A thought experiment for you: what are the traits of digital commerce companies that will win over the next 10 years? I think that’s a critical question to ask right now. We are in the middle of big economic transition from primarily store based buying to primarily online buying – stores will still be critical as a place to shop, but I think the "buying part" of shopping continues to move online. Stores become entertainment and customer acquisition vehicles (more on that in another article).
We can probably all agree that ecommerce will keep growing. Yet there will obviously be winners and losers. The losers are easy to spot: lack of innovation, selling other peoples brands (yep), operational ineptitude. With the explosion of transparency from reviews and increased CAC across the board, I believe the losers will wash out faster than ever and winners will grow faster than ever. But what do you need to win? What attributes are critical for the next big ecommerce growth stories?
Here's my list – let me know what you think I’m missing:
Creativity is the most important lever any company has. We have watered down creativity with analytics over the past ten years. But it’s still more important than almost anything else at your company. Innovative business plans come from creative thinking. Unique marketing strategies come from creative thinking. And finding ways around the roadblocks and problems your company hits requires creative thinking. This is the number one thing you should be hiring for: creativity (except in Accounting). As we automate more and more of the business functions, creativity is the one piece that cannot be automated. And AI will never be creative – it’s a purely human function.
We are moving into period defined by a lack of experienced employee talent. By that I mean the experienced baby boomers are retiring. GenX (also experienced) is a tiny generation that can’t fill the gaps. Millennials haven’t been given enough chances to lead, but that’s going to change fast – there’s no other option. So finding creative young people to come in and challenge ideas is critical to keeping your business growth moving. Which nicely transitions me to ….
This is probably the most unexpected attribute on the list, but think about it. First, Covid let the cat out of the bag. High performers enjoy working from home and are more productive doing it. Combine that with a Millennial and GenZ generation that grew up connecting with friends through the internet more than in person. These generations are completely comfortable in a virtual work environment and will seek it out. Workplaces that figure out how to *excel* at managing disparate employees working from anywhere will win. They will get the highest performers and keep them the longest. These companies will have an entire globe of employees to choose from.
If you’re still hiring 100% of your development capabilities in the US, you’re already being beat. I’ve used Argentinean developers, Russian developers, Indian developers. This will happen across the ecosystem. It reduces business costs – enabling more money to go into marketing – and creates a 24/7 work environment where the company is moving faster than ever.
The hardest part of WFH is creativity. I think we’re likely to land with most companies doing a few days a month in the office to work through hard problems or creative challenges. I keep hearing companies attempt to require 3-4 days a week in the office: you’ll get the best employees if your requirements are way under that. I've had coworkers work from Greece or Mexico for a month a time. The business never slowed and our employees are happier for it. Figure out how to manage WFH better than everyone else.
Sophistication in Artificial Intelligence
Employee talent is likely to be scarce in coming years. We will need ways to adjust for that reality. In addition, data is abundant and complexity is increasing. For those reasons, Artificial Intelligence is going to be critical. We’ve all been utilizing AI in site search and maybe even merchandising for years. But more and more it will handle the complexity of creative personalized site experiences for each of our guests. We’re past the point of one website that satisfies all customers. We need a segmented approach driven by smart AI capabilities that optimize our content for the user.
To be clear, these aren’t common yet. I believe that companies like AnswerRocket and Skafos are deploying tools that move in this direction. Driving increased workforce efficiency along with increased customer satisfaction is hard but critical to success. In my opinion AI will become a suite of task-oriented tools that optimize our sites for specific visitors. This is where analytics will continue to be king, but these tools should enable us to focus on creative, unique approaches to marketing and sales.
AI will also have to be deployed on the backend. Supply chain management enabled by AI can give you an advantage over others and keep product instock. AI in analytics is already critical to keeping you in the loop when something is off. I believe AI will be deployed across organizations to minimize labor requirements and optimize the business. More efficiency to drive costs out of the ecommerce model.
Marketers have been getting away with unsustainable practices for a while. If your customer acquisition costs are over your customer lifetime value, you’re killing the business whether you realize it or not. We’ve justified this because ecommerce wasn’t that big a part of the business. Or that the growth makes it worthwhile. Both are false at this point. Utilizing creative, unique marketing that attracts customers at a low cost is essential. And businesses that do this well over time will win.
This is the point where the customer retention sales guys chime in about it being less expensive to keep customers, blah blah blah. You don’t grow unless you’re attracting new customers. And increasing customer retention is extremely difficult. Focus your energy on new customer acquisition through alternative methods: not paid search, not paid social. Attention is king in 2022. Find organic marketing tactics that are sustainable and make expensive marketing more digestable. If you can attract a lot of your customers at an almost zero CAC, you can overspend a bit on paid social. Being able to pull in some growth without paying a toll to Google or Facebook is the key to survival over the next ten years. Try something.
And I also want to nod in the direction of Operational Excellence. By that I mean efficiently running your operations and backend team to minimize the costs while satisfying customer expectations. Doing more with less. If you can hold down operational costs, you increase margin and enable more marketing spend for higher growth. Maximizing margin enables you to grow faster than competitors who have to spend those extra dollars on the backend.
Can you win?
None of these are easy. Ecommerce has definitely passed the point of easy. In the early 2000’s, you could put up a crappy website and instantly start seeing organic sales. If you were excellent at one part of your business, you did great. This is no longer the case. Now we’re working for every dollar. To do that you need creative employees that are enabled by technology like AI to be efficient and effective. The ecommerce unit economics are tough. And you have to run a great business to grow profitably, which isn’t easy.
But if you focus on these five areas, you’ll excel. These are areas where a good business can create competitive advantage. What should your KPI dashboard look like if this is what you’re optimizing?
Let me know what you think. What are the key levers for success in 2025? 2030?