orderis delivered to their home. Glasses brand Warby Parker has also begun opening stores that offer in-store optometrist appointments and a carefully curated selection of books with which to test your newfound eyeware. Fashion jewelry site BaubleBar offers in-store visits by appointment only with perks including styling sessions, a free tote bag and other small delights.
Trend #6: The convergence of content and commerce An interesting partnership is emerging between Flipboard and online retailers. Flipboard now offers clickable catalogs for retailers like eBay, Banana Republic, Modcloth and more. And they’re creating a platform not only for retailers, but for users too. For more information, check out this article.
Trend #7: Vertical Integration Finally, one of the most interesting trends emerging-and it’s significant to note that this is the only non-user-facing trend I’ll discuss here-is the movement towards vertical integration. This is a trend focused on creating a sustainable competitive advantage, not simply generating sales. For this reason, although I’ve mentioned it here, I want to come back to this trend in more depth. So keep your eyes open for a post on vertical integration and how it fits into the future of eCommerce.
Alright, so now you’ve got an idea of some of the developments and innovations I’ve taken note of in the world of eCommerce. It’s a tough world out there, but the little guys are finding some pretty good ways to fight back. (For other interesting trends, check out this article) But what does all this mean for the future of eCommerce? First, and perhaps most significantly, consumers are winning. They get more choice overall: products, costs, brands. But having this as our number one takeaway raises questions about loyalty, marketing technique, and sustainability. In particular, the following questions come to mind:
1. If the consumer has so much power of choice, what does the future of CLV and loyalty look like?
2. If loyalty is becoming ever more unattainable, how important is CPA? Is it possible to attract consumers and drive purchase behavior without some kind of gimmick?
3. This gives rise to my next question: should retailers really try to differentiate based on existing customer loyalty vs. new customer acquisition?
4. And if gimmicks are the best way to attract consumers, what’s the half-life of user-facing innovations on the web? How long is the window for gimmicks open and what are the benefits of being a fast follower?
To be honest, I don’t have the answers for these questions just yet. But I promise I’ll get back to you soon with some more insight.
I read an interesting article today in the WSJ that talked about the growth in unemployment rate among today’s recent college grads. Nothing super-surprising here.
However, I was impressed to find that the President of the New York Fed, William Dudley, sees just how impactful gigs are to the future-of-work. “More twentysomethings today work “gig to gig” as freelancers or on short-term contracts”, he said.
I wonder if this is an evolution. My experience as a hiring manager, particularly with new grads, has been that ‘trying before you buy’ is best. Maybe others have seen the light?
John Doerr, the prolific investment partner at Kleiner Perkins Caufield & Byers (KPCB) who backed Google, Amazon, Intuit, and Twitter, popularized the terminology around ‘Missionary’ and ‘Mercenary’ entrepreneurs. He described the stark differences between these two types of entrepreneurs in a 2000 interview using some powerful language:
Mercenaries are driven by paranoia; missionaries are driven by passion. Mercenaries think opportunistically; missionaries think strategically. Mercenaries go for the sprint; missionaries go for the marathon. Mercenaries focus on their competitors and financial statements; missionaries focus on their customers and value statements. Mercenaries are bosses of wolf packs; missionaries are mentors or coaches of teams. Mercenaries worry about entitlements; missionaries are obsessed with making a contribution. Mercenaries are motivated by the lust for making money; missionaries, while recognizing the importance of money, are fundamentally driven by the desire to make meaning.
Despite this being originally inked in the year 2000, I hadn’t read anything about it until recently. And I have to admit that my first response was negative.
As a serial entrepreneur, I find it hard to believe that all of us are either wholly ‘missionaries’ or ‘mercenaries.’ I mean, if you start a company once in your life, I might buy the argument that you are a missionary. I might even buy the idea that you are, in fact, starting a movement and not a company. In all likelihood, though, I’ll call bullshit.
