Algorithms will save the day

As we continue our journey to transform the online business at Staples, one thing we’re using to guide our product and technology roadmap is automation. We need to optimize on several axes – speed of operations, (and actual throughput), efficiency, correctness, and cost.

Given the size of the business at Staples (the various online pieces combined are several billion dollars a year), we’re moving as much heuristics as possible into automated decision making systems. This will allow us to improve end-to-end throughput, while optimizing revenue and profit, and reducing cost. Similarly, all incidents will be tagged and tracked, so we can do root cause analysis, eliminate potential sources of defects, and even stop the line if needed.

Take, for example, our new expanded catalog. For a long time (over 25 years), we sold less than 30,000 SKUs, all related to office supplies. In the past year or so, we’ve rapidly expanded our assortment. We’re adding whole slews of products, one vertical at a time. For instance, we recently added hospitality, and retail. If you’re a business in those industries, you can now not only buy your office supplies from us, but anything else you need to run your business. You run a restaurant? Buy your cleaning supplies, cutlery, glassware, etc. from us as well.

We recently crossed 500,000 SKUs on offer, and are on track to cross 2 million soon, and over 5 million within a couple of years. The question, of course, is how to market these new products and to whom. Manually devising strategies to market to the right target audiences has its place, of course. At the Innovation Lab, we set our data scientists to work on this problem. By analyzing all available data on the millions of customers we already have, we’re able to figure out what industries a large number of them belong to. We can then automatically show them relevant new products when they log on, or when we send out promotional emails.

Even where we don’t have comprehensive information about our customers, we can computationally determine several things about them. For instance, can you guess the industry someone within an email address of janet@peninsuladental.com belongs to?

Another example is shipment delivery estimates. We already have a world class logistics platform, having been in the business of receiving orders, fulfilling them, and getting them out to our customers within one business day. As we expand our SKUs though, a larger and larger number of our products will be dropshipped by our vendor partners. The variability on these items is much higher, and the shipments tend to be slightly slower as well. By using historical data around inventory levels, handling times, and shipping carriers’ actual delivery tracking data, we’re able to predict when an item is going to reach a shopper with a very high degree of precision. By communicating this to our customers up front, we’re able to provide a much better experience online.

These are just examples of the several projects we have in the works here at the San Mateo based Staples Innovation Lab. Others include things like real-time selling price optimization, smarter personalized email content targeting, dynamic and personalized product bundles, hyper-personalized product recommendations, a new e-commerce search engine, and several others, for this year alone.

The path forward is clear – automation is the key, and algorithms will save the day :-)

P. S. – Watch for these project as they go live on Staples.com. And if you’re a technologist, interested in joining the journey we’re on, email me at amit@stapleslabs.com, or check out www.staplesinnovationlab.com

It’s always Day 2 at Staples

It’s been over two months since Runa was acquired and we became Staples Innovation Lab. I’ve been meaning to write about this transition, but things have just been so busy. I do think it’s important that I record this journey though, because in a few years time, people will look around and will wonder at the steep rise of Staples. :-)

We started Runa with the same gleam in our eyes as most Silicon Valley startups – of changing the face of the industry we were in. We chose e-commerce, even though in 2008, it wasn’t exactly sexy. Those were the years of the consumer startups, and no one was even looking at enterprise focused deals. My own viewpoint though was, and still is, that the e-commerce story is still being written. I’m an Amazon.com shareholder, I’ve been using their service ever since I moved to this country over 10 years ago, and I’m a huge fanboy. My appreciation for Jeff Bezos is paralleled only by my admiration for Steve Jobs. Amazon.com has literally defined e-commerce… and is overwhelming every other contender in the space. 

