My partner Adam and I recently recommended our first retail clothing startup.
It was exciting to discover a young company brimming with upside. Some things never get old.
But this company was different from the others.
Normally, we ask ourselves, how does this startup disrupt the established companies?
Cheaper? Faster? More convenient? More reliable? More choice?
Disruption comes in many forms.
But since this company was a retailer, we had to ask a very different question.
How does this startup disrupt a disruptor?
And not just any old disruptor, but the King Kong of retail disruptors.
The online retailer that has captured a massive 38% of the consumer e-commerce market in the U.S. We’re talking about Amazon.
The Jason Bourne of Retail
How do you disrupt Amazon?
That’s an easy one…
Jet.com took on Amazon. Wal-Mart recently bought it for $3.3 billion.
A pretty nice exit, but by no stretch of the imagination an unqualified success.
Jet was never profitable. Was never close. But combined with Wal-Mart’s enormous purchasing and distribution scale, it now has a shot.
Of course, we’ll never see the financials that prove it. Jet’s numbers will forever be melded with Wal-Mart’s.
Amazon is retail’s don’t-mess-with-me Jason Bourne – a street-fighting basher… standing in the middle of a ring… and beckoning the local tough guys to step into his domain and take him on.
We know how those fights end.
And we know how taking on Amazon ends.
Not well for those foolish enough to try.
Adam and I have had this rule for a while…
DO NOT TAKE ON AMAZON.
We’re interested only in companies whose models create clever ways of avoiding the retail giant.
Disrupting the Disruptor
I bought a couple of pairs of glasses a few months ago.
And I didn’t buy them on Amazon.
I bought them online, but on a site that specialized in glasses. I paid half the price of the best buys I found on Amazon.
They’re well-made, nicely fitting and stylish. The only thing missing is brand. These aren’t Christian Dior glasses or some other well-known brand.
But in every way that counts, they are quality glasses.
Since then, the exorbitant price of new glasses has come up a few times in casual conversation with friends looking to buy glasses. I’ve shown them my glasses. And told them they cost not $500, but $50.
They were all eager to learn how I did it.
It then struck me – specialization, low price and quality are the silver bullets to put Amazon down.
I’m convinced this is where online retail is headed.
And where investors can find the most upside with the least amount of risk in this sector.
Collectively, these companies will pose an existential threat to Amazon, in the same way Amazon has endangered Sears and other brick-and-mortar retailers.
That’s down the road.
Right now, a single company executing this model is no more than a minor nuisance, which is fine. As my grandmother used to say to me, “Better not to kick a sleeping dog in the balls if you can help it.”
No Slam Dunk
It took a while. But finally Adam and I found a retail startup that checked all our boxes. Price. Quality. And specialization.
When we explained to our First Stage Investor members why we thought this company was an outstanding investment opportunity, this is what we said…
Zappos. Dollar Shave Club. Warby Parker. Everlane. Zulily. All these companies avoided direct competition with Amazon. They found specialty markets that hold massive growth potential. And now we’ve discovered another startup company that has found a massive market to exploit.
Its prices go from a quarter to half of what other retailers offer for similar products. And the quality is great. (As it so happens, I’m wearing one of its products right now as I write to you. We try very hard to sample the products of all the companies we’re interested in.)
I’ve seen this company and others following the same model described as both high-end and low-end.
High-end because the quality is similar to premium brands. Low-end because the price is half or less than half of those of well-known brands, and the designs lack the bells and whistles of so-called high-end products.
I love this debate.
Here’s a product that doesn’t neatly fit current retail categories (online or brick and mortar). That’s when I know this really is true disruption.
Amazon Is Today’s Sears
You think I’m crazy? Maybe.
But maybe not. Sears was America’s largest retailer as recently as 1982. Now it’s a sad shadow of its once mighty self.
This company we recommended won’t take down Amazon single-handedly. But it belongs to the leading edge of a powerful new retail trend.
Many other retailers will follow. “Death by a thousand cuts,” as the old Chinese proverb goes.
But it has a chance to be special.
It’s a new breed of startup not only in the way it’s attacking its sector, but also because anyone can invest in it – the perfect recommendation for our new First Stage Investor members.
So if you’re interested, you can access the details by clicking right here.
Co-Founder, Early Investing