A Conversation with Jeremy Liew, partner, Lightspeed Venture Partners

Every retailer has heard that there are a million startups coming for its business and its customers. Knowing which ones will succeed, and which ones will sputter, is another matter—and can help companies of all ages and sizes see what it takes to build a winning brand in the digital age.

Jeremy Liew, a partner at Lightspeed Venture Partners, knows a thing or two about the art and science of building a successful startup. With the firm since 2006, Jeremy invests primarily in consumer-facing companies in the mobile and online space. Before assuming his current role, he held several leadership positions at AOL and Netscape, helping to define the early days of the internet.

Startup: Struggle or Success

He noted there the competitive challenges inherent in today’s startups.

“A startup should never win against an incumbent, Jeremy said. “They have no scale, no brand and no distribution when they start. The odds are enormous. But the thing a startup has is speed and the ability to react quickly. But speed only matters when the environment is changing.”

Of course, our retail environment is definitely changing, no matter how you view it, making this a prime time for startups to challenge traditional competitors. Consumer demands are evolving and growing by the day, making speed and agility an incredible advantage for startups.

“There are changes when you can really get traction as a startup,” he said. “The first is, if there is a big shift in consumer preferences. A great example is the move to organics. A company like The Honest Company with Jessica Alba can grow fast in this environment. Her authentic activity in the area, with the relationships she had already built, enabled her to rapidly grow a brand that was seen as distinct from the large CPG companies that do not have credibility.”

Alba co-founded The Honest Company in 2011 after her frustrating experience looking for non-toxic products during her pregnancy, giving her instant credibility. The company has tapped into parents’ concerns with classic, chemical-laden, baby, cleaning and personal care products to fuel impressive sales growth—from $10 million its first year to a $1.7 billion valuation in 2015. Today, 75 percent of the company’s revenues still come from online sales (even though the products are sold in boutiques, Target, Costco and more). Much of that comes from monthly diaper and wipe bundles.

According to Jeremy, authenticity is critical because it helps avoid commoditization.

“You have to avoid competing against Amazon at all costs,” he said. “Amazon is a ruthless competitor who will win. Competing in a space with multiple brands on convenience and price is a losing strategy.”

Change Is in the Air

In short, changing environments create opportunities ripe for startup exploitation, Jeremy said.

First, he said powerful startups change distribution patterns, using the Great Recession-era example of Stella & Dot, an online jewelry brand that lets consumers and brand advocates host trunk shows, jewelry parties or work as a brand stylist from their homes—bringing authenticity and social connection to the brand.

“The next big shift is when there is a change in distribution patterns,” he said. “This is happening in many ways right now. A good example when this happened was during the recession when Stella & Dot took advantage of multi-level marketing during the recession. People wanted to work in that way then and also people wanted to buy. That is getting squeezed out now, but distribution changes offer opportunities for startups to exploit.”

According to Jeremy, another big change that startups can exploit is when customer acquisition costs suddenly shift.
“This happened for example, when Facebook was in its early stages. Traditional marketing missed it and the access to customers was mispriced,” he said. “So companies like Groupon, Gilt Groupe and gaming companies were all able to get scale very cost-effectively. That has disappeared now as incumbents dominate.”

Speaking of Facebook, Jeremy says different online marketing channels can create different opportunities, depending on the brand and category.

“The reason you would go on Facebook was because it was a fun place and so all new and fun things grew there,” he said. “Getting customers on Google was different because they went with intent, they were searching for a specific thing. So, in this environment, startups like Lending Tree, Expedia and insurance products all grew—considered purchases. Now things have changed again and there is more of a ‘social organic’ way to acquire customers. That is, for example, Instagram that has more about a mission, a cause.”

For an example of this new approach to customer acquisition and generating positive brand awareness, Jeremy points to Dove’s body image campaign, which included a series of truly viral videos celebrating “real” women of all shapes and sizes – not models – forging instant relatability and emotional connection.

Given all these constant changes, what insight can Jeremy offer about the future of the consumer startup space – and what does that mean for the old guard?

“All startups now realize you must be omnichannel,” he said. “Brands must have vertical integration. Digitally native brands are good, because you find out what works or not quickly. Those that use data are good, like Stitch Fix. You have to use new social channels to get traction. But an authentic personality like Gwyneth Paltrow can lead a business quickly – as long as it’s part of her brand. In building a brand, you must know what you stand for and what you don’t.”