Can I Turn My Ecommerce Startup Into An Empire Like Gilt?
The Ecommerce startup market is huge and growing. Small boutique ecommerce owners always dream of building a billion dollar shop. A lot of them envy the bigger startups like Gilt and Fab. Many of us might be wondering how did they build a startup ecommerce empire so quickly? Before diving any further it is important to understand how the Gilt, Fab, Zappos and other retailers business model work.
Gilt is not a typical ecommerce site that manufacturers and sells like other smaller communities out there. Gilt is a flash sale based site, meaning that they put up huge discounted deals that ends within a certain timeframe (for example 24 hours). This allows the buyers to feel the urgency and the need to buy now. In other words, they are selling other people’s items.
So if the items are under a huge discount, how do they make money? Gilt approaches wholesalers, partnerships, and other vendors to try and negotiate a big discount with them. A lot of times, these are left over or unsold inventory that the manufacturers need to get rid of. Gilt purchases the orders off them and then adds a markup to the price, then cha-chingg profit!
The thing about Gilt is that it is a membership only website, so that means that you have to sign up to their page in order to view these deals. You might think that it doesn’t make any sense for them to implement this model because it will push people away. It is a marketing strategy used by Gilt to retain your email for future notifications incase you forget about them.
A lot of ecommerce startups are valued to be a billion dollar company, but they do not actually make a billion dollars. Revenue might be high, for instance, according to Techcrunch, Gilt earns a yearly gross revenue of 600 million. Revenue doesn’t mean everything though, and huge ecommerce startups are known to be in the negatives for a long time. They are fully incorporated so the founders do get paid a salary for their work.
How Do Ecommerce Startup Afford So Much Inventory?
When your on your own it could be easy to dream big, but difficult to make it happen. Inventory cost are ridiculously expensive and not everyone can afford early stage inventory. Big ecommerce startup like Gilt and Fab received a funding round from investors before their site went live. These ecommerce startup took in a chunk of early money that allowed them to have accelerated growth. $2000 dollar in your bank account might be just enough for you to stock up a few jackets and jeans, but next thing you know, you won’t have enough money for marketing. That is why ecommerce startups grow so quickly with funding.
Seldom do you see known ecommerce sites that actually bootstrapped from the beginning to the end. Not saying that you can’t, but for a smaller non funded ecommerce it can be quite difficult. Imagine all the things you could do with a 250,000 in funding compared to the 2000 in your bank. Just half of 250,000 used for paid advertising will jumpstart your business like no tomorrow. Once sales starts to jump in, the startup will go through another round of funding. Eventually the ecommerce startup will turn into an ecommerce empire.
How To Get Funded?
Check out this article on How To Get Your MVP Funded By A VC . The best way to get any startup funded is by having a solid team and a solid idea. For ecommerce startup, we rarely see small single branded startups get funded. Usually VCs are looking for consumer ecommerce or marketplace startup. The purpose of that is to have more selections with lower inventory and scale a lot quicker.
If you do not have a good team in place, then you might want to build up traction on the site first and then seek out venture capitalist or other investors for accelerated growth.