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Blitzscaling, The Lightning-Fast Path To Building Massively Valuable Companies, by Reid Hoffman and Chris Yeh, is a compelling read whose thesis states if a company has access to ample capital and the potential opportunity to capture most or all of a market, it should prioritize growth speed over efficiency, and accept, even ignore the inefficiencies and non-life-threatening fires that come along with it.

Blitzscaling is a counterintuitive strategy that goes against many classic old-school business techniques as you need to accept operating inefficiencies and uncertainties in exchange for speed.  “When a market is up for grabs, the risk isn’t inefficiency – the risk is playing it too safe. If you win, efficiency isn’t that important; if you lose, efficiency is completely irrelevant.”

The book discusses many of the most well-known, fastest growing and currently most valuable companies, including: Airbnb, Alibaba, Amazon, Apple, Dropbox, Facebook, Google, LinkedIn/Microsoft, Netflix, PayPal, Uber and others.  A couple years ago when Uber was raising money at a $60 billion private valuation, it may have been difficult to understand the astronomical valuation, but Blitzscaling presents a solid argument for it.  If Uber uses inexpensive capital to subsidize both sides of the market when it enters a new city, it has a substantially stronger likelihood of quickly capturing significant share. Uber has a chicken and egg scenario as both sides of the market need to be built simultaneously for Uber to be successful.  Uber needs to recruiter drivers to ‘supply’ rides, needs to acquire customers (‘demand’ for rides).  By utilizing economical capital to subsidize drivers (paying drivers a higher percentage or bonuses as additional incentives to join the platform) and subsidizing passengers (with cheaper rides to incentivize them to try the new platform), Uber achieves massive momentum from dual-sided network effects.

The story of Airbnb is fascinating, and an area that can easily be overlooked is how customer-obsessed they were from the very beginning. “Paul Graham, the cofounder of Y Combinator, wrote a famous essay in which he advised entrepreneurs to do things that don’t scale.”  This advice may seem counterintuitive (especially in a book about Blitzscaling), but it is vital to developing an optimal product.  When your business is small you want to can into a customer’s complete experience to understand everything the customer thinks and desires.  Airbnb realized that listings are more successful if they are accompanied by professional photographs, so founders Brian Chesky and Joe Gebbia, in the beginning knocked on customer’s doors to photograph their homes.  Obviously, the founders could not personally scale to photograph all Airbnb listings, but it allowed them to truly get to know and understand their customers (listen to Brian Chesky’s fantastic talk on Reid Hoffman’s Master of Scale podcast titled Handcrafted.  Their Obama O’s and Captain McCain’s were brilliant gorilla fundraises and the 11-star experience demonstrates their obsession with customer experience).

Possibly the company to most successfully implement Blitzscaling (although the term did not exist at the time) is Amazon.  Amazon’s substantial access to capital through inexpensive public funds as well as generated revenue allowed it to build out its massive infrastructure and best-in-class fulfillment systems.  Throughout the years, Amazon was constantly criticized for not consistently showing ‘Wall Street profits’ while it utilized these inexpensive funds to subsidize its distribution and logistics expenses, as well as the fees it charged third-party sellers, to capture an astonishing portion of US online market sales. Currently about fifty cents of every new dollar online is spent on the Amazon platform.  In addition, due to this market dominance, Amazon continually recaptures these earlier subsidized dollars by squeezing the margins of third party resellers (who, in aggregate, account for more sales on the Amazon platform than goods sold directly by Amazon).  Ten years ago, third-party sellers paid less than 20% of aggregate sales in fees to Amazon.  Whether third-party sellers knew it or not, Amazon was subsidizing their expenses to capture dominant market share of the massive overall online retail category. Every year Amazon raises fees to third-party sellers, squeezing their margins and redistributing it back to Amazon.  Currently third party sellers pay 40% of aggregate sales in fees to Amazon, but this would not have been possible without the successful Blitzscaling done by Amazon years ago.

If you like Blitzscaling, The Lightning-Fast Path To Building Massively Valuable Companies, I highly recommend checking out Reid Hoffman’s Master of Scale podcast which I personally look forward to listening to every week.  Blitzscaling is difficult to implement, and the likelihood of failure far exceeds success, however this risk is compensated for by the massive rewards that can be achieved from its success.

#Blitzscaling #ReidHoffman #CounterIntuitive #ContinuousLearning #GrowthStrategy

blitzscaling

It is hard to believe that it has been 10 years since the launch of the Obama Coin program.  October 2008 was an interesting time with the upcoming Presidential Election.  The Barack Obama campaign seemed more like a movement than a campaign, with individual events filling arenas and drawing as many as seventy-five thousand people.  There was a buzz around the candidate, and the campaign, that was unlike prior recent Presidential elections.