So we started Runa with one overarching goal. To help e-commerce merchants survive the Amazon.com onslaught. The idea was that most retailers aren’t technology companies, and don’t have the capabilities to battle Amazon, one of the most advanced tech companies in the world. Further, these folks are unlikely to ever grow such capabilities in-house, for a whole variety of reasons. At Runa, we built out a set of SaaS products, each focused on a specific area. All these services were built on top of a big-data + machine-learning stack. Our output was a run-time platform that ran predictive models to address individual aspects of the shopping experience. Merchants simply plugged our APIs into their world, and we enabled their site.

For instance, we built PerfectOffer to help merchants stop giving away discounts, indiscriminately, to everyone. Our platform built sophisticated statistical models of the behavior of the shoppers, and then in real-time would determine which shopper should get what deal on what product. Or even if they should get an offer at all. Not only was the discount spend made far more efficient (which helped average gross margins), but it also had a highly non-linear positive impact on net margins. Another service we built was called PerfectShipping, which used past seller performance and shipment tracking data to figure out when shoppers could expect to receive their items, with a high degree of confidence, even if merchants used the cheapest carrier services. Online marketplaces and retailers alike used this to take on Amazon Prime’s 2-day free shipping, and the incremental sales numbers this service generated for our large merchants was incredible. Other services included PerfectEmail and PerfectBundles.

By the time Runa was acquired, we were able to count some very large retailers as our customers, including eBay, Groupon, and Target. In July this year, we added Staples. Now, to be clear, we had never thought Staples was a particularly relevant company… actually, I had never really given much thought to Staples at all. However, once they became a customer, I did find out a fair bit about them, and things seemed quite impressive. It turns out, Staples is the world’s second largest e-commerce player, after Amazon.com. Sure, it’s a distant second, but it does make over 10 billion dollars a year online. Remember, this is despite them not being a tech company. Not in any realistic sense of the word.

So when they talked to us about a strategic partnership, and they described where they wanted to go, I realized that this could be an incredible opportunity. My vision for Runa was always this set of AI programs that would drive all aspects of an e-commerce operation. We would use data to optimize just about everything, and all in real-time, all automated. This would drive down costs, and would then allow for lower margins, which would mean cheaper prices for shoppers. And all the while, it would have the amazing side-effect of improving the customer experience. Staples, in my mind, was the perfect place to put this into action. Kind of like a PerfectPlayground :-)

Staples is an old company – they’re 27 years old, and they’re still a brick-n-mortar retailer at heart. This is changing, and there’s a lot to be done. The reality though is that it was a startup at one point, and that entrepreneurial spirit is still alive. The first phase of the company, in a sense, was the retailer phase, and they opened thousands of stores around the world. All are (or certainly were) amazing cash-generating machines, and even today, even as the the face of stores business is changing, they’ll continue to generate the cash needed to help the overall company as a whole.

I like to think of the offline business as Day 1 for Staples, and we’re now on Day 2. This is going to be a long day, since we’re never going to be done. The good news is that there’s tremendous upside as we execute on this path to becoming a technology company ourselves. There’s much work to be done, and much software to be written. There are plenty of business processes to change. There are plenty of people to win over, Wall Street analysts included. The glory is in the challenge, of course, and this is one heck of a challenge. How does one attempt to build what a company like Amazon.com has built over the past 15 years (at least the relevant e-commerce bits) in a span of just 2-3 years? This is a tech challenge, a people challenge, a process challenge, and a business challenge. It means we can’t do things in the typical, traditional manner. We’ve made very different technology choices (Lisp, anyone?) and are asking all the crazy people we can find, the doers, to join us. The enemy is formidable, but one thing’s for sure: it’s going to be one hell of a fight.

It’s always Day 2 at Staples.

On convertible debt, and why it now seems rather insidious

Cross-posted from Zolo Labs.

