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The Truth about Ecommerce

What Marketing Agencies aren’t telling you and what all founders need to know.

by DigiVest

(This article is a cut down of a more detailed 3,000 word version. This version is designed to cut straight to it. If you’d like to read the more detailed version you’ll find it here. )

First off let’s make it very clear that we’re not saying Agencies are deceiving you – we’re not anti Agencies, it’s just that we think that most Agencies don’t realise the importance of the following info – what we do advocate though, is using the right tool for each job.

A good Marketing agency will specialise one way or another in selling more widgets and/or increasing brand recognition for the company that sells those widgets.
Some may specialise in specific marketing channels like EDM or Paid Facebook or Influencers or Brand.  Some are multi disciplinary – but almost all fail to look at the bigger picture. 
In short –  to survive and prosper in eCommerce, to get to scale, you need to be thinking about much more than selling as many widgets as possible.

It’s our view (based on experience), that to get to large scale growth (the kind that requires speedy revenue spikes, learnings and data), ecommerce companies will need to expand into multiple international markets and doing this properly will mean getting outside investment (probably 2 to 4 times).
To make sure you can get the capital you need without diluting your shares too greatly,  you need to make sure that when you seek capital you are highly investible.

As Alex Mccauley of StatUpsAUS states:

“The data suggests that early-stage funding is harder to come by for Australian companies than at any time in the last five years.”
​​https://crossroads.startupaus.org/overview


The more investible you are, the “cheaper” your capital is. Conversely not being investable enough often results in not getting the capital you need or having to dilute so much of the company that it becomes increasingly difficult for further funding rounds.
 

Alex Mccauley of StatUpsAUS again: 

“Many accelerator operators and later-stage investors note that they regularly see startups with seed stage terms so onerous that they are unable to attract any further funding down the line, crippling the business from the outset.”


The market value of your ecommerce company is not simply determined on how many widgets you are selling – but also on a series of metrics (often called ‘multipliers’) that paint a picture of current earnings as well as future potential.
So it’s critical to have a digital strategy that not only continues to sell greater numbers of widgets, but also makes sure that these metrics are being optimised at the same time.
This often means building medium and long term marketing foundations in conjunction with short term goals and campaigns.
Depending on available capital, the velocity that a founder builds these foundations and grows market share often results in a slower growth curve of widgets sold, yet results instead in a higher market value.

The Top Metrics for eCommerce Market Value (Investability). 

So what sort of metrics should you be tracking? Broadly speaking the main multipliers could be put under Data, Marketing Performance and Technology with a fourth tier that would fit under Business Operations – but as this article is focusing on the digital side of things we’ll skip that for the moment. In general, business strategies designed with a practical and demonstrable focus on exit are always highly investable. Factors such as website traffic, strong business fundamentals, diverse marketing channels, large owned audience, robust financial structure and latest data and technology platforms are some of the factors that directly affect the valuation and thus the investability score of any business.

Data
Description Example Services
Every decision in today’s world is expected to be data-driven. Maintaining the data infrastructure is not only important for decision making, it is also one of the key factors driving the valuation of the company. Crucial decisions such as right timing to launch in a new market or identifying the right marketing channels have to be based on data and algorithms. A sizable customer database could double the valuation of the company.
  • Growth Forecasts and performance capital planning.
  • AI and predictive analysis for future trends and market entry.
  • Plans and executes, harvests and analyses all sources of data, providing insights and recommendations into Market, Performance and Investability, historically, as well as future projections.
Marketing Performance
Description Example Services
Marketing Performance – Digital marketing is the sole sales driver. Customised marketing channels need to be set up based on market popularity and customer engagement. These marketing channels need to be continuously optimised by a highly trained team to find the best ROAS/CPA and tuned for LTV.
  • Paid and Organic Search
  • Paid and Organic Social
  • EDM’s
  • SEO
  • Influencer marketing
  • Co-Owner investment commercialisation
  • Ambassador, paid Influencer, contra
  • Inhouse database campaigns
  • External partnership campaigns
  • eCommerce talent strategy and sourcing
Technology platforms
Description Example Services
Websites are the backbone of an eCommerce business. Just like store location and interior of traditional business, the success of eCommerce business is highly dependent on the technology platforms. These systems need to be customised and well maintained as per the requirement of the markets. Being ahead of the game is the key to success.Full stack end-to-end Tech capability and project management allow for:
  • Conversion Rate Optimisation (CRO),
  • User Interface (U/I) and User Experience (UX) improvements
  • Landing Page and Sales Funnel creation.
  • New platform and third-party tech integration.
  • New website builds.