I don’t think it’s realistic for us to believe that entrepreneurs and organization builders are not opportunistic. And it is not fair for us to characterize some entrepreneurs as shortsighted capitalists and others as long-view makers of meaning. That’s especially true if the winners are the ones who were makers of meaning and the losers just happened be the greedy fools.
The reality of the human condition is a lot more complex and a lot harder to codify. This bifurcated oversimplification of the world is just a convenient way for winners to write history. It’s way too convenient and black-and-white to be an accurate portrayal of reality. Having met and interacted with hundreds of entrepreneurs in my career, I feel like most of us exhibit characteristics of both missionaries and mercenaries as they are described by Doerr.
Many of us are excited by untapped opportunity. We could just as easily reframe that as saying, “Many of us are excited by exploiting an opportunity that others haven’t seen or exploited yet.” Is that about a movement or creating meaning? Not necessarily. It may simply start out as capitalizing on a disruptive change in technology. Or it might start out as solving a business problem you’ve had in the past.
Turning that solution into a business definitely takes strength-of-will, however. This is where you start to see a lot of missionary instincts kick-in. We begin to weave a narrative around why we chose to start this business. We figure out how to build what we are doing into a movement. We work to inspire rather than just convince people that what we are doing is going to be a market success.
The dirty-little-secret in all of this: being driven by meaning is just good business. People want to join movements, not companies. If you are a jerk with an uninspired mission, it’s a lot harder to win.
In the end, I would argue that some of us back into the meaning behind what we are doing after we find an opportunity we really like. I think that’s OK. Let’s just be honest with ourselves about how we got there.
I was enjoying dinner recently with an investor friend of mine and we got to talking about the importance of hunger when building a team. It seemed to make sense to both of us that you want to find people who are hungry – who really want to do something good. It seems only too logical that the more someone wants something, the harder they’re willing to work to make it happen.
Being smart, having skills and the right kind of experience, are the fundamentals, sure. They’re the price of admission. But beyond that – or maybe even more important than that – is hunger.
I had a few glasses of wine, so I was ready to start making contentious statements. I said: “If I were an investor, I would invest based on hunger alone. I think it is the single most important factor to consider when building a team.” I left it that – for the moment.
Not so fast. My friend’s comeback was: ”yes, hunger’s really important, but you have to balance it with egos. If egos get too big they get in the way.” Touché. Maybe not with just one person, but if you’re talking about a team, the clash of egos can be destructive to the point where you get bounced off the path to success.
So, in essence, we’re talking about aggregate hunger level compared to aggregate ego level.
So I got to thinking – couldn’t this be represented mathematically, as a code snippet or maybe a combination of the two? Something to represent the idea that when the cumulative sum of hunger is greater than the cumulative sum of egos, great things happen.
Here’s what it might look like.
h=hunger level of an individual
e=an individual’s ego
ps=probability for success:
if sum(h1…hn) > sum (e1…en)
#ps = promising; start focusing on building a great business
#ps = doubtful; start arguing about stupid shit
In a chart, maybe it would look something like an aggregate demand curve does in economics:
Yes, hunger is very important for startup and team success. But when you start putting 4, 5, 6 or 7 hungry people together, their cumulative egos can cause real problems and derail the likelihood for success. So when you’re building a team, consider this: aggregate hunger must be greater than aggregate ego.
Most entrepreneurs I talk to seem to think there are two speeds when it comes to their business: fast and faster. The reality is there’s an appropriate speed for each stage in an entrepreneur’s journey. You really can go too fast at times.
The early stages of a business venture are usually times where entrepreneurs find themselves in what I call ‘fast-wheel drive’. It seems like you can never do things fast enough. The excitement level is soaring and it seems like everything needs to get done yesterday. As the business takes shape, if you’re lucky enough to get traction and it starts to really take off, it pulls you along for the ride like front-wheel drive.
I’ve been fortunate to have been involved with hyper-growth businesses for the past 4 or 5 years and I’ve been going really fast. It’s definitely invigorating, and sometimes exhausting. But there comes a time in your journey when you need to pull out the map and decide where you’re going next. You don’t want to go too fast at this point because you don’t want to make mistakes and you don’t want to overlook potential opportunities. That’s when you need to downshift.
