When a merchant sells their long-tail business, can these folks run it just as well? I'm incredibly skeptical of that claim.
Long tail screams boutique, special interest. Holy water blessed dog cushions, handmade driftwood furniture, custom embroidered Naruto vests, sex toys, and other random things.
Can the venture equivalent of private equity really run these businesses and not drive them into the ground? Do the machines and automatons that take over have the energy and soul to let these once small sellers thrive? Do they understand the diverse customer interests?
I want to see what happens when Keith Rabois buys ZeeDog custom dog leashes, Heirloom Snacks, and random adult clothing stores. It'll be a challenge for his company to understand the logistics of each business and their customer needs.
Things need ownership to not suck, and this seems to be a step backwards.
"Shark Tank for Shopify" would be a better bet. Let the owner keep doing what they do. Take a small percentage and help them grow. Succeed as they do. The original owners will have more drive and passion to make it happen.
> wouldn't they switch off the platform as soon as they get big enough?
OpenStore is buying the business outright. That's what makes this venture seem crazy to me.
Maybe they'll get lucky and buy a bunch of Scrub Daddy equivalents, but I still think that the founder's personality and what they bring to the table is the determining factor in success for these breakout successes.
Well if the platform owns enough of them they could just try to be a big destination site. But you're right, they probably would need to leave to be huge brands.
I doubt they’re going after so niche products. Article says they’re pursuing economies of scale so it has to be things that fit together.
A small company could also be an emerging “niche” in a large space. Like keto snacks were a few years ago. First you could not find, then you could but they were crap / not actually keto, now there are many actual keto snacks, and soon there will be more / cheaper / more prevalent in brick & mortar.
So just taking that as an example, if you rolled up a few keto snack brands, there’s probably economies of scale across both the audience (to personalize ads and up sell products) and supply (it’s not a big world there’s only so many manufacturers at other end)
So I think that’s a good idea. But I do think this is a sign of the times - high profile leader raises a lot of money with no proof it works. He must feel like he can prove it out and cash out before…whatever this market is…tanks.
“Shark Tank for Shopify” already exists, there is plenty of consumer goods VC.
These aggregators are similar to a spray-and-pray VC model, but generally with the ability to do whatever with the company (shut it down, sell it off, merge it with others).
Note that in consumer VC, the exit multiples of early stage investing the best companies are not like 100,000x like in tech, they are like 50x max. Also the exit is selling to Unilever and Johnson and Johnson, not ringing the opening bell on Wall Street.
However, consumer goods companies don’t crash and burn a giant pile of cash the way crashing tech startups do, and individual consumer goods companies are pretty uncorrelated with each other. Unless two companies both make the exact same snack or beverage, they can both win, and often do. So a VC basket of decent consumer goods companies is very, very diversified, has lower risk and cash burn, but also lower multiples.
Aggregators kind of make me roll my eyes, it’s just raw, stupid capitalism, not sexy, inventive, or imaginative at all. But lots of these people start a decent company with a decent product, but don’t want to run it until they die or hyperscale it until they get bought by unilever.
The missing link here is - some businesses that suck make tons of money
Yes, they don't like the comparison to Thrasio but its a great example. Buy a bunch of meh-quality glorified dropshippers and make $$$$
I'm sure their end game is creating a big marketplace. Half the search results on Amazon and other big retailers are marketplace results anyways. And the result product is usually mediocre. But people like mediocre, I guess
Am I betting the Tesla HR manager selling steaks on Shopify was giving customers top quality at top customer service? No, not really
> When a merchant sells their long-tail business, can these folks run it just as well? I'm incredibly skeptical of that claim.
Based on my experience from another industry: no, they will run it worse but that does not matter since the difference in valuations between the seller and buyer is big enough.
The extreme examples helped me imagine customer service would by necessity tend towards the generic interactions, like you expect from csr sourced overseas. Seems like no customer would be the wiser, and expect their favorite store has gone mainstream/is a success. As long as they can get their blessed dog bed accessories, customers won’t care much either I suspect.
But the real issue for me is what about the products? Will products get better by further design and development?
Or are we talking about another niche entirely? Crap products catering to customers with more money than sense?
I guess, by nature of being online, their stores are always open?
But really it's more likely to be a cynical use of an arbitrary word with positive associations (and a use that itself dilutes those positive associations).
>But really it's more likely to be a cynical use of an arbitrary word with positive associations (and a use that itself dilutes those positive associations).
Don't much care for any company that has "Open" in their name when their entire business model seems to be buying and consolidating other businesses under one umbrella.
Seriously this sounds like a isht business. End result is squeezing all the merchants into one giant crappy company - all profit rolls up to OpenStore.
This also kills off any creators willingness to bring newer products to the market on a continual basis as they no longer own the store. I guess alternatively what you end up is with a bunch of people who make stores quickly off a new product and sell to OpenStore, rinse and repeat.
I don't understand the hate for this company. YC has funded multiple such aggregators (see Moonshot Brands) and I don't see any negative complaints about those.
They are probably focusing on shopify because they need to automatically ingest financial metrics for the valuation. Shopify has the transaction data so they can automatically value any company on the platform. They are probably starting with shopify since its the biggest ecommerce platfor.
Most of these target Amazon sellers, but they also roll up other independent stores. The thesis in this case that Shopify store operators are analogous to Amazon store operators, so they can use the same roll-up model on Shopify people, which isn't actually the case for many important reasons.
