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Monday, December 5, 2016

Lesson #251: U.S. Ecommerce Companies, Beware The Looming Overseas Guillotine

Posted By: George Deeb - 12/05/2016

As many of you know, Red Rocket has been looking for an ecommerce business to buy over the last ...



As many of you know, Red Rocket has been looking for an ecommerce business to buy over the last few months.  We have been doing due diligence on over 50 ecommerce companies during this time, and what an eye opening experience it has been.  My overall conclusion is: U.S. based ecommerce companies are going to see a lot of headwind in the coming years, and you better figure out how to defend yourself before the looming overseas guillotine falls.  Here are the details of what I have learned.

PHASE 1:  A QUICK HISTORY, ONLINE RETAILERS KILL OFFLINE RETAILERS

To put this topic into perspective, first a quick history on ecommerce.  After the first wave of ecommerce companies hit the market in the late 1990's, it was clearly only a matter of time before the offline brick and mortar retailers would succomb to death's grip.  Gone go Blockbuster, Borders, Circuit City, CompUSA, Linens N Things and Sports Authority, just to name a few.  Unless the retailers made quick pivots to the ecommerce channel, there was no way they could effectively compete with their huge investments in real estate, inventory and payroll, like a noose around their neck.

And, these trends still continue today.  Don't think for one minute the big chains like Wal-Mart aren't also worried about their long term future.  Why else would Wal-Mart make such a large $3.3 billion acquisition of Jet.com after only one year of launch?  To get them more formidably repositioned as a leading "ecommerce-first" company.  Especially since Jet.com was able to generate over $1BN in revenue run rate after only one year of being in business, with a lowest-price messaging, a title most covetedly held by Wal-Mart over the years.

PHASE 2:  AMAZON REDEFINES ECOMMERCE MERCHANDISING

Amazon quickly learned that there was a lot more product for sale than could possible be designed and managed by one company.  At the end of the day, they realized their core strength was marketing to a huge base of consumers and doing warehousing and distribution in mass.  So, what better to do that open up their website platform to millions of product sellers, both large and small, to basically become a "one-stop shop" for anything and everything on the web.  And, what a move that turned out to be; today, it is estimated that 40-50% of all consumer product searches on the internet now begin at Amazon.com, not Google.com.

PHASE 3:  U.S. BRANDS START TO KILL U.S. ONLINE RETAILERS

With that level of marketing and fulfillment power on Amazon.com, millions of "Amazon Only Sellers" were born in the last few years.  Now, an ecommerce startup no longer needs expensive investments in people, systems, warehouses or marketing; they simply need to design a product (typically manufactured by an overseas partner), get the product over to an Amazon warehouse, let Amazon do their magic, and sit back and collect checks for doing hardly any work.  Literally, two kids in a garage figure out best selling products on Amazon to knock off, from freely available Amazon sales data sources, and they generate $2-$4MM in revenues ($500K-$1MM in profits) in a year or two after launching.

And, that doesn't even talk about about the big national brands selling through national retailers and ecommerce sites today.  Amazon and other big online shopping platforms have embolded them into thinking they can sell products themselves, disintermediating the wholesalers and retailers they have typically relied on for sales.  And, as the product company, now they can undercut the retail price, make materially higher margins than they were before and really turn the screws on the online retailers, who are now starting to see their sales decline with this sales channel shift.

PHASE 4:  U.S. BRANDS WILL BE KILLED BY OVERSEAS MANUFACTURERS

When I read this article at Internet Retailer (click through all four pages), it pretty much scared the crap out of anyone looking at investing in the ecommerce space.  What it basically said is: with a "customer first mindset" (translated: a desire to get consumers the lowest prices possible), Amazon is romancing Chinese manufacturers to start directly selling on Amazon.com in the U.S.

Why does that matter?  Remember all those U.S. brands and "Amazon Only Sellers"?  Where do you think they are sourcing manufacturers for all their products?  Most of them from China!!  So, what does that mean?  If the Chinese manufacturers start selling direct on Amazon, at the same wholesale prices they are selling to their typical U.S. brand customers, they are going to force the U.S. brands to compete with them at basically a zero percent profit margin!!  Said another way:  that was the sound of the U.S. brands' necks snapping with the fall of the guillotine.

WHAT THIS MEANS FOR YOU

For all of you ecommerce lovers, like me, sorry to sound like the grim reaper here.  But, you better get ahead of this trend, and fast!!  How do you defend yourselves here?  They are many ways:
  • Create more "brand cache" (e.g., pants from Gucci and Levi's cost the same to make)
  • Don't sell commodity products, where price is the only differentiator
  • Focus more on consumer services or consumer entertainment, as harder to replicate
  • Add value-added upsells (e.g, make your money on the popcorn, not the movie)
  • Acquire some of your vendors or manufacturers, to vertically integrate with
  • Joint venture with international manufacturers as their exclusive U.S. marketing partner

So, before investing heavily in the ecommerce space, do your homework!  Make sure the business you are in, or are considering to be in, is not a sitting duck, already starting to feel the stranglehold of your vendors starting to sell direct (e.g., see if they are already selling against you on their own websites or on Amazon).  And, if you decide to move forward, do so with a long term defense plan in place, like the ones listed above.