By late October, Obama appeared to be the strong front-runner (We did not bother to do a McCain commercial as we didn’t think he would win and even if he did, his supporters did not seem to have the same level of passion as Obama supporters). The products were created, offer developed and scripts written over a weekend.  The commercial was produced from start to finish in five days and cost a modest $5k.  The spot could probably flow perfectly in a Saturday Night Live skit, but I really liked the attention-grabbing opening “Own a Piece of American History”, and felt the spot had a decent chance for success.

Media test schedules were booked on the condition to run if Obama won, tapes arrived at stations the day before election day.  A little luck never hurts. The Presidential election results were announced the day after Election Day and the first Obama Coin commercial ran on MSNBC at 9:57 Thursday morning.  The results were obvious instantly as the CPO of that initial spot came in at under a dollar. By that afternoon we were already booking the roll-out. We were fortunate to have a week head start before competitors aired other Obama collectible commercials.  We tested dozens of stations, analyzed results several times a day and expanded to the strongest stations as soon as we had reliable reads.  The program received 100,000 orders in the first ten days and over 250,000 within about 45 days.

I was originally told that the Obama commercial would never work for numerous reasons.  We had tested Obama coins in print twice earlier in the year, once versus Hillary Clinton and once versus John McCain.  Both times the test failed miserably, but black & white print is not necessarily a good predictor of TV success.  The economics of the product also did not fit the typical DR formula.  Typical DRTV markup was 5:1, but we were at 3:1 since both coins were gold layered, colorized and had intrinsic currency value.  To combat the tough economics, we developed five strong, complementary upsells which helped the campaign bring in an average rpo of $66 from the original $10 plus s&h offer.

Overall it was a phenomenal lesson on maximizing an event.  We were a marketing led organization, but back-end operations were also vital to the program’s success, and provided numerous lessons as well.  Successful campaigns can quickly turn into true disasters if back-end operations do not ramp efficiently.  The Obama Coins were a simple product, but it still offered fantastic logistical experiences.  The 250,000 orders came in quickly, but there were significant production issues to solve (originally only 10,000 coins could be produced per week, and we would need nearly two million coins).  The presidential dollars and half dollars were acquired directly from the US Mint (we bought the entire remaining supply of 2008 halves, and at one point needed to wait until 2009 to purchase additional half dollars).  After receiving batches of coins from the Mint, they were sent to the gold plater, from the gold plater the coins went to a contract manufacturer to add the colorization.  The coins were then shipped to a newly created make-shift workshop to encapsulate the individual coins (Thinner capsules were specifically designed to make the encapsulation process more efficient), batch them together along with a certificate of authenticity, and seal everything in cellophane packages.  Finally finished product was shipped the fulfilment center.

It took until March 2009 to fulfill the final orders, but we kept in constant communication with customers (mainly through postcards).  Fortunately, our creativity and adaptability allowed us to successfully fulfill the large influx of orders, while keeping cancellations to a minimum.

The Obama Coin Program was a fantastic educational experience.  The success of the campaign was due to a passionate audience, fortunate timing, strong complementary upsells, maximizing marketing opportunities, a flexible and adaptive supply chain, as well as, collaborating with strong vendors whose turnaround times were exceptional.

#MarketingLessons #DirectResponse #Collectibles #Direct-to-Consumer #Fulfillment #Operations

A company’s most important asset is its customers.  They are extremely expensive to acquire, but keeping them happy is incrementally inexpensive.  Happy customers buy more product and stay in programs longer.  They are more responsive, and potentially purchase large multiples of product, or higher margin deluxe versions.  They are your best advocates.  What is the lifetime value of a happy advocate?

My first job after university was as a program manager at The Danbury Mint (MBI) overseeing various collectibles (dolls, plates, ornaments, die-cast cars, etc).  Most programs were sold as a one-shot, then converted in-shipment (and through follow-up mailings) to the rest of the series (typically a collection of either 4, 8 or 12 items).  The customer acquisition cost often exceeded 50% of the retail price, and on larger series could be 200%.  If a customer only bought the lead item, the amount of profitable marketing available was minimal.  Through conversions to the rest of the collection, the average customer purchased 2.2 to 2.7 products in a four-item program.  This additional margin allowed us to mail deeper inside, as well as, more outside lists.  Since lead customers were so expensive to acquire, it was vital that we treated them like gold.  It was essential that products shipped quickly, with packaging that would enhance the customer experience.  This was a fantastic educational experience on the lifetime value of a customer.