I find myself in downshift mode now because I decided it was time to move on and start another company. In downshift mode, I’m realizing I have to push things along like rear-wheel drive or they won’t get done. Nothing’s pulling me along right now. I don’t need to move at warp speed, so why would I?
Downshifting shouldn’t be considered a bad thing. I know I’m at the point where I need to move carefully and deliberately. I know I’m in a time of transition where I need to embrace change. I also know I’ll get to a point where I get back into speedway mode and go much faster. But right now isn’t that time.
Downshifting is just another fascinating part of the entrepreneurial journey. To me, it’s an important one.
I often get asked, “What do you do, what’s best for the person or what’s best for the company?” Or, “What happens when what’s best for the employee isn’t best for the company?”
In my mind, doing what’s best for each individual person in an organization is what’s best for the company at large. At least today. Here’s why.
If you think back in the days before America was discovered, on through the Industrial Revolution and when there was a boom in railroad construction and building skyscrapers in Manhattan this situation may have called for a different kind of thinking. Back then, maybe the kind of boat you had or the land you owned was the big differentiator.
Today, we’re in a Knowledge Revolution where things are created based on knowledge and information. Brain power is the key generator. The business landscape is more complex than what it was because people are more complex and harder to manage. They have ambitions, hearts, minds, and families that are important. The brains you have can make or break your company’s success.
Since companies run on people, it follows that the best companies are going to have the best people. Therefore, the people within the company – its human resources – are the big differentiator.
The performance of a company is often a lagging indicator of the quality of its people. Over time, you’ll start losing the quality of your product, culture, brand, and all the things that make a company strong if you don’t have good people.
That’s why I believe that, in the end, what’s best for the person IS best for the company. You have to treat people like the most important asset they are. If someone says I’m moving to Timbuktu with my spouse because it’s what’s best for me, don’t fire them to protect yourself. And don’t throw more money at them hoping they’ll stay when you know their mind is made up. Life is too short for that. Instead, embrace what they need. Celebrate the work they did and the contributions they’ve made. Support them in whatever way you can in making the transition.
How you treat your people becomes part of your company’s DNA, part of your reputation. And that’s absolutely why you have to do the right thing by your people because your reputation is built on that. The future success of your company depends on a strong DNA and a stellar reputation. Companies who put their people first will have an edge on getting the best talent and will ultimately win because of it.
What do you do when the interests of the company and the interests of your people seem at odds? I believe when you look at all the factors and weigh how important they are, you’ll come to the conclusion that what’s best for the employee is ALWAYS best for the company.
Someone mentioned a research study to me that demonstrated people are terrible at predicting what makes them happy. If you survey them, they’ll list what they think would make them happy, but they don’t actually know.
In fact, Daniel Gilbert, author of Stumbling on Happiness, talks about his research into what he calls ‘affective forecasting’ and how humans are so bad at it:
“People make mistakes when they try to predict what will make them happy in the future—a process that Tim Wilson and I have called ‘affective forecasting.’ Anyone who has ever said ‘I think I’d prefer chocolate to vanilla’ or ‘I’d rather be a lawyer than a banjo player’ has made an affective forecast. And anyone who has made an affective forecast has found out the hard way that sometimes they are wrong…People dramatically and regularly mispredict the emotional consequences of future events, both large and small.”
I’ve included a video of Gilbert’s presentation on his research at the end of this post. Although it’s a bit long, it’s very interesting and Gilbert has a knack for making his presentation entertaining, so it’s definitely worth the time.
As you think about, some of us get luckier than others. Right now, I feel like I’m doing exactly what makes me happy and I feel fortunate to have discovered my career happiness it at an early age. (I started my first company at the ripe old age of 14.)
But all of us go through transition periods. As I talk to friends who are making transitions, I find that beneath the surface, despite what most of us say or think, a significant number of people don’t really know what they ‘want to be when they grow up.’
