All posts in “Amazon”

What Will Really Disrupt The Disruptors?

The world is changing fast… The Tech World even faster.

And every day it seems like a new technology incubator/accelerator pops up.  Universities, venture capital firms, big companies, and governments are jumping on the Incubator/Accelerator bandwagon like never before…

Everyone involved with these business startup factories hope the next crop of disruptors is just a few weeks away.  But they just might be wrong. Very wrong.

Why?

People who have been around for a while probably know that when everyone seems to be jumping on the bandwagon it usually means a bubble is forming. And there are a few other signs that flash warnings  about the strong possibility we may be seeing the peak of this startup accelerator trend.  Going forward in this article I will use the term accelerator to refer to Incubator/Accelerators.

First of all, lets nail down the basic accelerator’s goals…

Accelerator operators like TechStars, Y-Combinator, Capital Innovators, and countless others want to attract and nurture great teams who can work with a target customer group to build products/services that will disrupt some business sector and build a billion-dollar business. And… Preferably they should do this overnight. Ten weeks at most.

Think Uber, ETrade, Travelocity, AirBNB, Amazon, Google, and other startups that have caused great upheaval in some marketplaces. Who uses a travel agent, full service stock broker, the Yellow Pages, or a Sears store anymore?

But now with most major markets disrupted there are only two places where the next batch of startups can really thrive and deliver exponential growth with their innovations. (1) Smaller, more narrow niche, markets where it will be difficult to build a big enough business to attract the large sums of capital needed, and/or (2) Disrupt the disruptors.

Smaller niches are always a crap shoot while disrupting the disruptors is an interesting proposition…

Don’t think it is not going to happen. As we have seen many times, market leaders can only retain their dominance until the next big thing comes along. In a world where all it takes is one click to try something new the current market leaders could be living on borrowed time.

What new unexpected company will take Amazon’s ecommerce market away? What upstart financial innovator will out maneuver Etrade? What company that just locked in a pocket full of Seed money and a spot in a hot accelerator will take travel to the next level?

Well… It may not be one of the well-known brand-name accelerators who will shepherds along the next billion-dollar unicorn destined to disrupt a disruptor. The process, procedures, contact networks, and mentors these established accelerators used in the past were great at producing last decade’ s disruptors…   But they might not work going forward.  Whole new processes, procedures, contact networks, and mentors will need to be built from scratch…

Why is this true?

How about some real-world evidence?

The number of true accelerator graduates (companies that have achieved traction and grown exponentially) has collapsed. I will use two data points to illustrate this:

  1. TechStars, the largest accelerator, is now expanding on the backs of corporations and governments looking for innovation. New TechStars accelerators are being funded by the likes of Target, Disney, Sprint, and more… Why would TechStars give high-growth company equity away (or waste valuable resources) to these corporations and governments? Easy answer… Because the companies in these new accelerators will probably not be true Unicorn disruptors. In fact, they may collapse as soon as their corporate or government benefactors stop funding losses.
  2. Investors are having a hard time finding startups with promise. These recent articles document this enlightening trend… “Once-Flush Startups Struggle to Stay Alive as Investors Get Pickier” and “Startup Investors Hit the Brakes” and “Seed funding slows in Silicon Valley .

Smart investors will usually wait on the sidelines while others take the substantial and painful risks to identify and exploit the next big trend. Why take more than an acceptable risk their money? They let someone else take the big risks and shoulder the losers. Smart investors will be there to cherry-pick the most promising new companies.

Where will the next batch of unicorn level disruptors come from?

There may be a few that just pop out of some garage, basement or big city co-working space but look for them to appear out of accelerators with a different nurturing and growth model…

Like what?

Not just churning through startup teams… These new accelerators with have a different playbook all together. The only way to produce tomorrow’s disruptors is to disrupt the entire concept of startup accelerators.

How? More on this in my next article…

What Can Startups and Investors Learn about “Pain Points” From Jet.com, Amazon, and Uber?

amazon_headquartersTwo online retail sales forces are colliding this week…  Jet.com a potential Amazon rival went live and Amazon is announcing earnings.

