This London-based online fashion startup abandoned a $25 million business - and became huge anyway
But about two years after launching online fashion company Lyst, CEO Chris Morton decided to kill off his original business model even though its gross merchandise volume had already reached $25 million (£16 million).
To understand why, you have to look at one of the biggest problems the online retail industry faces - shopping cart abandonment. That's when customers put items in their online shopping carts, but then leave the site before completing the purchase.
Lyst's app and website let people browse major brands - Michael Kors, Tory Burch, Oscar de la Renta and Stella McCartney, to name a few - on one site. It also highlights current trends with its trademark "Lysts," and it makes personalised recommendations about what people should buy based on their preferences or shopping history.
But at first, Lyst sent customers back to the brand's website to buy the products they wanted. Sometimes, that disconnect would lead to a customer getting bored or frustrated, and abandoning their purchase. Morton has previously said that depending on the quality of their partners' checkouts, abandonment made as much as a 10% difference in conversion rates.
Ten percent doesn't sound like much. But online shopping is worth £52 billion ($80 billion) in the UK and £215 billion ($330 billion) in the US, which implies that about £27 billion ($41 billion) is being "abandoned" every year.
So Morton, now 32, and his cofounder Sebastjan Trepca, 33, decided that it was time for Lyst to make its own "universal" checkout, which lets customers buy from multiple brands at the same time without leaving the site.
The business was working really well, so they decided "we were going to have to kill it."
It's common for a startup tech firm to do this kind of "pivot" - meaning change in business strategy - especially if the sector they're in is going through a change, too.
"Amazon saw e-ink and e-books coming and said to a team of people, okay, leave this state, go down to California and built a business that kills our book business," Morton told Business Insider. "And we also saw that Netflix had built a business that was doing really well in shipping physical DVDs in the post and suddenly had to say, okay, now we're going to be a streaming business. I imagine that was a very difficult transition."
"We also saw stories of people who didn't do that, like Kodak. Kodak had a great position in film photography but just didn't make the structural change when digital came in. It didn't believe in killing their film business and becoming a digital business, or weren't able to for some reason."
"From day one customers thought what we were doing was great, but asked us to make it easier to buy the products," Morton added. "And then we saw the early signs of the shift to mobile, and very quickly realised that this sort of 'nice to have' of being able to buy directly on the desktop became a 'must have'."
Morton launched Lyst in 2010. But just two years later, the team of 15 had to make a tough decision.
"We knew that we were going to have to change a business that was working pretty well in affiliate, nicely optimised, generating a decent amount of revenue, we were going to have to kill it and build something again from scratch. That meant walking through the desert for a while and go from one sort of peak to a higher optimised peak with a universal checkout."
Lyst has since launched its own "universal" shopping cart and checkout for its US site, which is where it does the majority of its business. Lyst's checkout now lets you add multiple items from various retailers to your cart and buy them all at once without ever leaving the site.
"We had to figure out if partners wanted the change, if customers wanted it, whether it was technically feasible, and what it would do to our own economics," Morton said. "It was a very new thing because the old external checkout model was very well understood. So we had to do it in a way that required zero effort from our retailers."
From $25 million to $150 million
It helped that Lyst was already shifting double-digit millions in sales for some of its bigger partners. And the new model quickly proved itself. Sales initiated by Lyst grew more than five-fold in the two months following the launch of the universal checkout in the US.
The company expects to finish rolling it out across all partners and products in the US in the next 12 months. Morton said that the company will start offering the universal checkout in the UK shortly afterwards. That's a move that investors will be watching closely.
Accel Ventures has backed Lyst since the company's seed funding round, and Morton's former employer, Balderton Capital, led its Series B round. The company has raised $60.52 million (£39 million) in total.
Partners from both firms - Sonali De Rycker from Accel and Suranga Chandratillake from Balderton - said that Lyst's numbers speak for themselves.
Lyst has grown by 300% year-on-year for the last four years. Its gross merchandise volume reached $150 million (£98 million) in April. (GMV is a term used in online retailing to indicate a total sales dollar value for items sold on a platform.) It now has three million products from 11,557 designers and stores available on its site, and 120 staff.
"It's quicker for me to order something from Hong Kong than it is upstate New York."
