The CEO of one of the hottest startups of 2015 is not afraid to take on Amazon
Jet.com co-founder Marc Lore is no stranger to Amazon. He was an Amazon executive after he sold his company Quidsi-known for brands Diapers.com and Soap.com-to Amazon. At Business Insider's IGNITION 2015 conference, Lore sat down with deputy editor Alyson Shontell.
Alyson Shontell: The big promise that you're making here is that you're going to be better than Amazon and better than any other e-commerce solution on the web and the price point being the differentiator. Is that still true?
Lore: Yeah, I don't think it's about necessarily being better than anyone. I think we see a really big opportunity in the market. E-commerce is still early days. We're about $300 billion online today. Over the next ten years, it's going to be about a trillion dollars online so we have $700 billion of market size that's yet to come online and we think there's an opportunity for multiple very large players, certainly in the offline space. There are nine retailers with greater than a $50 billion market cap, 5 retailers with greater than a $100 billion market cap, and you don't have the same online. There's really only one player today.
Alyson Shontell: Yeah I mean the opportunity is clearly huge. Amazon is a $90 billion market? So there's definitely an opportunity there. But how are you making the prices better? Because the original plan was to do a sort of Costco-like model, right? But that's not around anymore.
Lore: That was just one part of the business model. At the core, it's really about the technology we build. It's really a next-generation, e-commerce marketplace technology that really empowers consumers to build bigger, smarter baskets to pull supply-chain cost out of the system. So in a typical marketplace, it's a very product-centric approach where you basically pick the retailer you want to buy the product from - that adds a lot of shipping and fulfillment costs to do for all the ecosystem because you're not likely to pick the most efficient retail combination to fill the basket of items if you're picking the retailer at the product level.
So on Jet, we actually pick the retailer for you once we know the composition of your basket
. We know where you're located and we know where all the pools of inventory exist and we're trying to figure out how we get that basket from one common warehouse location in close proximity to where you live. And then we've taken it a step further and we actually, in real time, transparently show the consumers what the cost savings are of choosing one product over another based on what's in their basket. So we actually calculate the marginal cost to ship items that you're searching for relative to what's in your basket. So some items can ship very cheap if they can go in the same box with what's already in your basket. If they can't, it's a lot more expensive. And so we telegraph that transparently to the consumer by showing them these smart-cart bonuses, which is basically just the cost savings of shopping in a smarter way.
And we see that consumers are shopping in a smarter way. They're building much bigger baskets than we typically see in the marketplace.
Alyson Shontell: But is that something that a larger company like an Amazon can build? Because you saw this with your last company, when they were like, "Oh soap.com is on the up and up," they undercut a lot of the prices and they're really hard to compete against. And at a certain point it comes down to, 'Who can last the longest?'
Lore: Yeah, our technology is built to look more like a real time trading system than it is an e-commerce site so it's a very different technology. It's all natively built in the cloud. It's built to do this real-time calculation. It's built to steer people toward building bigger, smarter baskets. It's very different than what the other marketplaces have focused on right now. So we think that there's enough opportunity to differentiate, to create a really big business.
Lore: Yeah it was. Our original plan was to double down on price. We had a price advantage with the smart cart. We were going to take all of our profit that we would make and put that into lower prices as well and charge a membership to make our profit for the membership fee. Well, it turns out, after launch that the cost to acquire a new customer was so good at prices that were at parity with the market that we didn't feel like it was worth it to basically reduces prices further and limit the size of our market to people that only wanted to pay. It was really just about big opportunity - people building bigger, smarter carts. We're getting customers and when we reduce prices further, we weren't seeing that much of a benefit relative to charging it. So it's just an opportunity that we saw and took advantage of.
Alyson Shontell: So one thing you mentioned there that I wanted to ask you about is the customer lifetime value versus how you acquire a customer and how much it costs. The prices are pretty good to acquire a customer it sounds like.
Lore: Yes.
Alyson Shontell: But you know one thing that's been in the news is that you guys are spending somewhere between $20-30 million a month on marketing so for a four month old company, does that really make sense?
Lore: Yeah so that, I mean, like you said, it all comes down to the economics. So it really doesn't matter how much you spend in fact the more you can spend, the bigger, more scaled the company will ultimately get. And so that's where we're at right now is the cost to acquire a customer is very attractive.
Alyson Shontell: What is it?
Lore: It's come down, you know, from early on it was over $100 and today it's under $50. And it continues to come down every month with an expected lifetime profit for a customer that's over $200. It's a great so 4 to 1 plus relationship there so we feel really good about that spending money.
Alyson Shontell: And are people continuing to come back? Because that can be one thing is you can acquire customers that you think will be loyal and then they'll dwindle off and, you know, when a company is so young it can be hard to tell that right away.
Lore: Yeah, I mean you do tell a lot though in the first 90 days just by looking into the repeat rates - 30,60, 90 days. And we have a comparable because we kind of did this before previous company and we feel like repeat rates are really good and will only get better with time as we continue to improve the experience so we feel really good about where things are.
Alyson Shontell: You do some really interesting things about how you run the company. Before you launched, as a marketing thing, you gave outsiders equity in the company. What was that about? I mean that's something I've never seen or heard before. I didn't even know it was legal.
