Stealing Signs - Issue 47

Stitch Fix's Long Thread, Types of Marketplaces, eCommerce is a Bear, Disrupting Bloomberg, Mucinex's Streetwear Collection, Wes Lang, & Depict Raises $

Check out the latest episode of Growth Stage with Joey Levy, Founder of SimpleBet, and Vasu Kulkarni, Partner at Courtside Ventures. Joey and Vasu discuss the evolution of sports betting, the digitization of sports, and data & analytics impact on betting over time.

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Worth Reading

Stitch Fix’s Long Thread

Jake Singer, Serial Entrepreneur & Prev. Amazon

A Fix success rate that is improving over time proves that the single player flywheel bleeds outwards to the company’s overall flywheel. That means that the more data the company collects about customers the better recommendations it can make not only to that individual customer, but also to every new customer. This is important because now the company has a new unique string in its customer acquisition bow.

It’s hard not to be bullish on Stitch Fix after reading this post. Jake outlines how their business flywheels are set up such that the business improves over time, despite what what customer acquisition and retention numbers may show. One thing I couldn’t shake will reading was the absence of a Stitch Fix house brand. While smarter product purchasing decisions driven by data science may help their margins, it seems Stitch Fix is leaving a lot on the table by not cutting out the middle man for their top selling categories, much like Amazon Basics does for Amazon. The first obvious concern with this approach is the possibility of upsetting 3rd party brands by cannibalizing their sales. This is a strong argument and after some consideration, probably the primary reason Stitch Fix hasn't launched a house brand. Outside of this, the impact a house brand would have on margins is too attractive not to explore.

Shifting gears, Jake makes an important point about the data Stitch Fix aggregates and its impact on customer acquisition: Stitch Fix’s customer preference data does not only help upsell and resell existing customers, but it improves the success rate for new customers in their first “Fix,” too. This means every purchase improves Stitch Fix’s customer acquisition efficiency. An important question to ask next is, “how quickly does customer preference data decay?” Is customer preference data as valuable 3, 6, or 12 months after it’s collected as it is the second it’s collected? If yes and their data takes a long time to decay, Stitch Fix is sitting pretty. If not, and their data decays quickly, they are in a much tougher position.

Customer growth has been on the decline for a few consecutive quarters now, which means Stitch Fix is collecting less data from customers each quarter. With fast-decaying data, this is troublesome as it suggests Stitch Fix needs to continually acquire new data to keep product recommendations accurate, but they’re getting less and less of it. However, existing customers may be coming to the rescue. Net revenue per client has steadily increased over the past few quarters, meaning existing customers are purchasing more products and Stitch Fix is getting more data per client, which could help makeup for the data deficit from new customers.

My guess is Stitch Fix’s data has a max lifespan of 12 months — it doesn’t decay quickly but it does not hold value for a long period of time, largely due to the emergence of new trends, clothing items, brands, and consumer preferences.

Sequencing Business Models: Types of Marketplaces

Casey Winters & Gilad Horev, Eventbrite

As we move to the right of the business model spectrum, the sophistication of value props offered to supply increases. A light marketplace usually offers leads or connections and leaves it up to the supplier to then close the transaction. The marketplace doesn’t vouch for the demand in any way. It’s a bit of a free for all. A lot of people in the industry tend to feel like this is an old business model that goes away over time as the internet matures. We’re not sure. It depends on the willingness of the market to pay for a more sophisticated offering. When price is most important to customers, they sacrifice quality. Just look at airlines.

Moving further to the right, leads gets replaced as a value prop by liquidity. As opposed to creating leads, liquidity requires more of a focus on matching and that the marketplace does work to ensure supply attracts demand. In the more heavily managed version, the marketplace offers a lot more services to facilitate the relationship with demand.

What an awesome framework. Casey and Gilad unpack the core features mics of marketplace businesses and how they change at each level of marketplace, from light to vertically integrated.

The one question I had coming out of this post is about the “supply value prop” in vertically integrated marketplaces. They suggest that since vertically integrated marketplaces own or directly employ the supply, the marketplace offers no value for the supply. Can’t the existence of the marketplace be a value proposition for the supply? If not, can’t the enhancements to a supply’s operations be a value proposition of the marketplace?

Let’s use an example to flesh this out. Home health is typically administered by resources from a patient’s hospital or a 3rd party agency. The caretaker’s have little choice over which patients they see, little flexibility in their schedule, and often rely on antiquated health-system technology tools. A home health marketplace solves these problems for what would be its supply, the care takers. Even if the marketplace employed caretakers directly, making it vertically integrated, the schedule flexibility and streamlined operational capabilities are the marketplace’s value propositions helping to attract more care takers to the platform. The “quality of life” value prop for supply is powerful in this regard and lends itself well to marketplaces in regulated industries where large corporations dominate and services are largely inaccessible, like law and healthcare.

eCommerce is a Bear

Andy Dunn, Founder & CEO of Bonobos

E-commerce also creates new models that didn’t make sense before. Take a subscription shoe-commerce sites like JustFab and ShoeDazzle, the fantastic beauty discovery platform Birchbox, and the luxurious dress experience Rent the Runway, or celebrity-influenced commerce like BeachMint.

