As a society, we’re continuously striving to become more efficient. Time is our most valuable asset, and it’s literally depleting by the second.
Therefore, we are very fortunate to be surrounded by incredibly intelligent entrepreneurs who are passionately focused on eliminating pain points, optimizing time, streamlining processes, eradicating inconveniences, etc. etc.
In general, when I’m evaluating a new “efficiently-minded” company, I tend to group it into one of the two following categories:
1) Start-ups that eliminate the existing middleman
2) Start-ups that create a new middleman
It’s an interesting debate – while some industries benefit from having a third-party middleman, other industries are only complicated by the added layer of complexity.
When it come to the first bucket (i.e. eliminating middlemen), my favorite start-ups are in the e-commerce world. While the “brick and mortar” retail environment continues to shift, I’m becoming more and more bullish on the direct-to-consumer online-only companies that are building authentic and compelling brands.
My favorite examples are Warby Parker, Casper, Harry’s, Dollar Shave Club, Dirty Lemon, and Bonobos. These companies continue to pioneer the direct-to-consumer sector (“DTC”).
I was fortunate enough to invest in Warby, Casper, and Dirty Lemon. And I’m always on the lookout for cool new DTC brands!
When it comes to the “interesting” items in my life (aside from buying simple necessities on Amazon), why would I want to purchase items via a potentially inauthentic middleman (who undoubtedly marks-up the price), when I can now go straight to the source and buy directly from the company that actually makes the stuff??
Because of advancements in DTC technology, the consumer experience is better, the prices are lower, and the end-product is superior. It’s a win-win!
Based on this compelling value proposition, I think we will continue to see amazing new brands pop-up in the DTC world….and middlemen will continue to become irrelevant.
On the other hand, some industries are in desperate need of a middleman. When it comes to this group of start-ups, I’m a big fan of the marketplace sector.
For example, think about ultra-successful companies like Uber and Airbnb. These companies found inefficient (and nascent) marketplaces and created a highly-intelligent middleman to streamline and manage the supply and demand dynamics.
Both of these companies are perfectly positioned at the center of their respective marketplaces, thereby solidifying their necessary role as “the middleman.”
Unlike the DTC start-ups that I mentioned earlier, these new “middleman start-ups” are not only creating tremendous efficiencies on both sides of the market, but they are also offering an amazing experience for all parties involved.
Another one of my favorite examples is our portfolio company Rover, which just merged with DogVacay. If you own a dog, then there is a strong likelihood that you hate kennels! So, Rover created a marketplace that connects pet owners with pet sitters. So simple, yet so brilliant!
Obviously no industry is identical, but they do all share certain overarching characteristics. If you’re thinking about starting a new company, make sure that you properly map your industry and compare/contrast it to other industries that are undergoing significant innovation.
Because if you try to add a middleman in the wrong sector, or you try to remove the middleman when it’s actually necessary, you’ll be dead before you even get started.