Maveron Hosts 2010 CEO Forum

What could be more fun than spending a few days in a place called Carefree, Arizona? Maveron hosted its 2010 CEO Forum in Carefree, where we were joined by the CEOs of our portfolio companies and several visionary business leaders for stimulating discussions about growth and innovation.

The CEOs enjoyed the opportunity to engage with Tom Davin, former CEO of Panda Restaurant Group; Bill Campbell, Chairman of Intuit; Chris Anderson, Editor in Chief of WIRED Magazine; and Peter Bassi, Former Chairman Yum! Restaurants International.  In addition, Mark Vadon, Executive Chairman of Blue Nile, sat down with Darrell Cavens, CEO of Maveron-backed Zulily, to discuss a topic critical to all startup

Howard Schultz chats with Maveron CEOs

Howard Schultz chats with Maveron CEOs

executives today: “Winning Today: Going Fast While Being Cheap” and serial entrepreneur Chris Michel shared “Lessons From the Edge” insights from his time leading Military.com

Attendees also got a chance to converse with Maveron co-founder and partner Howard Schultz, Chairman, President and CEO of Starbucks Coffee Company about the lessons he learned working on the successful Starbucks turnaround.  Other topics at the event included the importance of social media today, how to manage rapid growth and tough lessons learned during the recession.

The CEO Forum is part of Maveron’s commitment to add value to its network of companies that goes beyond investment capital.  With high quality speakers and plenty of time to network with entrepreneurial peers, the Forum gave CEOs a chance to learn “in the trenches” strategies to grow their businesses.

Jason Stoffer on Education

With education spending on the rise, education has become one of the hot investment sectors of the recession.  Jason Stoffer, Principal at Maveron, shares his views on this sector.

Zulily Emerges from Stealth Mode

Maveron today announced our investment in Zulily, a new online private-sale shopping site for busy moms. Co-founded by Blue Nile founder Mark Vadon and former Blue Nile technology and marketing head Darrell Cavens (who is CEO), Zulily aims to build a strong children’s retail ecommerce business offering high quality products for babies, kids and moms at discounted prices. We wrote recently about the rise in social shopping and Zulily serves as our first investment in this exciting emerging category.

With a new private-sale site popping up every week and market leaders like Rue La La and Gilt Group already exceeding $100M in annual sales, the right question to ask is why were are so excited about backing the latest market entrant in this space. Our investment thesis can be succinctly summed up in four parts, outlined in more detail below: (i) it is still early days in the domestic online private-sale market; (ii) private-sale sites are more than a liquidation channel; (iii) private-sale sites can succeed by going or mass or focusing on a targeted demographic and (iv) Zulily has a great team we are excited to back.

 Consumers love a bargain – Private-sale sites are the online extension of the outlet mall

We view private-sale sites as the online extension of an outlet mall. Some stats from the broader liquidation market provide some insight:

  • Private-sale market pioneer Ventee-privee is based in France and forecasts ~$900 million in 2009 revenue. Given the US is roughly five times bigger than France population-wise, you could easily see a scenario where a U.S. market leader could have sales of $5 billion+
  • Back in 1997, an estimated 55 million Americans traveled at least 200 miles round trip to shop at outlet malls in 1997, according to Consumer Reports. I couldn’t find more recent numbers but I assume they are much higher today!
  • Off-price retailer TJ Maxx has $19.7 billion in annual sales

 Private-sales sites are not just a way to liquidation merchandise – but a new sales channel

There is a view by some that private-sale sites have benefited from the recession and the opportunity to access excess inventory at low prices. These folks believe that as the economy turns, private-sale sites will have trouble accessing product. We couldn’t disagree more. As outlet malls grew, manufacturers began to see them less as a way to liquidate excess inventory and more as another channel to sell product. Essentially, outlet malls and now sample sale sites allow manufacturers to price discriminate and increase sales volume by reaching those target customers more focused on value.

A specialty brand can successfully compete and thrive against larger mass merchants

One could ask how Zulily can compete against the marketing muscle of larger competitors like Gilt Groupe, who could easily add children and baby gear to their offerings. We firmly believe that great brands can be built by targeting a specific demographic, understanding their unique preferences and delivering a delightful retail experience. Blue Nile did precisely that in building into a successful publicly traded company while competing head on against Amazon.

