The Sound and Fury of Startup Marketing

Ben Thompson of Stratechery, my favorite tech writer, recently covered the success of Stitch Fix.

I am in fact deeply impressed by Stitch Fix: it seems quite clear that early on [CEO Katrina] Lake realized that the company was not an aggregator, which meant building a business, well, normally. That means making real profits, particularly on a unit basis. Even then, though, the company was clearly worthy of venture capital: Baseline Ventures and Benchmark will see a 10x+ return.

To that end, Stitch Fix is a more important company than it may seem at first glance: it proves there is a way to build a venture capital-backed company that is not an aggregator, but still a generator of outsized returns. The keys, though, are positive unit economics from the get-go, and careful attention to profitability.

(Emphasis mine.)

Aggregators, as Thompson defines them, are the tech platforms that dominate their categories by aggregating demand (users). E.g., Google, Facebook, Uber, or Netflix. You can see why these companies need venture capital and how they can reach massive scale.

Physical product companies are different. V-commerce companies have a direct relationship with their customers (like the aggregators) but do not have "Zero Marginal Costs For Serving Users." Physical product companies have significant marginal costs to produce and move goods. The math is quite different.

Some companies, like Stitch Fix, can take VC and achieve a venture-scale return (10x) on that money. Most will not.

Rather than acknowledge a realstic scale for a business, startup v-commerce companies instead claim to be chasing huge but vague markets that aren't really markets or are markets not addressable by one company.

Convincing VCs that they will get enormous returns is why Casper insists that they're a "sleep company," not a mattress and sheets company or why Away is a "travel company" not a luggage company.

I always support testing new marketing channels but some startups' efforts are laughable. I always wonder if they actually expect them to be successful or if they're just doing something to announce in the press and to talk about at the next board meeting or fundraise.

See Casper shuting down its blog, Van Winkle's, after two years and launching Wooly, a magazine about "wellness and comfort." Or Away's podcast, Airplane Mode, which is sitting at 10 episodes and hasn't been updated in two months.

At Tortuga, we too started and abandoned a podcast. But we did it on a budget, gave it a year, and announced the end of the show. Startups launch stuff, never give it a chance, and move on.

Only the announcement matters.

Given that startups hire editors and producers for these efforts, they are not cheap experiments. They are wastes of VC money when they don't have anywhere better (more profitable) to spend it.

The same week I read about Van Winkle's, I also read that Untuckit planned to open 100 stores. Yes, that's Untuckit, the company differentiated by... a slightly different hemline. Whenever I see an Untuckit ad in an airline magazine, I'm always surprised that they still exist and can afford the ad.

After raising $30 million in June, the company plans to expand at a furious pace:

The online retailer opened its first physical store two years ago and plans a swift expansion of 100 stores over the next five years, with 50 alone opening by the end of 2018

I guess there aren't $30M worth of inflight ads to be had.

I have no doubt that stores will be enormously beneficial to some v-commerce brands. Any company that truly offers a differentiated experience or sells prodcuts that customers want to see, touch, or try in person should be able to make stores work. Glossier (makeup, skincare) already attracts a line. Many clothing retailers will do well with stores or the guideshops that Bonobos pioneered.

Assuming most startup founders have raised or are trying to raise VC, they either believe their own bullshit or have decided to play the game for the sake of raising money.

This post is for founders who see through this ruse. Most companies, even if wildly successful, won't have venture-scale returns. That's okay.

Not taking and wasting a bunch of VC money to get in Techcrunch for a project that had no hope and that you will soon abandon is a good thing.

Don't take my pronouncements to suggest a lack of ambition. I have big plans and expect that you do too. So go out, make money, and pay for those plans yourself. You can be honest about what you sell. My company, Tortuga, can sell backpacks while still pursuing a larger mission. There's nothing wrong with doing both. There is something wrong about inflating your market to get someone else to pay for today's shiny object.