Our press release went out this morning, so the word is out – ShopRunner acquired ShopSanity. Leo and I started ShopSanity about 9 months ago, and when we did, we set out to build a big business to rival Catalina and Abacus. We funded ourselves, we built a small team of 8 full and part time people who had all worked together before, and we went after the mission quickly and efficiently. I’m proud of how hard the team cranked, and I’m extremely proud that what we built scaled like mad and grew quickly on a lifetime total of $7K of marketing spend and no PR. The total number of transactions in our system is looking exponential:
Here’s the number of merchants where we’ve collected at least one purchase:
So the users are coming, the software is working, and we’re firing on all cylinders, growing fastest in our space by 10x and close in size to companies who have raised $10M in external money. Feels good. We even had final docs for a financing with a Sand Hill VC to give us some runway. But we turned it down at the 11th hour to join ShopRunner. WTF? Here’s why:
1. We really like ShopRunner. We like that the team has been together for awhile, they have some great traction, and most of all, that they share our intense ambition to build something huge. They want to build the software layer that brings the wonderful Amazon experience to all the retailers on the web. That’s a big mission, and a huge company when we get there. It will have millions of members who spend billions of dollars online. This is the fourth software company Leo and I have sold successfully – two VC-backed and two on our own dime – and at this point, the ambition to build something cool and huge drives us the most. We’re excited that the whole ShopRunner team feels the same way. We’re going big or going home, and we believe we can go bigger together than we can separately. In addition to the great team, ShopRunner has all the assets in place to achieve the mission. It’s quite well financed through its spinout from GSI/Ebay, it’s extremely well connected personally to all the players in commerce and media, and it already has deep partnerships and integration with about 100 retailers. So both ambitious and capable. We like that.
2. ShopRunner and ShopSanity are a great strategic fit. The data layer that ShopSanity brings to the table is a key piece of the overall mission. We like to build cool, huge stuff, and at ShopRunner, what we were already building is an important piece of the puzzle. Likewise, ShopRunner dramatically enhances our consumer value proposition, so they add at least as much value to our original mission as we do to theirs. Receipt organization and management is an interesting value proposition, but by itself, is compelling only for a niche customer group. But fast, free shipping from the best merchants on the web is hugely compelling to everyone. In the words of every cliched VC on Sand Hill – now we’re a drug, not just a vitamin.
3. We believe there’s something slightly off in the startup world, and we feel like we’ve seen bits of this movie before. Since our first company got acquired in 2000, a lot has improved for software startups – cloud infrastructure makes launching and scaling much cheaper, social infrastructure makes spreading the word virally much easier, fast and mobile connections mean more people spend a lot more time online, and the startups that are doing well are making serious money instead of just driving page views. There are some huge successes these days which rightly deserve the monster financings and valuations they’re getting. All that said, there’s a crazy echo chamber and hype cycle right now that feels very counterproductive. Being a startup founder is about grinding as hard as you can on a small chance at a really big outcome. Or it should be, in my opinion. But right now, some people seem as excited about being covered by Techcrunch or its progeny, going to cool parties, and becoming celebrities as they are about building good products and efficient businesses. That doesn’t feel right. Startup culture is great, and the environment is exciting – but it’s not the endpoint. We should be building real businesses or meaningful products (sometimes those two overlap, but not always), and our view is that too many people are building neither and are just happy to be shouting into the media/investor echo chamber. Separately, a lot of angels and VCs seem too mesmerized by the latest buzzwords – so much so that a pitch that says “Big Data” does better than the identical pitch using different words. That’s a bad sign. We also think it’s a bad sign when Maslow’s hierarchy of needs is cited as justification for every investment decision (pro or con) as if every startup success or failure is naturally preordained by psychological theory. Finally, we think it’s a bad sign when too many investment decisions are made as a function of other people’s investment decisions – groupthink usually ends badly. We worry that when you combine buzzword-smitten investing with a culture that celebrates media coverage more than customer service and consumer value, the outcome can be troubling.
We could say, so what? We had money raised and ready to go, we’ve navigated the echo chamber successfully before, so let’s do it again. If we didn’t like ShopRunner so much and fit with them so well, that’s exactly what we would have said. Tactically, though, we believe that overfunding and overhyping in our segment will cause competitors to do silly things – like overpay for customers – that would make the whole space worse off. We’re too focused on building something huge, and we knew the sideshow would waste our time and distract us from the mission. So we joined ShopRunner, which has quietly built a business with great things on the horizon, the ambition to build much more, and the assets to get there. A ShopSanity competitor recently told the echo chamber they had the most money, most distribution, and most customers, so they weren’t worried about anyone else. In point of fact, with ShopRunner, we have the most of all of those things. What matters, though, is that we’re going to run as hard as we can to build cool stuff and huge businesses with people we like – at ShopRunner, we’ll do all of that, only faster than we did on our own. We can’t wait.
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