The $50 billion market for children’s and mom-related product presents a compelling opportunity. Many neighborhood baby boutiques are closing and there are thousands of product suppliers who have trouble achieving retail distribution for quality product. By focusing on merchandising and curating these products and becoming a trusted voice and advisor to moms, we believe that Zulily can become a premier online retail destination.

Zulily’s Team has the Right DNA Coding to Succeed

CEO Darrell Cavens has quickly assembled a team of e-commerce veterans with experience from Nordstrom, Red Envelope, Eddie Bauer and Newsvine/MSNBC. They are scrappy, focused, have deep understanding of the sample sale channel and know how to build great online brands. It is early days but we are incredibly excited to back the Zulily team and look forward to the site launch early next year.

Allconnect Dramatically Boosts Revenues by Empowering Consumers

Allconnect, the leading comparison shopping and connections marketplace for essential home services recently reported another record quarter of earnings, customer, and revenue growth. In the third quarter of 2009, Allconnect reported a 42% increase revenue year-over-year and a 34% increase in customer traffic.

Allconnect is the type of consumer-driven company that Maveron is excited to back: one that offers an easy-to-use, free, and useful service that saves people time and money. Consumers are flocking to Allconnect’s free phone and Web-based service that helps them get their household services like gas and electric utilities, high-speed Internet, phone, cable TV, satellite TV, and home security systems up and running before moving into their new homes. People simply call Allconnect’s 1-800 number or log onto their site to compare pricing and service options across dozens of providers with complete transparency, choosing the providers that are right for their budget and personal needs. Allconnect does the rest – setting up all the services for free and guaranteeing the lowest prices available.

Founded in 1998, Allconnect has connected over 10 million people through its partnerships with more than 30 utility companies and hundreds of service providers across the U.S. With its recent increase in customers and partners, Allconnect’s marketplace has grown annual sales to more than $3 billion in home service products from over 200 service providers.

Allconnect’s tremendous growth proves what Maveron has believed since day one: a business built around delivering trusted information to consumers to empower them to make better purchasing decisions is not only useful to consumers, but delivers substantial returns to investors.

Social Shopping: Not Just a Fad

At Maveron, we always closely monitor how consumer behavior is shifting, and what impact these changes will have on consumer businesses today and in the future. Recently, we’ve noticed something critical; people are not just making more purchases online, they are changing the way they make those purchase.

Preliminary sales figures for Holiday 2009 show what most retailers already suspect; the Internet is capturing a larger and larger percentage of overall sales. A report from ShopperTrak RCT shows that shoppers spent $10.66 billion when they hit the malls on the day after Thanksgiving this year – only 0.5% more than last year. Yet web marketing analytics firm Coremetrics said its data showed the average amount online shoppers spent on Black Friday rose 35% to $170.19 per order – up from $126.04 last year.

The Internet has in just a few short years fundamentally changed the way consumers shop. Googling for promotion codes, reading and writing product reviews, using price comparison engines, expecting free shipping: all of these behaviors have become commonplace and have fundamentally changed the way consumers view their place in the buy-sell relationship. The Internet has caused the power to shift toward consumers, who demand better prices, more personal relevance, and more transparency in their purchases than ever before.

But as much as online shopping has already altered consumer behavior, we’ve noticed even bigger changes afoot recently. This holiday season, consumers are, for the first time, banding together to exert their purchase power; social shopping is here. Many consumers are turning toward social networks like Facebook and Twitter, invite-only sample sale communities like Gilt and Hautelook, coupon aggregators like RetailMeNot and CouponCabin, and deal blogs like FatWallet or Dealfinder to find the best discounts and bargains – and they’re sharing these deals with friends, family, and the wider web.

Data from Hitwise shows that downstream traffic to the Retail 500 coming from both Facebook and Twitter increased 36% and 15%, respectively, on Thanksgiving from the previous day. Downstream traffic to retailers grew again on Black Friday and Cyber Monday, as many retailers promoted sales via fan pages and tweets. These kind of traffic and sales figures show why 47% of online retailers plan to increase their use of social media this holiday season, according to the National Retail Foundation.

