Shipping is a huge pain point for smaller e-commerce stores. They don’t process enough volume to grant them bulk discounts from the major providers. It’s hard to find smaller courier companies to work with. Prices aren’t transparent and negotiating as a small business is next to impossible.
Shipping is one of those unsexy, not-often-talked-about areas that is critical to an e-tailer’s bottom line. While most e-commerce companies these days use an existing payment solution (PayPal, Stripe, Balanced, etc.) to handle payment processing, they are still handling the shipping aspects on their own.
That’s why we are so excited about our latest investment, Shippo. They simplify shipping by giving e-commerce stores one streamlined solution to work with different shipping providers at once. This allows them to leverage economies of scale to pass on discounts. At the moment, Shippo offers up to 80% off compared to retail prices. They also provide an API that connects online stores to all the relevant shipping providers both locally and internationally.
The opportunity is huge as the shipping industry related to e-commerce is $360B in the US and Western Europe alone. The annual rate at which e-commerce is growing is 20%.
Other mashup APIs already exist that aggregate data from different carriers, but there’s yet to be any clear winner in the space. We believe that Shippo offers the right algorithm, API, and web interface to change the game for mid-sized e-commerce shipping. The ultimate vision is to do what ITA did for the air flight industry: enable dynamic pricing in the shipping industry and make shipping cheap, easy and efficient, across the world.
E-commerce businesses can either use Shippo’s apps or API to get shipping rates and labels within minutes. It offers direct integration with shopping cart platforms like Shopify, Etsy, Magento, and Bigcommerce. Or, developers can integrate the Shippo API directly to their own website. Since Shippo negotiates pricing by aggregating its users, the more e-commerce companies that join Shippo, the greater the discounts for everyone.
Co-founders Laura Behrens Wu (CEO) and Simon Kreuz (CTO) launched Shippo in October 2013 and the company has already seen intense growth since launch. Laura and Simon are first-time entrepreneurs and alumni of 500 Startups (Batch 8).
We are thrilled to be investing alongside SoftTech VC with participation from 500 Startups LP, Accelerate FC, Funders Club, East Ventures Investment LP, Mena Ventures Investment, DBF Digital Business Factory, Slow Ventures, Joanne Wilson, Fabrice Grinda, Dave Shen, and Karl Jacob.
To learn more, visit https://goshippo.com/ or follow @goshippo on Twitter.
How does your startup think about innovation? Is it a new feature that gets incorporated into the next release? Is it a new market breakthrough that’s years away?
I recently held a mini Tweetstorm where I opened the conversation to innovation across three horizons: short-term, mid-term, and long-term. Here’s more dissection on the topic beyond 140 characters…
Horizon 1: Short-term
Horizon 1 innovations are incremental…the hundreds of little tweaks and improvements that your company implements every day or week to stay ahead of the curve (mostly done through many a/b tests at the same time). For example, you might change out the processor to make your product faster and cheaper. You improve the UX on your mobile app to increase your users’ engagement. You optimize your home page to increase sign-up conversions.
Since they’re on a smaller, incremental scale, horizon 1 innovations are the most achievable. However, just because they are easy doesn’t mean they aren’t significant to your startup’s success. These everyday improvements are critical to keeping your customer base happy and maintaining your competitive edge in the current market.
Horizon 2: Mid-term
To stay relevant in your market over the years, you need to place bigger bets that redefine your business and/or open up completely new opportunities. These are horizon 2 (mid-term) innovations. For example, Apple’s recently announced Apple Watch; Amazon’s Kindle; Facebook’s introduction of a newsfeed several years ago.
Although these innovations can relate to your existing product or business focus (i.e. digital books vs physical books), horizon 2 innovations are bigger ideas that take place outside of your existing products’ budget and activities. And while you don’t necessarily want to assign a specific timeline to each horizon, these mid-term innovations probably won’t generate revenue until 3-5 years out.
Horizon 3: Long-term
To build a truly great company, you will need to define a brand new market category. These innovations are often described as breakthrough, disruptive, and discontinuities. They represent totally out-of-the-box ideas that aren’t extensions of your existing products or services. Good examples of long-term innovations are Google Glass and their work on a driverless car; Amazon’s AWS; or when Apple launched the iPad and created a completely new category.