Lore: Yeah, we tried to gamify the idea of telling your friends about jet before we launched and the more friends you told, the higher ranking you were and, if you ranked in the top ten, you got stock in the company. And if you ranked number one, you got 100,000 shares in the company so pretty sizable piece of stock. And I think that just fueled the game and people had a lot of fun and at the same time, we got a lot of exposure for Jet and not very big cost.
Alyson Shontell: So did it drum up a lot of people for your wait list. I would imagine. . .
Lore: Yeah, it was hundreds of thousands of people ultimately had heard about and signed up for Jet before we launched, which was a good start.
Alyson Shontell: Yeah not so bad. So another thing that you do is you have salary tiers for your employees, which is interesting. No one can apparently ask for a raise because they fall into this tier and it's understood so how does that work?
Lore: Yes, so we have, it really comes down to we have three core values in the company that we want to live in a way that no other company does and that's trust, transparency, and fairness. And on the fairness front, I think one of the things that, you know, always made me feel uncomfortable with previous companies was the way which raises were done, bonuses and things, you know it was, if somebody was working really hard, head down, introvert, doing their job, and it came for raise time, the discussion would go something like, "I think this person would be happy with 'X'." And then yet another person that maybe that is already making more money that wouldn't be happy with 'X' and so they get 'X+'. And it was not done in the most fair way. It was done sort of what the company could get away with. And I really wanted to do away with that because I think it destroys trust. So we went and moved to this system of compensation where everybody at the same level makes the same amount of money. At the same level meaning the same ability to contribute to the company, which seemed fair. If everyone has the same ability to contribute, they should be making the same amount of money. And so that means
if somebody goes out and gets another job offer for more money and come back and they say, "Hey I got more money. Will you match it?" Well, it wouldn't be fair to do that because then they're making more money doing the same job as someone else.
Alyson Shontell: So just let the rockstar walk away or how do you deal with that?
Lore: We would. It hasn't happened yet, but I think people know there's no benefit in going out and getting an offer and bringing it back. Same thing when we hire people. We basically tell them, "This is what we have you leveled based on all the interviews you've gone through. And we think this is the fairest level to be at. Here's the comp." We know it's a good comp because all the levels are market level comps. But if they happen to be making more money somewhere and don't want to come to what we think is fair comp, then we wouldn't increase pay for them. So I think it's worked out really well. Lots of people have told us that, you know, they appreciate not having to negotiate because anytime you have to negotiate for a salary you feel like you left something on the table and that's just not the case. And also people know that when we're making decisions about whether to promote people to the next level or not, that we're looking through the simple lens of what's fair and not at all about what we could get away with. And I think that adds a unique element of trust and that's really what we're trying to do. We're trying to build trust. We don't have people sign non-competes and non-solicit agreements and things like that. It's really trying to build a unique bond with people that they wouldn't typically get at other companies.
Alyson Shontell: And transparency is another thing that you really value. And to the point that you actually show them your investor pitch steps, right? And boardroom meeting things?
Lore: Yeah, right. We after every board meeting. . .
Alyson Shontell: Every single employee.
Lore: Yep. After every board meeting we'll give the entire board presentation to the company and post the board deck online for everybody to look at. We also have an app that every employee and investor have on their phone that gives them access to real time information of all the financials in the company. Margins, GMV, retailers, and we do push notifications no a daily basis about key milestones. And the idea is to keep people super connected to the vision so they really feel like owners in the company. We give people significant ownership stakes as well and it's worked out really well so far.
Alyson Shontell: You've raised over $500 million and $1 billion pre-money valuation, spending a ton on marketing, acquiring new users, things like that. From my perspective it seems like it's very admirable. It seems like you're just going for it. You're like, you know what, we're going to be big. But is there a possibility that you'll either be worth nothing or you'll be worth billions, and there's really no in between?
Lore: Yeah I think one of the things that's a little unique about what we're doing is that the business model has been proven to be successful. So most startups i think are going into businesses where you're not necessarily sure how the business model is going to play out. So we're creating an online e-commerce marketplace. And I think others that come before us have proven that it can be very profitable business. So I think people understand, especially investors, that this is a scale game and that the economics look better with every billion dollars of GMD scale. And so it's when you look at the economics and the straight math of it, it makes sense to grow faster because it's very expensive to just sort of be a sub scale e-commerce player and that's one of the reasons why there really hasn't been too many, you know, really large like number 2 number 3 commerce companies that you can point to in the U.S. because it is a scale game and nobody's is really you know raising the capital necessary to get the scale required to do that.
Alyson Shontell: So do you have the capital you need now? Is there still a chance this could go to zero?
Lore: I think we're sort of beyond that now, honestly. We raised now at this round of financing it will be almost $500 million new, fresh money, which is enough to give us two years of runway to build a substantial asset. You can never say never, but I think we'll be in a really good position to have created a meaningful asset and be in a great position to do that in the next round of financing two years from now.
Alyson Shontell: Well I bought a mechanical toothbrush off of jet.com. It does work. It showed up right at my door. So best of luck to you. You're really taking a big swing.
Lore: Thank you.