"Chris is not just taking consumers and sending them all over the web," De Rycker said. "He's pioneering the universal cart, which is creating an attractive place for consumers to shop across the web. But building that on a global scale is something that will be an exercise in execution. It's important to make sure the cart becomes the key way that consumers shop, because it's actually better for the consumer."
"For us, the universal checkout is 'universal' in every sense of the word," Morton said. "A lot of the partners we work with are exceptionally interested in the cross-border stuff that we can do for them. So we can work with some of the biggest department stores in China, like Lane Crawford, who are fascinated by expanding into the US and UK, and help them coordinate that."
Based in Hong Kong, Lane Crawford is a department store chain with nine outlets across Greater China.
"Some of our partners in the US offer very slick e-commerce experiences," Morton said. "So when Lane Crawford reached out and were interested in joining us in New York, I was sort of curious about what sort of experience I would be able to get from Hong Kong. And so I bought something on a Friday night around midnight and first thing Monday morning this thing arrived on my desk. It's quicker for me to order something from Hong Kong than it is upstate New York. And this is also part of the luxury experience - whether I buy it from Harrogate or Hong Kong, it doesn't matter."
"There will be times where a customer will need to buy something from a retailer in Hong Kong because they have an item that nobody else has. I think it's fascinating how trends often operate in very localised forms. While you may not be able to buy a Mansur Gavriel bucket bag in New York or London, that trend might be operation differently in Hong Kong. And the wonderful thing about working in fashion and soft goods is that they are very shippable."
But when we asked whether Lyst plans to launch a Chinese site in the near future, Morton merely pointed out what he called "the blindingly obvious," admitting that the company has an "eye on the [Chinese] market."
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"I'm going leave in the next two or three years ... If I haven't left by then, just fire me."
Technology and innovation runs in Morton's family. His father is an engineering professor, and his brother is a quantum computing professor.
"I had wanted to build my own company since I was 16," Morton said. "But the reason I didn't want to go into academia is because I'm obsessed with the practical use of technology rather than the abstract of philosophical use."
So when Morton joined investment firm Balderton Capital in 2007, he didn't let that idea go.
"I'm going leave in the next two or three years," Morton told his superiors. "If I haven't left by then, just fire me."
Morton was living in a house with four other friends from university - three of which were obsessive online shoppers, but were having a terrible experience with it. "I would just watch them from across the living room, with multiple tabs open, wondering when something is going to come back in stock," Morton says. "It just seemed like a very cumbersome process."
Online fashion had been around for a while - led in the UK by Natalie Massenet's Net A Porter - but development had been slow. Morton says that most department stores still weren't selling online when he launched Lyst in 2010, and neither were about 50% of brands. Other parts of e-commerce had grown more quickly. Morton continually points out Amazon as a category leader.
"Fashion was just a dotted-out line where a category leader should emerge. It's just so fragmented because there are all these boutiques, brands, and department stores from all over the world, with the world's inventory scattered among them. There needed to be an experience that brought it all to one place and helped people to navigate it. The idea felt ... obvious."
In March 2014, Morton's old company Balderton - where he'd worked with online fashion retailer Yoox - invested in his new company.
"Why do you want to check five different sites for the best shipping rates or availability for one Chloe pair of shoes?"
"We would have been excited to be on this journey whatever Chris has built, because we've always believed in him," Chandratillake said, referring to Morton's time at Balderton. "But actually, then when you look at what he's achieved in the few years they've been around, it's pretty remarkable." Suranga said. "They reported huge numbers earlier this year. Their GMV is $150 million when they were about half that through the whole of last year. So they're already doubling that rate less than half way through the year. They seem to have hit an incredible nerve in the way people want to shop online today and in the future."
De Rycker also credits Morton with convincing the firm of Lyst's potential.
"From early on - even though he was young, and still is - we found Chris to be determined, thoughtful, very, very persuasive, and very visionary in terms of how the marketplace will need a solution like that. It's really his vision and determination that we backed at a very early stage, and I think step by step he has been building a very valuable business."
"Consumers were more and more looking for the fastest, most effective and easiest way to shop, across a variety of suppliers and retailers," Sonali said, which is why her firm was an early investor in travel search business Kayak, which searches hundreds of travel sites to help you find and book the right flight or hotel. Lyst's site and app also let shoppers browse lots of different brands in one place, so Accel thought that those same principles would make Morton's business a success.