Each generation of selling products, tries to do it better and more cost effectively than the generation before it.  Unfortunately, for most low-price-driven U.S. consumers, that means disintermediating the U.S. middlemen in what has become a global ecosystem.  Be careful what you ask for (e.g., low prices).  It may just put the entire U.S. retail, ecommerce and brand businesses, out of business for good, with a huge impact to the U.S. economy and the resulting jobs lost. All, but for Amazon, of course . . .  the last-standing fox in the hen house.

For future posts, please follow me on Twitter at: @georgedeeb.





Friday, December 2, 2016

You Get the Talent That You Pay For

Posted By: George Deeb - 12/02/2016

I get it. Most startups operate on fumes, in terms of available cash resources. So, the natural ...



I get it. Most startups operate on fumes, in terms of available cash resources. So, the natural instinct of most entrepreneurs is to pay as little as they can for most of the expenses in their business. And, I agree with that for most all expense categories, except one: human talent. Building the right team for your startup is the single most important thing you will do in terms of putting your business on a path toward success or failure. You try to cut corners with your talent decisions and you are toast.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.


Thursday, December 1, 2016

Thinking of Joining a Family Business? Buyer Beware!

Posted By: George Deeb - 12/01/2016

I have previously highlighted the plusses and minuses of working with family members inside the ...



I have previously highlighted the plusses and minuses of working with family members inside the same company.  But, should a third-party employee sign up to work for a family-owned and operated business?   As you will read, you better do your research first, to help you avoid a lot of unexpected grief down the road, that can often come from working inside a family business.

Read the rest of this post in Forbes, which we guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.


Monday, November 28, 2016

16 Key Red Flags for Startup Investors

Posted By: George Deeb - 11/28/2016

I recently a read a good book called The Art of Startup Fundraising written by Alejandro Cremad...



I recently a read a good book called The Art of Startup Fundraising written by Alejandro Cremades, a serial entrepreneur and co-founder of Onevest, a venture investing community platform.  One of the chapters in Alejandro’s book specifically talks about these 16 red flags for investors, and Alejandro was kind enough to let me share that list with you.

Read the rest of this post in The Next Web, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.


Monday, November 21, 2016

Lesson #250: Personality Testing On The Rise, But Why?

Posted By: George Deeb - 11/21/2016

For decades, personality tests have been used by big corporations to evaluate employee candidates...


For decades, personality tests have been used by big corporations to evaluate employee candidates during their hiring process.  But, more and more, I am seeing early-stage companies using these tests to help them in their hiring process.  I am not sure who is pointing them in this direction, most likely the increased access to free online personality tests you can take, like this one.  But, just because they are there, doesn’t mean you need to use them.  They are often used as a crutch to help make decisions, instead of true leadership by hiring managers.  And, often times, the results learned about current employees, do not result in actionable changes within an organization.  Let’s dig deeper here.

What is a Personality Test?

As an example of the most used, back in 1945, Katharine Cook Briggs and her daughter Isabel Briggs Myers pioneered the Myers-Briggs Type Indicator (MBTI) personality test which sorts people into four different types of psychological classifications, based on the research of Dr. Carl Jung in the 1920’s.  For example, a person is either: (i) an Extravert or an iNtrovert; (ii) Sensing or Intuitive; (iii) a Thinker or a Feeler; and (iv) Judging or Perceiving.  You can learn more about the specific definitions for each of these classifiers at this infographic.  If you are curious about your personality type, or want to test your employees, there are several free online personality tests you can take, like this one.

What Am I?

I once took this test, and my four letter classification came back as an ENTJ.  According to the Myers Briggs website, that would describe me as: “Frank, decisive, assume leadership readily. Quickly see illogical and inefficient procedures and policies, develop and implement comprehensive systems to solve organizational problems. Enjoy long-term planning and goal setting. Usually well informed, well read, enjoy expanding their knowledge and passing it on to others. Forceful in presenting their ideas.”  I would say that is a fair summary.

The problem is, if I read any of the other 15 classifications on that page, there are elements of each of them, that also apply to me.  Trying to label employees in pre-defined buckets is a nice goal, but it isn’t really all that practical, as people behave differently in different scenarios and can live across categories.  For example, a good manager knows when to manage with an “iron fist” or “kids gloves”, depending on each situation and employee involved.

