Mark B. Goldfinger is the Senior Director of Growth at unybrands, an e-commerce acquirer which builds and exponentially grows brands operating on and off Amazon. He has amassed over 14 years of experience in various fields ranging from e-commerce to commercial real estate to banking. Before joining unybrands, Mark worked with WeWork, one of the biggest startups in the world, helping them expand globally as their Head of Global Expansion.
The number of businesses selling on online marketplaces has unlocked the second phase of e-commerce. Marketplace aggregators that help optimize these businesses are rapidly emerging, and are here to stay.
Let’s dive straight into some numbers.
In 2020, e-commerce behemoth Amazon's gross merchandise value (GMV) stood at $490 billion, out of which $300 billion was attributable to third-party sellers. Take a moment to grasp the magnitude of these numbers.
Amazon's market leading AWS business pales in comparison, accounting for only $51 billion of the companies’ earnings.
eCommerce has almost become synonymous with shopping in the post-pandemic world, especially with the newer generation. This is where innovation plays a role, especially for the newer entrants to get a grip on the market and quickly establish credibility.
It’s clear that the ground is fertile for business innovations with respect to third-party sellers. Amazon’s, or for that matter other e-commerce marketplaces’ business models are performing quite well.
What additional value could other businesses offer the numerous third-party sellers on these marketplaces? Enter, Strategic acquirers of e-commerce brands.
What is an aggregator?
You may be familiar with a business strategy called roll-up. A roll-up company acquires and merges companies in similar industries, thereby consolidating them into a larger enterprise.
The result is economies of scale - with all these resources pooled together, the acquirer can create synergies, increase revenues and realize operating cost benefits. Such roll-ups, or strategic acquirers as they’re also know in are among the latest trends to watch out for in the start-up space.
Roll-ups are not a new concept. In fact, they have existed in the offline world for years and now they are making their way on to the online platforms. The strategic advantage of these aggregators helps bring in a massive amount of business without investing a lot in internal processing.
How the aggregator business model works
Current trends suggest that the secret to the success of e-commerce roll-ups, or e-commerce 2.0 as Nasdaq.com has labelled the trend, lies in an approach that is essentially two-pronged. But before that, it is worth noting that the accelerated transition to e-commerce as a result of the COVID-19 pandemic, as well as low cost access to capital, were catalysts in the emergence of e-commerce roll-ups.
Here are the two prongs: most of the e-commerce focused roll-up companies a) seek out small ventures doing well on online marketplaces like Amazon and b) offer them expertise in everything – from optimizing operations to marketing and advertising.
The benefits of this is it allows such small ventures to scale up, to use the expertise offered to cut down on costs while simultaneously increasing their revenue. In a marketplace like e-commerce where competition is increasing and new breakthroughs are being made every second, such benefits are extremely essential.
1. Exploring Amazon Marketplace
Amazon is central to the business of these new-age roll-up businesses, simply because of its sheer size and the massive variety of products which can be sold on it, leading to a massive variety of sellers on the platform.
Regardless, many product aggregators look to other e-commerce marketplaces such as Shopify for acquiring businesses. The reliance on Amazon, however, is instrumental to the success of these ventures.
2. Struggling sellers
Often, businesses on Amazon are just small-scale operations run by a handful of people as a side hustle. Naturally, these small entrepreneurs lack capital or expertise to scale their business, especially as the business grows.
Sellers face disadvantages in terms of competition they face, struggling to run operations as they become more complex and bigger. Coordinating tech, logistics, advertising, marketing and PR can be extremely challenging without professional expertise.
Every e-commerce business faces ongoing competition as everything is available on multiple platforms. An acquirer and the expertise such acquirers offer helps these small-scale operations tackle issues which comes with the growth in their business. Acquirers also help in coordinating tech, sorting out logistical issues which comes with scaling and much more.
3. Identifying the right businesses
Roll-up companies acquiring ventures belonging to the same industry is now a thing of the past. These new-generation roll-ups or e-commerce strategic acquirers are on the lookout for businesses that have weathered the challenges from competitors and the market successfully for a significant period of time.