I’ve been researching early-stage financings. I know I’ll soon be talking to investors, so I figured I’d better understand what the various options are and what they mean. I also thought I’d share my research with others, and so if you’re in the same boat as I am, then perhaps this post on the evils of convertible notes will help you :-)

Before I started researching this topic, I always thought convertible notes were a great way to raise your first round of outside money. The benefits were touted by everyone who were supposed to be in the know:

  • they’re faster to get done
  • they’re cheaper to get done
  • they’re easier to get done (term-sheets are simpler)
  • they delay the pricing question so you have time and money to build out your company a fair bit before a price is set on it. That’s obviously in your best interest, since your company probably isn’t worth very much when you just start out
  • everyone is happy, and there are no real downsides to this type of financing

Here’s what I believe now:

  • it isn’t fair to the very people who take the most risk and believe in you before any one else did. Why? Because, the better your company does, the higher the price they pay for their shares. That just isn’t the right way to treat your earliest backers and well-wishers.
  • this situation is why most convertibles now have valuation caps on them. So if you’ve raise 2M with a 8M pre cap, you expect to give away at most 20% of your company. And you’re probably cool with that, in fact, the higher the cap, the better, eh? But a cap is not a (minimum) valuation, so what if you later find that you can only find investors at a price of 4M pre? You’d have given away 33% of your company to those initial investors. Maybe that’s OK, but you no longer have a choice in this decision
  • convertible notes also have a discount associated with them, so in the above scenario, if that discount was 25%, you’d actually have to give away 40% of your company, when you were only ready for 20%. Again, if you thought this was OK to begin with, maybe you’d be OK with it, but you’d no longer have any control on this decision either

These are the reasons that, as an entrepreneur, a convertible debt round is rather bad.

More than the financial reasons, though, my problem is with the misalignment of interests. I’m a very firm believer in partnerships. You want your interests perfectly aligned with your investors. Right? With a convertible round however, even though they wish you success, your investors would rationally hope for a lower price for your company, so their investment works out better. They’d want you to succeed, but not too much. They’d want you to succeed just enough to be able to raise a series A, and then succeed a lot more later. That isn’t aligned.

The color of all money is green, but you get a lot more from your investors than money. And this misalignment screws that up.

Even if it all works out in your favor, I really hate how it isn’t fair to your early investors. These folks took the highest risk, believing in your dreams and capabilities. Punishing them with higher prices isn’t what partnership is about.

So I now think it makes more sense to raise a priced round at a decent valuation. That’s what we’ll look for when we start looking for Zolo Labs.

P. S. – I’m obviously no expert in any of this, and am just getting started on learning about it. So take everything here with several huge grains of salt. Perhaps another thing is that if you’re a super-hot startup and everyone (knowingly) wants to get in, then I imagine it changes this model of thinking…

Startup marketing and you

Cross-posted from Zolo Labs.

Marketing is defined as the act of promoting (and selling) your products or services. Folks in most industries consider it an important part of their business, especially in larger companies. For some reason, this seems less true in tech startups.

Instead, most founding teams concern themselves a lot with product and engineering. After all, if you don’t have a product, what are you going to market? While this may seem logical, I’ve come to realize this is a flawed view. I now believe that marketing is a critical function of all startup teams, right up there with product, engineering, recruiting, and, fund-raising.

To come to this realization, I first had to internalize that “marketing” wasn’t a bad word. While the above definition conjures up (at least in my mind) images of sleazy sales people, marketing is actually one of the most important ways of interacting with your customers. And really, are there any unimportant ways of interacting with customers?

As a startup, if there are even a few people out there who are actually willing to give you a few minutes (or seconds!) to listen to what you have to say, hallelujah! Marketing, then, is an opportunity for you to engage them in a dialogue, to explain to them why you exist at all. Most people filter out all forms of traditional marketing, not just because there are too many of them, but because they come across as insincere.

There was a time when running an ad would actually produce decent ROI. This isn’t true any more, of course, and in my mind, here lies the opportunity. Today’s connected world of blogs and social networks have presented us once again with a channel to actually connect with our customers and potential customers. To not just “market” to them, but to actually reach out and have a conversation.

