Founder Market Fit in eCommerce

As we contemplate founder-market fit, we’ve found a distinct difference in the skill set required to successfully found and build an eCommerce business selling 3rd party products, such as zulily, Stitch Fix, Wayfair and Chewy, versus those companies creating new vertically integrated brands.

You can beat Amazon investing in a 3rd party platform by backing an experienced team with unique consumer insight in a category

We used to be scared of companies selling goods from other brands, believing that beating Amazon was impossible. That outlook changed when we had the privilege to invest in zulily. They won in part by focusing deeply on building the right vendor relationships, on being experts in curation, and on meeting customers’ emotional needs. They also tackled a category with a big vendor base, high repeat and very little supplier power. In addition to zulily, other examples here are Chewy in pet food, Wayfair in furniture and Stitch Fix in women’s (and now men’s) apparel. These business are brutally intense operationally, low margin and require operationally excellent founding teams. There is no room for inexperience or a lack of savvy in scaling. Also note that building a successful e-commerce platform gives you unique insight into what consumers want. As such, many of these businesses eventually create their own private label brands that better meet customer wants and increase margin.

In contrast, new vertically integrated brands require non-normal founders who spike on brand and can break out from the noise.

One of our biggest misses many years back was Warby Parker. Their lack of prior eCommerce and operational experience were deal breakers for us at the time. What we missed is their superpower- an amazing ability to cut through the noise and build a brand that emotionally resonates. It could be through a popular blog or social media presence, like with Dolls Kill, Glossier or Kylie Cosmetics. Or it could be through a brand message that resonates across many channels — one example of this is Everlane, where Michael Preysman built a brand that stands for luxury quality product with radical transparency on supply chain and price. Another example is Allbirds, which now (rightfully) owns the branding around the world’s “most comfortable shoe.” Also of note is that these brands were built more on organic growth and word of mouth versus paid marketing

In the case of both 3rd party platforms or vertical brands, the required superpowers at the beginning need to be fully rounded out for the companies to reach their potential. That experienced team building a 3rd party platform needs to augment the team with executives with strong brand sensibility. Similarly, the young brand visionary needs to find experienced operators to scale. But the starting point we look for in entrepreneurs pursuing both types of businesses couldn’t be more different.

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