$40 million is admirable. You could do that with a flat team where everyone knows everyone else and operate out the back of an established retail business.
Scaling that up would mean having three tiers of management, scores of interns, nobody knowing the names of anyone in the warehouse, the product team not talking to the customer care team, whole departments dealing with accounts things, it just goes on. You could have 100-250 extra people without noticing, banks to pay off, vast premises to rent, a huge marketing bill, considerable IT infrastructure and so on.
This would be fine if you really were that smart and that good. Why, you could be the next Amazon.com, even put them out of business. What is alarming is that people think that way, they let greed and arrogance cloud their judgement. It is like a disease.
> product team not talking to the customer care team
I couldn't agree more. Dare I say it, we've got an "open" floor plan for our customer care and product teams. It helps immensely when you can place a customer on hold and ask a product guy a question without emailing, chatting for calling.
How do you deal with phone calls disrupting product work? E.g. I've run in to few situations that kill production / craft-person style work faster than having someone on the phone, nearby.
The re-engagement models listed seem glamorous and certainly are the current hot buzz. But, I doubt I'd call them sustainable. An established $40m company might try some of these, but should not rely on them as a core business model.
Incorporate flash sales as a daily deal feature, creating re-engagement and perhaps pushing lesser known or tough to sell products. I'd even argue that scarcity is good for a quick grab, but might be a turnoff for regular customers of a site that isn't focused solely on flash sales.
Subscriptions are a slippery slope for physical goods as well. You have to be careful to provide the customer with enough perceived value, while enforcing the notion that the value will be the same every month. At the same time, you can't strain your inventory or infrastructure to maintain the regular flow of these products.
Loyalty programs are probably the oldest, and safest trick in the book. Often times, can be done for free. Perhaps purchases earn points which are only redeemable on products you specify. Could help move problem inventory while saving a few points in payment processing fees.
One should tread carefully with all these options. Like the author mentions, there's plenty of room for innovation in this space.
It's possible that the $40m company is king of it's niche hill. If that's the case, they might look at leveraging their experience and infrastructure in other markets. All the while, working to keep the core business sustainable.
If I could have a $40m/year business with happy employees, it sounds like a win to me. Figuring out some sort of profit sharing and adopting an internal culture of innovation to stay abreast of trends would make sense too.
Plenty of people make a decent living off of such companies and so do their employees. Why would anyone call Josh Hannah though, unless they no longer wanted to run their company? Let him buy and sell his overvalued, short-lived bubbles (to other people like him who do likewise) and run your own, solid $40m companies for as long as you enjoy it...
I'm not that much of a fan of the VC infatuation with winning on a handful of "unicorns" and "super-unicorns." Perhaps better for everyone (but the VCs) would be a healthy ecosystem of thousands of companies on the order of 10-50M dollars, and more financial support for getting to this "stage." (I use quotes because I don't think every company should aim to grow as big as Google or Facebook, or even Twitter or Github.)
If this were a viable model, I'd have to assume someone would be doing it. How would a VC even go about chasing ... everything but the fat tail? How would the VCs get a return if they did figure that out? 30$ million self sustaining businesses don't pay dividends, don't raise more money (unless they want to unicorn), and don't exit.
I believe the comment was saying it'd be better for everyone else, not that it'd be a viable model for VCs.
> Perhaps better for everyone (but the VCs)
In an abstract way this makes some sense - more competition, more niche & targeted companies to suit more needs, and an income distribution that's much flatter (naturally) across the board. In the real world, it only takes one person (e.g. Bezos) aiming for something bigger to keep this model from ever thriving.
Rocket Internet more or less are doing it with ecommerce. Look them up. They've got presences almost everywhere and probably are the parent company of one or two "hot new ecommerce sites" in your city. Large marketing budgets are required, though. I believe a lot of their operations are loss-making for several years, initially.
I don't think anyone is really implying that having a $40 million company isn't a good thing to have on your hands. The main idea of this article is the overall scalability of these types of companies from a VC / enterprise point of view. $40 million is a lot to me, but pennies to others.
With competitors such as Amazon, 40 million in a lot of cases might be 10% or less of the marketshare. Or it is 100% of the market but it is tapped out.
Ecommerce is kind of a vast term. I think it is also important to look at if the company drop ships, has inventory, or manufacturers goods in-house. Huge difference there.
I think the comparison with Overstock may be a bit flawed. The president of Overstock, Patrick Byrne, has been at war with Wall Street for a number of years. He blames them for naked short selling (an illegal practice of selling stock short that you haven't borrowed) and is actually suing the "prime brokers" (the ones who handle most of the stock trades):
Thus overstock has been under attack by Wall Street and has an incredible high short interest. 20% of the stock is reported to be sold short, although Patrick thinks, with the unreported naked short selling, that the number is much higher:
NASDAQ: OSTK currently carries zero short- or long-term debt, has no bonds issued, and has no announced plans I am aware of to issue more shares from a quick glance at Google Finance. So current stock price activity won't affect the pricing of those financial instruments, since they simply don't engage in any of those.
However, what you do not see are precisely the daily operational and margin-related activities that don't make it onto the radar screens of Wall St. but do matter to the comptroller or even CFO. Vendors who you purchase goods and services from set payment terms factoring in an evaluation of the share price. Going from Net 90 to Net 30 will impact cash flow. If your share price action alarms someone enough, they may even refuse to do business except for paid-in-advance terms.
The share price also impacts your PR and marketing efforts. More alarming share price activity makes it more expensive to reach your customers; just as there are many fathers to a success story, no one wants to associate with a perceived loser, so your advertising spend per customer will go up to counter negative perceptions while only achieving the same revenue.
Similar dynamics obtain at the sales interface with customers. Your cash and time spend per customer for the same amount of revenue (thus dropping your margins) goes up with greatly negative perceptions incited by adverse share price activity. In the case of Overstock, it is not the b2c customers that watch the share price, but the b2b customers; the partners Overstock sources its inventory from.
How many times can you denigrate Amazon in a single article? Articles don't need to be written in such a sarcastic, negative tone to be informative. The style makes me distrust the author.
"Nice $40M ecommerce company - call me when it scales and I can profit obscenely while strapping you with loads of debt and/or other unwanted obligations/management advice so that you end up firing half of your staff after doing the thing I made you do because I now control the board."
On a personal level I took some justifiable hits in 2013. That goes with the territory when you raise money at $1B and then cut headcount and operating expenses as dramatically and swiftly as I did. I freely admit, when you grow revenue 500% year over year and become a media darling overnight, it’s hard to keep perspective. No doubt, we had lost perspective at Fab. We had started to dream in billions when we should have been focused on making one day simply better than the one before it.
http://techcrunch.com/2013/09/27/not-so-vip/