While I filter out most forms of marketing as noise, what does catch my attention is authenticity. The new world of marketing then, is just this form of real and sincere social conversation. For tech startups, it’s the dialogue between the founding team, and their early customers, and their extended community. What an awesome chance to be yourself! It’s an outlet to express your philosophy, your beliefs, and your vision. And yes, perhaps to even talk about your products. It’s an opportunity to hear back from this audience, from those who actually care enough to respond! It’s an opportunity to help those who’re listening (or reading) in some small way, even if they don’t actually buy from you.

Do a search for “startup marketing” on your favorite search engine, and you’ll get thousands of results. But this is really it – this social conversation, where you can put yourself (and your company) out there. You can’t outsource this, this is you! As David Packard once said: marketing is too important to be left to the marketing department.

I’ve written before that of the two sides a startup (the product side, and the distribution side), it is the distribution side that’s the harder one. Marketing, defined the way we just talked about, is key in solving this distribution challenge. And, defined in this way, it doesn’t need to be looked down upon either… after all, you are the marketing :-)

P.S. Check out what we’re building: Zolodeck.

In search of the viral loop

Cross-posted from Zolo Labs.

Just finished reading Viral Loop. As we think about the distribution side of things for Zolodeck, I figured it couldn’t hurt to read about how a bunch of companies achieved massive scale.

It’s a good read… and certainly describes how things were done at companies like Hotmail, Twitter, Facebook, Hot Or Not (remember?), Bebo (remember?), MySpace (remember?), eBay, Flickr, PayPal, and even Tupperware (yeah, really).

It isn’t, however, a book of recipes. I didn’t really expect a book to be able to just tell me the 10 things I can do to fix distribution, I guess, and on that count the book was merely describing how awesome it is when you do achieve massive scale. Not how to get it.

Still, a very decent read, and did trigger a few thoughts for what one can do to address this. A lot of people in the startup space know this already, but it’s been sinking in for me more and more over the past few months: distribution is the more important of the two key things a startup needs to solve (the other being product/market fit, or product in general). And also that distribution is the harder of the two problems, and more than product, it is distribution that will make or break the company.

As I said, we’re thinking a lot about this for Zolodeck… and since this is so important, we’re erring on the side of over-measuring things to ensure we can keep a pulse on what the distribution story is looking like. What else can one do at such an early stage?

Make something people want

Cross-posted from Zolo Labs.

I’ve been reading Paul Graham’s essays for a long time: since 2001, when an old friend introduced them to me. I was excited by the way he writes about startups and what startups can accomplish. In my head, startups are like the Rebel Alliance, with the odds heavily stacked against them, and they battle the various Death Star corporations for a slice of the business, to institute a smarter way of doing things.

I was also heavily influenced by his articles on Lisp, particularly this one. It’s why I started playing with various Lisps, and why I was so excited by Clojure, and why I wholeheartedly embraced it.

But this post isn’t about technology. It’s about the Rebel Alliance. It’s about two guys in a makeshift office, in the proverbial garage somewhere. Startup statistics can be quite depressing, with 19 of every 20 startups doomed to failure. With such a low rate of success, how do the successful ones do it?

I remember reading this article by Paul Graham, and thinking it makes sense. I remember it making sense in a very superficial, non-committal sort of way. The core of the statement: “Make something people want” seemed perfectly obvious to me. How could you succeed if you didn’t make something people wanted? Duh. Right?

I’ve been spending a lot of time thinking about Zolodeck, the depth of this idea is actually hitting me quite hard. There are two parts of any tech startup: the product side, and the distribution side. The product side is about finding the product/market fit, about making sure the experience is right, and that what you charge for the product is more than what it costs to make. The distribution side is about customer acquisition. Obviously, there’s interplay between the two sides.