You think the problem isn’t really that prevalent until you hear someone talk about what they want to do. A tell-tale sign of it is when someone lists a seemingly endless number of disparate options in response to the question of what they want to do. You start to think, “Those things aren’t necessarily related. What’s going on?”
The science of Human-Computer Interaction (HCI) provides a model for resolving this dilemma, and other aspects of product development have learned from it. In HCI, it’s widely known you’re not supposed to ask users what they want, you’re supposed to observe their actions to get an understanding of what they want or expect the application to do.
If you come right out and directly ask users what features they want, they’ll say A,B and C, but until they use the software they won’t really know. You have to see them in action to know what’s really going to resonate.
Humans just aren’t good at predicting what will make them happy.
The reality is that we are only a product of our experiences. If you haven’t experienced what makes you happy yet, how could you possibly know?
In some ways, this is what the Kemists is going to be about: putting talented people into different situations to find something that really works.
And now, the Dan Gilbert video I promised:
A lot of people liken the ability to raise money as a strong indicator of great timing to succeed as a startup. I can see the thinking behind that logic. At one time it was really hard to raise startup capital because the landscape was just so competitive. If you did succeed in getting funding, people thought, “Hey, you guys must be legit” because investors had their pick of the litter, so choosing you must be a very good sign of things to come.
To a large extent, that mentality has carried over to today. The difference is that in today’s landscape, getting venture capital isn’t as difficult as it once was. Competing for investment capital is a little less competitive than it used to be because there’s more money going around today. But getting your hands on money from investors isn’t the only thing you need for a successful startup.
Successful startups depend on more than just money. I see the need for 3 basic elements to succeed, of which money is just one:
You might think of it as a three-legged stool:
The thing about three-legged stools is that one weak or missing leg and you’re going to end up flat on your back.
Traction is really important. In my mind, more important than money. To get traction you need to build something that people care about. The ability to get in front of people and get people to like your product – gaining traction – is critical. If nobody cares, where will your business be?
Getting traction means bringing in revenue. To me, revenues are what matter first and foremost to determine if your company will succeed. Without revenues, you just don’t have a viable business model.
Face it, the average person on the street is still making the same salary he or she’s always made (assuming they haven’t become unemployed). The pool of available money to be spent on your product or service hasn’t changed all that much. If anything, it’s gotten smaller with people scared about which direction the economy will take next.
Because of the limited (and mostly dormant) supply of money you can take in as revenues, it’s not an especially good time to get traction for your business. I’m not saying that some new exceptional companies won’t succeed. It’s just tougher out there to succeed based on revenues right now.
Besides traction, another factor that most people don’t consider is the availability of talent. The more money that goes to startups, the more the war heats up for strong talent. And there is a huge war for talent right now, with plenty of very good people going to startups that don’t yet have a proven business model.
People don’t consider this either when saying it’s a good time to start a business, but it should be a major factor in making a smart go or no-go decision. Talent wars drive up the cost and restrict the availability of talent. That’s going to have a very serious impact on any revenues you might generate from the business.
The investor capital or Money leg is what’s strong right now. But even if you have plenty of investor capital, it’s only a matter of time before your business will fail without adequate revenues. To grow revenues, you need traction and talent.
So if you asked me if now is a good time to start a company, I’d have to say no. Now is a good time to raise investor capital. But now is certainly NOT a great time to get traction or talent. Startup money without traction and talent won’t get you anywhere in the end. And if raising seed money is your end goal, you need a reality check.
So the next time somebody tells you it’s a great time to start a business, correct them.
As you may have noticed, I have recently found myself consumed by the problems facing technology entrepreneurship today. In particular, it’s the amount of sheer waste that gets to me. As I’ve mentioned before, the real tragedy here is all of the time that is wasted by really talented entrepreneurs and early employees. Unlike money, time is non-renewable. You don’t know how much you actually have, and you can’t make any more of it when you run out.
