No. 326: Lyrical Lemonade Empire

To understand the future, listen to the kids. In this case, I am recalling a short conversation between my oldest daughter Alexis and I in the spring of 2018. Dad, have you watched the Lucid Dreams video? Oh my gosh. In May of 2018, I was sitting in a conference room with a packed whiteboard of ideas and the math to justify them. In that room, I was laying out another idea to partner with an indie music festival ownership group. Independent music operations yield tremendous power to influence the cultural zeitgeist. Monetizing it is as simple as meeting supply with demand. But rarely do you find the operation with true, organic demand. For this exercise, the math held up. However, I ended up scrapping the idea of brokering a deal between the two groups.

As is most in edgy music scenes like hip hop or EDM, pairing the right product with a primed audience would require a risk tolerance and the willingness to go all-in on the partnership. And just a few weeks prior, the first attempt had fallen short of expectations. I’d spent several days assessing what could have been done differently. I came to the conclusion that it wasn’t worth the trouble.

Hip hop culture is not for the meek, the safe, or the politically timid. But for a merchandising company, it could be lightning in the bottle if executed appropriately. In the Midwest, there are fewer greater examples of lightning in a bottle than Ohio’s Prime Social Group (PSG), the ownership group behind The Number Fest and other top festivals. For a time, there was no festival that was more skilled at identifying talent that was primed to go mainstream. By the time the festival’s weekend came about – each year – the once-obscure talent would be a household name. The business model was brilliant. And it’s one that an even younger entrepreneur would perfect.

Dominic Petrozzi is the founder of The Number Fest and, now, a partner at Prime Social Group. I’ve been such a fan of what his partners have built and I recognized the linear commerce opportunity. This led me to introduce them to The Chernin Group‘s investment group. Their portfolio includes: Barstool Sports, The Athletic, and The Action Network. Though they focus on traditional “indie” media, it was clear that the same type of model could work well in the festival business. In an email between the two companies’ principals, I concluded with:

I have watched [Prime Social Group] grow into something special in the entertainment space, here in Columbus and abroad. I know that PSG is (currently) outside of The Chernin Group’s investment thesis but I believe this to be a worthwhile conversation between the two of you.

When I mentioned the research for this brief, Petrozzi provided industry insight on a young, hungry media company that was primed for the mainstream. It was the same media group that I scribbled on a Pittsburgh whiteboard in May of 2018. Just a few days prior to that whiteboard session, my oldest daughter suggested that there was something special happening in Chicago music. An avid consumer of Youtube, she knew all about Lyrical Lemonade and its college-aged founder. She loved the music but she really admired the company’s unique approach to visual production.

The fledgling media company was more impressive than I originally believed. Here’s PSG’s Petrozzi on Lyrical Lemonade’s growth:

Turning down $30 million for essentially an urban / hip hop-centric media company is insanely awesome to me. I think that’s the future in and around the live event space. The revenue generated by content will eventually outweigh all other revenue streams in festivals.

He finished his thoughts with a provocative comparison:

I’m all for the prosperity of the industry. Chicago is a market we’ll never see. I think what [Cole Bennett] is doing is similar to Barstool Sports’ strategy. But cool, indie, hypebeast-based fans instead of pseudo-bro, Portnoy sheep.

What Petrozzi was describing was linear commerce as applied to his industry. And, as far as independent promotions are concerned, there may be no greater example than Cole Bennett’s booming operation.

Linear Commerce and Lyrical Lemonade

Cole Bennett on Twitter

my 2018 music video reel. enjoy.

A recent profile in Complex Magazine tells the story of a coming-of-age videographer and media entrepreneur: a suburban kid thriving in an urban environment. The 23 year old videographer and founder of Lyrical Lemonade shares a surname with one of the two most visible hip hop artists in his state – Chance Bennett – known to the masses as “Chance The Rapper. But that’s where the comparison ends.

In its early stages, Bennett’s YouTube channel was dedicated to Chicago show recaps, local cyphers, and documentaries about the city’s hip-hop scene. Then, in 2016 and 2017, he began working with artists like Famous Dex, Lil Pump, and Ski Mask the Slump God, and soon became the go-to video director for an entire subgenre that was exploding from SoundCloud pages into the mainstream.

For Cole Bennett and the six year old Lyrical Lemonade, the DePaul University dropout is writing the playbook that the more-established leaders in the space wish that they could duplicate. From a 2017 article by the Chicago Reader:

Videographer and manager Cole Bennett launched Lyrical Lemonade as a senior at Plano High School, an hour southwest of Chicago. For more than a year now, his splashy, colorful aesthetic has been attracting rappers from farther and farther afield—at this point, about half the people who pay him to make music videos are from somewhere besides Chicago.