Jet.com has a great story ( link here)…   The former online retail guru who sold his suite of companies including Diapers.com and Soap.com to Amazon for $545 Million is now back in the online retailing game and gunning for Amazon.com’s customers.

His non-compete agreement must have just expired but is this really the best use of his time and his investors’ money? Why try to go up against Amazon when this online retail leader  can’t even seem to make money in this online retail business?

That’s the other thing that hit this week. Amazons earnings report!

Amazingly Amazon reported a profit of $92 Million on revenue of $23.19 Billion for the quarter ended June 30. This is the first profit in a while and compares to a $126 Million loss on $19.34 Billion in revenue a year earlier.  When you do the math Amazon makes less than 0.4 cents on every dollar it takes in. That’s less than half a cent. Not so good. Lots of activity not a lot of profit.

jet3So if Amazon is having a difficult time creating profits out of our intense need for stuff delivered right to our door within two days, then why does Jet.com think they can make any money at this?

Their marketing pitch is full of stuff to hopefully make us believe they can serve up goods a prices lower than anybody else on the internet. “Club price savings on pretty much anything you buy.”  A quick search of the stuff I buy on Amazon shows Jet’s prices are exactly the same but I pay a shipping fee on Jet. Since I am a Prime Member I pay no shipping fee when I order from Amazon.

The same price for the goods but I pay extra for shipping…. What was Jet thinking?

I’m sure Jet offers some items at a lower price than Amazon but unfortunately nothing I buy. If you test Jet with your items and come up with a significant savings let me know.

Usually before smart people start a new business or invest in one they identify a series of consumer perceived “pain points”. So let’s list what we hate about Amazon to identify potential “pain points” that could give a competitor an edge:

  • Amazon reliably ships me what I order on time or earlier.
  • Amazon has a simple return system so with a few clicks I can return stuff when I need to.
  • Amazon has my order information so ordering is just a few simple clicks.
  • Amazon prices are usually the lowest you will find.
  • Amazon provides me all kinds of free stuff like movies and electronic books with my Prime membership.
  • Amazon pays me a $1 per order credit if I elect to get my stuff in less than two days.
  • If I ever need help I can always get someone from Amazon on the phone.
  • When I am in a bricks and mortar store and I see something I want I can use my phone to scan the barcode and find out what Amazon charges then order the product.
  • Amazon has been doing this for over 20 years.

Sorry… I couldn’t ideAmazon1ntify any “pain points”. So where is the opportunity for Jet.com?

I just don’t see any reason Jet.com to exist. And even if they are successful at poaching Amazon customers with their lower price pitch those buyers will be the more price sensitive customers that were actually costing Amazon money.  Ultimately Jet.com will be helping Amazon make more profits. They should expect a nice Thank You note from Jeff Bezos.

To sum things up… Jet.com has entered a low margin (probably a losing) business category with a single strong entrenched competitor who appears to be doing everything right to keep customers happy.  It’s not like Amazon is leaving us out in the rain to compete with a ninety-year-old lady for a lone yellow taxi.

So as a comparison let’s consider Uber…

UBER RUBIOThis leading ride sharing business who appeared to come out of nowhere and rocket to a reported $50 Billion valuation entered a fragmented market with no clear leader where it took many steps to hail an inconsistent ride. And before Uber when your ride showed up you probably paid more to get to your destination in a smelly vehicle with a gruff distracted driver. Then there is Uber’s App where you can see those little cars circling. With a few clicks you see your ride on its way.  At the end of the ride no money changes hands. It’s all automatic.  No scrambling for cash, waiting for a receipt, or agonizing over how much to tip.

When you are looking for a company concept for a startup or to invest in think about Jet.com and Uber. Identify the pain points and be sure people care enough about those pain points to use your product/service and pay enough for it so you can make a reasonable profit.

[DISCLOSURE: I do not directly own any shares of Amazon.com]