The Ecommerce Scale Contradiction 
It’s a pretty big laundry list right?
While it’s not necessary to have all of these boxes ticked – the more you have, the better chance you have of securing the capital deal that’s ideal for you (and the more success you are likely to have in your marketing medium to long term).

But let’s face it eCommerce has become intricate and time consuming.
As the marketplace has matured and populated, so has the technology, marketing, knowledge and talent needed to compete and grow at scale. To get all of these foundations optimised takes a sizable, knowledgeable team a decent amount of time. Like the maxim states “you have to spend money to make money”. Unfortunately, most Founders don’t have the cash flow or access to capital and the prior knowledge to be able to build these foundations in parallel with selling products and growing the business in their local eCommerce marketplace. Marketing Agencies worth their salt are too expensive, and so is the cost to hire a skilled internal team.

The below are the typical amounts needed to reach scale in today’s digital climate. 

Illustrative cost distribution to launch and scale 

Global ScaleLocal Scale
Media$300,000$200,000
Inventory and Packaging$200,000$200,000
Social, content, Talent, etc.$150,000$100,000
Team, Tech, data, etc.$250,000$150,000
Localisation & Optimisation$100,000$50,000
Total Cost$1,000,000$700,000

Note: the distribution of cost could vary depending on strategy and market opportunity.

It’s a catch 22 situation:

The Investible Catch 22: Need Capital to be successful but…
Can’t get capital without sacrificing too much equity. (Not investable enough)Can’t become investable without having the capital.  

And making things even more grim is the cost of time.

Forbes found that:

“Founders need 2 to 3x longer than they expect to validate a business model.”

As we know time is money  –  CB Insights report:

“Money and time are finite and need to be allocated judiciously.

For the startups on our list, running out of cash — tied with the

inability to secure financing/investor interest — was the top reason

startups cited for their failure.”


CB Insights : https://www.cbinsights.com/research/startup-failure-reasons-top/


In fact, we estimate that the time a brand/company has to impact a given market or territory, use their capital to significantly impact revenue (sales orders online) but also build out those metrics that are most likely to increase your valuation and therefore investability is generally about 12-24 months per new market (country).

It’s not all doom and gloom – eCommerce marketing works – it’s still the fastest way to grow a business barring striking it lucky and going viral.
But it’s our belief that the current model for early stage companies is broken, which is why we have spent the last five years creating and optimising a new one.

The DigiVest Solution
Our business model was designed from scratch to be an alternative, fair and balanced way for early-stage companies to grow, with mitigation of risk (including capital) being one of our key drivers. Unlike traditional venture capitalists and investors who offer capital for equity, we are in the trenches early, helping eCommerce businesses become investible – for example; amongst other services, we provide all of the data, marketing performance and technology services described above. Unlike agencies, which charge a fee for execution, we are mainly rewarded for results. Through our unique Skin In The Game (SITG) Model and Investability First approach, we share a large part of the risk upfront with our Founders. We not only provide a true partnership approach to achieving your revenue and valuation dreams, but we also ensure you have a clear path to access capital when you need it, to further grow and scale your business without sacrificing too much equity too early.

A partnership with DigiVest means access to a system of processes and best practices proven to get companies to scale, run by a team who is invested in your success (literally) at an upfront cost less than any other alternative.

We are selective about who we partner with as our resources are also finite, but if you think this solution suits you. Click below to begin the process.     

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