Horizon 3 innovations require a clear vision, along with the stubbornness to achieve that vision in the face of challenges and short-term priorities. Jeff Bezos admitted that it took them three tries to get their third-party seller business to work. Today, there are more than 2 million third-party vendors on Amazon, accounting for about 40% of all items sold.
It’s not easy to make such a market breakthrough…it takes discipline to invest in something that may not come to fruition for many, many years. But if you’re looking for motivation, Jeff Bezos summed up the opportunity perfectly in an interview with Wired back in 2011: “If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that.”
The very best companies (Facebook, Apple, Amazon, and Google) excel in all three dimensions. To be wildly successful, you cannot sacrifice your long-term vision for short-term success just as you can’t sacrifice your current product and customer base for your long-term vision.
With the influx of seed money, much has been written about the fact that start-ups that are taking far more funding than they need. For example, check out Fred Wilson’s post where he compares funding a start-up to walking up a flight of stairs. When building a company, it’s smarter to hit each step on the way up rather than jumping over three, landing on the fourth, and potentially falling all the way down.
I know. Being swamped with funding is a problem that most early stage companies would love to have. However, as an investor watching my portfolio companies and other start-ups in the market, I can see how large rounds negatively impact the culture of budding business. On a personal note, I’m the first to admit that we had too much funding with my start-up back in the days.
What’s the issue with too much funding? Here are four key drawbacks:
Pitfall 1: Solving every problem with non-scalable hacks
At the beginning, it’s important to do things that don’t scale, especially when it comes to customer acquisition. As Paul Graham said, “startups take off because the founders make them take off. There may be a handful that just grew by themselves, but usually it takes some sort of push to get them going.”
In the early days, you’re going to go through a lot of manual, laborious steps to get things moving. And that’s okay. However, this mindset becomes a liability when every problem gets solved by manual hacks instead of scalable solutions. Companies with limited funds are more invested in finding those highly scalable, no-touch solutions that are needed to rapidly grow.
Pitfall #2: Losing creativity
Some of the world’s best ideas are born from necessity. When you have the luxury of abundant resources, you lose the creative push to make something happen out of nothing. A perfect example is when businesses are suddenly flooded with cash, they opt to buy the biggest trade show booth rather than thinking of creative ways to gain attention via smart guerilla marketing around the expo center.
Pitfall #3: Tackling too many things at the same time
Every start-up will have more opportunities than they can possibly tackle. The most successful start-ups and founders are those that limit themselves to being very good at the right things.
Too much funding removes the natural limit on how many opportunities you can go after. The result is an unfocused business that is haphazardly working on many projects and is mediocre at all of them. I’ve seen many start-ups rush to hire new staff and tackle brand new verticals or international markets when it’s just not time yet.
Pitfall #4: Culture of “we’ve done it”
Funding rounds are only intermediate steps on the way to building a great, lasting company. The problem with a large funding round is that it can change the company culture from the scrappy challenger to “we made it.” Companies lose that hard-working, aggressive ethos and take on a more complacent, free-spending attitude.
For an example of how to do it right, I’m always amazed at how Jeff Bezos has managed to keep a start-up culture at Amazon despite it’s being a billion dollar company. Amazon is known for its peculiarities. The desks are re-purposed doors and some senior executives still take the train to the airport instead of a cab or limo.
Final thoughts: Too much of a good thing…
I’m sure I won’t convince every entrepreneur to turn down the cash. And certainly, there are times when it’s wise to take a huge round (such as to protect yourself from a potential downturn). If you do take on too much money early on, congratulations on the success- but be aware of the potential consequences and manage them proactively.
Today marks my first full year in VC at Version One. Over this time, I have grown so much and am happy to report that being an investor is still very much aligned with my core values. As I reflect on the past year, I want to share what I have discovered about these 3 core values: learning, compassion, and freedom.
I believe that the more we know, the better our decisions are. I love being in VC because I get the opportunity to learn about new technologies and industries every day. The challenge is to push myself to learn faster and smarter.
What I’ve learned about learning at Version One:
Working on my PhD, I learned how to learn. I never anticipated how helpful or relevant my research skills would be in VC. At Version One, we aim to be as thesis-driven as possible. Each month, we pick an up-and-coming vertical or theme and do a deep dive (with the help of Mattermark - portfolio plug). We create a market map to identify where there are opportunities for disruption and ask ourselves: if we were to build a company in this particular space, what would it look like? In other words, we try to figure out what a winner in the space looks like, then assess whether it would fit our fund.
