A Look at Mark Lore and Jet.com
We love seeing concepts grow and succeed! Especially when they are clients of ours. Lately we have been coming across business concepts that seem to have every advantage in the world and should be hitting it out of the park….yet they are about to strike out. The common thread between them? They are all founded and run but entrepreneurs like Mark Lore of Jet.com, that hit it big with their first start-up and then move on to open a new business.
We find ourselves wondering why this is happening and how they can get back on track. And as usual, we have some thoughts.
Let’s start with saying that we love these concepts, the actual essence of these concepts and what they were meant to be. However, the way in which they were executed and the strategies we are observing from the outside really make us wonder what in the world they are doing? We have seen this phenomena in many businesses lately such as Harry’s (Warby Parker founders), Poppin (C. Wonder founder), and M.Gemi (Lids and Rue La La founder) but have just focused on one below.
What do you do when Amazon buys your original company? Start your own. And then compete with the giant. Ummm, obviously? Marc Lore, one of the founders of Quidsi, which owns Diapers.com and their family of soap, swag, etc., worked briefly for Amazon after their purchase and now has launched Jet.com.
After $225M in initial funding, the concept launched to much fanfare (and minimal penny pinching for a startup).
The idea? Shop on Jet and save vs. Amazon. Is this possible? Lore believes so and began with a membership based model (a la Amazon Prime) to access these discounts. The site shows Amazon pricing so you can see your savings. The problem? When we tried it out, the system was confusing and hard to tell if there was any actual savings (though they claim 10-15% savings). You don’t see final tallies until you checkout and the shipping was kind of questionable. How long until something arrives? Different things have different shipping as they group them based on where they ship from to save you money. Given most people are primed for the 2-day Amazon shipping, anything more feels like ages. While the technology that determines these logistics is very cool, on the front end as a customer, do you care? And wouldn’t you rather everything arrived at once, in one box, quickly?
Additionally, Jet initially offered many products from brands/vendors that they don’t actually work with. If they didn’t carry it themselves, they had employees buy it from the brand directly and ship it to the customer. These items were priced low, so Jet was doing this at great cost to themselves since they then had to pay retail as well as shipping costs. This “concierge” service was a stop-gap to sell these brands before they become partners. Many of these brands (i.e. Nordstrom) asked them to stop this practice and likely will not want to partner with Jet after finding out. Supposedly it has stopped, but it still appears that many products not available are purchased and shipped from other retailers.
The outcome? That is still TBD. There was a hint when we saw memberships being handed out indiscriminately and available on flash sales sites (the sure sign of a slow death!). Most recently, the membership fee has been eliminated and users are just shopping a site that is in a pure price battle with Amazon. Given the membership fee was their main source of revenue, the model has now been rethought.
Why the willingness of investors to throw money at this concept? The Lore…as in Marc Lore. It is all about the founder’s previous success. While we think that his original concept was impressive – and often speak of it as an example for clients – Jet has had money thrown at it more for what Lore did at Quidsi than what he is doing now. There is great value in believing in leadership, but perhaps some of those investors may have wanted to make sure that the actual concept makes sense too. Initial projections put the business needing to sell $20B in products to work, which was not expected until 2020. Sounds like a long time before a return.
Given that long timeline, it seemed like a clear sign that already things were not working as planned when the main source of revenue (i.e. the membership fee) was removed after only several months. Company reports spin this as a sign of how well things were going, but it appears more an indicator of not enough traffic, lack of purchases, and the membership being an impediment.
2020 feels like a long way off but when you have money and bridges to burn, apparently it doesn’t matter. And that comes back to the core of these concepts. Is the founder so successful that they can’t succeed? Or do they have so much funding that they no longer need to get it right the first time?