FYI, Amazon will eat your lunch, and TOMS will take a bite out of your pie. 

(Read before starting an online marketplace)

Don’t get me wrong, I would have loved for Toms Shoes to spend their marketing dollars featuring Project Repat. Who wouldn’t want that? Another company, much larger than yours, is using their marketing muscle to shine a light on you. Our biggest challenge as a new company (0-3 years) is that nobody knows about us. When a big company like TOMS comes calling, you don’t say no. I would have wanted Blake Mycoskie ‘marketing halo’, as described in a recent email from Cone Communications, to reach out and tell the world about our upcycled tshirt quilts. Every cab in NYC this week featured the marketplace along with cool companies like Yellowleaf Hammocks, LSTN and Sword and Plough. No harm there.

But as we have learned over the past two years of scaling an online business that sells a consumer good, flash sale websites are more effective and helpful to us than online marketplaces. If you are making something that many people search for, like ‘yoga pants’- Amazon still rules supreme. But for the rest of us, who have a non-traditional product, a limited time discovery site is the best option. In addition, with the tools that a place like Shopify offers, our customer checkout process is comparable to a gigantic company that has spent millions on web development. We don’t have to go through a merchant service account, and customers can use paypal or any major credit card. It’s simple, quick and hassle free. A few years ago, many of these tools were not available to us, and a lot of marketplaces sprouted up to help make the buying process easier for customers, and give more exposure to the little guys. These marketplaces continue to sprout up, but they are now less useful.

Since starting to make the t-shirt quilts, our biggest challenge is not competition, but the fact that most people don’t even know this concept exists. And if they do know, they are used to seeing tshirt quilts made for $300-$500 dollars. We not only have to educate the consumer that all their tshirt memories can be preserved, but also that they can do it at a more affordable price. A discovery deal site is ideal. We go out to millions of customers in their email inbox, and there is a limited time that the deal lasts, and then we are off their marketplace, and customers have now discovered us. They also have to ‘redeem their deal’ on our website so they get to know our story, and now know they can buy on our website. Yes, there are some customers who will only buy if there’s a huge discount, but for the most part, we have found, people are happy to have simply discovered us. They now know we exist, and if they have a good experience, they will come back and shop with us again. The discovery site has helped us reach a new audience, and the customer now was able to up cycle their tshirts at an affordable price. Win win win.

For the consumer, why would they continue to shop at the marketplace when they can shop directly with us? The only reason to not is if they get a better deal at the marketplace, but then that hurts the small business. Most marketplaces take a split of revenue or buy the product at a wholesale price. If a company is making their product in the US and paying living wages it is difficult to work in a traditional wholesale relationship. This is how the breakdown usually works:

(Made Overseas)
T-Shirt Production Cost (Material +Labor): 4
T-Shirt Wholesale Cost: 8
Cost to the consumer at brick and mortar or online retailer: 16

Let’s say the t-shirt maker sells their t-shirts on their website for $20. This encourages the consumer to continue to go back to the retailer to get a saving, which is really the only reason they wouldn’t go back. In an ideal world, the maker can sell directly to the consumer for $16 and make up more margins.

So the next time you and your friends get together over beers and wine and brainstorm start-up ideas, consider the information above before doubling down on a marketplace concept. Also, at any time, Amazon will eat all of our lunches, and drink your beer. Toms is already taking a slice of your pie.

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