Sellers of unique, specific products also tend to easily find favor with such aggregators. More importantly, aggregators are interested in the infrastructure, operations, finances, sustainability and scalability of a business. Aggregators usually go for the brands that are ranking among the top five to eight results on an Amazon search.
Every business has a niche. As an e-commerce seller, you have the freedom to procure and promote a variety of products and services. This, however, doesn’t mean that you can’t service a specific niche, far from that.
So, even as an e-Commerce marketplace, you must establish your business ethics in order to solve a specific problem of the end-users, rather than giving them something they already have. This would help you create your own set of loyal customers that will stick around for years to come.
Since many e-commerce businesses have niche markets; as an aggregator your job is to recognize a problem and provide a suitable solution that would help these businesses. You need to work on the marketing strategy as it needs to target audiences in the particular demographic that is most affected by this problem.
Based on the niche aggregators intend to serve, it is imperative to check out all their competition and devise appropriate strategies. Although small, a competitor has a unique selling point. It is essential that as an e-commerce acquirer, you recognize this USP and strategize to develop your marketing policies accordingly.
4. Key Factor
Of course, acquirers examine a number of factors before making an offer to a business operating on Amazon. The Amazon factor cannot be overstated as that is one of the key reasons of what makes these brands so appealing to investors.
Whether it is the strength and volume of reviews, track record of growth and potential, or quality of products patented and unpatented, roll-ups dig up everything and assess it with eagle eyes. However, one crucial factor is whether or not the seller has signed up for Fulfillment by Amazon (FBA).
With FBA, a seller need not worry about logistics because they are managed by Amazon. With roll-ups acquiring multiple businesses, a helping hand like FBA's could really help share the burden. Moreover, with efficiency central to the lore of Amazon's work culture, a good seller eligible for FBA is an excellent deal for the aggregator service.
The perfect solution
What the success of the roll-ups business model really boils down to is scale. Whether it is the scale of Amazon’s operations, or that of the sellers’, or even the scale of solutions offered by roll-ups. This is what provides the necessary scaffolding to stand on the shoulders of giants like Amazon.
● Tweaks to operations
Acquirers must offer fresh approaches to the acquired company's operating strategies and increase equity value, and thereby, operating cash flow. Reductions in operating and overhead costs, an increase in prices without impacting volume and an increase in volume without raising costs are some ways in which this is achieved.
For a smaller company, this is a win-win situation. Not only do acquirers offer such small companies the chance to scale up but also do so in a manner which is convenient for the company as a whole.
● Offers a clean & easy exit
Most of these aggregators offer a clean and easy exit to third party sellers overwhelmed by growing operations by simply buying them. This is especially attractive to sellers who are running side businesses and would like to wrap it up neatly.
For entrepreneurs who wish to continue growing their brands without relinquishing autonomy, roll-ups have other solutions which help achieve their dreams.
Instead of simply acquiring and reselling the small seller's products, they take over design, manufacture, sales and distribution processes and place them in the hands of seasoned professionals. The sellers also have a lot to gain.
They can use the aggregator's strategies to give a flip to sales as well as find more ways to sell directly to their consumer base in a better and more streamlined fashion. Small entrepreneurs are spared the headaches of operating processes and can focus solely on product innovation.
E-commerce roll-ups are growing at breakneck speed in the US, and their aggregator business model is being increasingly replicated by startups the world over.
Attractive to tech investors and spearheaded by some of the most seasoned professionals in the space, these aggregators are picking up where the primary players in e-commerce left off - helping third-party sellers realize their full potential.
If you really wish to stand out in the crowd and become successful as an e-Commerce aggregator, work on your business plan and make sure that you are helping these third-party sellers realize their complete potential. This could be relevant as the opportunity is immense but so is the competition, especially since you have larger giants competing against you.
So, as a business owner, if you can cultivate and internalize these essential yet straightforward characteristics in your business plan for your e-commerce aggregation, it is bound to yield higher results and revenue.
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