A prime example of a new company that’s successfully harnessing the social shopping trend is GroupOn, which just raised $30M in Series B financing for its site which combines a deal of the day with a local twist. Essentially, GroupOn offers one great deal each day in a local area; this could be restaurant discount, a spa special, or theme park tickets. The social component is that the only way to get access to the deal is if enough people sign up to buy, giving consumers incentive to pass the deal along to friends.

But retailers should map out a strategic social shopping strategy if they want to succeed in this new world – not just blast out coupon codes to temporarily boost sales. To become a valued brand in the social shopping decade ahead, retailers need to:

  • Develop a true multi-channel strategy, engaging consumers in a personalized way and on their terms wherever they are (online, mobile, in-store, call center, TV shopping etc.)
  • Build a real community around their brand using all aspects of the social web (Facebook, Twitter, a brand blog, customer forums, mobile social networks, ratings & reviews sites etc.) to engage in an open, ongoing dialogue with customers.
  • Explore crowdsourced product development to give consumers a real say in how their products evolve and change to meet consumer needs.
  • Put authenticity at the center of everything they do: if a brand moves away from its roots and loses touch with its core consumers, they will suffer immensely, because consumers want credibility, transparency, and their voice to be heard.

We are still in the early days of social shopping, but the changes in consumer behavior brought about by the trend are here to stay. Smart consumer companies should focus on bringing their brand into the social shopping age in 2010.

Function Over, Well, Everything

By Dan Ginsberg, Maveron Sector Advisor, former CEO Red Bull

The seismic shift that has occurred throughout the business world has been felt as strongly in the leading edge of the fast moving consumer product categories as anywhere else – maybe stronger. After all, it is not difficult to understand that, when put under buying pressure, the consumer will stay as closely attached to their tried and true brands, those that they know deliver what they want, rather than taking a “risk” on a new product, even if the price point is “only” $2-4. This has presented problems for innovative brands right on through the value chain from creation through funding, distribution, retail merchandising and, ultimately, the consumer.

What is an Entrepreneur to Do? While there is no doubt that price plays an integral role at a time like this, it seems that price, like a better, greener package, is the ante alone, and not enough right now to move the consumer to a, so-called, riskier purchase. So, as happens in any cycle, we are now seeing brand after brand finding a new path and, in food and beverage, it is definitely functionality. Innovative entrepreneurs are adding a distinct health advantage to naturally nutritious products by supplementing with ingredients that add value in a therapeutic manner, and/or for consumer convenience.

Some beverages, for example, are providing the calcium and Vitamin D that women are being told they need as supplements in their diet. Because of this efficacious movement, the consumer can refresh themselves and satisfy this pharma-type need all in one purchase. Meal Replacement beverages, as well, are seeing good growth, even in these tough times. Those would be the belly-filling, nutritious, great tasting products that also feature the simple, but all important, mouth appeal of a classic beverage. They deliver the protein, or the multi-vitamin, or the carbs that consumers are looking for in an incredibly convenient package that doesn’t require a fork and a knife, or even a hard stop in a time-starved day. It’s so portable; they can even drink their meal while driving.

This healthy-on-the-go movement sees no end right now and so, as I speak with the entrepreneurs who are looking for their next round, or even first round, of financing, I am careful not to discourage them about their own better mousetrap idea, while making certain that I firmly cement in their minds the growing opportunity to move beyond refreshment, alone, and articulate the power of this movement toward functionality. Certainly this is not the only way to success, but look around at all the new products and the numbers speak for themselves. Those emerging brands that feature functionality far outstrip those that don’t. In the case of those that don’t, they had better be healthier, reduced calorie or greener choices.

Just so that we are clear on this not being a beverage-only conversation, the same applies to snack foods. While it is a tough road to hoe for traditional empty-calorie snacks, the nutraceutical approach to snack foods that promise the same healthy value-add as their beverage brethren is working. What began as health bars has leaped into chips, sticks, dips etc. etc. Why not get my daily dose of X while still getting the satisfying crunch I’ve always gotten from my previously-favorite bag of chips. But for a few pennies more out-of-pocket, it’s a no-brainer for many consumers and, especially, for the Mom gatekeeper, who is more studiously than ever, moving quickly down the aisle looking for better alternatives for her family, and herself.

Insights from an e-Commerce Pioneer

See what Mark Vadon, Executive Chairman of Blue Nile and Sector Advisor for Maveron, has to say about the mindset of today’s consumer.