“Make something people want” is a simple recipe for success. It seems to distill everything the Lean movement talks about into a single sentence: is your startup making something people want? Everything else is details (of course, the devil is in the details, and you need the details to succeed). In the end, you have to collect and collate the metrics that will point you to what it is that people want, and that will tell you how and what your startup should be doing. But the overarching guiding principle is very sound: make something people want.

And yet, a lot of startups fail because ultimately they don’t end up building something that enough people find value in. Or perhaps at a cost that was lesser than what they could charge for it.  Making something people want doesn’t mean that if you build something incredibly powerful and useful, but at a gargantuan price, you’ll succeed. The something you build for people needs to solve an equation that involves cost, price, scale, and utility.

So back to the two guys in their garage. If you’re a tiny startup (in reality or in spirit), you can greatly increase your chances of success by using this mantra as a guiding light: make something people want. And make use of Lean metrics to see if you’re trending towards a success or failure. I really do believe that if done right (pick the right metrics, and make adjustments based on what they say), a startup can succeed. And given the stats on startups, this is a bold claim.

I plan to share our Lean metrics dashboard and overall progress as we continue to work on Zolodeck. I think of it like a public experiment. Hopefully, we’ll discover something of value, and others can benefit too! Go Rebel Alliance!

For A Stranger In Silicon Valley, Success Isn’t Only About Who You Know

(Via TechCrunch) – Thought this was a great piece on what networking can do, for even complete outsiders. It’s one of the many inspiring reasons we’re building ZoloDeck. Enjoy!

For A Stranger In Silicon Valley, Success Isn’t Only About Who You Know:

cherian-thomas

Editor’s note: Cherian Thomas is founder and CEO of Cucumbertown, a recipe-publishing platform. Follow him on his blog and Twitter.

For entrepreneurs, it is now both easier and harder to raise capital: easier because of powerful platforms like AngelList; harder if you’re not part of an accelerator or don’t have a strong network.

Silicon Valley has more startups than ever before. My startup, Cucumbertown, raised its first round a month ago, and during the course of this journey, I realized that, as a first-time entrepreneur without any solid Valley footing, my run toward raising funds as a non-American co-founder was somewhat unique.

Valley funding used to be an impenetrable fortress that opened up only by way of introductions. Your success in raising capital decreased to insignificant levels otherwise. The only other chance to make yourself noticeable was traction, which trumps everything. But the market dynamics of fundraising is shifting, and investors are no longer clustered in the Valley. Accelerators are becoming the showcase for promising startups. I was initially disappointed when a VC told me their firm only focuses on YC companies. But then I realized it makes more sense for them to look at YC, 500Startups or TechStars than to sift through hundreds of decks. These accelerators are becoming the entrance exams for selection.

So here’s how my month of experience as a non-accelerator, non-American fundraiser translates into advice.

Make Friends Fast

I was scheduled to meet 500Startups Partner Paul Singh on the second day of fundraising. As I waited for my appointment, Courtney Powell, CEO of PublikDemand, asked me about Cucumbertown. We became friends within the hour. The PublikDemand team invited me to crash at their home and Courtney taught me everything she knew about fundraising. We continue to meet whenever I am in the Bay Area. Courtney even re-wrote my press release notes.

After I read Darius Monsef’s article on TechCrunch, I contacted him, and he put me in touch with Rajiv Bhat, co-founder of YC alumni Mertado. Rajiv advised me on everything from convertible caps to living life as an Indian founder in the Valley. Nowadays Rajiv and I meet frequently here in Bangalore to track one another’s progress. I even bake for him.

Cucumbertown’s first investor and the co-creator of Farmville was Sizhao Yang, and we became great friends. He also offered constructive criticism of Cucumbertown. Every now and then Zao mails me one-liners reflecting something on the industry worth understanding. Zao now is my 1 a.m. friend/investor on call.

Cucumbertown’s most important advisor and friend is Naval Ravikant. He responds to every email and takes action when necessary. He even follows up. When Naval said stop, I stopped. When he asked me to meet him at AngelList HQ in San Francisco, I changed all my other plans.

