The Market Has Spoken: Go Horizontal, Not Vertical

When I entered the venture world in 2012 and started learning the ropes, one of the lessons that was repeated heavily was the importance of vertical specificity. Namely that consumers were becoming more demanding, expected lower friction and better workflows, and vertical focus was the only way to service these behavioral shifts. From Andresseen-Horowitz partner […]

OfferUp – By Jeff Jordan

Newspapers used to earn much of their revenue from classified advertising. This abruptly came to an end in the early 2000’s, largely as a result of Craigslist: They captured users on the web before the newspapers had a chance to …

The ‘Oh, Shit!’ Moment When Growth Stops

Investors tend to value growth over everything else because a business can’t get big enough to break out if it isn’t growing. Of course, there are a number of key performance indicators for managing a business well and toward profitability — which we’ve written about here — but there are still stomach-churning moments where growth trajectory was interrupted. Sometimes it happens gradually, but in a surprising number of cases it happens suddenly: The business is growing one day, then it’s not growing the next. I’ve taken to calling these growth hiccups “Oh, shit!” moments for CEOs. So what do you do when the growth rocket judders? MORE
 

The ‘Oh, Shit!’ Moment When Growth Stops

Investors tend to value growth over everything else because a business can’t get big enough to break out if it isn’t growing. Of course, there are a number of key performance indicators for managing a business well and toward profitability — which we’ve written about here — but there are still stomach-churning moments where growth trajectory was interrupted.

Sometimes it happens gradually, but in a surprising number of cases it happens suddenly: The business is growing one day, then it’s not growing the next. I’ve taken to calling these growth hiccups “Oh, shit!” moments for CEOs. So what do you do when the growth rocket judders? MORE

 

The ‘Oh, Shit!’ Moment When Growth Stops – by Jeff Jordan

Investors tend to value growth over everything else because a business can’t get big enough to break out if it isn’t growing. Of course, there are a number of key performance indicators for managing a business well and toward profitability -- which we’ve written about here -- but there are still stomach-churning moments where growth trajectory was interrupted. Sometimes it happens gradually, but in a surprising number of cases it happens suddenly: The business is growing one day, then it’s not growing the next. I’ve taken to calling these growth hiccups “Oh, shit!” moments for CEOs. So what do you do when the growth rocket judders? MORE

16 More Startup Metrics

A few weeks ago, we shared some key startup metrics (16 of them, to be exact) that help investors gauge the health of a business when investing in it. As one reader shared: “Drive with them, don’t just ‘report’ them”. So here are 16 more metrics — from TAM, ARPU, and sell-through rates to network effects, scale, NPS, cohort analysis, and more — that we think are important to add to the list. MORE
 

16 More Startup Metrics – by Jeff Jordan, Anu Hariharan, Frank Chen

A few weeks ago, we shared some key startup metrics (16 of them, to be exact) that help investors gauge the health of a business when investing in it. As one reader shared: “Drive with them, don’t just ‘report’ them”. So here are 16 more metrics -- from TAM, ARPU, and sell-through rates to network effects, scale, NPS, cohort analysis, and more -- that we think are important to add to the list. MORE

16 Startup Metrics

We have the privilege of meeting with thousands of entrepreneurs every year, and in the course of those discussions are presented with all kinds of numbers, measures, and metrics that illustrate the promise and health of a particular company. Sometimes, however, the metrics may not be the best gauge of what’s actually happening in the business, or people may use different definitions of the same metric in a way that makes it hard to understand the health of the business. So, while some of this may be obvious to many of you who live and breathe these metrics all day long, we compiled a list of the most common or confusing metrics. Where appropriate, we tried to add some notes on why investors focus on those metrics. Ultimately, though, good metrics aren’t about raising money from VCs — they’re about running the business in a way where you know how
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Managing Tensions In Online Marketplaces

A big part of managing two-sided marketplaces involves managing tensions between the two, often opposing “sides”. Typically these are consumers on one side and micro-entrepreneurs or small businesses on the other. Depending on the type of marketplace it is, this tension could be between buyers and sellers (Amazon, eBay, etc.); diners and reviewers and restaurants and establishments (OpenTable, Yelp); guests and hosts (Airbnb); riders & drivers (Lyft, Uber); and so on. So what should you do when you believe introducing a new product or feature will benefit the marketplace as a whole — but one or both of the sides have trouble seeing that big picture? Here are some tactics that I have deployed while managing different marketplaces… MORE

Online Marketplaces

Despite all the new forms that these marketplaces are taking today (compared to what I saw at eBay 10-15 years ago), I strongly believe that the same principles for managing them still apply.  MORE

Online Marketplaces

Despite all the new forms that these marketplaces are taking today (compared to what I saw at eBay 10-15 years ago), I strongly believe that the same principles for managing them still apply.  MORE