We may not always be right, but it’s important to have conviction. And being thesis-driven makes us more efficient when filtering through all the startups we see.
In addition to developing our investment thesis, we recognize that VC is still an industry built on relationships. My favorite part about being an investor is working with our portfolio companies, as well as other investors and entrepreneurs. I continually remind myself how lucky I am to get to be around people who are super smart, super passionate, and super courageous. These entrepreneurs constantly inspire me and in return, I aim to be as helpful and as kind as I can be.
What I’ve learned about being compassionate:
The first (and hardest) lesson I learned was that it is simply impossible to help everyone. We invest in 5-6 new companies a year, out of the 1,000+ that we see. In the beginning, I fell in love with every new idea, making it very difficult to pass on someone because they don’t fit our fund. Saying “no” is the least desirable part of the job, but I try to provide the most honest and specific feedback as possible.
I’m also thinking of other ways I can “scale” my compassion. Writing, workshops/conferences/panels, teaching, and paying it forward, just as so many investors have for me, all help to extend my reach as I try to be as open and transparent as possible.
I definitely thrive when given trust and autonomy. Thankfully, this was the case as Boris “released me into the wild of the Valley” immediately after I joined him at Version One.
What I’ve learned about freedom:
VC is great in that we have the freedom to work anywhere and at any time… but this often results in working everywhere, all the time, making communication and time management all the more critical. As a team of two who are usually working in different cities and/or countries, Boris and I constantly review our investment processes and internal operations. We can’t get to everything, so we try to do the right things well.
I’ll be the first to admit that my first six months were more reactive as I ramped up on my understanding of VC. However, I quickly learned how to prioritize. As a simple tip, I overcame my “fear of missing out” on events by only participating in those where there’s a plan to reconnect with someone I already know (and this still allows for those serendipitous encounters too!).
Thanks to everyone for making this first year so special, and for contributing to my personal mission of helping others recognize their potential and realize their dreams.
Here’s to an awesome year two!
A community can make or break a marketplace. I owe much of the success of my former company, AbeBooks, to the passionate community of book lovers that came to our site. Considering more than 1/3 of Version One’s portfolio are marketplaces, I appreciate just how much a strong community can be one of the most powerful differentiators and growth drivers for marketplaces.
When a group of users starts spreading the word and engaging with your site beyond pure utility (i.e. comes to chat with other users, not just make a transaction), then that community can help build and scale your marketplace. Early eBay, Etsy, and AirBnB are all great examples of this.
Yet while community can be a marketplace’s biggest asset, it can also be its biggest liability. A marketplace company needs to strike a careful balance between giving up some control to the community, without being overrun by it. For example, much of Digg’s downfall is attributed to just how much it listened to is hard core fanatical user base…i.e rolling out new features, then quickly rolling them back when their more vocal users complained.
How can you best manage a community so it contributes to your growth? Here are a few tips:
1. Give up some control: You can’t let Digg’s story scare you into taking a 100% dictatorship approach to managing community. Your community wants to be a part of something; you’ll need to give up some control to let them participate. For example, you can listen to product feedback, ask for beta testers, and consult with them on community rules.
2. Listen to the whole range of your users: If you want to build a marketplace for a broad user base, you need to listen to everybody…and not just your vocal power users. Find ways to capture input from a diverse representation: from the vocal power users to the silent majority. Your more vocal users will make themselves heard through user forums, but you may need offline events, client advisory groups and 1:1 conversations to tap into the thoughts of everyone else.
3. Publish community values and rules: It’s best to define the values and rules for the community you are trying to build early on. This way everyone understands the ground rules from the start and you have terms to refer back to if the need arises. Ebay did a great job of defining and living by their values.
4. Invest in community managers: In many ways, communities are self-organizing, but they still require active administration and moderation. A good community manager will play both a reactive and proactive role: first to respond to any poor behavior that might drive away other participants and second to draw out the best level of contribution from everyone.
5. Always take the ultimate decision: while it’s important to engage with and listen to your community, keep in mind that you have the ultimate decision in all matters. It is impossible to make everyone happy and companies can run into big trouble when they try. You need to have a strong sense of your company’s core values and then you can weigh user feedback within the framework of your own convictions.