They leave them on Shopify. Basically it is a way for owner operators to cash out if their Shopify stores have reached a certain level of revenue and the business is kinda automated.
Well the valuation process is somewhat automated (they basically need to pull in transactional and user data from shopify into some financial model) which does require engineers.
I assume there's lots of stuff they need engineers for - I imagine managing loads of Spotify stores simultaneously has some strange requirements around inventory management, ordering stock from suppliers, returns, providing customer support e.t.c.
There like Zillow, but instead of buying homes, they're buying small businesses and given the valuation differences for small vs large business (as said above), it seems like this would be hard to screw up.
They're not flipping the businesses, they're running them. It's also possible to buy out multiple businesses from the same category, shutter some of the underperformers, and then enjoy the temporarily reduced competition in the category.
I could see this happening to alot of small businesses.
Since public platform companies are selling at upto 30 times revenue. There's a Huge difference 3-5 times profit and 30 times revenue. as long as you show growth not sure the market can differentiate.
I'm skeptical. Long tail Shopify businesses are kept alive with hustle and spit since they don't have enduring brands. With the founder gone, most will plummet in value.
Thought it was just last week I read an essay that basically said "don't build your castle [in this case, OpenStore], in someone else's kingdom [Shopify]".
47 comments
[ 3.3 ms ] story [ 106 ms ] threadLong tail screams boutique, special interest. Holy water blessed dog cushions, handmade driftwood furniture, custom embroidered Naruto vests, sex toys, and other random things.
Can the venture equivalent of private equity really run these businesses and not drive them into the ground? Do the machines and automatons that take over have the energy and soul to let these once small sellers thrive? Do they understand the diverse customer interests?
I want to see what happens when Keith Rabois buys ZeeDog custom dog leashes, Heirloom Snacks, and random adult clothing stores. It'll be a challenge for his company to understand the logistics of each business and their customer needs.
Things need ownership to not suck, and this seems to be a step backwards.
"Shark Tank for Shopify" would be a better bet. Let the owner keep doing what they do. Take a small percentage and help them grow. Succeed as they do. The original owners will have more drive and passion to make it happen.
https://hachicorp.myshopify.com/products/kakashi-vest-dog-co...
(Come on, Keith Rabois. Buy this company!)
wouldn't they switch off the platform as soon as they get big enough?
OpenStore is buying the business outright. That's what makes this venture seem crazy to me.
Maybe they'll get lucky and buy a bunch of Scrub Daddy equivalents, but I still think that the founder's personality and what they bring to the table is the determining factor in success for these breakout successes.
A small company could also be an emerging “niche” in a large space. Like keto snacks were a few years ago. First you could not find, then you could but they were crap / not actually keto, now there are many actual keto snacks, and soon there will be more / cheaper / more prevalent in brick & mortar.
So just taking that as an example, if you rolled up a few keto snack brands, there’s probably economies of scale across both the audience (to personalize ads and up sell products) and supply (it’s not a big world there’s only so many manufacturers at other end)
So I think that’s a good idea. But I do think this is a sign of the times - high profile leader raises a lot of money with no proof it works. He must feel like he can prove it out and cash out before…whatever this market is…tanks.
These aggregators are similar to a spray-and-pray VC model, but generally with the ability to do whatever with the company (shut it down, sell it off, merge it with others). Note that in consumer VC, the exit multiples of early stage investing the best companies are not like 100,000x like in tech, they are like 50x max. Also the exit is selling to Unilever and Johnson and Johnson, not ringing the opening bell on Wall Street.
However, consumer goods companies don’t crash and burn a giant pile of cash the way crashing tech startups do, and individual consumer goods companies are pretty uncorrelated with each other. Unless two companies both make the exact same snack or beverage, they can both win, and often do. So a VC basket of decent consumer goods companies is very, very diversified, has lower risk and cash burn, but also lower multiples.
Aggregators kind of make me roll my eyes, it’s just raw, stupid capitalism, not sexy, inventive, or imaginative at all. But lots of these people start a decent company with a decent product, but don’t want to run it until they die or hyperscale it until they get bought by unilever.
Yes, they don't like the comparison to Thrasio but its a great example. Buy a bunch of meh-quality glorified dropshippers and make $$$$
I'm sure their end game is creating a big marketplace. Half the search results on Amazon and other big retailers are marketplace results anyways. And the result product is usually mediocre. But people like mediocre, I guess
Am I betting the Tesla HR manager selling steaks on Shopify was giving customers top quality at top customer service? No, not really
Based on my experience from another industry: no, they will run it worse but that does not matter since the difference in valuations between the seller and buyer is big enough.
But the real issue for me is what about the products? Will products get better by further design and development?
Or are we talking about another niche entirely? Crap products catering to customers with more money than sense?
But really it's more likely to be a cynical use of an arbitrary word with positive associations (and a use that itself dilutes those positive associations).
sounds like OpenAI?
This also kills off any creators willingness to bring newer products to the market on a continual basis as they no longer own the store. I guess alternatively what you end up is with a bunch of people who make stores quickly off a new product and sell to OpenStore, rinse and repeat.
Or do they leave them on shopify?
What an odd business model. To focus only on businesses using the shopify platform.
I wonder how Shopify views this?
Since public platform companies are selling at upto 30 times revenue. There's a Huge difference 3-5 times profit and 30 times revenue. as long as you show growth not sure the market can differentiate.