Great plan, great team, great execution, went IPO in 2013 worth $1 billion, hit wall, slumped, got sold.
That could be the title of the real story of Zulily, the clothing e-commerce startup.
Startup founders can learn some critical lessons from what happened to the great plans of the company's co-founders.
I’ll quote (in italics) from the excellent reporting in Heard on the Street by Miriam Gottfried of the Wall Street Journal, 2015 August 18.
- Prime marketing directive: If you attack the market leader (dominant, entrenched company), be sure you attack a weakness the leader cannot overcome.
“Zulily’s initial strategy of selling clothing from lesser-known brands offered some promise of differentiation. Amazon also sells clothing but its interface caters more to shoppers who know exactly what they are looking for, rather than those interested in browsing unfamiliar labels.
And Zulily’s strategy initially appealed to investors because it held no inventory, with items being shipped directly to buyers from vendors after they were purchased. Moreover, the company didn’t accept returns, further simplifying its supply chain and allowing it to sell at deeper discounts.”
The starting point appeared clever, the e-commerce market huge enough for one more big winner, so the startup got funded. And boom, sales rose to high levels very fast. The company went IPO. People cheered.
BUT SALES DISAPPOINTED – SO CEO PIVOTED – LOSING ITS UNIQUE MARKET POSITION
Ouch! Sales came in less than expected, began to sag. Now what would you do as the CEO? Take a guess -- and then read on.
Here is what happened:
“But in its eagerness to keep growing, Zulily began to add more established brands. This led to greater churn as shoppers looking for big labels could easily buy them elsewhere, including on Amazon. When Zulily acknowledged as much and reported higher expenses in its fourth-quarter earnings report back in February, its stock fell 27% in a single day.
Meanwhile, the company’s supply chain and returns policy proved limiting when it came to retaining loyal customers. Shoppers accustomed to fast shipping from Amazon weren’t keen on the 10-plus days on average it took an item to leave Zulily’s warehouses.
The company said in March it was shifting to a model of stocking up inventory, though vendors would continue to actually own it. In June, it said it was testing an online returns program. Neither of those changes were enough to turnaround its second-quarter results.”
So did you decide to do what the CEO did? What would have been a better move?
ZULILY LESSONS FOR FOUNDERS
- Attacking (Offensive Strategy) the market leader (Amazon) usually has a bloody end. The giant has good reasons for having not entered the market you plan to enter. Zulily proved Amazon was wiser.
- Attack on a single weakness that the dominant market leader cannot overcome (me-too), or block (“We’ll be doing that shortly.”). In this case, Amazon did not need to make a counter-move. Zulily was a short-lived Roman candle.
- Pivot out of harm’s way – not into the jaws of the giant. Zulily’s move sent it directly into competition not only with Amazon, but also other strong e-commerce companies.
- Execute a pivot flawlessly. Zulily did not. Customer complaints rose rapidly and spread the word. Rated 3.2 of 5 by bbb.org, 2.0 at sitejabber.com and so on.
- Sell the company when you can. That’s a corollary to the wise adage “Take your money when you can get it.” Better to sell and depart than to sink with the ship.
BOTTOM LINE: Even the best of startup ideas has flaws that can hit the wall and crash. As the company grows with excitement, expect dark days to challenge your best plans. When your unfair advantage is clear and strong, yet your best efforts result in sales dropping rapidly, it’s time to pivot (move radically). That’s tough to accept ("It's giving up!"). And hard for even a serial entrepreneur to execute flawlessly. Yet that’s what is expected of founder CEOs. If you think you can do that, then you are ready to do a real startup.
P.S. It will be interesting to watch how Jet.com does. To be continued . . .
I wish you The Best on your Adventure!