Online Video

YouTube does a fantastic job of generating zillions of video views for its community. Yet it does a relatively poor job of helping their users earn money. There hasn’t been any serious competition that can deliver viewers at such scale… Until now. MORE

Online Video

YouTube does a fantastic job of generating zillions of video views for its community. Yet it does a relatively poor job of helping their users earn money. There hasn’t been any serious competition that can deliver viewers at such scale… Until now. MORE

Crowdfunding

Until now, crowdfunding has mostly been an occasional, desktop sort of experience. We might back a new gadget launch or a charity a few times a year, but it’s not an everyday thing. With a smartphone in our pocket, however, we not only have access to crowdfunding platforms whenever we want, but to the crowd that comprises the various social circles of our lives. MORE

Betting Narrow Can Be Big

When new media technologies start out, their programming tends to be aimed at the mass market. It’s only when these technologies mature and their audiences grow that it becomes feasible to go beyond general interests and target segments of the audience with specialized content or commerce.

This evolution happened in the magazine industry, which exploded in the 1920s with new general-interest magazines like Reader’s Digest and Time but later targeted more specific interests with magazines like Jet, Sports Illustrated, and WIRED. This evolution also happened in television: As new technologies like UHF, cable, and then satellite emerged, programmers responded by developing channels like BET, Nickelodeon, and Zee TV targeted at specific segments of the population. Similarly, on the Internet, the early winners were “portals” that carried a broad range of programming. Next came e-commerce companies like Amazon and eBay that could address a long tail of interests—and now we’re seeing ever-more-targeted e-commerce companies such as Zulily, Warby Parker, and Julep.

What’s happening throughout all of these examples is a shift from broadcasting to “narrowcasting”, a term first coined by computing pioneer J.C.R. Licklider in 1967 about the “multiplicity of television networks aimed at serving the needs of smaller, specialized audiences”. Today, the Internet (and social media) enables us to target these segments more precisely. There’s an important nuance here, however: This targeting is not about narrowing per se, but about reaching and including segments that weren’t addressed before.

That’s why our newest investment is e-commerce company Walker & Company, which was founded by Tristan Walker to build a modern personal care brand for people of color. Globally, this is not a narrow audience given that a giant percentage of the world’s populations are people of color. But we believe Tristan is on to a big idea, because in the U.S., this segment appears woefully underserved—even though it is growing.

Brands catering to this segment are badly dated, and customer needs aren’t being met

clyde1
I’m a huge basketball fan, and one of my favorite players when I was a kid was Walter “Clyde” Frazier in spite of the fact that he played for the hated Knicks (I grew up in Philadelphia and Washington, D.C.). Clyde epitomized cool, and he helped lead the Knicks to NBA championships in 1970 and 1973.

No offense to Clyde, but I think it’s a symbol of how neglected these markets are that one of the leading selling brands in the category hasn’t updated its spokesperson or its packaging in multiple decades…

People of color also have specialized personal care needs that are often not served by the global CPG (consumer packaged goods) brands.

For example, 80% of black and

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Unpacking the Grocery Stack

Photo: Getjustin

 

E-commerce has disrupted a number of large categories, including media, electronics, apparel, and home furnishings. If you’re shopping in these categories, there’s a strong and rapidly growing chance that you’re going to buy them online. But that’s not the case for the largest retail category: grocery. For the vast majority of people, filling the fridge still means rolling a cart down the aisles at the local grocery store.

As I outlined in a previous post, groceries are among the last huge e-commerce opportunities. Online penetration of groceries is extremely low. It’s not that innovators haven’t tried—it’s that they haven’t enjoyed significant success. To date, virtually all of the digital efforts to attack the grocery vertical—i.e., the brick and mortar franchises—have followed a very similar model: by building out e-commerce grocery businesses end-to-end, including warehouses, inventory, and trucks. They’ve essentially replicated the grocery store supply chain at great cost and complexity. During the first wave of Internet startups, we saw this centralized approach most famously with Webvan, but also at Peapod, FreshDirect, and more recently Amazon Fresh.

But now a new wave of digital companies is going after the grocery business with a very different approach. That’s why we’re thrilled to announce we’re backing Instacart.

The proliferation of mobile devices is enabling what I call “People Marketplaces”: two-sided marketplaces that connect consumers with people providing specific services.From finding a ride with Lyft, to getting your house cleaned with HomeJoy, home-delivered restaurant meals from DoorDash and Caviar, and instant pet-sitting from DogVacay, the variety and usage of People Marketplaces are exploding. It’s really becoming a thing!