"We absolutely believe that that's the way the consumers want to shop across various categories, and fashion is no exception," De Rycker said. "Why do you want to check five different sites for the best shipping rates or availability for one Chloe pair of shoes? Brands have spent a lot of money making sure consumers know what they want. And I think the savvy consumer absolutely knows what they want - one simple way to navigate the web and find the most efficient way to shop. We absolutely believe that the way shopping and fashion will evolve."
"Fashion is notoriously difficult - most people who come from outside it tend to fail."
"Fashion attracts a lot of people because it's glamorous and they buy the products so they believe they understand it. But there are insiders who that is all they've ever done, and they are the ones who always tend to be successful," Chandratillake said.
"Fashion is tough," Morton agreed. "It works in very strange ways. It's not very rational, and is governed largely by emotional decisions. People, especially at the luxury end, tend to have a strong affiliation towards brands, and it's the brands that enables the company to charge a very high margin. But it's because the brand is so evocative and builds such a strong resonance with the customer and the story we want to be part of our story as well."
"That is the opposite of what Amazon does, Morton says. "It's very good at super-rational commodity commerce. Fashion is the other end of the spectrum. Fashion is emotional commerce, and if you appreciate that as a customer you can also appreciate fashion as an industry."
But early days at Lyst certainly weren't glamorous. Morton and co-founder Sebastjan Trepca moved the company to the former White Cube modern art gallery in Shoreditch in 2013, but it has also called a number of less-glamourous spaces home. That includes a shed on a golf course next to a building site where Shoreditch meets the City.
"We thought we'd get very good at golf," Morton said, "but obviously never made it out there once."
"But the fact that we were not part of the industry meant that we were naive, and I strongly believe that was a positive thing," he added. "We did not approach this problem with a myriad of predispositions about how things should work of how the industry had previously worked. Embracing naivety is the best way to challenge everything. The majority of the people that work in this building have never worked in fashion, but they have taken experiences from their previous worlds and tried to apply them to what we've done."
"People don't take the Argos catalogue on holiday."
While many customers come to Lyst knowing exactly what they want, curating content with "Lysts" is a big part of what sets the company apart from competitors like Farfetch.
"Some of our customers know exactly what they want - a pistol boot made by Acne, in a size 38, in black - and they come to Lyst because they've looked everywhere else, and know we'll have the inventory and a really easy checkout process. That's a search journey."
"Then there are other people who don't have any intent to buy anything in particular, and are just looking for something amazing."
Those people are drawn to "Lysts," a "glossy, fanatic kind of entertainment that helps drive the discovery process" Morton says. Some Lysts focus on a theme or trend - "10 white sneakers supermodels are wearing at London Fashion Week" - or a celebrity or well-known magazine editor of stylist.
"It's a content mode that has come to define the world that we live in today. Lists make sense because in this day and age nobody has time, and lists promise a very efficient use of time, and are very shareable on social media."
But at the end of the day, Morton says, Lyst is a technology company, and looks at tech firms in other areas, like Spotify, for inspiration.
"Being able to search through 40 million songs is hugely powerful. Being able to then discover the latest hip hop or whatever else and not have a bunch of songs from people who are recording in their garage is powerful too. They have to solve these two journeys. I'll use a product like Spotify at multiple points throughout the day in both search mode and discovery mode. All the tests suggest that people do both. That's the challenge for them, and for us too."
"The least newsworthy thing a fashion business has ever said."
Around 25 million shoppers use Lyst's site annually. But the next challenge, Morton says, is making Lyst's own brand a household name.
"We care about our brand a lot," Morton said. "Now that's the least newsworthy thing a fashion business has ever said, but from a tech point of view it's probably a bit different. There are many category leaders who have not invested in their brand and verticals but it's something that we feel quite strongly about. We're in a good position. The product is growing very well - the volume passing through the platform suggests that. What we've found is that people who've used Lyst become quite regular. We have customers who spend hundreds of thousands of dollars a year with us, make an order twice a week, and we love them dearly."
"But the challenge for us right now is when we stop people on the streets in London or in New York the majority of them haven't heard of us. We want that to change."