Members: Juneteenth and American Dreams


This report is supported by 2PM’s Executive Membership and is temporarily unlocked. We publish seven reports, each week: five in short form and two long-form pieces. This is in addition to curating and maintaining a dozen databases on site. To be a part of what we’re building, you can join here: The Executive Membership

The discussion between us was slow and every answer labored. It was difficult to tactfully explain the concept of an “unnecessary wait.”

There’s always a wait.

Modern Retail editor Cale Weissman wanted to understand the Black perspective of those of us in eCommerce. I didn’t have many answers for him. I worked to moderate my responses, struggling to mask volumes of persisting frustrations within the digital industries. At one point, Weissman asked for a list of venture-backed founders in the direct-to-consumer space. There was, of course, the obvious answer. Tristan Walker rolls off the tongue. But I didn’t have a novel response in that moment and I was ashamed of that. There are so few Black professionals in this space. For the vast majority of prospective executives, founders, or investors, they’re still waiting.

A portmanteau of “June” and “nineteenth”, you’ll see Juneteenth celebrations from Target, Nike, Glossier, Deciem, Ford Motors, Adobe, Allstate, Altria, Best Buy, Google, JPMorgan, Lyft, Mastercard, Postmates, Tesla, SpaceX, RXBar, Spotify, Twitter, Square, Workday, Uber, and countless others. Most of it will be in vain and some of the efforts will be widely panned.

No Title

No Description

You’ll observe brands, people, and media commentators missing the point. You’ll see gimmicks, carefully crafted statements, and an oversimplification of a complex period in American history. Imagine our great grandchildren over-simplifying the present day.

For some of us, Juneteenth was only sort of a celebration. Imagine wanting something for your entire life and then waiting two and a half more years for that something. It’s a bittersweet celebration. For those of us who descended from those strong-minded South Texans, today is the annual reminder of their physical, mental, and emotional resilience. It’s a reminder of our inherited endurance, will, and resourcefulness. There’s always a wait. So, Juneteenth: a celebration, sure. A national holiday? Of course. But within the confines of the classrooms, offices, or neighborhoods of our American cities, Juneteenth should be a day to reflect on the waits that remain.

Grandchild of Slaves and Grandma to Me

Dorothy Smith’s grandson’s first essay remained on her bookshelf. It was an elementary school recount of Jack Roosevelt Robinson’s embattled life, the first man to cross the color barrier in Major League Baseball. I remember the essay because in 1992, it was my first time using a color printer for a school project. I recall the pride of using an image of his baseball card as the hook for a project that made me emotional, even as a nine-year-old. The eight-page report was double-spaced with size 18 font. For some reason, she was proud of that essay and it remained in her home until her passing in April of 2014. She’d critique the cadence and the word choices. She’d implore me to slow down when I read it aloud; I stuttered heavily back then. I credit our conversations for helping to heal that ailment.

Between 1992 and 2014, she’d go on to help me with a number of essays. As she got older and less capable, she’d listen to me narrate the stories that I wrote. But earlier in my life, she’d actually help me write them. A highly educated woman, she was my hero. By the end of this essay, she might be yours. One of those essays was a seventh grade report on Juneteenth’s impact on my own family. I’ll never forget her input:

The message of freedom didn’t make it all the way down here and, so, they had to wait a little bit longer. There was always a wait. There’s always a wait.

President Abraham Lincoln drafted Proclamation 95 in September 22, 1862. Imagine hearing word of this proclamation and then waiting for it to save you. It was effective, five months later, as of January 1, 1863. Imagine counting down those days to freedom. For some, the count was far longer. For that lot, their freedom was hidden by economic and political disdain for the federal order. It would be an additional two years before my relatives heard the news.

Every advocate of slavery naturally desires to see blasted, and crushed, the liberty promised the black man by the new constitution.

Those were the words of Abraham Lincoln in 1864 to Union General Stephen Hurlbut, an ally on paper but a critic in private. Even after the order, a number of states avoided the action required to fulfill the president’s wishes. According to Dorothy Smith, the population of Texas was aware of their ordered freedom long before they received it. For them, it was a painful wait. I’ll never forget the emphasis on “there’s always a wait.” These were the words of Dorothy Smith: child of laborers and sharecroppers. She was an entrepreneur, a retailer, a real estate agent, and mother to six college graduates. Dorothy was the grandchild of Texas slaves and my grandmother.