My Past Experience as a Candidate?

Several years ago, based on my personality test results, a large company that was hiring said my entrepreneurial skills were “off the charts” compared to their current employees (e.g., which they perceived as overly willing to take risks).  I didn’t get the job, despite a great personality fit with the team and a perfect skillset for the job.  I couldn’t believe this company was actually making hiring decisions based on personality type, as opposed to who had the best skills to get the job done and help the company hit its goals.  And, in this specific case, it explains why this same company is now teetering on the brink of bankruptcy, as they were not hiring any innovative “out of the box” thinkers that could help pivot them into new directions to help evolve with the times.

My Past Experience as an Employer?

I have never used personality tests in any of my hiring decisions.  To me, as a good CEO, I have my finger on the pulse on the desired culture and needs of the organization.  It is materially more important to hire a person that has the best skillsets for the job, so they can come out of the gate running and help us to achieve our business goals, than it is to have a specific personality type.  And, that strategy has served me well over the years, building several successful companies with great teams along the way.  So, don’t overthink the need for personality tests.  To me, they are a “nice-to-have”, not a “need-to-have”.  For more useful tips on how best to build your startup team and how to build a good business culture, check out these other posts on the topic.

What Are Personality Tests Good For?

Most hiring managers think personality tests are a good predictor of a candidate’s future job performance or fit within the organization.  I think that is hog wash for the reasons described above.  But, these tests do have some useful applications.  It gives managers a good sense to the varying styles of their employees, which they can use that information in training or coaching the staff, crafting a conducive work environment, and developing the team.  For example, if you see a young employee with high leadership potential, you can put them on a fast track to being a future manager.  Or, if one employee is a strong leader, pair them with someone who needs leadership development, to help develop their skills.

Concluding Thoughts

Just understand the results of a personality test are simply a data point.  They should not drive decisions!!  You need to stay flexible in your hiring practices, understanding that there are going to be different employee types in the office.  Salespeople are typically going to be your extraverts, and your web developers are going to be your introverts, as an example.  So, it is near impossible to recruit all the same types in one organization.  And, even if you could, why would you?  Different perspectives from different people can help the organization manage the business through a broader lens.  And, for goodness sakes, if you are going to make your current employees take the test, make sure the results become accountably actioned upon, otherwise you are never going to effectively lead to the organizational change you may be desiring.

For future posts, please follow me on Twitter at: @georgedeeb



Wednesday, November 16, 2016

[BRACKETOLOGY] Elon Musk Voted Most Admired CEO

Posted By: George Deeb - 11/16/2016

Over the last few weeks, CB Insights , the tech market intelligence platform, has been running a...



Over the last few weeks, CB Insights, the tech market intelligence platform, has been running a weekly poll of their subscribers, in the style of the NCAA Basketball Tournament, to determine which technology executive was most admired.  This week, the "champion" was finally announced, and it was none other than Elon Musk (Tesla and Space X), who handily beat Steve Jobs (Apple) in the final matchup.  A well-deserved winner for all the game-changing businesses Elon is involved with, from electric cars to space travel.  Anand Sanwal, the CEO of CB Insights, was kind enough to let me share the final bracket with all of you, below.



As you can see, this 64 entrepreneur field was loaded with talent, including the founders of many great technology companies, like Alibaba, Twitter, Netflix, Oracle, Airbnb, Dell, Snapchat and Paypal, to name a few.  So, it was really like splitting hairs between all the talent on this list.  What do you think?  Did the voters get this right?  Feel free to share your thoughts in the comments below.

From my perspective, back in 2011, I detailed my entrepreneurial heroes, including my rationale for each one.  That list included Steve Jobs (Apple), Bill Gates (Microsoft), Larry Page/Sergey Brin (Google), Jeff Bezos (Amazon) and Richard Branson (Virgin). All five of these guys made it to the Elite Eight in this tournament, so I very much agree with these results.  I was only missing Elon Musk, Mark Zuckerberg (Facebook) and Marc Benioff (Saleforce), all legends themselves.

The winner, Elon Musk, would have definitely made my list, if I had written my post in 2016.  But, I think I would have had Steve Jobs win this head-to-head battle based on sales results to date.  I think Elon's vision is a lot bigger than Steve's, but the proof is still in the pudding, so to say.  If he is successful in accomplishing his ambitious goals over the next decade, then I could definitely see making Elon the winner down the road.

If the above chart is hard to read, the original post can be found here on the CB Insights website.  If you are not already subscribed to the CB Insights newsletter, subscribe from their home page, as their market research by tech sector is invaluable to the venture community.  Thanks again, Anand, for letting us share this fun piece with our readers.

For future posts, please follow me on Twitter at: @georgedeeb.




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