Why so many hot apparel ecommerce startups are vertically integrated February 3, 2012
Posted by jeremyliew in apparel, Ecommerce.add a comment
The WSJ has a story on what goes into the price of a shirt that shows why so many of the current batch of hot apparel ecommerce companies (e.g. Shoedazzle*, Bonobos*, J Hilburn, Warby Parker, IndoChino etc) are vertically integrated. The retail value chain has a significant markup built into both the wholesale and retail channel as can be seen here.
Vertically integrated companies can take a lot of the costs out of the system and provide a much more compelling value to the consumer while still making an attractive margin.
* Lightspeed portfolio companies
WSJ compares Petfood ecommerce, likes Petflow February 3, 2012
Posted by jeremyliew in Ecommerce.Tags: petflow
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Last year we invested in Petflow, an online  petfood retailer. We believed that Alex and Joe, the two cofounders, would be able to repeat the success they had in founding Azoogle (now part of Epic Media Group) and that the repeat purchase behavior inherent in petfood would generate loyal repeat customers and high lifetime value, despite the high shipping costs inherent in petfood. Pets.com went down in flames when the first bubble burst, but we believe that today’s much lower cost of building and running an ecommerce site, today’s variable marketing costs that performance marketing affords, and today’s mainstream acceptance of ecommerce make this a much better opportunity.
Others see a similar opportunity, notably Quidsi (parent company of Diapers.com) who launched Wag.com.
Alex and Joe have been steadfast in their focus on high quality food and service, and it’s nice to see that recognized in yesterday’s WSJ Cranky Consumer article comparing online petfood retailers. The higher quality focus is noted, despite the fact that the tester is used to cheaper supermarket brand food:
Tester Pixel loved this food. We put out two bowls: one with Meow Mix and one with the Holistic Select. He went right for the Holistic Select, and now turns up his nose at Meow Mix. Pixel may force us to return to PetFlow.
Mr. Chewy also got a thumbs up, Wag and Petfooddirect unfortunately did not. Congrats to Joe and Alex!
Commerce in the Time of Social September 29, 2011
Posted by Bipul Sinha in business models, Consumer internet, social media, social networks, Uncategorized.Tags: commerce, entrepreneurship, social
5 comments
The fabric that underlies the social Internet is essentially a new web where people are the nodes, connected through a social graph. This ubiquitous people to people connection with real identities has significant implications for commerce and how we transact in the real world. The reduction in information asymmetry in the marketplace and the ability to mobilize people, through the social graph messaging and data, have the potential to unleash peer to peer commerce in a way we have never seen before.
The Rediscovery of Direct Selling Businesses
Everyone has heard stories of Tupperware parties where a group of people gathered in someone’s home for product demonstration, buying and socializing. The social media is giving a new boost to this old business model by enabling the entrepreneurial hosts to invite friends and friends of friends, and gather offline to socialize and transact, using online tools such as Facebook and Twitter. The online and offline recommendation, feedback and validation
reduce the social approval anxiety and the friction in the buying decision. The social graph-enabled direct selling business model is especially interesting for highly demonstrable products such as handbags, jewelries, shoes, home accessories, etc. These products tend to be discretionary and highly correlated with emotions, impulsive buying and discovery orientation. The innovators in this space would foster entrepreneurship by enabling individuals to participate in the value creation and get the rewards.
The Overcapacity Marketplaces
The social Internet is enabling new kinds of peer to peer marketplaces where people can transact on overcapacity. The overcapacity can be in their belongings or skills. Since the articles involved in transactions tend to be
personal in nature, the social graph acts as a lubricant to reduce the friction and cost of transaction. The living space sharing marketplaces such as Airbnb, personal car sharing marketplaces such as RelayRides, meals marketplaces from local chefs such as Gobble, etc. are some of the examples of the overcapacity marketplaces. In each of these, participants are leveraging overcapacity, be it in their homes, cars or skills utilization to create value. These marketplaces empower individuals to run their own business models and make profits accordingly. We will witness the rise of the overcapacity marketplaces as the peer to peer commerce takes off on the back of the social Internet. The unleashing of entrepreneurial imagination and the resulting innovations would help usher in an era of collaborative consumption.
Nutanix launches and a new era for data center computing is born — No SAN or NAS required! August 16, 2011
Posted by ravimhatre in 2011, Cloud Computing, data, database, datacenter, enterprise infrastructure, Infrastructure, platforms, Portfolio Company blogs, startup, startups, Storage, Uncategorized.Tags: data center, datacenter, nas, san, storage, virtualization, vmware
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The Nutanix team (ex-Googlers, VMWare, and Asterdata alums) have been quietly working to create the world’s first high-performance appliance that enables IT to deploy a complete data center environment (compute, storage, network) from a single 2U appliance.