People Marketplaces couldn’t really exist before the smartphone; the efforts of all these people couldn’t be efficiently managed or optimized without that supercomputer-with-GPS that’s now in everyone’s pocket. Today these devices can run sophisticated software that orchestrates tasks like order placement, driver location and logistics, delivery timing, and payment.

Instacart offers same-day delivery from your favorite grocery store via an army of local contractors, often within the hour. The service is expanding rapidly and is already available in the San Francisco Bay Area, New York City, Chicago, Boston, Washington D.C., Philadelphia, Los Angeles, Seattle, and Austin. Instacart is doing this by taking what I’d term a “virtual” approach that requires negligible infrastructure investment relative to other more centralized models; they leverage the existing grocery store infrastructure with a workforce enabled by digital tools.

I know what you’re thinking; I’ve written extensively on how brick-and-mortar retailers will be disrupted by e-commerce companies, and how they’re at risk of becoming dinosaurs in many retail categories. Yet Instacart is partnering with these same brick-and-mortar grocery stores in

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Leaving It All on the Field

Many folks make the observation that it’s challenging to run a fast-growing technology start-up.  I personally think that’s a dramatic understatement.  It’s the hardest thing I’ve ever done…as well as the most rewarding.

I’d had very modest experience actually running a business when I got to eBay in 1999.  Most of my management experience had been in running functional groups within organizations, such as being the CFO of The Disney Stores.  I had a very brief stint running a business as CEO of Reel.com, the now defunct movie superstore that Amazon steamrolled once it expanded beyond books.  But that doesn’t really count as it wasn’t really a business—for example, no viable business spends something like $40 million in marketing to sell something like $40 million in DVDs at a gross margin loss.  Reel.com went from filing to go public in December 1999 to being closed down in June 2000, ostensibly a casualty of the end of the “Bubble”.  I saw the writing on the wall and left as they were preparing to file.

But Meg Whitman was willing to take a chance on me in spite of this lack of operating experience.  Meg had been my hiring manager at The Walt Disney Company in 1990 when I joined their Strategic Planning unit.  Nine years later, after we both had departed Disney, she reached out about my joining eBay.  Frankly, my impressions of eBay going into those conversations was that it was a quaint website that sold lots of collectibles like Beanie Babies, and it was already public so that most of the potential upside had already been realized.  But Meg is quite compelling, and she successfully disabused me of those notions and convinced me to join—no small feat given the Bubble was still alive and well at that point and I had lots of other offers (companies in the Valley in the late ‘90’s were hiring anyone with a pulse!).

My first role at eBay was managing a fledging “Services” unit whose charter was to develop partnerships with companies to facilitate trade on eBay, such as bulk auction management tools or electronic postage.  And she gave me a whopping two employees to manage, one of whom it turns out was plotting to start a Baja Fresh franchise and soon left.

But I had joined eBay as part of a management “bench”, in the hope that a bigger job would materialize down the road.  And one quickly did when Meg decided to split eBay into two divisions with the launch of the International unit, and in early 2000 she appointed me as head of the

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The Tipping Point (E-Commerce Version)

The news around shopping during the holiday season was dominated by two separate stories. One talked about how traffic to brick-and-mortar stores was well below expectations, and that these retailers were forced to discount tremendously to drive sales. The other talked about how an enormous late surge in packages coming from e-commerce companies overwhelmed the capacity of UPS and, to a lesser extent, FedEx, and caused many of these packages to arrive after Christmas.

But, to me, these two stories are not at all separate, they simply reflect different sides of the same narrative: We’re in the midst of a profound structural shift from physical to digital retail.

The drivers of this shift are simple:

  • Online retail has strong cost advantages over its offline counterparts and is rapidly taking share in many retail categories through better pricing, selection and, increasingly, service.
  • These offline players have high operational leverage and many cannot withstand declining top-line revenue growth for long.
  • The resulting bankruptcies of physical retailers remove competition for online players, further boosting their share gains.

So, how has this shift been playing out? Recent data suggests that it’s happening faster than I could have imagined.

The U.S. Census Bureau publishes what I consider to be the most accurate figure on e-commerce penetration in the U.S. It reports that e-commerce penetration of total retail sales in the U.S. was around eight percent in 2012. But, as I’ve blogged previously, this aggregate figure seriously underestimates the impact of e-commerce in large sectors of the retail landscape. Let’s unpeel the onion and look at the next level of reporting from the Census Bureau, where it segments the retail landscape into six large categories of goods. It’s at this level that things start getting more interesting:

The data suggests that there are two very different patterns going on with respect to e-commerce penetration. The two largest categories — “Food and Beverage” and “Health and Personal Care” — show e-commerce penetration well below the overall average. These categories essentially are the domains of grocery stores and drug stores, and e-commerce (at least to date) has achieved only modest penetration of these massive categories (but Amazon Fresh has designs on changing that).