The musical talent is Chicago-based but the center of the state’s burgeoning hip hop scene may be a town of less than 10,800. That’s the home of Bennett and his family. The indie music blog launched in 2013 from the small town of Plano, Illinois – an hour and twenty minutes southwest of Chicago. Here is a quick rundown of the media company’s digital assets, today:

Lyrical Lemonade is a linear commerce engine, a platform that could achieve an organic 7-8 figures in annual sales with organic traffic – alone. Petrozzi’s comparison to Barstool was prescient; a quick scrape of Barstool’s eCommerce data shows a 2019 headed for north of $10 million in annual sales – a small but significant enough portion of a business that is heavily-dependent on podcast revenue. It appears that Bennett and his management partners are similarly positioned to take full advantage of its tremendous flywheel of content, promotion, and sincere fandom.

In 2PM’s No. 314, we discuss our Law of Linear Commerce:

The digital economy rewards the companies that work along the line that partitions digital media and traditional eCommerce. A great product needs an organic and impassioned audience. Captive audiences will need products and services tailored to their tastes. Linear commerce is the understanding that digital media and online retail will eventually meet at the center – along the line – the most efficient path for growth.

Source: Twitter

In the last 60 days, Lyrical Lemonade has migrated from Big Cartel to Shopify, a shift that signals added sophistication to their growing operation. Former employee of independent merchandising agency Haight Brand, Elliot Montanez also maintains the pace of the Bennett’s editorial calendar. According to LinkedIn, Montanez left Haight Brand in 2018 to focus on Lyrical Lemonade’s latest plans.

This includes this week’s CPG launch, the company’s four-pack of canned lemonade. This is the first product that Lyrical Lemonade will offer, in addition to the traditional apparel-based products.  The product is an obvious nod to the company’s brand. But the drink also serves as a tongue-in-cheek reference to the illicit party habits that are common within the gritty hip hop circles associated with Bennett and his team.

What separates Lyrical Lemonade from other promotions and media companies is its access. By cultivating talent at its earliest stages and promoting them in the ways that are often-limited to mainstream acts, Lemonade has developed a 360 degree promotional pipeline. In this way, the company’s reach extends beyond its digital numbers. The musical acts that are now mainstream owe at least some of their success to Bennett, this translates to continued digital and commerce-related growth.

In talking to Dominic Petrozzi, a veteran in Bennett’s industry, the executive spoke highly of the entrepreneur’s prospects. He clearly understand what it takes. The Summer Smash Festival is a marquee event for Lyrical Lemonade; it’s likely the first of many real world opportunities for Bennett and team to authentically reach customers. Petrozzi recognized some of the overlap between his business and Bennett’s but was gracious in his assessment:

Cole is smashing. Summer Smash will be a staple in the festival world in the next two years.

Lyrical Lemonade has sold more than 15,500 units since their recent site re-launch. With an aggregate audience nearly 20 million strong and a retail business capable of high seven figures in 2019 and 2020, there’s a clear trajectory. Bennett – who calls himself a “standard student”, may prove brilliant to turn down the reported $30 million acquisition offer. There will surely be more of them. From TikTok’s upcoming phone to three million dollar purses for Fortnite tournament victories, Generation Z’s influence on the market is creating unique outcomes. To understand the future, listen to the kids.

Read the No. 326 curation here.

Research and Report by Web Smith | About 2PM

Member Insights: Full Stack Retail

Sign In

Two key developments, from over the past few months, shaped this week’s announcements at Toronto’s Shopify Unite 2019. BuzzFeed left Shopify to utilize fulfillment by Amazon (FBA). This was certainly a blow to Shopify; just months prior Shopify began working with BuzzFeed to drive demand to its many stores. But the most important of these developments? Adobe’s burgeoning partnership announcement with Amazon. In short, the Seattle-based eCommerce giant has become a threat to Shopify’s continued growth. And Magento (Acquired by Adobe), a platform that was impacted by Shopify’s growth, has long desired payback.

Read more by signing in. Not a member yet? Learn more here.

No. 321: Shopify Unite and Network Effects

In a recent conversation with the founder of the infamous digitally-native brand Wone [1], Kristin Hildebrand was opining on her recent struggles with her eCommerce cart. With a price point of $320 per pair of her leggings, dropped carts are a way of life for luxury products. But BigCommerce, her platform of choice, wouldn’t let her review dropped carts for outreach to potential customers.

When the issue was researched, 2PM received answers from nine separate eCommerce agencies. Each confirmed that dropped carts should be reviewable across any platform. The irony wasn’t lost on me. Nine separate agency executives responded publicly or privately to highlight a key differentiator between Shopify and BigCommerce. They were all Shopify Partners. In the month of May 2019, Shopify’s stock rose 12.9% after earnings reflected that the company beat analysts’ estimates. As of this post, the company’s stock has risen 907% over the last three years and 2019 has seen 120% growth, thus far. But is Shopify the most technically capable eCommerce SaaS? The vast majority of honest observers would contend that while other platforms are technically superior at the enterprise stage, Shopify owns pre-enterprise ($0 – $5,000,000 in annual sales).

