Creating an E-commerce company is not a very difficult thing for most entrepreneurs

For most entrepreneurs, creating an E-commerce company and earning 10 million to 20 million dollars is not a very difficult task. Surprisingly, many people think that e-commerce companies are not worth the price. In contrast, if you create a software that is a service (SaaS) company, although the level of profitability is difficult to reach the level of tens of millions of dollars, but people will feel that your company is worth that price.

At this week's board meeting, I saw a group of our portfolio company JustFab, and the existence of this company even made me feel somewhat conflicted and somewhat confusing, one of the reasons is what they call leverage marketing. The vast majority of retail companies, whether traditional or online, must invest a lot of money in the market to get a certain number of consumers. Small E-commerce companies don't have to invest a lot of money in marketing, but the premise is, you have to have the following performance, for example, your company's products fill a gap in the market, or your product has a unique specific consumer market, only in this way, you can open the market at a lower price, Get viral expansion. However, as the company's growth, you can not wait to tell their friends through the consumer, this word-of-mouth marketing to promote your products, you have to do is to carry out multi-channel publicity, to win more consumers.

For a killer enterprise, it is important to have a product that the user likes and has a higher degree of satisfaction (so that users will be more likely to recommend it to others). On the scale, a great company and a good company is also very different, in the past few years, those excellent companies do not even need to advertise their products in the media, can let the enterprise rapid development. It does sound like a good thing, but it's obviously not going to work this way today. It is often necessary to take a further look at the growth stagnation of enterprises in the transformation of organic growth, or the increase in pay media as the main growth vector in the development process.

Customer access requires cost input, which is one of the reasons why the retail industry is becoming more and more difficult. What are their lifelong values for a retail customer? The question is very valuable. For example, the software is the service industry, the use of ordering mode is very promising.

Here, I would like to cite a specific example of good, such as the above table shows the JustFab company in North America business. (I revised the exact figures, but it was really big.) As you can see, the company's annual revenue growth is close to twice times, but if the vertical comparison of the company's advertising investment will be found to be the same as the previous year, in fact, the company's advertising investment in the past three years has not significantly increased. This is not an incredible result for the use of large-scale viral propaganda. In fact, JustFab has done a good job in marketing, but the company's growth is only because consumers like their products and business model, JustFab the company's commercial model, can make their customers into repeat, basically, Consumers are logged on to the JustFab site on average 30 times a year, increasing the chances of shoppers buying. The products that consumers use in the first few months are likely to last for a few years, which also greatly increases the chance of selling goods.

Another way to rethink the leveraged marketing theory of subscription mode:

Re-participation is the key, because in the era of E-commerce there is still a problem, that is, companies need to spend money to regain access to existing users. As an investor, I've seen a lot of companies that only have one killer product that quickly gets 10 million dollars in revenue. (Understandably, most companies are spending a lot of money, but if the company doesn't invest, I may be out of a job.) In almost all cases, companies in the financing roadshow show that they will soon gain from consumers, consumers will even buy their products multiple times within a year, if the company in the acquisition of customers for each consumer 42 dollars, so long as these consumers in the future purchase behavior, Then the company can easily get back to Ben. Subscribing again drives higher customer lifetime value, which makes the enterprise more capable of investing more money in winning customers.

Unless you are Amazon, the capital markets will not allow you to constantly throw money at the company in exchange for growth. However, as the company grows, entrepreneurs find that they tend to throw money at an unsustainable rate. One of the big reasons is the lack of leverage marketing: that is, you spend 42 of dollars to win the consumer, you have to spend another 20 dollars for him to spend again. Consumers may search your site's name at Google, click on the paid link at the top of the page to reach the site, or, after ignoring email, will eventually click on your 60 percent coupon. In other words, whichever way you want to win a consumer today, you need to spend 62 of dollars.

Zulily can be considered the pet of the World of E-commerce (and Wall Street), and rightly so-its products are excellent and the reasonable cost of investment drives them stronger. But it needs to be proven as quickly as possible that companies can get valuable benefits, and that they have to do so, and I believe that it also needs leverage to multiply marketing. From 2012 to 2013, Zulily's income grew by almost 110%, a remarkable growth rate, which earned $696 million last year. Last year, Zulily's marketing investment rose 62%, an increase of 85% from its investment. The Zulily company has demonstrated the strength of leveraged marketing, while maintaining significant growth-a rare miracle in the field of E-commerce.

