Ecommerce Growth Benchmarks

A discussion about ecommerce business growth patterns and the realities of running an ecommerce business, particularly focusing on revenue benchmarks and operational challenges.

Revenue Growth Pattern

• First Year: $7M revenue
• Second Year: $21M revenue
• Third Year: $41M revenue
• This pattern became a mental benchmark for other entrepreneurs

Current Ecommerce Headwinds

• Facebook advertising getting more expensive
• Shipping costs increasing globally
• Shipping speeds slowing down
• Inflation affecting product costs
• Highly competitive market

Operational Realities

• Revenue numbers don't reflect actual profits
• Most profits get reinvested into inventory
• Businesses remain cash poor until reaching a certain scale
• Requires physical infrastructure (warehouses)
• Small team can run large revenue ($7M+ with 4-5 people)

Investment Perspective

• "Great to own, horrible to invest in"
• Limited upside compared to software companies
• Typical valuations: 2-4x revenue
• Rarely reach billion-dollar exits
• Best cases (like Native) succeed through capital efficiency ($100M exit on $2M raised)

Cash Flow Challenges

• Constant reinvestment needed for inventory
• Must buy inventory 4 months ahead
• Marketing costs need to be paid upfront
• Remains cash poor until reaching significant scale
• Similar to real estate in being asset-rich but cash-poor

Recommendations

• Choose software over ecommerce if possible
• Only pursue if willing to handle "real work"
• Requires comfort with being cash poor initially
• Need operational expertise for physical products
• Better suited for operators than investors