What is OpenStore? How Keith Rabois is Acquiring Shopify Brands
Oct 3, 2023
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Keith Rabois, Co-founder and CEO of OpenStore, discusses the problems in ecommerce, why Instagram Shopping and Wish failed, contribution margin in startups, and what he looks for in founders. He also shares his thoughts on AI startups, his favorite interview questions, and the reasons behind moving to Miami.
OpenStore aims to create a destination app on every consumer's phone, providing a decentralized department store experience for impulse and unplanned purchases.
OpenStore's acquisition strategy allows them to gain insights into brands' operating history, optimize pricing and targeting, and provide brand owners an off-ramp to pursue other ventures while still benefiting economically.
OpenStore focuses on achieving exceptional contribution margins by optimizing costs, scaling the business, and cross-promoting products to showcase long-term viability and profitability.
Deep dives
The Goal of OpenStore: Serendipitous Product Discovery
OpenStore aims to create a destination app on every consumer's phone, allowing users to discover products that inspire and satisfy them without the need to physically go to a retail store. The key problem in e-commerce is the lack of a platform that enables people to discover and buy products they didn't know they needed. While traditional e-commerce platforms are efficient for intentional purchases, OpenStore focuses on capturing the market of impulse and unplanned purchases that make up a significant portion of sales in physical stores. By curating a wide range of unique brands and products, OpenStore aims to be a decentralized department store that provides consumers with a personalized and inspiring shopping experience.
The Benefits of Acquiring Brands
OpenStore's strategy involves the acquisition of Shopify brands that have reached annual sales between $1 million and $10 million. By acquiring existing brands rather than launching new ones, OpenStore gains insights into the brands' operating history and market potential. This enables them to understand the optimal pricing, payback periods, and target demographics for each product. Acquiring brands also allows OpenStore to have more control over product mix and marketing strategies, leading to more efficient targeting and higher contribution percentages. Furthermore, acquiring brands provides an off-ramp for brand owners who want to pursue other ventures or retire, while still reaping the economic benefits of their businesses.
The Drive Program: Passive Income for Brand Owners
OpenStore offers the Drive program as an alternative to outright brand acquisition. With Drive, brand owners can maintain ownership of their businesses while OpenStore guarantees their cash flow and provides passive income. OpenStore projects the brand's future performance based on historical data and offers brand owners a guaranteed cash flow for the next year. This allows brand owners to focus on other aspects of their lives or pursue new ventures without the stress of managing their businesses. The Drive program ensures a win-win scenario, as brand owners enjoy a reliable income stream while OpenStore gains access to a diverse range of brands to enhance its product offering.
Driving Unprecedented Contribution Margins
OpenStore's key focus is on achieving exceptional contribution margins that outperform the industry standards. By continuously optimizing costs, scaling the business, and cross-promoting products, OpenStore aims to achieve contribution percentages that far surpass typical DTC (Direct-to-Consumer) brands. They seek to demonstrate that their model can generate sustainable and attractive margins that will earn them a higher valuation by showcasing exceptional unit economics. OpenStore's revenue and growth rate are less critical at this stage compared to the increase in contribution margins, which serve as a testament to the company's long-term viability and profitability.
Simplifying Contribution Margin Calculations
Calculating contribution margin can be complicated, especially for companies with dual-sided marketplaces like DoorDash. Figuring out how to account for expenses related to drivers, consumer acquisitions, and restaurant partnerships can be challenging. However, for most businesses, obsessing over the details of complex contribution margin calculations is unnecessary. Unless operating in a dual-sided marketplace, it is sufficient to understand the general methodology used by successful companies like DoorDash when calculating contribution margin.
The Appeal of Miami as a Startup Hub
Miami has become an attractive location for startups due to several factors. Firstly, it offers an international airport, making travel convenient for entrepreneurs and investors. Secondly, the city's warm weather and cosmopolitan environment make it an appealing place to live and work. Additionally, Miami's reasonable tax rates and a culture that celebrates success contribute to its thriving startup ecosystem. As a result, companies founded in Miami have shown strong performance, and a growing corridor between Miami and New York City is emerging where startups have offices in both cities.
Keith is the Co-founder and CEO of OpenStore, a portfolio of brands building its own shopping destination. Before starting OpenStore, Keith was an early executive at companies like PayPal, eBay, LinkedIn, and Square, a co-founder of OpenDoor, and an early investor in companies like DoorDash, Faire, Affirm, Webflow, Ramp, and Stripe, and is also currently a General Partner at Founders Fund
Keith started the company in 2021 with co-founders Jack Abraham, Matt Lanter, and Jeremy Wood, and has since raised over $150 million supported by investors like Atomic, Founders Fund, General Catalyst, Khosla Ventures, Lux Capital, and Vine Ventures.
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In this episode, we discuss:
• The 3-minute conversation that started OpenStore
• All the problems that still exist in ecommerce
• Why Instagram Shopping failed
• What Keith and team are building at OpenStore
• Why Wish failed
• The margin profile of most consumer brands
• A crash course on contribution margin and profitability for startup founders
• How OpenStore gets 3x higher contribution margin than other consumer brands
• As a VC, the one thing Keith looks for in the founders he backs
• A framework for founders and investors to consider when incubating companies
• Why Keith thinks no great SF-based startups has been founded since March of 2020
• The reasons he moved to Miami
• Why he’s bearish on most AI startups
• His favorite interview questions for candidates
Referenced:
• Email Keith - keith@foundersfund.com
Where to find Keith:
• Twitter: https://twitter.com/rabois
• LinkedIn: https://www.linkedin.com/in/keith
Where to find Turner:
• Newsletter: https://www.thespl.it
• Twitter: https://twitter.com/TurnerNovak
Production and distribution by: https://www.supermix.io
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