A Start-up Takes on Wal-Mart
Brian Wiegand is no stranger to start-ups. His first business, BizFilings, launched in 1996 from his basement and later sold for $15 million to a public company. He and business partner Mark McGuire went on to start two others. The most recent was Jellyfish.com, which caught the purchasing eye of Microsoft only 18 months after its inception. The two could have stayed after the sale, but decided corporate life wasn't for them.
Now the duo has launched their fourth online company, Alice.com, an online service in the consumer packaged goods industry. The site connects manufacturers directly to consumers, bypassing large retailers such as Wal-Mart and Target. Wiegand, Alice's CEO, and McGuire, the company's president and co-founder, recently explained their slightly unorthodox business model to Inc..
What made you want to delve into the tough consumer packaged goods industry?
Brian Wiegand: We sat and thought about what else we could do, and we really looked at the consumer packaged goods space. When you really look at this, you find no one's buying these goods online. Why? Everything else is going crazy; Amazon.com sells all kinds of things. These other online categories are growing, so why isn't the household supplies market? The No. 1 reason is shipping. It actually costs more to ship a tube of toothpaste than it does for the actual product. Online prices are 30 and 40 percent higher than some of the mass retailers, plus you have to pay for shipping. We've created a model where we always offer free shipping with prices similar to the existing prices of, let's say, a Target or a Wal-Mart.
How do you make this shipping model cost effective on your end?
Mark McGuire: All of this is centralized in one warehouse, and we pick, pack and ship everything. It's not like Amazon's model that ships bulk of these products to the consumer who gets a different box from each different manufacturer. Our model packs everything in one box.
Other than jumping into a previously undeveloped online market, what else sets Alice.com apart from other e-commerce sites?
Wiegand: The "secret sauce" is that we've created a planning subscription service here. The use of [these products] is a repetitive type of pattern, so we've created more of a Netflix-style service. When you add paper towels to your virtual shelf, you're actually adding a reminder and can set the re-order frequency. The site gets smarter as you order, and it knows what you use. This reminder set of tools is all drag-and-drop. We've created a price comparison, so if you click "check prices," it shows you the prices at Walgreens, CVS, Target and Amazon. Then when you add a product, it goes into your personal shelf. When you want to check out, you just drag them into your cart. We've entered a number of Quicken-like tools to show you on a month-by-month basis how much you're spending. We've taken all the coupons in the entire country and uploaded them here--they're automatically applied--so you never have to get the scissors out. It's very green.
If you're connecting manufacturers directly with the consumer, how do you make a profit?
Wiegand: We're really not a retailer at all. We make no [profit] selling goods. We make money on the advertising side of doing coupons, sampling and keywords – like if you type "shampoo," what shows up first, second, and third. We have a Google-like click model.
So what's your pitch when you go into these large manufacturers?
Wiegand: We aim at their pain points. Their big problem right now is that they're losing touch with the consumer. Some of the major retailers are actually becoming manufacturers by creating their own private-label products. Every time a retailer makes its own products, they have to take one of the national-branded ones off the shelf, so someone's getting hurt. For years and years, the manufacturers have marketed products on TV through soap operas and through traditional advertising, but that market is fragmenting. So companies are losing their ability to use what we call their "giant megaphone" to spray their message out there. They are looking for anything they can do to try to get in touch with that consumer. They're looking for options, and that's what we come in and pitch them.
What's been their response?
Wiegand: Of the top 10, we have [signed on] 50 percent. We've targeted every manufacturer to be on the platform. We could have gone live a year ago with one or two of them, or we could wait another year to get all of them. Most large corporations don't work with start-ups. It was quite an effort, but they see the need. We said we'd go live when we had half of the major manufacturers.
Where do the rest of the products come from?
Wiegand: The rest of the products we've had to source from a distributor, a wholesaler. If you, as a consumer, came in and you didn't see your brand of cough syrup, you wouldn't like that and would think Alice isn't very robust. We had to figure out a time when we had enough manufacturers to go live, but then we added additional products from a wholesaler so we'd have a complete set.
Are you prepared to take on the major retailers?
Wiegand: It's not really Alice "taking them on." It's the manufacturers looking to create new avenues to touch the consumer. We're just giving them the software and the tools to do that. This is a major disruptive force because it does shake up and change the way people do business. Will it work? We hope so. The leading indicator is to look at other industries. All the other industries are streamlining. That's what Wal-Mart has done such a great job at: streamlining this value chain and taking out costs.
McGuire: I think Alice has the opportunity to be a big shift in the way retailers and the branded manufacturers interplay.
Your other companies all sold successfully. Do you intend to build this for a sale, too?
Wiegand: I think the goal is always when we do start-ups, to build it up as big and as profitable as we can and then, naturally, an exit always occurs if you do a good job of that. That's the path we've always taken, and I think that will continue.
McGuire: That might be a sale; that might be a public offering; that might be any number of things. If you look at the trajectory of the start-ups we've done, this is definitely the biggest swing we've taken, the biggest market we've gone after, the most disruptive. We're really excited about how far we can take it.
We have to ask, what was it like working with Microsoft!?
McGuire: I thought it was great. You hear all these horror stories about the big, bad "Microsoft," [who] comes in and steals your idea, but they were phenomenal to work with.
Wiegand: It was a really exhilarating experience when we got that call, "Hey, we're interested in coming and evaluating your business for a purchase." It felt like whooooooa! We still have a really good relationship with Microsoft. Who knows what could happen with Alice? We might end up back in the same spot since we are an advertising company.