startup Archives

19 Jun 2017

Sticky Post By Matt Hottle Posted in Entrepreneurship, Funding, Start-ups With No Comments Permalink

Is Birmingham Shipt Out of Luck?: What Amazon’s Whole Foods Acquisition Means for Shipt

Sticky Post By Matt Hottle On June 19, 2017 With No Comments

Within 10 days of Shipt announcing it had secured an additional $40 million through series B funding, Amazon announced it had purchased Whole Foods for almost $14 billion, and Instacart announced it will become the only official partner of Publix in 2020 and offer delivery service through every Publix location, beginning in Shipt’s Birmingham backyard.

“Alexa, Bring Me a Dozen Bananas.”

Amazon has already been delivering on-demand grocery pickups through its AmazonFresh service in limited locations. With the addition of the 431 Whole Foods locations and the investment Amazon has already made in advanced logistics, it’s almost a given they will start offering pickup and delivery services in each of those locations. Shipt points to the 43 cities they’re currently servicing in the Southeast and Midwest markets as validation of demand and their ability to scale. Amazon likely agrees. With their new Whole Foods retail footprint, an estimated 65 million Amazon Prime subscribers already paying annual memberships to the online giant, and Amazon’s ability to recreate the basic architecture of Shipt’s app/ interface/ automation tech, what is really stopping them from supplanting Shipt?

Instacart Moving Into B and C Markets

Shipt specifically targeted smaller markets in the regions of the country where Instacart and others had a weak or non-existent presence. Last year, Instacart started offering delivery in smaller markets and found enough success to ink their recent exclusive deal with Publix. This is a big deal as Publix is a major partner for Shipt and has more than 1,100 locations in the Southeast—with 773 of those in Florida alone. Shipt will probably still be able to offer delivery from Publix locations but won’t be considered an official partner—which means any marketing fees, promotional consideration, or branding received from Publix will go away. If that’s the case, those shops become far less profitable and Shipt will either have to raise subscriber fees or eliminate popular Publix as an option for Shipt members.

Is the $60 Million in Funding a Problem for Shipt?

Instacart raised $400 million on a $3.4 billion valuation in March of this year. In total, they have raised $675 million over seven rounds. They currently offer service in more than 1,200 cities. That translates into $562,333 of investment per city. Shipt has raised $65.2 million over three rounds which translates into more than $1.5 million of investment per city. The bulk of that funding, $40 million, was announced just days before the Instacart/Publix deal and a week before the Amazon/Whole Foods deal. Is their future valuation now lower than what it was last week? Assuming they’ll need even more capital to compete against Amazon and Instacart, how will that affect future fundraising?

Don’t Forget About Walmart

Walmart has also been testing its own delivery service by paying their employees small fees for delivering products to customers that are on the employee’s way home. Time will tell if this becomes a meaningful segment for Walmart, but with a $219 billion market cap, Walmart can launch whatever service it wants in the same smaller cities Shipt already services.

What’s Next for Shipt

There is likely going to be some form of pivot coming from Shipt, and no one outside of their boardroom really knows what that will be. Anything is possible—from going after even more funding to compete in the space to aggressively shopping Shipt for acquisition. Bill Smith, the founder of Shipt, is a savvy and accomplished entrepreneur. From an outside perspective, he has built a solid team, and the culture within Shipt is reported to be strong. All of which will serve them well as they consider their options in this new landscape. Amazon may choose not to pursue delivery. Walmart may not enter the market. It’s entirely possible that Shipt finds a way of successfully competing with Amazon, Instacart, and Walmart even if they plan to pursue the same opportunities as Shipt. If they do pull off a successful competitive strategy, they will have cemented their reputation as the big startup “win” Birmingham has been hoping they are.

26 May 2017

Sticky Post By Matt Hottle Posted in Start-ups With No Comments Permalink

Preparing to Scale Your Business

Sticky Post By Matt Hottle On May 26, 2017 With No Comments

Scaling at any cost has become a strategic roadmap for too many companies. Over the years, it seems this is the common playbook being run by high tech startups—especially if they’re VC backed. From certain perspectives and assuming certain motivations, that can be totally understandable. Your investors are looking for 10X or even 100X returns (however unrealistic that may be), and that only happens if the companies can quickly add ridiculous amounts of users, customers, or some other measure of market capture. The problem, of course, is that most companies have no idea how to do this and how to avoid the inevitable outcome—the company grows too fast, makes some unrecoverable mistakes, and becomes another Icarus-like cautionary tale of startup failure.