Direct Response is a fantastic medium that can ramp-up quickly and effectively in a test-expand approach.  Unfortunately, too many marketers focus only on the short term, with a one and done mentality; they often ignore the longer-term value of customers at the expense of immediate profits.  Think more from your customer’s perspective.  Have diligent inventory management so that shipments are never delayed and make sure to regularly ship product to yourself.  How does the product arrive?  Are the proper additional offers enclosed in package?  Is the unboxing experience impressive to your customer?  Is he incentivized to reorder?  Is she incentivized to tell a friend?

Treating the customer well may be slightly more expensive today, but invaluable for tomorrow.

Amazon has been a fantastic deflationary source for consumers, however it is also constantly squeezing seller margins.  Fees, as a percentage of Gross Selling Price, have increased every year since 2009. In 2009, Amazon fees totaled less than 20% of the gross selling price for most third-party sellers.  Now, nearly 10 years later, Amazon fees have risen to nearly 35%.  Since most third-party sellers are unable to increase prices to offset the majority of these fees, margins are constantly under pressure.

Sellers can combat some of the increasing Amazon fees by more effectively managing their inventory to reduce monthly and long-term storage.  Sellers can also redesign certain products to reduce weight and optimize shipping expenses.  However, sellers ultimately have no choice, but to accept the Amazon fee increases.  The margin squeeze has caused valuation multiples of Amazon only businesses to drop significantly over the last several years, especially sellers of staple white-label items.

Several years ago, sellers could offer white-label products, optimize their listings and enjoy year-over-year growth due to the increasing Amazon audience.  However, Amazon is directly capturing an ever-increasing share of white-label products (from batteries and charging cables, to bedding, luggage, and recently small appliances and apparel).  Amazon only had a minor share (or even zero share) of these markets a few years ago, but will control the vast majority of each within the next couple of years.

The speed of this transition is rarely talked about, but will make an amazing case-study in the future, as Amazon is capturing, virtually, entire category after category.  Differentiated, proprietary products were beneficial for third-party sellers in the past, but now they are an absolute must to thrive on the Amazon platform.

Update:  The New York Times published an detailed article today (July 23, 2018) on Amazon capturing increasing market share of white-label products.  How Amazon Is Winning the Online Retail Game. Again.  A few snippets below:

The results were stunning. In just a few years, AmazonBasics had grabbed nearly a third of the online market for batteries, outselling both Energizer and Duracell on its site.

The company now has roughly 100 private-label brands for sale on its huge online marketplace, of which more than five dozen have been introduced in the past year alone. But few of those are sold under the Amazon brand. Instead, they have been given a variety of anodyne, disposable names like Spotted Zebra (kids’ clothes), Good Brief (men’s underwear), Wag (dog food) and Rivet (home furnishings). Want to buy a stylish but affordable cap-sleeve dress? A flared version from Lark & Ro ($39), maybe in millennial pink, might be just what you’re looking for.

Amazon is utilizing its knowledge of its powerful marketplace machine — from optimizing word-search algorithms to analyzing competitors’ sales data to using its customer-review networks — to steer shoppers toward its in-house brands and away from its competitors, analysts say.

Update: October 16, 2018: The below excerpt is from a Bloomberg published article:  Amazon Doles Out Freebies to Juice Sales of Its Own Brands

Amazon has more than 120 brands, about 100 of which were introduced over the past two years, according to TJI Research. One is Amazon Basics motor oil. Less than three months since its July debut, the product has a 4.5-star rating based on about 100 customer reviews. That’s almost as many reviews as a similar Valvoline product sold on the site for six years. More than 80 percent of the reviews for Amazon’s new oil came through the Vine program;  the Valvoline oil had zero Vine reviews.

#Amazon  #DirecttoConsumer  #Private-label  # AmazonThirdParty  #AmazonSqueeze

View story at Medium.com

Previously many established third-party sellers profited significantly from Lightning Deals and Hot Deals in the past as Amazon did not charge for the promotions until the summer 2016.  The number of promotions was limited and only available to established sellers. However, in August 2016, Amazon changed its policy, opening the promotions to virtually all sellers and charging a fee per promotion.  The effectiveness of Lightning Deals and Hot Deals has dropped notably since due to considerable decreases in revenue achieved per deal, as well as the increase in the variety of products offered.

Prior to the policy change, it was not unusual for a promotion to achieve in excess of $5,000 in sales.  However, a study of 580 deals run in the 1st half of 2017, showed an average of less than $500 in sales per promotion.