There is some overlap here with other categories. Birchbox offers narrow and deep selection of other brands, and so it could go in the previous bucket. ShoeDazzle sells their own label – so it could fall into the next bucket. While these companies are rapidly evolving, they all were founded with a premise of repeat delight via e-commerce at their core

Written in 2013, this post serves as an excellent outline for eCommerce companies even today. While numerous consumer companies have been acquired and IPO’d since Andy wrote this piece, the strategic playbook for competing with Amazon has not changed:

1. Proprietary pricing

2. Proprietary selection

3. Proprietary experience

4. Proprietary merchandise

While the relative short-termism of the proprietary pricing strategy is well understood, we still see this approach frequently in eCommerce. Flash sales and massive discounts are highly effective in driving conversion, but rarely do they result on loyalty or healthy margins.

As mentioned in this newsletter before, I believe the proprietary experience strategy is the best way to compete with Amazon because the retail behemoth has shown time and time again that they aren’t concerned with customer experience.

The proprietary selection strategy is compelling, too, especially for eCommerce players that attack niche verticals or historically hard to access products. Durable Medical Equipment (DME) is an interesting example of a niche that appears to have room for an eCommerce-first category leader. Can you say DTC DME? (I acknowledge the insurance complexities here but think a DME provider could handle this pretty easily.)

Disrupting Bloomberg

Marc Rubinstein, Net Interest

It would make sense to eye up the Slack market rather than the Bloomberg market. The market for enterprise collaboration software is about the same size as the market for financial data, but it is growing more quickly. Bloomberg has a value of around US$60 billion but Slack has a value of US$16 billion with a fraction of the market share. If Symphony is able to leverage its strength in security – a key requirement in financial services – into other industries, it may be more successful doing that than picking off Bloomberg customers.

Marc suggests that even for the fiercest, most successful competitor, Bloomberg may still be too powerful to displace. Slack, it seems, may be a better target for which to aim.

Symphony is this competitor and they attacked Bloomberg on its stickiest feature: chat. They built an ultra secure messaging app for finance professionals and soon got requests for workplace collaboration tools, too. Not the obvious evolution in their pursuit of Bloomberg — that would have been market data, as Marc suggests — but one that differentiated it and positioned Symphony more closely to Slack than Bloomberg. This positioning could be quite lucrative for Symphony even if it means diverting course from replacing Bloomberg.

COVID accelerated the adoption of technology collaboration tools among the masses by at least a decade, but many large enterprises are still mid-transition or have yet to begin. This suggests a large opportunity still exists for workplace collaboration tools despite the tremendous value that’s been created already. This line of thinking was inspired by Semil’s (Partner at Haystack VC) tweet below :

Semil @semil

It seems like most of NYC finance, Wall Street / PE still uses Webex. For Zoom or Teams, feels like that might be another $5-20B of market cap just sitting on the ground waiting to be scooped up.

If this is true and Symphony is positioned in the workplace collaboration market, might this unlock a larger opportunity for them than their position at the Bloomberg alternative? Instead of competing with financial services’ sacred technology product, Symphony becomes a tool in the collaboration suite many firms are finally implementing.

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<stuff> Weekly

LOL Weekly: The Sickwear Collection by Mucinex

lol is this real life??

Funding Weekly: Depict

“E-Commerce is booming, and recommendations are vital to e-commerce store success. Getting them wrong means lost revenue, and until now the best recommendation engines have been the domain of the e-commerce giants who have huge amounts of data and machine learning staff to dedicate to the problem,” said Brett Gibson, General Partner at Initialized Capital. “Depict fixes that by using cutting edge machine learning to give the rest of e-commerce the best possible recommendations at a fraction of the cost and integration complexity.”

Depict raised $2.8M from Initialized Capital, with participation from Y Combinator, EQT Ventures, Liquid 2 Ventures, Northzone, and a team of angels.

Depict is driven by the imbalance of data in eCommerce. The large retailers have tons of data, which allows them to efficiently train models to deliver great product recommendations, resulting in increased sales and other performance lifts that are more difficult to quantify like customer loyalty and customer experience. SMB retailers have a fraction of the data the large retailers do, which means they’re stuck without the ability to leverage great product recommendations to improve performance. Depict levels the playing field by allowing SMB retailers too leverage machine learning models instead of relying on large quantities of user behavior data to inform product recommendations

Baseball Weekly: Umpire Report Card

Pretty cool graphic showing home plate umpire Todd Tichenor’s performance in Game 2 of the World Series. Note the impact on run expectancy. Tichenor’s missed calls only slightly favored the Dodgers in Game 2, but the important piece is understanding that missed ball/strike calls impact run expectancy with significance. Gimme the robo-umps!

Art Weekly: Something Happened to Me Yesterday

Wes Lang, 2020

A great many of the artist’s influences are a  function of a distinct autobiographical experience with certain exceptions; the  indigenous American as well as other totems of the American West, and  painters and sculptors from middle of last century such as Twombly, Guston, Kline, Mitchell, Bacon dove-tailing on up to the more contemporary such as Basquiat,  Kippenberger, and Mike Kelley. To date, Lang has made his mark primarily on canvas and paper -- though his practice extends to include cast bronze sculpture, collage, hotel stationary, fabric, glass and precious metals -- and is known for creating surfaces that sizzle; bombastic mélanges often brimming with elegantly rendered, still rough-around-the-edges imagery of grim reapers, Indian chiefs, fallen country music icons, sultry seductresses, long lost folk legends, dead authors, motorcycles, roses and other flora, birds, horses, all of which jockey for prominence within compositions sewn together (and resolved) by cryptic scrawls with a bittersweet vernacular resonate of Ram Dass and the Tao by way of the edge of the universe.