- E-Commerce Times
It’s Heyday for the Best SMB Brands in the Amazon Marketplace
Business on Amazon is booming for accelerator and aggregator organizations that drive product and seller buyouts.
Doing business on Amazon is now very streamlined. Imagine building a business doing $10 million of revenue with no employees, physical store, or real estate. Some of the biggest success stories involve entrepreneurs with an idea for a product or a brand who instead of selling through their own website, or trying to sell into retail stores, sell their products exclusively through Amazon.
This phenomenon of selling on Amazon for many sellers was little more than a side hustle. But as supplementary income soared, it created an opportunity for Amazon retailers to make $5,000 or more monthly in supplemental income while working only 10 hours a week, according to Chas Woodward, head of business development at Heyday.
Ultimately, some sellers quit their full-time jobs and expanded their e-commerce businesses. Others discovered they lacked the necessary skillsets to run a potentially scalable business and looked for other options, offered Woodward, whose company works with digital marketplace sellers to grow or buy their operations.
Companies like Heyday play in a highly competitive field of aggregators and accelerators. The exact label depends on whether they develop networks of partnering online retailers or acquire the brand entirely. One of their main functions is to build equity. In general, such firms buy very profitable, fast-growing businesses.
“There is a ton of value in those businesses on Amazon. Traditional direct-to-consumer (DTC) websites might be two to three times as expensive to buy as the equivalent on Amazon,” Woodward told the E-Commerce Times.
Accelerator vs. Aggregator
Both accelerator and aggregator services greatly impact the broader Amazon economy. Though for entrepreneurs looking to sell their Amazon FBA business, it can be difficult to differentiate between the recent surge of companies entering the FBA aggregator business.
On the surface, aggregate companies become what amounts to sub-stores within the marketplace. Accelerator companies, on the other hand, enable manufacturers to launch brands and innovative products exclusively on Amazon. Often, the goal is for the manufacturer to become an Amazon Private Label supplier.
Some SMBs use Amazon’s FBA (Fulfillment by Amazon) service to engage with e-commerce by sending their products to Amazon’s fulfillment centers where Amazon provides warehouse storage, packing, and shipping operations — along with handling returns and exchanges — to sellers lacking a fully staffed infrastructure of their own.
This allows SMB sellers to retain their business ownership without having to deal with fulfillment and billing issues. If successful, at a certain point some SMBs opt to let aggregators take over their business by purchasing it. Depending on the terms of the sale, some aggregators offer a one-time buyout and others oversee the company’s continued operation as controlling partners.
But unlike what accelerators do for manufacturers and some prospering SMBs, the goal of an aggregator is often to buy out the seller for the lowest possible price and add the acquisition to a growing stable of brands, noted Woodward.
Hybrid Model Instead
Heyday takes a different approach. This startup seeks to buy, incubate, and grow third-party sellers. The company in essence blends the best of both worlds.
“We don’t think of ourselves as an aggregator. We think of ourselves as an accelerator,” Woodward clarified.
The reason for that is his company’s aggressive business plan that tries to buy immediately if possible. Heyday’s strategy is to be extremely selective of finding what are the breakout brand businesses that have launched on Amazon but have the potential to be helpful in growing Heyday’s brand, he explained.
In general, an aggregator or competitor will buy a seller’s business. The seller goes away to do something else. Or the aggregator will acquire the company and pay the seller to run it. Those two options are mutually exclusive.
“We do both. We take a very different view on what we want to acquire based on brands that have proved their concept a little bit more. They have some sort of very different nuances to them,” offered Woodward.
Heyday looks a lot like an aggregator because of the companies it buys. But Heyday tries to accelerate its operation as opposed to aggregate it into an umbrella brand, he added.
The company does more than acquire brands. Its partnership model enables entrepreneurs to grow their businesses inside of Heyday and share in its equity.
This approach gives brands an edge by architecting supply chains to be agile and work with Fulfillment by Amazon, as well as investing in data capabilities.
Heyday brings to the table something that many small and developing sellers lack — access to financial support. The company recently closed a $70 million Series B round of equity financing to fuel its expansion.
Its total funding thus far is $245 million. That is impressive for a company that only launched in August 2020 and emerged from stealth three months later.
Heyday’s key premise is the next generation of great consumer brands will be built marketplace first. So along with acquiring leading e-commerce brands, Heyday’s strategy centers on brand creation and incubation with a marketplace-first mindset.
Heyday wants to buy, build, and accelerate only the best brands. The company’s method revolves around building long lasting relationships with the entrepreneurs. This helps Heyday create value from accelerating the growth of their business.
In return, the company wants to share that benefit. Currently, entrepreneur partners make up the third-largest equity holders. Heyday intends for entrepreneur partners to become the largest segment.
Amazon is a platform for two types of sellers.
First-party retailers sell established brands directly as the manufacturer. For instance, go on Amazon and type in Bounty paper towel. Odds are you are buying that product as a first-party sale. Manufacturers sell their products to Amazon at wholesale prices. Amazon buys that inventory, sticks it in a warehouse, and charges a markup price to consumers, explained Woodward.
Third-party retailers do not sell to Amazon at wholesale. These sellers control their product handling, pricing, and fulfillment directly. Amazon charges the third-party sellers listing and other transactional fees for any product handling or supply storage. If third-party sellers enroll in Amazon’s FBA program, they pay Amazon to store and automate their inventory as well as provide order fulfillment and shipping services.
“So when you think about control of product and pricing, Heyday is focused on third-party sellers because we want control. We want to own all that goes in place,” said Woodward.
Meeting a Vision
Not every Amazon seller wants to give up his or her dream and sell out to Heyday or to aggregators. Nor does Heyday have an interest in buying up every available business for sale.
Often an Amazon seller comes to Heyday ready to deal. Conversations often reflect these sentiments: It’s been five years. I want to exit the business and move on to something different.
“That is totally fine. We also prefer entrepreneurs who say they built their brand, and it has so much more potential,” said Woodward.
These entrepreneurs have a vision of where they want to take it. But they do not have the capabilities or the resources to get there. They need a partner with additional capital, resources, and expertise. They no longer can get there on their own.
They want to stay on after the purchase to realize their vision and execute against what he thinks is a real opportunity in most scenarios.
“Generally, we will do both if we want to do whatever is best for the brand. Obviously, we have an arrow for the door in between,” he continued. “We will probably not be super thrilled about that process.”
In some scenarios, potential business owners are so talented, and the business has such potential, that if they do not want the stay on board, the business becomes less attractive. Heyday believes that no one knows the business better than the entrepreneur who started it.
In those cases, Heyday considers bringing resources and capabilities to the table to help turbocharge the growth. The company does not rely on just one solution — take it or leave it. Woodward wants to be flexible to win the best brands.
Source: E-commerce Times