As an entrepreneur about to embark on my next journey, this is something I think a lot about. I want to avoid premature commitment bias like its a plague (which, by the way, it is.) And I want to find myself on the right side of the disequilibrium of success! I don’t want to bust my ass for 2-5 years just to chase a mediocre dream. Not worth it.
I’ve decided that it’s time to take a new approach to building companies. That approach involves assembling a team of the most talented people in the world. Then we’re going to unearth really hard problems and solve them.
Companies will be formed.
Fun will be had.
I don’t know them yet. It makes sense to figure out the details of how this thing works after the right people are on the team. Here’s what I do know, though: we’ll be calling ourselves the Kemists.
And we’ll have a website that looks like this, and a logo that looks like this:
If you know remarkably talented people who like building companies, or are one yourself, send them to (or go to) the site and apply.
Startups are a funny thing. The amount you learn in the first 24 months after inception is enormous. You discover all the best kept secrets about entrepreneurship that no one teaches you about when you are first starting out. One of my favorites is a thing I call ‘sweat parity.’ While some of us understand the concept intuitively, few of us ever talk about it. So I’m setting out to change that. Here goes:
Entrepreneurship isn’t for the feint of heart. It’s for people who have the guts (and irrational drive) to attempt the impossible. The confidence, passion, and sheer determination that these people posses didn’t come from nowhere. We spend years of our lives developing the core of who we are. While each of us fire-starters has a different background, we are the products of an upbringing that breeds hunger.
Hungry people aren’t lazy. We work hard. We get addicted to the problems we are solving, and as such, get accused of ‘working’ 18 hours a day. But for the true-blooded entrepreneurs out there, we’re never really working. We are just doing what we love.
Not only are entrepreneurs passionate and hard-working, but we’re often smart. Here’s why: the core competency of starting companies is learning. Period. The one thing you are guaranteed of when you start your company is this: it won’t go as planned. You need to learn and adapt quickly or you won’t survive. Dumb entrepreneurs don’t last long in this game.
What I’m getting at is this: Every founding team I meet is hard-working and smart (with very few exceptions)!
Founding teams pour a ton of sweat equity into their startups. We incept the idea, immediately start sketching it out together, and our energy multiplies. We decide that our new concept needs to be made a reality. Yesterday. We start designing and coding right away. And before we know it, we can’t stop. The weeks to come are a flurry of interaction flows, wireframes, test cases, code, deployments, and private beta invitations. It looks a little something like this:
Here’s the thing: As much as we don’t want to admit it, other entrepreneurs are often just as smart and hard-working and we are. What I’ve found in my experience is that, generally speaking, startups are in ‘sweat parity.’ That is to say that their sweat is roughly equivalent to the sweat of other startups. (The incremental difference, when it exists, is often minor.) Most of us that have a professional network of folks in the entrepreneurship game know this to hold true intuitively.
The cold cruel reality of startups is this: even though sweat is mostly created equal, success is not! If we look at a random sample of a 100 startups that are 6 months old, we’ll most likely see the story unfold the same way. The companies are in sweat parity. But most companies will have a mediocre outcome, at best. A majority of the group is likely to get no significant traction. People just don’t care as much as the founding team thought they would. Or maybe they do care, but the solution doesn’t actually alleviate the core pain point.
One of these companies, however, will take off like a rocket ship. Word spreads like wildfire, and people all over the internet begin to use the product. Barring no major mistakes, things will continue to compound, and the company will continue it’s ascent to greatness.
I call this the disequilibrium of success, and it looks kind of like this:
I don’t have a great answer to why this happens, but a few things seem clear:
This may seem obvious, but it’s worth noting anyway. When most startups have really smart and passionate people and few of them will be successful, the net result is a lot of wasted potential.
This is something I think a lot about because I really don’t like seeing it happen. Perhaps more importantly, I know that I’m going to pour at least 2 years of blood, sweat, and tears into what I do next. I don’t want that potential to be wasted. I want to have a big impact. I’m not the only one, am I?