XEwCTvowHer grandparents were born in 1858 and 1853. Dave and Sallie Draper Hill were born enslaved in Panola, a small town on the border of Texas and Louisiana. They were of the last American slaves freed by that Galveston, Texas order on June 19th, 1865. They’d later marry in 1881. According to the 1900 census, they’d go on to have 12 children. My great-grandmother was born in 1895. She’d later become an independent farmer, raising cattle, pigs, chickens. She grew and sold vegetables and she tended to a fruit tree orchard on her property. Her daughter would marry James Smith in 1944 and remain married to the Army Air Corps veteran until their passing – one year apart.

I always contemplate what earlier generations of my family would have done with real opportunity. It always seemed as though they were capable, potent, and waiting. It was Dorothy who we credit with taking matters into her own hands. She was defiant in her capitalism, her pursuit of education, her politics, her advocacy, and the opportunities afforded to her six children. She resented the idea of Juneteenth, in ways. It represented neglect and deception, a stalling of opportunity. It was the embodiment of an unnecessary wait for the opportunity to live a full life.

She stopped waiting.

The Sudden Retailer

With her meager savings, she launched two businesses that operated in tandem. Both companies were within the same strip mall and they’d feed each other business for decades. A licensed barber and realtor, “Melody” became her calling card. By the mid-1950’s, the barbershop generated substantial cash flow, allowing her to hire staff and procure basic wholesale partnerships. Her storefront would double as a beauty supply retailer, amplifying her earnings by catering to an audience with few places else to shop. This should sound like a familiar strategy. Her clientele was working class and upwardly mobile, a trend that would continue throughout the Civil Rights era.

Many would eventually buy homes in the area Northeast area of downtown Houston. Melody Realty would be one of their guides. The Fifth Ward was an area where Black Americans could buy homes without political or social persecution. Regardless of one’s wealth, the city’s affluent remained deed restricted – first legally and then by proxy. The middle-class son of a Texas Instruments engineer and flight attendant, I’d later be born in that same downtrodden area in 1983. Thirty years later, the city’s deed policies remained. There’s always a wait.

Pictured: Dorothy, right, with her son.

Dorothy would later become one of the preferred real estate agent of her area. In this way, her storefront operated as a funnel. Her Melody brand of business blended short-term cash flows with longer-term windfalls. It changed the trajectory of our family. James, an Army Air Corps veteran, and Dorothy would send six children to colleges across the United States throughout the 1960s and 1970s. All would graduate and five would go on to have children. By the time that we were born, the idea of college was an afterthought. It was just another task for us. And so was entrepreneurship.

Dorothy would enforce a strict policy for each of her children. My father and his siblings would be required to earn their barber’s license while in high school. This sense of economic independence would propel a number of those children to impactful lives in business, religion, and medicine. Today, Melody Realty continues to operate in the Houston area, a testament to her work.

Conclusion: Ending The Wait

By the time I was born, she’d complete classes at Rice University. She was omnipresent in our lives and she stressed the importance of sacrifice. Dorothy Smith’s life had a profound impact on my own. In our home, she’s taken the form of a superhero. Imagine being born into a world that penned you for one thing and then choosing to achieve something more. She’d send six kids to school before the United States provided her the right to vote. My father was 13 when the Voting Rights Act passed. There’s always a wait.

Dorothy was uncomfortable with Juneteenth because it was symbolic of the proverbial weight of an unnecessary wait. This same concept can be applied across generations, including our own. Dorothy would argue that she was nothing special. Imagine what her parents could have done with the freedoms that Dorothy possessed. I can envision Dorothy Smith atop of our industry, if she was born during my lifetime.

The story of upward mobility in America is one of waiting. In the 1800s, it was for freedom. It the early 1900s, it was waiting for the dignity of citizenship. In the late 1900s, it was the wait for legal equality. And today, it’s the wait for equity in treatment and opportunity. We’re still in the proverbial period of waiting.