These people represent only a fraction of the relationships I built in less than a month, and they represent the change in Cucumbertown’s trajectory to success.

Meet With Companies Who Have Raised

It’s also important to meet with companies who have recently raised. They have a wealth of tribal knowledge that can help you save time. For instance, I met with a company that closed its funds in October, and they advised me about the shift in investors’ herding mentality due to the September YC Demo day this year. This was a wealth of information, as I was able to strike a number of investors from my potential list.

Get On AngelList

AngelList is powering the Valley’s revolution in investing and raising funds. During one of my lunches with an investor, he said that raising funds for the first company he co-founded was near impossible. And raising series A was much more difficult than that. His company’s investors played waiting games and did not introduce the company until their contacts came into the picture. He said shady acts like this frustrated him as an entrepreneur.

AngelList changes all of that and is perhaps the most important tool you’ll need as an entrepreneur raising capital. It is the canonical source of all things related to angel funding in technology now. Never has Silicon Valley been in a position where every investor and fundraiser could e-meet at a platform.

Cucumbertown represents a first-time investment for Mokriya‘s CEO Sunil Kanderi and partner Chandra Kalle. I met them during a growth hacking conference in San Francisco, and they expressed their desire to be connected to Cucumbertown. Our profile on AngelList, our existing investor list there, and our testimonials offered the credibility we needed to gain their trust. And investor Stefano Bernadi followed us out of the blue on AngelList and subsequently invested in Cucumbertown.

Here are some things I learned to be successful on AngelList:

  • Build a concise and compelling profile.
  • Make it equally good for your team, too.
  • Follow investors early on, even during your idea incubation stage, to understand their modus operandi.
  • Follow partners at VC firms to understand the deals they are seeking. You can view their activity stream.
  • When you get your breakthrough investors, immediately connect with their connections and start the conversations (AngelList allows you to talk to connections of connections).
  • Showcase your strengths in the status messages. Don’t overdo it.
  • Respond to everyone who initiates a message with you. But once you start calendaring in people become selective in appointments.
  • Get your investors to write testimonials for you.
  • Almost every company listed there is exceptional. Being different is difficult. But seek the difference.

Silicon Valley works largely by clustered investments. Your company would have always had a chance of being invested in by people who knew each other. And limited by them, too. That has changed with AngelList.

Calendar Every Meeting

I met 28 investors/funds over three weeks, and more were scheduled. The Valley is flooded with investors, and it can get pretty overwhelming once people start responding. Keep it organized and calendar all meetings. The executive assistants for most of these investors will reschedule your meeting at least three times. You have only once chance, so be prepared to move around.

Learn To Say No

As tempting as it was to accept capital from anyone — especially with the uncertainty of the future looming over our heads — we said no to investors who did not align with our thought process and principles. It was difficult. But we sleep well today. My new best friends in the Valley taught me this quality, as well.

Maintain Heat

The Valley has more startups now than ever before, and investors are bombarded by a hundred pitches every week. You are as valuable to them as the other 99 and so are likely to get lost within three days. Be proactive in the conversation, and try to get a response in a week.

Fundraising is a game. If you know you have a good product/team/traction, then get in to win. You are already here because you believe in something. Continue the journey to win. Persevere.

Thanks to Maneesh Arora, advisor and investor in Cucumbertown, for the draft review.

[Disclaimer: 500 Startups is an investor in Cucumbertown. But we are a non-accelerator investment. Though Naval is AngelList’s co-founder Cucumbertown did not benefit any special status. Cucumbertown wasn’t a featured startup or did not show up in the trending list. Dan Hauk is Cucumbertown’s American co-founder. But Dan was not involved in fundraising. Cucumbertown is a distributed startup and none of us co-founders have seen each other. I travelled to the Bay Area to raise funds.]

 

(Via TechCrunch)