Starting and scaling a consumer business today is in most ways easier and less capital-intensive than it has ever been. From Amazon Web Services to LegalZoom to Facebook's advertising technology, the cost of getting a business set up and reaching customers has fallen dramatically even in just the last ten years. With consumers' increasing comfort purchasing goods and services online, cheaper online traffic, more mediums for social media promotion, and a flurry of other factors, e-commerce transactions seem to contain less and less friction. The result is very apparent: companies are emerging at record rates and consumers have access to more goods and services, virtual and physical, than ever before as a result. For consumers, especially in America, this tends to be a good thing as we are provided abundant choices. Our question, as former founders and current investors focused on consumer product businesses, is what this means for companies. Since there are clearly several implications, here we will begin to address one:
When it comes to building a consumer company, there's always been "good", "better", and "best". Today, the difference between "good" and "best" is greater than ever, and only increasing.
When we say good and best, we are referring to the formulation and execution of the right strategy. Globalization and the flattening of the world is partially responsible for this shift. Today, a startup in Seoul, a startup in New York and a startup in Boulder can all compete for the same consumers in Los Angeles. As a result, consumers' quality standards are constantly increasing with fewer and fewer companies able to rely on local convenience as a competitive advantage. In the digital world, not only is competition increasing from abundant options, there is an amplification of incremental improvements that can lead to massive differences between you and your competition. Take, for instance, two predominantly e-commerce businesses. Imagine each business has an email subscriber list of one million. One has an open rate (OR) of 10%, a click through rate (CTR) of 3%, and a conversion rate (CVR) of 2%, all fairly good metrics. Another business, also with an email subscriber list of one million, performs two percent better in each category: an open rate (OR) of 12%, a click through rate (CTR) of 5% and a conversion rate (CVR) of 4%. The difference? The first example generates 60 sales while the second, with only 2% improvements, yields 240, a 4x difference. While by no means are 2% gains across important metrics easily achievable, the example illustrates how slight differences are magnified in digital businesses, driving the growing divide between top and median performers.
Furthermore, due to millennial enthrallment with social media, there is an undeniable virality that some brands are able to tap into if a tipping point is reached. Never before has word-of-mouth been able to spread so far, so fast. These examples both underlie, and further, the growing divergence between those performing well and those performing best-in-class.
After running and successfully selling a very 'boots on the ground' consumer company, we are amazed at this magnification taking place in direct-to-consumer businesses. Since best-in-class strategies are not formulated or executed overnight, the real takeaway is to ensure you are constantly testing and iterating to relentlessly improve and, if that is simply not a core competency of your company (and for many it is not), to work with partners that can help you do this better and faster than you might on your own. In a world where "good" is no longer enough, relentlessly pursuing the best, whether through focusing or partnering, can change the probability and magnitude of success.