The platform also scales to much larger configurations with zero downtime or admin changes and users can run a broard array of mixed workloads from mail/print/file servers to databases to back-office applications without having to make upfront decisions about where or how to allocate their scare hardware resources.
For the first time an IT administrator in a small or mid-sized company or a branch office can plug in his or her virtual data center and be up/running in a matter of minutes.
Some of the most disruptive elements of Nutanix’s technology which enable the customer to avoid expensive SAN and NAS investments typically required for true data center computing are aptly described on company’s blog – http://www.nutanix.com/blog/.
Take a look. We believe this represents the beginning of the next generation in data center computing.
The Anatomy of a Social Product August 2, 2011
Posted by Bipul Sinha in social media, social networks, startups, Uncategorized.8 comments
The social Internet is fundamentally a game changer. Unlike the web-link driven Internet, the social Internet connects people directly to one another and the resulting social graph essentially provides for a brand new, highly scalable distribution mechanism. The early adopters of the Facebook platform such as Zynga leveraged the platform’s social distribution to reach scale relatively quickly. However as the platform is restricting notifications to the users, a number of newer applications are finding it hard to get user traction and sustain engagement. In the competitive world of Facebook and other social platform applications, applications have to be fundamentally social to survive and get user attention. My acid test for an application leveraging social graph – “is the application useless in the absence of the social graphâ€. A “No†answer indicates a mere social layering on top which is not sufficient.
The Hierarchy of Social Interactions
A social application’s user interaction model should be around discovery and handholding users from “lookers†to “doersâ€. The discovery is essentially bringing together emotional, impulsive, curiosity, and other inherent psychological needs, and delighting users every time they engage with the application. The discovery aspect of a social application is what brings users back into the application and sustains engagement levels.
The hierarchy of interactions from lookers to doers is core to the discovery mechanism. A well designed social application must provide value to users who are just lookers and make no input. Such users make the majority of an application audience. The next up in the hierarchy is “one click†interactions. With this mechanism a user can vote up or down on any object created by other users. This kind of low-touch interactions help users get over the hurdle by reducing the cognitive dissonance arising out of “what to write or commentâ€. The next step up is “responding†to a question or comment from other users. This, again, is low hurdle activity since users have the needed context to respond with. Users who ask or comment in the first place are still next level up in the interaction hierarchy because they are dealing with low to no context resulting in higher level of cognitive dissonance. At the top of the hierarchy are users who upload or generate content. The effort needed to generate/upload content and the social approval anxiety make this step the hardest for the users. A successful social application essentially handholds users up the social interaction hierarchy and creates stickiness and high level of user engagement. As a general rule of thumb, the distribution of users in different position on the hierarchy are 80% lookers, 10% clickers, 5% responders, 3% askers and 2% creators.
A social application by its very definition involves social approval, recognition, and emotional fulfillment, and application developers should focus on reducing social approval anxiety and cognitive dissonance by creating an easier path for users to convert from lookers into doers.
Democratization of Entrepreneurship July 23, 2011
Posted by Bipul Sinha in startups.Tags: entrepreneurship, startup
9 comments
The first decade of the new century witnessed a fundamental change in the nature of the technology entrepreneurship. The dramatic reduction in the cost of starting a technology business combined with readily available risk capital has created a near perfect market for anyone with an idea and some risk tolerance to become an entrepreneur. This democratization of entrepreneurship has profound implications not only for the venture capital industry but also for the economic growth and prosperity.
The maturity of the Internet as a platform and the growth of open source projects have given rise to infrastructure-as-a-service providers that allow companies to almost completely eliminate the upfront capital expenditure and pay based on usage of the infrastructure. The entrepreneurs are leveraging the outsourced infrastructure along with Internet based low cost distribution to test and refine business models. The so called “Super Angels†who are a new class of risk capital providers have emerged to support such early stage Internet business model experimentation. In most cases the outcomes of such experiments are determined with less than $1M in invested capital. The successful models then go ahead and raise substantial venture capital to scale the business. What is the most interesting is, unlike the previous generation of technology entrepreneurs who were building infrastructure components of the so called technology stack, this new generation of entrepreneurs don’t need deep domain experience to start web based businesses as vast majority of the new companies are business model innovations with some technology pieces layered in. Further fueling this phenomenon is plenty of early exit opportunities for these companies even if the business model turns out to be not very scalable.
The democratization of entrepreneurship is net positive for the Silicon Valley ecosystem. The reduced barrier to entry and cost of failure have encouraged hordes of new college grads and corporate professionals to start companies. The traditional venture capital market is more efficient than ever because only somewhat proven ideas get further funding to scale the business. The venture firm brand name is not the most significant determinant of deal access especially in early stages due to serendipity factor in the identification of teams and business models. The market is much more of a level playing field for all.