Today, we are celebrating the overcoming of adversity. It’s not intended to be a pleasant memory. I’d have preferred to celebrate no Juneteenth at all. I am sure that Sallie and Dave Hill would have agreed. When you’re deserving of opportunity, every single moment without it will feel like a decade. Now, imagine how two years of waiting may feel. The daughter of field laborers, she birthed a generation of Black professionals. Her life was a force function that bent time. There should have been more Dorothy’s in the 1950s and 1960s. There should be more of her children. We have to recognize that an unnecessary wait is just as fraught as no opportunity at all.

The hope is that, today and every day forward, we work to bend time. The leadership of the industries that define American exceptionalism should reflect America. We should provide opportunity, fill executive suites, hire the best people, invest in resilient entrepreneurs, mentor, lead, build, uplift, and provide the freedoms that some Americans take for granted.

There are more Dorothy’s than we know and some of them are waiting. The 45 second pause between Weissman’s question and my answer likely made him as uncomfortable as it made me. In a better version of our world, I would have answered his question with ease. It’s critical that we identify our own unnecessary waits. Once we do, it’s our responsibility to end those waits with opportunity. It’s the one small change that can alter the course of generations.

Essay: Dorothy’s Grandson | Editor: Hilary Milnes | Art: Andrew Haynes | About

No. 333: Food52 and Linear Commerce


There have been few meaningful exits over 13 years. As such, questions surrounding the direct-to-consumer industry’s lack of exits have reached fever pitch. Investors have long questioned the viability of marketplaces and DTC brands. Initially pitched as technology companies, platforms like Shopify and BigCommerce streamlined the technical requirements for many go-to-market strategies. This left many investors questioning defensibility, proprietary advantages, or the value of a brand’s intellectual property – if any.  With many DTC companies raising capital with the intention of growing like software companies, it begs the question: do they understand their true value? The short answer is no.

No Title

I’m not sure that a lot of DTC brand owners realize that they’re building companies valued at 1 – 1.5x revenues.

When venture capitalist Fred Wilson published his thoughts on the Great Public Market Reckoning, he set the stage for an important discussion on the valuations of venture-backed companies. WeWork’s 2018 revenue was $1.8 billion on $1.9 billion in losses. In August 2019, America’s finest investment banks were selling consumer investors the story that the company’s discounted cash flows (DCF) justified a $47 billion valuation at IPO.

If the product is software and thus can produce software gross margins (75% or greater), then it should be valued as a software company. If the product is something else and cannot produce software gross margins then it needs to be valued like other similar businesses with similar margins, but maybe at some premium to recognize the leverage it can get through software.

Softbank, WeWork’s latest investor, believed that the company could eventually exceed $100 billion in value. As of today, that IPO filing has been shelved indefinitely; the IPO prospectus that once valued the company at nearly $50 billion has been rescinded. WeWork is back to the drawing board and on a hunt for a healthy EBITDA, as it’s likely that a company like that will be judged by a different standard. This may be a difficult path. The coworking company maintains 20% gross margins. Until recently, the cognitive dissonance between value and valuation continued to widen.

Peloton is trading at 6x revenues, rather than the 7-8x that underwriters intended. Based on their gross margins (46%), it’s likely that the multiple will 5x. Lyft maintains a 39% gross margin; Lyft is trading at 4-5x and may eventually fall to somewhere between 3-4x. The commonality shared by Lyft, Uber, and Peloton is the software leverage that they share. Each of the three maintains a software angle that places a premium on their respective valuations.

For many DTC brands, that same leverage rarely exists. For every StitchFix, there are dozens of retailers that fall within that range. These are companies without much technical IP, if any at all. This is a gift and a curse. Shopify has streamlined many of the requirements that would have required a technical co-founder just a decade ago. It’s for this reason that tech’s multiples of revenue shouldn’t be the measure at all. Online retailers are EBITDA businesses. And it’s time that the category optimizes for improved gross margins and sustainability. This may mean less venture capital raised and slower growth over a longer time horizon.

Venture capital isn’t right for many businesses, but if you do want to raise from a VC at some point, you need to understand that often investors care more about growth than profits. They don’t want high burn rates but they will never fund slow growth. [1]

The public market’s rebuke of WeWork is just one of the latest hits to the private market’s penchant for marketing overestimated valuations. In online retail, there is a key adjustment that can be made to better position the DTC industry for exit optionality. The first of which is to learn community building from digital media publishers.