If you were to sit in a room with BigCommerce or Adobe’s c-suite and explain that product differentiation can be more than a software iteration – you won’t be sitting there for long. And that is part of Shopify’s mounting advantage. It’s unclear whether or not the original intent of the Shopify Partner ecosystem was to be a catalyst for network effects. But that’s certainly the case. Founder Tobi Lutke, Harley Finkelstein, and team stumbled upon a new form of competitive advantage in commerce SaaS. Here, at the intersection of influence and efficacy, sociological advantages of retail brands have interfaced with an ecosystem of software as a service.

For enterprise-level customers, Austin-based BigCommerce’s platform has maintained tremendous technical advantages, as does Adobe’s Magento. But it seems to matter less and less, relative to Shopify’s continued momentum. Shopify’s network effects are unlike any in SaaS. We’ve seen Microsoft Windows exclude Netscape in favor of its own Internet Explorer. Some of us can vaguely remember when Instagram only serviced iOS users. For a time, Apple’s app store was its own network effects-driven moat. But Shopify’s defensibility is slightly different. It’s been bolstered by human resources and sociology.

BigCommerce and Handshake Announce Strategic Partnership to Deliver Joint SaaS Solution for B2B Ecommerce. (January 2018)

As with any tech platform that possesses network effects, platform improvements are a development cycle or acquisition away. In a recent report by Tech Crunch, Ingrid Lunden detailed the quiet acquisition of a company that – until recently – was a competitive advantage for the BigCommerce ecosystem.

This is big business: a recent report found that B2B e-commerce sales in the U.S. alone passed $1 trillion for the first time in 2018. As with consumer-focused sales, platforms like Handshake’s offer merchants the ability to handle these sales directly, rather than handing off the sales to third-party marketplaces, where the merchant also needs to pay a commission to the third party and need to play by its rules.

In a flash, Shopify acquired Handshake for a number that hovered around BigCommerce’s 2017 gross revenue. It’s been reported that this acquisition was such a surprise frustration for BigCommerce that their editor removed their partnership announcement from the press release page. And rightfully so. Handshake will enable Shopify Plus’ existing enterprise clients to grow their B2B business. And it will remind early-stage customers (and ones who’ve yet to be sold on Shopify’s services) that they are the end to end solution from launch to exit. The author of a recent essay on the network effects of Bird scooters, Lightspeed’s Jeremy Liew explains network effects in this context:

We’d all like to believe that innovators with the best product win. Sometimes that’s true. But in the consumer world, where your product is easily observable by your competitors, product innovation is a fleeting advantage.

Are you attending Shopify Unite?

Shopify in blue, Adobe’s Magento in yellow, BigCommerce in red.

Leading up to the annual event, this is the most frequent question that you’ll hear in the DTC ecosystem. When rumors of Shopify’s Handshake acquisition began to surface, it was all the chatter among Shopify’s impressive circuit of loyal agencies. Prior to the announcement, this buzz materialized online like a massive public relations coup. Both a sales channel and a PR platform of sorts, Shopify’s partner ecosystem deserves the credit for a considerable amount of Shopify’s explosive growth – of late. In a December 2018 report by Digiday, it was reported that Shopify’s agency ecosystem generated nearly $800 million in revenue.

This is in addition to the $1.1 billion in forecasted revenue for Shopify, Inc. By most measures, Shopify’s business is outpacing that of Magento’s and BigCommerce’s. With over 16,500 partners referring potential vendors, the growth makes sense. Shopify boasts agencies like Winnepeg’s Bold Commerce, a group that’s grown to 256 employees. And San Diego’s Brand Value Accelerator, an agency with 151 employees and growing.

Tobi Lütke on Twitter

@web @fivefifths 😂

For the most successful agencies in the space, it means big business. For Shopify, it means referred sales, an organic public relations arm, and a community of enthusiasts that operate – quite literally – as a defense mechanism. And there’s no bigger event than Shopify’s annual Unite. It’s a yearly capstone that should remind analysts that Shopify is effectively commoditizing technology, making human relationships the differentiator. It makes the platform’s advantages that much harder to duplicate. Shopify COO Harley Finkelstein made this clear at last year’s event:

The future of commerce needs to be owned by all of us — partners, merchants, service providers, tech enablers and shoppers. The masses, not the few. So we need you to join our movement.

In a sense, Shopify has grown by way of the technological advancements of its competitors. On occasion, the company builds and democratizes new technology for the different stages of its own customers: Basic Shopify, Shopify, Advanced Shopify, and Shopify Plus. Lightspeed’s Jeremy Liew concluded his essay with the following, “Unfortunately, the leaders in industries with strong network effects cannot be overcome through product innovation alone.”

The growth of the DTC era can be attributed to SaaS companies like Shopify, BigCommerce, Magento, and Demandware. But in an industry where innovations are finite development cycles away, community and brand equity has711 become the key differentiator. The city of Toronto is the home of the first, international NBA title and a certain, best-selling musician. But it’s also home to the annually sold out Shopify Unite – an industry-leading display of a SaaS company’s network effects. It’s unlikely that either of these mainstays will be duplicated any time soon.

Report by Web Smith | About 2PM

[1] a 2PM portfolio company