VC interest in Ecommerce companies seems to go in waves, one moment being the hottest space with sky-high valuations, the next being a basically toxic sector to investors. As always, the truth is somewhere in the middle and the thing I like about these kind of cycles is that it presents some great opportunities to be a little contrarian and back some disruptive companies when they are not over-hyped.
Broadly, the cases for and against are straightforward:
I’d say all the points above are true to a greater or lesser extent. The devil is in the details.
Stripping it down, the ways in which you can win are pretty simple:
- Get more customers cheaper than competitors
- Make more margin on what you sell than your competitors
- Operate more efficiently than your competitors
Amazon does pretty well across all three: the brand is well known so customers go directly to Amazon, they have huge buying power so can source goods at great terms, and have a ruthlessly efficient logistical operation to fulfill these orders. In different verticals you can substitute other behemoths for Amazon, be it Booking.com, eBay or increasingly firms like ASOS and Zalando. So what strategies are left for an enterprising ecom startup? Three of my current favourite strategies are:
Sell unique products
To state the blindingly obvious, if you are the only one selling something, customers have to shop with you – if they want that product and can find you. Making your own products is one approach but not the only one. Building relationships that allow you to source unique goods, aggregate suppliers who do not have the reach you can offer them, be amazingly focused on a customer niche that is not well served and amaze them…
Do dirty work
The behemoths are incredible execution machines. Generally this means that what they do, they do ruthlessly well. However by definition there will be many things they actively decide NOT to do, typically as they are not scalable/efficient in their model. As a startup, this is fertile territory. And technology changes rapidly enough that what was not possible last year can become a commodity next year. People want to speak on the phone? Better still see someone live? People want better advice? Less choice? To pay by cash? Delivery at 13:23 on Sunday? Try before they buy? Have someone else tell them what to choose? Unpack the boxes and install for them? To feel like a rockstar? To rent rather than purchase? To build rather than buy? To smell, taste or hear a product/experience?
If you find the right product / price / service combination you can build very efficient processes which are diametrically different from what an incumbent can provide. Some of the above are old news and well served. Some are possible in some industries but not others. Some are just silly. But go the extra mile in a unique dimension is the take-away.
Be more than a shop
The average online shopping experience is a chore as much as a pleasure. Make it as much as possible a fun, informative, entertaining, engaging use of time. Don’t get me wrong – it still needs to be a shop and customers should feel in no doubt about this. But the experience should be such that customers want to come over and hang out even if they don’t have any intention whatsoever of buying anything. Instead of playing Jelly Splash on the bus home. Instead of channel surfing on Youtube. Instead of chatting on whatsapp or Snapchat. Instead of flicking through Facebook or Twitter. Why should customers only think about you when they search for your keywords on Google?
Each of these strategies can be applied to get customers, margin or efficiency – at least in a particular niche – in a way a generalist shop cannot. And in each case, they key is having unit economics which support your strategy overall. And in general the higher the margin on what you sell and the less you have to hand over to Google and Facebook to acquire your customers, the more you can spend on ensuring they have an amazing experience and the more they will come back and tell their friends – building this virtuous cycle is what distinguishes the future winners.