A common DTC multiple of revenue is 1.5-2x. The Steve Madden acquisition of Greats Brand was reportedly within this range. A $13 million revenue year resulted in a sale for $20-25 million. A common marketplace multiple of revenue is 2-4x, this is a company like or A common multiple of revenue for a commerce-first media brand is 3-7x. Glossier has been valued at over $1 billion with a revenue total ranging between $100 – $150 million. For tech companies, SaaS has a premium. In some cases, 10x revenue multiples.  For retailers, valuation multiples are influenced by organic audiences.

Linear Commerce and Revenue Multiples

1565363735634-buyables2_2Food52 is a member of a new breed of digital platform, one that combines commerce and media operations. This aids diversificaton of revenue channels while minimizing the rising costs of traditional customer acquisition. It is not easy but it can be rewarding. There are a number of publishers in this category, to include: Barstool Sports, Uncrate, Highsnobiety, Hypebeast, and Hodinkee. And remember, Glossier began as a blog called Into The Gloss.

No. 314 Linear Commerce: for the brands that are most suited to the modern retail economy, media and commerce operations combine to optimize for audience and conversion. This is the efficient path for sustained growth, retention, and profitability.

Screen-Shot-2019-04-22-at-1.01.30-PM (4)
Food52 is a ‘Version 4’ retailer. Most DTC brands maintain a ‘Version 1’ structure.

Each of these publishers attracts a niche, passionate audience. Their audiences fuel several revenue operations: affiliate marketing, display advertising, native advertising, and DTC retail. Commerce is prioritized and traditional advertising is minimized.

The deal does fit in with the direction The Chernin Group has been headed: The company, which once had plans to put together a very big internet conglomerate after acquiring an big anchor like Hulu, has instead been buying and building a stable of internet companies aimed at distinct audiences, all of which rely on revenue streams beyond internet advertising. [2]

In early September, 25 operators spanning digital media, traditional media, and commerce were seated in a Manhattan dining room. Of them were the founders of Food52, Amanda Hesser and Merrill Stubbs. The venture firm and host of the evening’s festivities let the cat out of the bag. In a surprise announcement, The Chernin Group mentioned that they were set on acquiring a majority of Food52. The room applauded the founders. It was a rare exit in an industry that has struggled to gain its footing.

TCG owns a controlling stake in MeatEater Inc., a digital media company aimed at hunters, fishermen and home cooks, and has also invested in Action Network, a sports-betting analytics startup. [3]

The attendees brushed the impromptu announcement aside and allowed the natural public relations cycle run its course. And that it did. Yesterday, a number of outlets reported the sale. Here are the numbers:

  • $83 million acquisition of the majority of the company
  • A valuation of $100 million
  • $13 million raised over four equity rounds
  • A reported 2018 revenue of $30 million (not profitable)
  • Traffic: 7 million monthly active uniques
  • Paid traffic: less than 2.5% of overall volume
Mike Kerns, President

A Fund 1 investment by Lerer Hippeau, the Food52 acquisition was a positive outcome for investors and founders alike. It’s also a glimpse into the methods that more digital-first companies employ to improve their exit optionality. Those methods? Building brand equity, fostering community, and owning their audience. In a 2PM conversation, Mike Kerns, President of The Chernin Group, stated:

We love to invest in entrepreneurs who are building enduring brands that have engaged audiences. Food52 has built a growing commerce business with very little marketing spend. Their marketing is building their enterprise value and defensibility which is the investment in to their content and community.

Kerns continues:

For TCG we like businesses that can build businesses with their audience established versus trying to purchase the audience from someone else.

In Kerns short statement lies a bit of truth that many in the DTC space fail to recognize. The stronger the organic audience, the higher the premium on a company’s valuation. All revenue is not equal. If a retailer can earn a sale without buying an audience each time, this becomes attractive to potential investors. So why the resistance towards this approach? In short, it isn’t easy to do.

The most viable companies across the digital ecosystem will share a common trait: established, organic audiences. Content and community are core to that outcome. For the well-executed linear commerce brands, retention rates will be high and CAC will be low. The road map is there for the brands looking for a sustainable advantage and improved optionality. Perhaps, the public and private markets will reward more of them.