Incremental growth can be challenging enough without adding unnecessary velocity. At some point, you’ll get to the fork in the road between staying at your current size and scale or deciding to take steps to grow the business. Payroll is being met. Clients are happy. Bills are being paid on time. Customers are being acquired. It could be a logical conclusion that this is a perfectly satisfactory place to remain. Most entrepreneurs, however, are not happy with their current scale, size, or capabilities. They remain focused on growth forever.

Planning to scale a business isn’t difficult, but it requires some discipline. Using Marcus Lemonis’s Three Ps approach, we can break it into those categories.

People

Scaling your human capital and capabilities is foundational for successful growth. Consider the following:

What jobs and tasks are the founders doing that need to be delegated? How will you prepare people to take on those responsibilities, and what resources will be required to do so?
Do you have the right people in the right spots?
- Right Person + Wrong Spot = can you find a better spot/role/job for them?
- Wrong Person + Right Spot = how will you replace that person?
- Wrong Person + Wrong Spot = position eliminated
- Right Person + Right Spot = congrats!
Whose job will be expanding or changing? How will you plan to support that change?

Product

Products don’t always scale easily.

How will your production and logistics requirements change? Can you make more and deliver it as efficiency at scale as you previously have?
Are there smaller product offerings that simply can’t scale with the rest of the product line? Do those products get eliminated?
Any implementation/rollout/delivery issues created with additional product sales? How will you mitigate those issues?
How will you preserve quality?

Process

This trips up more companies than anything else. Having processes that people can follow and execute autonomously is crucial.

Are your processes documented and available for people to access/review/use?
What processes can only be executed by specific individuals? What is the plan for eliminating that bottleneck?
Are your processes current and are they still relevant at scale?
Where are your processes likely to fail at scale and what could cause that failure? How will you try to futureproof those procedures?

This, of course, is only a partial list but cover the high points. I would say these are equally weighted and only working through one or two of these is not sufficient. Growth is exciting and is the fundamental point of having a business for most of us. Companies can grow exponentially and actually make less money than before that growth occurred if has been poorly planned.

15 May 2017

Sticky Post By Matt Hottle Posted in Finance, Funding, Start-ups With No Comments Permalink

How Small-City Startups Can Get the Funds They Need

Sticky Post By Matt Hottle On May 15, 2017 With No Comments

Small cities can be uniquely positioned to help startups get up and running. With lower costs to operate, less competition for resources, and high levels of public interest in new companies spinning up, smaller markets can be great incubators. Despite those tailwinds, companies in smaller cities often struggle to find private investment funding. It’s not that there isn’t any money to be invested—quite the contrary. Most metropolitan areas have at least one anchor industry creating wealth that spans multiple generations. Economic development organizations bring public money to the table as well.

Creating a minimally viable product and proving market traction are normally required before a startup lands sizeable investment money. Building that MVP and proving market validity takes time and money that many new ventures don’t have.

When founders decide to take on a funding partner, they often think in terms of securing $500k or more. That kind of investment falls in a gap that normally goes unfunded—too small for institutional investment and too big for individual investors. Pre-revenue startups who want to raise a year’s or more worth of runway in a single round are often left without any dance partners.

The fragmented nature of private individual investors, relatively finite size of public money offering, and the follow-on investment plays of institutional funds perpetuate this seed funding gap.

Overcoming this gap requires founders to change their thinking.

Step 1: Take a strategic look at what it will take to create the MVP. Consider what kind of money and resources it requires, and strip out anything that isn’t absolutely crucial.

Step 2: Determine how you’ll prove market traction. Whether that includes landing the first customer, attracting users, or building models around credible survey data, plan for this before you ever determine how much money you’ll need to raise and how quickly you’ll need to raise it.

Step 3: Complete the financial projections to determine the amount you absolutely need to pull off Steps 1 and 2. Decide how much equity you’re willing to give up (hint: it will be more than you want to give up).

Operating under the assumption that this seed funding won’t get you very far—only to the point of launching an MVP and proving market validity—the new funding number is likely far smaller than $500k. If the numbers fall between $50k and $120k, you could very well find an individual investor or small group of investors who shares your vision and is willing to risk cash in exchange for a sizeable chunk of equity.

Once you’ve launched the MVP and proved market traction, the size and options for investment funding expand. Not only will local sources of investment be more readily available, but investors from other cities, areas, or regions may be more approachable as well. Closing the funding gap is something pre-revenue startups can do for themselves as long as they tailor their timeline, product development, and overall approach to the funding sources available.