From Wharton to Vocational School: Thoughts on For-Profit Education

By Jason Stoffer

 

I graduated from Wharton in 2005, and rather than joining my fellow graduates flocking to Wall Street, McKinsey and Google, I joined Career Education Corporation (Nasdaq: CECO). This little known company delivered operating results most VCs would salivate over. CECO’s Online Education division, which  offered online post-secondary degrees, scaled from startup to $600 million in sales and 30%+ operating margins in less than five years. My decision to join CECO reflected my optimism in the opportunity for new for-profit players across the $1.2 trillion U.S. education market. Since I first interned at Career Education in 2004 the for-profit education market environment has only gotten stronger – market leader University of Phoenix has increased revenues from $1.8 billion in 2004 to $3.7 billion annually today. For-profit companies have grown faster than the overall market as they have proven to be more nimble, more responsive to consumer needs and less attached to legacy business models than incumbent players.

To give a sense as to the size and scope of for-profit education, I compare it to some other industries popular amongst investors in the chart below – note that for-profit education is 3.0x times bigger than Internet advertising.

market_size

Trends Driving the Education Markets

For over a hundred years, education changed very little in the U.S. Students received a new set of textbooks each year and class consisted of the proverbial “sage on stage” – a teacher standing on stage and lecturing to students. The advent of the Internet has changed the learning paradigm – and we believe the impact to date will be dwarfed by technology’s impact on educational delivery and pedagogy in the decade ahead. While most of the big wins to date have been in for-profit post-secondary education, we believe there will be multiple types of businesses in domestic and international and formal and informal education that offer potential for venture returns. The impact of changes in education can be distilled into four megatrends, as shown on the chart below. Over the coming months on this blog, we will shine a spotlight on each of these trends and highlight some of the promising young startups we are seeing emerge.

market_trends

Sniffles, Fever, Swine Flu! GoodBelly to the Rescue!

Help, it’s the first hint of a sniffle and you’re convinced you’re coming down with swine flu! You could wait in line for hours for an H1N1 vaccine (only to be told they’re out), or you could instead rush to the store to and buy a few cartons of delicious GoodBelly, the best-selling fruit drink that contains the natural probiotic lp299v – clinically proven to support digestive health and strengthen the immune system. People around the nation are drinking GoodBelly because it tastes great and keeps them healthy. GoodBelly, developed by Maveron portfolio company NextFoods, is proven to help boost the immune system by supplying more of the “good bacteria” your body needs to fight off the overgrowth of potentially harmful “bad bacteria” and germs, infections, and diseases. GoodBelly helps you maintain a healthy balance of intestinal microflora, and because 70% of your body’s immune system is in the digestive tract, it has a profound effect on overall immunity. But don’t take our word for it – take it from the GoodBelly boys.

Auctionpay Acquired by Global Payments

Auctionpay [http://www.auctionpay.com] was acquired by Global Payments Inc. (NYSE: GPN) [www.globalpayments.com], one of the world’s largest electronic payment processing services, on September 28th. The all-cash acquisition generated a positive return for Maveron and the company’s founders.  Maveron was thrilled to announce this well-deserved exit, and we look forward to seeing Auctionpay continue to grow its innovative, consumer-focused business model as a fully-owned subsidiary of Global Payments – a $4 billion company that processes billions of credit, debit, check, and ecommerce transactions annually for over one million merchant locations worldwide.  Auctionpay will maintain its corporate headquarters and all if its employees in Portland, Oregon – continuing to focus on helping nonprofits raise more money for their causes. As part of the larger company, Auctionpay will have the resources to accelerate development of new fundraising software products integrated with payment services, and will bring its products and services to a global audience via Global Payment’s worldwide reach.

Since it was founded in 2002, Auctionpay has grown by leaps and bounds – supported by two rounds of venture investment from Maveron and hands-on guidance from our team that helped the company quickly become a market leader in fundraising software. Auctionpay already provides products and services to improve the fundraising success [http://www.auctionpay.com/about-us/client-stories.aspx] to over 6,000 nonprofit organizations and schools, and they’ll surely be able to reach more worthy charities and non-profits worldwide now that they’re part of Global Payments. Bravo Auctionpay, and we wish you ongoing success!