Read the No. 333 curation here.

Report by Web Smith | About 2PM


No. 298: Retention is the new currency

Contributor. The much mused about sharing economy jump started by disruptors like AirBnB, Rent The Runway, Netflix and Uber is running past its adolescence. In 2019, both Uber and its rival Lyft expect to go public.

According to Fortune, Uber alone could be valued at as much as $120 billion, higher than the valuations of Ford, General Motors and Fiat Chrysler combined.

It’s also close to double Uber’s valuation at a fundraising round two months ago and would be the biggest debut since Alibaba went public in 2014.

AirBnB, too, is expected to file as early as 2019, bringing some of the biggest disruptors of the last decade to Wall Street. But their impact has already been felt beyond their Silicon Valley offices.

The sharing economy has given rise to the subscription economy:

  • An economy preferred by investors for it’s stability.
  • An economy loved by consumers for its accessibility.
  • An economy coveted by entrepreneurs for it’s long-term customer relationships.
2PM, Inc. contributor: Tracey Wallace

The rise is thanks to the ubiquity of internet access and smartphones in the U.S. across nearly all segments. “Customers, the ultimate endpoint of any business, are today just as connected as the employees of any large enterprise,” writes Ben Thompson on The Stratchery.

This gives consumers and businesses alike endless access to on-going services that don’t function like gym-memberships of old. Instead, modern subscription models are gym-like in execution and participation.

  • They are based on service, not product: The product is the means not the ends.
  • They build convenient communities of like-minded individuals with end-goals in mind: Think Shopify users want to be seen as successful entrepreneurs. Spotify users want to be seen as having the best playlists and musical tastes.
  • They rinse and repeat the experience: The service begets the product, the product begets the goal, the goal begets the service.

Retention is the new currency

Costco – perhaps the longest standing subscription business around – has perfected the model. Amazon evolved it online with Amazon Prime. Giants like Apple and Google are touting their subscription services as differentiators for their products.

  • Google is offering six month free YouTube Premium subscription for all Google Home devices (and varying YouTube Premium subscription access for nearly all Google devices).
  • Apple is packaging their streaming music service and phone care services into single packages –– selling you a full suite of services that beget a product.

The success of the model is clear. You need only look at Dollar Shave Club on the consumer side to see the impact on the industry (or look at newer DNVBs like Quip following similar paths). Or, on the B2B side, look at the stock prices of Adobe (up 770% since 2012), Microsoft (up 320%) or Autodesk (up 360%), which have shifted to offer internet cloud-based software for a monthly or annual fee.

Indeed,  many DNVBs are putting their own spin on the subscription model business. In retail alone, there are more than 5,000 brands offering clothing, cosmetic or the like “subscription boxes” each month.

“It is totally faddish right now,” says Robbie Kellman Baxter, a consultant with Peninsula Strategies and author of The Membership Economy. “Most of them are going to fail. How many ties does dad need?”

But in technology, the rent-rather-than-own trend is holding stronger. In health care, too, it is growing in popularity with brands like SmileDirectClub and MDVIP, a direct primary care service, gaining more and more subscribers.

In media is where we will see the most pronounced shifts. After all, subscriptions are the easiest way around an unforgiving advertising world inhabited by Google and Facebook’s duopoly.

That duopoly began hitting media brands as early as 2015, when many considered the “gold standard” of online content to be free and commoditized. Many digital media brands have yet to recover from this mistake.

According to CNBC:

Vice Media has been the gold standard, earning a valuation of $5.7 billion in June 2017. Earlier this month, Disney wrote down some of its investment in Vice by 40 percent, suggesting a declining overall valuation.

Buzzfeed has built itself into a company that tops $1 billion in value. Still, Buzzfeed missed its 2017 revenue forecast by up to 20 percent, the Wall Street Journal reported last year, pushing back hopes of an initial public offering indefinitely. Vox Media, the owner of sites including SBNation, Eater and The Verge, also missed internal revenue forecasts and is not planning to go public any time soon, said people familiar with the matter, who asked not to be named because the company’s financials are private.

