What’s So Important About Vertical Commerce? The Consumer Revolution, Part III
A Q&A with Ben Lerer
Find out what makes Ben Lerer pass on a deal, why now is the right time to be customer-centric, and what advice he has for founders.
You’re a big advocate of businesses that have a “customer-first” mentality, but are there risks to being more about the customer than the corporation?
I think staying customer-centric and not getting greedy is the biggest risk that these businesses have. It’ll likely stunt growth and prevent the business from becoming enormous incredibly quickly, but I think it’ll also be made up for in investor, consumer, and acquirer interest. I think that’s how you build brands that are really comfortable and magnetic.
So now that we’ve talked about what you like to see, what do you turn down? What brands do you walk away from?
We pass on a ton of things. A ton. And we pass on a ton of businesses that will be successful and have smart founders and are in really interesting markets and are creating good quality products.
I wish that there was more science behind why I pass, but it’s much less about science and much more about heart. Typically, I pass because of a passing comment in a meeting. It’s the one throwaway line that makes you realize that something or somebody isn’t aligned, and it shows you the difference between a great pitch and a real desire to serve a customer. The line is never in the presentation; it’s not in the margin slide or in the market opportunity slide, but it’s in the way that somebody identifies the category that they’re focused on or what they’re doing.
For example?
I’ll tell you what works, and why I don’t pass. Philip [Krim, co-founder and CEO of Casper] had worked in the mattress business for 10 years. He didn’t just say, “The mattress business is big, and so we’re going to do that because it’s right for disruption.” For him, it was more like, “I’ve been in this world. I’ve seen the way customers get treated and make decisions, and this whole system is broken.”
Similarly, Warby Parker had its one-for-one model where for every pair of glasses purchased, they’d distribute a pair to someone in need. For the last four or five years, Neil [Blumenthal, co-CEO] had been working in the not-for-profit space around vision. It was real. It wasn’t Neil coming up with a trick hook — it was him saying, “There’s a real social issue here that I care passionately and deeply for and have been working in for years. Also, the fact that I pay $500 for my prescription glasses is a disgrace. There’s a great customer experience to fix here, but there’s a dominant monopolistic brand that controls pricing on a global scale. Modern customers shouldn’t have to be taken advantage of this way, and there’s an amazing cause that I’m deeply and personally passionate about that I’ve spent years working on that I think we can actually help achieve movement in.” It was all real, and, that comes through in how the brand treats its customers.
We keep coming back to this idea that customer experience is critical to brand success. Why is this so important to today’s market?
In almost any space or any category or business that exists today, there’s an opportunity to build a big direct-to-consumer (DTC) business that doesn’t have the baggage of traditional overhead and doesn’t have the bad habits of optimizing to the bottom line. In this day and age, you can build a business from the ground up that’s all about the customer. Look at the disruption in television right now. This is the unbundling — the idea that customers don’t want to pay for 75 channels that they’re not going to watch, but people are happy to pay for great content. They just don’t want to pay for a bunch of crap, and that’s going to be true across the board. The unbundling that’s happening in TV is going to happen in every single aspect of life. Over time, customers are going to be able to choose what’s good and what isn’t, and what’s good is going to win. You know why AMC is going to win? Because AMC creates fucking awesome shows. People are going to pay for the networks that create great content, and the cable companies are going to continue to sign up to long-term affiliate deals, and advertisers are going to flock to those companies. It’s all about the consumer.
So, “customer-first” sounds like a pretty sure-fire formula for vertical startups.
It’s pretty critical, but remember that just because you have a great sense of yourself doesn’t mean you’re going to build a great big business. There are business mistakes you can make, and we’re investing at an early enough stage that our batting average isn’t supposed to be 1.000. We’re going to make bets on people. Some of them are going to build great big businesses, and some of them aren’t.
What advice would you give to a vertical founder trying to create an impactful, long-lasting business?
Generally speaking, the companies that are successful tend to be the ones that have access to capital. It plays a huge role. Companies that are in bigger categories tend to be able to get more late-stage interest because there’s the potential that the businesses can be larger — at least, that’s what financially-minded, later-stage investors believe. I like to focus on categories that I think later-stage VCs are going to understand.
Access to capital is going to be one of the things that’s going to hold some of these businesses back because it takes money to invest into your customer to have great service, to have great customer policies, to be willing (when someone doesn’t have a good experience) to make it up to them and lose money on that customer in order to make sure they stay in love with your brand. These are the little things that make a huge difference.
Read Parts I and II to catch up on Ben’s opinions about customer experience and how it relates to vertical commerce. In the meantime, follow Ben Lerer on Twitter and check out other Lerer Hippeau investments.