Some people argue that easy access to capital and plenty of early technology/talent exit opportunities would create a culture of “fast flippers†where entrepreneurs would avoid long and hard slog of building large, standalone businesses that made Silicon Valley. Surely, there are well funded startups that look more like lifestyle businesses with no real potential to scale. However, we are early in this cycle and I believe market forces would eventually bring equilibrium.
I am more excited than ever about the pace of innovation and the resulting economic growth and prosperity. The unleashing of communication revolution combined with ubiquitous computing is creating level playing fields for consumer and entrepreneurs alike around the globe. We are indeed living through an age of acceleration where erstwhile temporal distances are getting squeezed. I will write more about it in the future.
The Lightspeed Summer Fellowship Program Explained April 12, 2011
Posted by John Vrionis in 2011, blogging, start-up, startup, startups, Summer Program, Venture Capital.5 comments
There’s been some great discussions recently about the Lightspeed Summer Program (http://news.ycombinator.com/item?id=2380567) and at several of the sessions over the weekend at the Stanford E-Boot Camp (http://bases.stanford.edu/e-bootcamp/ so I thought I’d do a quick post to help answer some of the recurring questions.
Background. I started the program at Lightspeed 6 years ago because as an undergraduate and graduate student I, as well as many of my entrepreneurial classmates, took on “real†internships during the summers in order to pay the bills (rent, gas, beer…). We worked on our startup ideas on nights and weekends out of necessity. When I joined Lightspeed in 2006 and realized that we had the resources to facilitate some number of idea-stage projects, we put together the Summer Program and opened it up to student led teams. Why did a student need to be involved? We had to draw the line somewhere. The program could not be just another entryway for entrepreneurs to pitch Lightspeed. We wanted to target young, entrepreneurial minded people and give them a viable summer alternative to taking that traditional internship.
I know from personal experience just how hard starting a company can be. It’s a BIG DECISION to tackle early in your professional career. Pieces of the program have changed over time, but the GOAL has remained constant since inception and that is simply to give young entrepreneurs the time and resources to fully experience what it is like to start a company.
Purpose. The Lightspeed Summer Program is NOT an incubator, nor was it ever intended to be. We are not looking to fund companies out of the program. Really. I promise. We want people to experience startup life fulltime and have the opportunity to learn if it is something they truly want to do. Is there benefit to Lightspeed? Yes, of course. We hope to build relationships with young, talented entrepreneurs at this stage in their careers. We are in the business of fostering entrepreneurship. We also have a very long term view on what this means. The opportunity to work with bright, energetic people who have ideas about how to change the world is exactly why we do this job in the first place.
Why don’t you ask for equity or a right to invest? It’s funny, people have asked me “What’s the catch?â€Â Or, “It sounds too good to be true, so what am I missing?â€Â I appreciate the genuine skepticism so I want to be as clear as I can on this one. The reasons we don’t require an obligation from the entrepreneurs we accept are simple:
First, we don’t have expectations that the teams we accept will be ready for venture capital during or after completing the program.  In fact, I’ve been surprised by the number (12+) that have gone on to receive venture or angel funding.
Second, we look at the program as a way to engage with people at this stage in their careers. If we do a good job and they like working with us, they should want to come back and work together down the road if they want to pursue entrepreneurship. If we don’t do a good job, and they don’t like working with us, well, shame on us(!), but the entrepreneur shouldn’t be obligated to work with Lightspeed.
Evolution. I’ve changed the “rules†of the program over the years to try and make it a better experience. For example: I learned in Year 1 that teams without engineers didn’t accomplish much in the 10 week time frame. Without fulltime “doers†teams ended up with a lot of ideas and power point slides but very few actual results. So we adapted and started requiring that every team have at least one CS or EE major as a way to push teams to have members that could actually build stuff over the summer. Example 2: I learned that what is most helpful to the Fellowship winners in terms of guest speakers and introductions is other young founders who have successfully raised money and angel investors. So I changed our guest speaker lineup and invited fewer attorneys, CFO’s, and recruiters and went with a healthy dose of entrepreneurs, CEO’s and investors. Example 3: Entrepreneurs like lots of free food, so we added more snacks.
