WT Commerce Always Be Learning December 15

To: Big Brand Holding Company

Subject: This may be your next major competitor.


  • United States


Thrasio.io has a $1 billion valuation. It has raised $520 million in funding over the last year. It generates $300 million in annual run-rate revenue (as of July 2020) and spits off about 10% of that in EBITDA. It fashions itself as a brand creation and growth engine that will disrupt the consumer packaged goods markets. “For the first time in four decades, the competitive advantage that legacy brands once held has disappeared within the past five years and are being rewritten,” their CEO says.

Similar companies: Perch, Thirstii, Heroes, Mohawk Group, SellerX, Razor Group, Heyday, Boosted Commerce

These companies typically are known as acquirers of FBA (fulfillment by Amazon) businesses.” Heyday was one of the latest to get funded, with $175 million in November.

Here's their business model:

  1. Buy successful (i.e., growing and profitable) start-up brands that are operating as FBA sellers on Amazon
  2. Make them operationally better
  3. Make them bigger
  4. Repeat

(Now the interesting parts)

5. Develop technology to identify FBA sellers likely to succeed so you can acquire them before others
6. Develop technology and teams at “the center” to be really good at steps 2 and 3 (i.e., operations and growth)

The typical FBA brand that’s acquired has about $5-10 million in revenue and generates about 10% in EBIDTA margin. It’s usually run by a single entrepreneur or small team. It’s identified a niche that resonates with consumers but is having difficulty scaling.

Thras.io or similar acquires the company with a combination of up-front cash and earnout payments. The typical buyout price is 2.5-4X EBITDA.

There are some intuitively attractive features to the model. First, innovation is done by hungry entrepreneurs in garages and basements, not by corporate operators. Second, the operational improvement and scaling work is done by corporate operators with the teams and technology to do it well, not by some under-resourced guy in his garage.

The less obvious and more provocative challenge that Thrasio and it's ilk present to incumbent holding companies (and their agencies) is its approach. It is in many ways the anti-brand management approach that had been developed by P&G, Unilever, and others and embraced by the big agencies. There are no apparent OGSMs, JTBs, brand pillars, or messaging frameworks.

WT Commerce Always Be Learning November 15 Body image

Instead, the brand-building model is this:

  1. Identify search queries on Amazon that are popular and trending up
  2. Determine which of those queries are being poorly served by available products.
  3. Scour the customer reviews and Q&A for product development insights
  4. Build the products and ship them to FBA
  5. Sell the products
  6. Tweak the products
  7. Once you get a winner, scale, scale, scale
  8. Once a product scales, build a brand around it
  9. Do steps 1-6 in parallel by encouraging (and paying) individual entrepreneurs do this for you
  10. Build technology focused on sourcing, logistics, and performance (sales-driving) marketing to do steps 7 and 8 effectively

By the way, it’s not lost on me that this model presents a challenge to the big agency model, too. In some ways, the acquisitive model of Thras.io could be the 2020 update of Sir Martin Sorrell’s model that built WPP and the incumbent agency holding company.

Further, when looking in more detail at the activities they do in steps 7 and 8 they’re very similar to the integrated performance-driving approach we take on Amazon. They start with supply chain and operational excellence, then build on that foundation with converting content and highly tested media. This is another reason I regard Thrasio as both a potential customer but also a potential competitor.

Now, Thrasio and the others may not succeed. And even if they do succeed their model, by design, is opportunistic so the competitive threat they present will be limited (at least at first). But, if you believe that ecommerce and online shopping present a future of infinite shelves (and not a single endless aisle) and if you believe that there will be a myriad number of replenishment paths personalized almost to the household level, then the approach Thrasio could harvest value from incumbent consumer goods companies whose businesses are tuned to mass retail.

Implication for brands: Take a look at Thrasio and their kindred spirits. There are four areas I would look at:

  1. Should you increase acquisition as a component of your innovation and product development plans?
  2. Should you look at Amazon as more of insights and product development platform than merely a sales-driving opportunity?
  3. Should you be building internal retail and performance marketing capabilities?
  4. Should you be changing the way you engage agencies to do more of #2 and #3?

Implication for big agencies: do the same.

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