(We originally posted this in December 2020. You can read more of our original ideas in our archive.)
Problem: Sellers on Etsy have to deal with all parts of their business: buying materials, making goods, managing customer relations, dealing with shipping, understanding cash flow, and more. What if a consolidated firm could handle all these “extra” things and allow sellers to thrive in the creative space?
Solution: A business that takes a roll-up strategy approach to consolidate many of the most successful Etsy sellers under one shared umbrella that would handle the management, finance, operations, and distribution of Etsy stores.
This strategy has already been done quite a bit on Amazon. For instance:
Thrasio, an acquirer of Amazon third-party private-label businesses, has closed on a $110 million financing at a post-money valuation of $780 million, the company has exclusively told Crunchbase News in April 2020. “So what does Thrasio actually do? It’s pretty simple really. It finds the ‘top-reviewed, bestselling’ essential everyday products on Amazon, and buys the brands from the small business owners. Many of those (usually seven-figure) businesses have grown faster than the owners have expected, according to Silberstein.”
101 Commerce has gotten a lot of attention lately, and rightly so. Founder R.J. Jalichandra is calling it a “multi-brand platform consumer-goods company." He announced plans earlier this year to acquire the FBA businesses in 24 months… “While P&G grew steadily, but slowly, over centuries, this one can scale enormously in a matter of months. While P&G has been selling-off brands left and right over the last few years (they were down to 48 in 2018), this one is acquiring brands quickly -- 101 Fulfillment by Amazon brands to be exact.” as reported by Forbes
“After raising $8 million in November to roll up top Amazon marketplace companies, the new Boston-based startup Perch has begun putting that money to work in its first few deals.. The brainchild of Chris Bell, formerly Wayfair’s head of logistics and a Bain & Co. principal, Perch is well-positioned to serve as unifier of a bevy of disparate products in one nest.” as reported by TechCrunch
I’m not the only one raising eyebrows at this industry either: as described by Adam Keesling in his newsletter Napkin Math,
Thrasio represents a new kind of roll-up: a digital roll-up. They are buying small businesses built on one of the largest online platforms in the world. With it, they will capture economies of scale.
One could imagine using this strategy on other large internet platforms. Could Thrasio’s strategy be applied to Twitch creators, Substack writers, or App Store apps?
Each of these platforms has different risks. Thrasio’s biggest risk with Amazon is platform risk. To mitigate that, they could spin up Shopify stores for each of their brands and slowly migrate them off of Amazon. Or they could hope that regulators keep Amazon from changing their ranking algorithms.
But other platforms introduce other risks. Creator-led businesses (with Twitch streamers) might have less platform risk. If they have a strong connection, their fans will follow the creator across platforms. But, those creator-led businesses introduce “key person” risk: if something happened to the creator, the business would be worthless. There’s no perfect strategy here, but that’s also the fun of it.
There will be many more small businesses created on the internet in the coming years. And where there’s money being made, you’ll find investors. It’s only a matter of time before we see even more digital roll-up strategies across industries internet-wide.
So why not do it in the world of Etsy? In terms of direct substitutes to Amazon, Etsy seems to take the cake: especially since their products are handmade and feel much more intimate. While this has some disadvantages (would creators want to work for a conglomerate?), it also has clear advantages such as stronger brand loyalty and the chance to have more unique brands.
The market of ecommerce is huge: valued at over $895 billion. This business would aim to acquire a morsel for a chance at greatness.
Monetization: Sales from purchased companies.
Contributed by: Michael Bervell (Billion Dollar Startup Ideas)