If I participate in the program and Lightspeed doesn’t invest, isn’t that a bad signal? This is something I didn’t think about when we first started the program. It’s a very valid concern. The LAST thing I want to do is have a program that creates friction for any entrepreneurs who want to continue to pursue their company after the program. So we made a change. Starting last year, we made a commitment to every team we accept. Lightspeed will invest a minimum of $50k in any Summer Program winner that continues on with a company and is able to pull together a round of at least $500k from other investors. It’s very important to understand that the Lightspeed investment is completely at the entrepreneur’s option. If you don’t want it, don’t take it. But this way, if any investor ever asks, “Is Lightspeed investing?†the answer is “Yes, if we want them to.â€
Competition. People often ask or comment about other programs (YC, Angel Pad, etc). I’m thrilled these programs exist and are flourishing.  I think the more opportunities out there for young entrepreneurs to try the startup life, the better. We’ve had teams in multiple summer programs in the past and its been great. The one requirement we ask is that teams dont participate in more than one program at the same time.
Resources. The program gives Fellows office space, some funding, VC mentorship (each winning team has a Partner from Lightspeed as a mentor), introductions to founders and angels, and a chance to work on your idea fulltime. I’ve learned that our Fellows also benefit greatly from the camaraderie that emerges from working with other entrepreneurs in a close environment and that these lasting relationships mean a great deal to people.
This program is NOT for people who want a lot of hand holding. As an entrepreneur, I learned you need to be scrappy. The program is designed to give you all the resources you need but ultimately it is best suited for entrepreneurs who just need the chance to make things happen.
Application. We one round for 2012. The deadline for is March 2, 2012 so get them in! Find the app here: http://www.lightspeedvp.com/summerfellowships/
How to estimate market size March 16, 2011
Posted by jeremyliew in startups, VC.8 comments
As an entrepreneur, your time is a very valuable asset. It takes as much time and effort to build a business whether you’re attacking a small market or a big one. But the rewards for success in a big market are much greater, so it makes sense to attack big markets.
For the same reason,VCs are often very focused on market size. But there is is a lot of confusion about how to estimate market size. While you might play in a big industry, it is the Total Addressable Market size (TAM) that is really important.
TAM is really a pretty simple concept – it is what your revenue would be if you had 100% market share in your business. This is often radically different from what an analyst report estimates as market size as their view of the “market” can be quite different from what your product can address. Here is an excellent analysis from VigLink of their TAM:
Viglink allows publishers to put commerce links into their content with a universal affiliate code, and then tracks sales that originate from those links and pays out the affiliate fee. As you can see above, they have done a really nice job of starting with an enormous “market size” ($600bn+ ecommerce market) and broken it down into what is addressable by them, the network payout piece of commissions coming from affiliate orginated ecommerce transactions, which is still a $1b+ opportunity.
I’d urge other entrepreneurs to conduct similarly realistic analysis when they present market size estimates.
How to deal with bad PR March 5, 2011
Posted by jeremyliew in PR.2 comments
The Economist has published a couple of interesting articles about how to deal with bad PR recently.
The first suggests that it is better to ignore bad PR than to fight it:
…rebuttals are unwise, argue Derek Rucker and David Dubois, of the Kellogg School of Management, and Zakary Tormala, of Stanford business school, three psychologists. By restating the rumours, Coke helps to propagate them. Its web page is a magnet for search engines. And people who read rebuttals tend to forget the denial and remember only the rumour, says Mr Rucker.
As information is passed around, important qualifiers are lost. A rumour may start as “I’m not sure if this is true, but I heard that…†Then it evolves into: “I heard that…†Finally it becomes: “Did you know that…?†Even when no one intends to spread falsehoods, they spread.
The second suggest that for startups and other unknowns, bad PR is better than no PR:
…if your starting point is obscurity, even bad publicity may be helpful, argues Alan Sorensen, an economics professor at Stanford University’s Graduate School of Business. He looked at the effect of book reviews in the New York Times. In a study published inMarketing Science*, he found that well-known authors who earned glowing reviews for a new book could expect to sell 42% more copies, whereas a negative review caused sales to drop by 15%. For unknown authors, however, it did not matter whether a book was panned or lauded. Simply being reviewed in the Times bumped up sales by a third.
Mr Sorensen extrapolated his findings to other businesses. For small brands fighting for recognition in crowded markets, almost any publicity is beneficial, he reckons. One reason is that, for lesser-known brands, negative perceptions fade more quickly in consumers’ minds than their general awareness of the product.
If you’ve had bad PR around your startup, let me know what you think.
Tips on Facebook ad campaigns February 16, 2011
Posted by jeremyliew in advertising, facebook.2 comments
A couple of weeks ago Webtrends analyzed 11,529 Facebook ad campaigns representing 4.5bn impressions to see what conclusions they could draw. It’s worth reading their short white paper on Facebook Advertising Performance Benchmarks and Analysis. Some highlights include:
I’d urge you to read the whole thing. It’s only seven pages long.