Similarly, Overstock.com, whose revenues grew by 18% (up to $1.3 billion trillion) last year – almost as much as the growth rate of the entire E-commerce community – but in order to achieve its goals, the company's marketing investment is 46% higher than the previous one. The results showed that, including a one-off tax, its final income was 16 million dollars (about 1% of the profit margin). If you want to sell goods for 1 of dollars in revenue, it will pay 99 cents, so, and zulily can reach the market size of 7 times times the yield ratio, Overstock.com's market capitalisation only their total sales of 0.4 times times.

The author is now very worried, because many e-commerce companies are also likely to follow the footsteps of Overstock.com, these companies want to better manage their products, and look forward to further expand the brand to retain consumers. But in the retail industry, consumers are not only fickle but forgetful. They will find other businesses they like, even if they like your company, your product, but often forget to patronize again. This means that unless you can create a systematic approach to getting customers back in, and it's best to have no marginal cost.

There are also some people on the market who feel that flash-sales and ordering, as a category, have failed. For this question, the author thought for a long time that, these people have such a view, probably because they are well-known companies, in the product promotion and promotion have invested a lot of money, but the final result is the same as the original expectation, so that the flash pin and order mode is not good. It is worthwhile to have a complete independent discussion of what kind of model operations a fast-growing E-commerce company uses. Yes, an E-commerce company is more difficult to scale than most mobile, social, or software-and-services start-ups.

There was a time when, from 2009 to 2011, many companies were still able to invest in the late years, and I believe investors will be tempted by the huge revenue figures created by startups, but all the money is managed by some undisciplined management team, The quality of the business model is generally low, and they dig a very, very deep hole for themselves. So the pendulum began to shake, and the investors who had used their money to "shuttle" into E-commerce companies are now starting to pull out the money. In fact, investors should have a more detailed understanding of the E-commerce industry, in this field, there are some excellent companies, there are some poor companies. Zulily is now on the market, the company is moving along a stunning trajectory, and some companies, such as Justfab,gilt, and one King's Lane, have made great progress on the scale, apparently In the E-commerce industry, those excellent companies performance is quite good. It is expected that in the next few years, there will be more E-commerce companies listed, for the author, this is not surprising, because the pendulum swing past, will also swing back, e-commerce industry lost investment, will be again investment.

Here's a list of potential models that can drive customer re-participation:

Order mode: For companies with low cost of sales, the order mode is very popular, there are many types of companies, such as the media companies have Netflix and Spotify, Software as a service company and information services companies have care.com and Peoplesmart. But for e-commerce companies, the adoption of the order mode has only just begun, so far, perhaps only JustFab and Birchbox adopted this model, but there are some companies, such as Dollar shave Club, is knocking open the door to order mode.

Flash-Buy Mode: Gilt is a company that sells luxury goods, but they are also pioneers in the flash-buying industry and are constantly letting the flash-buy model play a role. The Zulily company has also adopted this model, which drives customers to participate again. In the flash-buy mode, one King's Lane Electric Company is definitely another good example, and there are plenty of other examples. The key to flash-buying is to treat every day sales as an exciting marketing campaign, which differs from the order model. Users can access their mail inbox every day, but they are not guaranteed to visit your ecommerce site every day, so you need to draw them in every day. If there is no good marketing content, or no one can not refuse to deal, consumers will not be back to your site. There is also a key point that you have to give consumers a sense of urgency, so that they feel that they want to buy things quickly, must be immediately through the email click on the link to buy, because if you wait one hours to open the link, what you want is gone. If you're going to use something you can't refuse, you'd better have a compelling enough reason to convince consumers that you (or your start-up) have a structural price advantage that other big retailers can't offer.

Loyalty Project Model: Amazon Prime is a very effective loyalty program, if consumers continue to shop on the Amazon, they will give consumers feedback. In this model there is also a good example of the Costco, which is the introduction of the membership system, consumers only pay Costco company 50 dollars per year membership fee, can buy any goods at cost price. But the question is, what kind of benefits can you offer your customers, get them back on your site, and, more importantly, you don't need to spend a lot of money on your existing customers. In the words of Amazon, instead of spending money on marketing to Google, it's better to give it to consumers, Amazon said. But remember, you're not Jeff Bezos, in the real world, marketing doesn't make you lose money forever.

The author believes that there is still room for innovation in the field of electronic commerce.

If you don't take into account the structural re-participation mechanism, you have to hope that you can have an amazing good product, or to provide consumers with value, so that consumers will visit your E-commerce site again and again. This is also a good way to for example, you can look at the French Hyatt Hennessy-Vuitton group, their offline activities are in full swing, but I have to, this situation is not frequent, in particular, if you are a technology start-up, then it can not be. I would rather run a business with growth leverage than to become a vassal, but it would be better if I could experience both roles.