Separately, media companies including The New York Times, The Wall Street Journal, The Washington Post, New York Magazine, Quartz, Bloomberg, Business Insider, Vanity Fair and Wired have all returned back to media’s subscription business model roots by completely paywalling, introduced paywalls or hardening their paywalls beginning in 2018.

We’re living in an environment where Facebook, Google, and Amazon are sucking up so much of the advertising revenue,” says Sterling Auty, software analyst at J.P. Morgan. “Subscriptions and ecommerce are an antidote to that.”

These media companies are looking to lower their reliance on Facebook and Google algorithms and return to their service roots through subscription payments –– adding yet another monthly subscription to consumers’ bank accounts.

On paid subscription tolerance

According to eMarketer, 71% of U.S. consumers with internet access subscribe to at least one streaming video service. However, the number for all other verticals drop dramatically beyond video.

This leaves ample room for other verticals to grow their subscription services, especially as consumers become more accustomed to the model and testing out various offerings. Paid subscriptions through Apple’s App Store reached over 330 million last quarter. That’s up 50% year over year and includes both Apple and third-party services like Netflix.

Consumers are downloading. They are trying. They are testing. And there will be winners. Some analysts like Eddie Yoon, a consultant and author of the book Superconsumers, see the subscription economy as a 20-year trend –– just now beginning to hit its growth stage.

But there are caveats:

“All brands will try to offer subscriptions, but only a few will take,” he added. “Consumers will push back if they feel overwhelmed with subscription services,” Yoon says. “People won’t tolerate a world where everything is subscriptionized,” he said. “For the things that you really care about, you’ll definitely subscribe.”

The experience economy edges in

This is where the experience economy matters most. Subscription business models create desirable P&Ls, forecasting models and enable brands to act in the best interest of their most dedicated subscribers (rather than advertisers), but fail to provide the experience and you’ll lose your list and your recurring revenue.

Ben Thompson from The Stratechery pulled out this quote from Bill McDermott, the CEO of SAP, on this challenge on an investor call:

There are millions of complaints every day about disappointing customer experiences. This is called the experience gap. Businesses used to have time to sort this out, but in today’s unforgiving world, the damage is immediate, disruption is imminent. This has shifted the challenge from a running a business to guaranteeing great experiences for every single person.

It’s best here to remember that subscription and membership are separate things. Membership provides experience and community. Subscription just gets you access to something behind a gate.

Take a look at Peloton, for example. The company has long argued that it’s bike ($2,000) and subscription program ($39 monthly) are a bargain compared to regularly attended SoulCycle classes. And SoulCycle is hard to beat. Similar to fitness organizations like CrossFit, Inc., it has a hardened fanbase and community.

But where Peloton succeeds is its content –– the ability to stream classes on your bike, forgoing a trip to a physical class. All for substantially lower costs than regular in-person classes anyway. Peloton reports its churn at less than 1%.

You have to do delightful things and leave money on the table,” says Peloton CEO and co-founder John Foley.The monthly service is what you really buy. That was the flaw with the old models. It was just hardware.

Of course, not every company can be a Peloton. The subscription model itself does not lower the cost of doing business. It cannot, on its own, generate demand.

As subscriptions proliferate, investors need to dig deeper into the dynamics of their models,” says Aswath Damodaran, a finance professor and valuation specialist at New York University’s Stern School of Business.Many venture capitalists and public investors are pricing user-based companies on user count, with only a few seriously trying to distinguish between good, indifferent, and bad user-based models.

What’s next in the subscription era is a dwindling down to those brands, media packages, and services which can offer the experience worth paying for –– the service that begets the product, and the product that begets the consumer’s goal. A subscription model, alone, won’t be enough. Consumers will seek membership and the benefits that come with it: experience, community, and camaraderie. For the product companies, the software companies, and media companies that figure it out – the prize is recurring revenue and stability until the next preferred model comes along.  

Read the rest of your No. 298 curation here.

Additional reading. Member Brief: The Subscription Economy

By Tracey Wallace | Edited by Web Smith | About 2PM

Editor’s Note: Tracey serves as the Editor-in-Chief at BigCommerce and a public speaker. She is launching a DtC pillow brand, this spring. She is a paid contributor of 2PM, Inc.