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It is truly amazing how much we take for granted.  In January, I visited Guatemala with my wife, Emilia.  Guatemala, her home country is beautiful and the nature is amazing.  People often do not have a lot but, they are genuinely happy, appreciative, and creative.  Whenever she visits, she brings a couple of suitcases full of clothes and toys to distribute (always coming back with just a carry-on).  In January, we brought a few suitcases of clothes and toys.  We even filled a piñata with toys for kids.  The joy the kids showed when receiving the small toys was amazing, but the happiness we received watching them was priceless and unforgettable.

During the trip we met two boys who had made a creative banjo, simply by cutting a piece of wood, and wrapping guitar strings around a crush soda can.  Their creativity was impressive and inspiring.  We wanted to bring more toys and supplies to Guatemala, and thanks to SCS Direct Inc, we were recently able to accomplish this.  When I told the stories about Guatemala to Howard Greenspan at SCS, he asked if we wanted to go to SCS’s warehouse to go through product returns and take whatever we wanted.  We found toys, baby supplies, and all sorts of products that we packed onto a pallet.  Thanks to SCS’s generosity, there probably was about $10,000 in products.  We repacked all of the toys and other products into about a half dozen blue plastic containers and arranged for their shipment to Guatemala.  In October, Emilia went to Guatemala and distributed the toys and other items.  Everyone was extremely appreciative and everything will be used to its fullest.  Some of the teachers are even using the Hatch-em eggs as weekly prizes for kids who do well in school.

We were even able to get Ukuleles for the boys who made the creative banjo.

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Seventh Successful Transaction Sourced by Little White Dog inc for SCS Direct Inc in the Past Two and a Half Years

SCS Direct Inc. Increases Housewares Portfolio With the Purchase of Kuissential

Connecticut Company Acquires Specialty Kitchen and Coffee Housewares Brand

TRUMBULL, CT–(Marketwired – March 01, 2016) –  SCS Direct Inc., a consumer products company based in Trumbull, CT has recently announced the purchase of Miami-based, specialty housewares company Kuissential.

Established in 2011, Kuissential is known for offering high quality and innovative coffee products and kitchenware at a reasonable price. The brand’s unparalleled customer service, through direct, open dialogue with consumers continue to attract a loyal customer base.

In 2015, Kuissential created a successful Kickstarter campaign to raise funds for the production of a patented manual coffee grinder known as the EvenGrind 2.0. This new manual burr grinder is designed to yield a much more consistent coffee grind size at a fraction of the price of electric conical burr grinders. The Kuissential line also includes specialty kitchenware and coffee gadgets such as Milk Frothers, Coffee Drippers, French Presses, Juice Extractors and Bread Machines.

Howard Greenspan, President of SCS Direct Inc. stated, “I was attracted to the business because of its superior product line and how they perfectly complement our existing housewares portfolio. SCS Direct plans to further the brand’s mission of exemplary customer experience and integrate into the continuously evolving market of coffee consumers.”

Greenspan’s plans for Kuissential include furthering the functionality and enhancing the look of the EvenGrind 2.0 prior to its launch; upgrading product packaging of the entire line; enhancing brand awareness and offering this formerly “internet-only” product line to national retailers in order to expand to a mass consumer base.

The former owners of Kuisssential, Alex Cacciamani and Andres Fernandez commented on the sale:

“SCS Direct understands Kuissential’s vision and commitment to customer satisfaction. We feel they are the perfect team to grow the Kuissential brand to the next level,” said Alex Cacciamani.

Andres Fernandez added, “I’m very proud about what we were able to accomplish with Kuissential and grateful for all the help received along the way. While it was a difficult decision to move on to new projects, we know we found a perfect new home for Kuissential with SCS Direct.”

SCS Direct’s arsenal of housewares products are growing rapidly. In addition to Kuissential, the company owns several best-selling houseware brands such as Camerons Products, CucinaPro, Good Cooking, D’Eco, Fasta Pasta and Simple Cups.

The Kuissential transaction was sourced and negotiated by Little White Dog Inc. based in Norwalk, CT. Kuissential is SCS Direct’s seventh successful transaction in the past two and a half years, including CucinaPro, Camerons Products, Fasta Pasta, MD Moms, Svan and Itzbeen Innovated. Little White Dog continues to search for additional strategic partners with proprietary, quality products and strong retail distribution that can enhance SCS Direct’s platform.

Link to Press Release:

http://finance.yahoo.com/news/scs-direct-inc-increases-housewares-110000809.html

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