The other four categories are what I would consider to be the domains of traditional specialty retail categories, the ones that are transacted in the malls of America. All of these demonstrate e-commerce penetration well above the overall average, ranging from a low of 12 percent for “Clothing and Accessories,” up to 24 percent for “Media, Sporting and Hobby Goods.” It’s in these specialty retail categories where e-commerce to date has had its strongest impact.

One additional observation is that the

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Local Heroes: The Public Companies of Tomorrow

A big investor mantra over the past few of years has been “SoMoLo”, an acronym for the mega-trends “Social, Mobile, and Local”.  How have these trends been performing for investors?  Social clearly has been delivering huge, as evidenced by the very strong performance of the Facebook, LinkedIn, and Twitter IPOs.  Mobile has arrived with a vengeance, with smartphones and tablets already generating more traffic for many consumer online businesses than PCs.  But at this time last year the bloom looked to be off of the “local” rose, due at least in part to the very poor performance of Groupon as a public stock.  It got so bad that a company that I know in the local space who was looking to raise a round was told by multiple venture firms to look elsewhere for capital as they “don’t do local”.

But I’d argue that local in the past year has flourished as an investment category.  A good chunk of the consumer Internet businesses that have gone public of late focus on local, and these businesses have traded strongly as public companies.  OpenTable probably opened the door here in 2009, but other high quality local companies quickly followed suit including Yelp, Zillow, Trulia, and Angie’s List.  Even Groupon, just last year the poster child of the demise of Local, has enjoyed a resurgence and now sports a market capitalization of $6 billion—a valuation that rivals the price of their oft-ridiculed non-sale to Google a few years back.

marketcapitalization

Source: CapitalIQ

When I talk about local here, I’m focusing primarily on technology businesses that power online to offline commerce.  They typically are two-sided marketplaces, with offline local businesses on one side and consumers on the other.  They typically roll out on a city-by-city basis, and require a sales effort to sign up small businesses to populate and/or monetize the marketplace.

It’s clear that mobile is helping these local businesses dramatically.  The geo-location capability of the smartphone means the computers that all of us are carrying around in our pockets are location-aware.  The resulting killer application is “show me information on businesses that are close by to where I am now”.  Using OpenTable as an example, “show me which restaurants around me have open tables that I can reserve right now”.

Building a local technology business is not all easy, due to three related features:

So You Want to Compete Against Amazon?

I’ve had Amazon on my mind lately, part of which is due to my reading Brad Stone’s very interesting book, The Everything Store: Jeff Bezos and the Age of Amazon.

I’ve described in earlier blog posts how Amazon is a brutal competitor for brick and mortar merchants due to their large and growing cost advantages and a maniacal commitment (at least most of the time) to having the lowest prices anywhere.  (You can read more about it here.)  These same drivers also make Amazon a heavyweight competitor for e-commerce companies as well.

Much attention has been paid to the concept of “show-rooming” in the context of brick and mortar stores, where customers use their smart phones to compare the cost of a product on a physical store’s shelf against online competitors—typically Amazon.  But show-rooming is also a fact of life for e-tailers due to the ease of comparing online prices.  As a result, Amazon is a monster competitor for online merchants as well.

Amazon enjoys scale economies far beyond that of their online competition that they can use to support hyper-aggressive prices and fast, cheap shipping.  Here is a simple illustration of their scale, using data from Internet Retailer:

top 50 e-retailers

Amazon is larger than the next dozen largest e-tailers—COMBINED!  Its resulting scale advantages are staggering.  And they aggressively re-invest the benefits of this scale into even lower prices and faster, cheaper shipping that in turn lead to growth and further scale advantages.  When we consider an e-commerce investment at a16z, we always strive to carefully evaluate the risk of competition from Amazon.  They’re not just a heavyweight—they’re the heavyweight champion of the world!

So how do you compete with Amazon?  Here are some strategies that we’re seeing in the market from both offline and online retailers.  Not all are mutually exclusive—i.e., many companies deploy multiple strategies:

Sell differentiated product:

Amazon’s sales skew very heavily towards “hard-lines”, things like media, electronics, home & garden, and toys.  Most best-selling hard-line products are produced by large manufacturers who market them heavily and distribute them broadly through multiple retail channels.  They are essentially commodities, identified by a standardized Universal Product Code (aka, U.P.C.).  An example is a Canon digital camera; once Canon’s ads convince you that you might want a Canon camera, you know you can shop for it pretty much anywhere.  And for most commodities, price is the key differentiator.  Consumers know that Amazon almost always has the lowest prices, along with free and fast shipping.

Many retailers try to “hit ‘em where they ain’t” and sell in categories where Amazon is less

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