Investing in startups is big business. Speaking with Digital Journal Michael Lagoni, founder and CEO, Stackline discussed what companies can gain when they avoid the temptation of low hanging fruit? He explains there are benefits to playing the long game when getting off the ground.
Digital Journal: What are the main challenges faced by start-ups?
Michael Lagoni: The challenges we face as start-up leaders tend to fall into three buckets: product, talent, and capital. If you find great early success with any two of those you can propel a start-up through its first two years, but to have any kind of longevity, you need to be secure in all three.
Developing a successful product starts with the hunt for latent demand. Gather evidence that your idea addresses a customer need, nurture its differentiated strengths, and anticipate the preferences of customers. (Easy, right?) We are fortunate at Stackline to be on the vanguard of some of the most important cross-industry trends of our time; the value of the e-commerce channel for brands and manufacturers has been surging, and we found product-market fit early by building expertise and a best-in-class data engine at the center of digital advertising and e-commerce sales.
But that initial product-market fit is only part of the success equation. To scale, you need the right talent, at the right moments, in the right roles. That’s why successful founders often spend a disproportionate amount of their time involved in the hiring process. They’re uniquely positioned to define the complementary skill sets and personalities the team will need in order to execute through the next phase of growth.
Financing is the third major challenge, and the pressure is as acute at a seed stage when an entrepreneur needs to prototype a first product as it is four years in, when the CEO needs to 3x headcount. In a VC-flush startup environment, it can be tempting to plunge into product development and hiring without much foresight about how ideas will move from whiteboard to sustainable line of business. But I think some reverence for sound business fundamentals is healthy. Having a path to profitability from day one can give you a lot more freedom to make the decisions that are right for the long-term health of the business.
DJ: What are the advantages and disadvantages of start-ups seeking investment funding early?
Lagoni: As bootstrappers ourselves, we see a lot of upside in standing up revenue streams early and giving your business the ability to fund its own growth. We’ve structured Stackline conscientiously to be self-supporting because we want to prioritize a return for our employees and our clients and own the decisions that move our business forward. But not every business has the opportunity to provide the equivalent of its own seed round from a revenue stream built on human capital, and we also recognize there are advantages that come with raising capital from outside.
When you’re backed by angel investors or VCs, you tend to get access to networks of experts who have ‘seen it, done it, and overcome it’ before. They can help navigate business decisions with the right resources and insight at pivotal moments. VCs also tend to bring their own PR clout, helping startups get attention for product, talent, and financing wins. The trade-off of course is autonomy. More cooks in the kitchen can be productive if everyone’s perfectly in-sync, preparing complementary courses for a well-planned meal. But more cooks can also live up to the idiom and create confusion or alter the founder’s recipe too soon.
DJ: Similarly, what are the pros and cons for a startup entering into partnership with an established company?
Lagoni: Entering a partnership with an established business can be a fast way to shore up hard-to-solve operational shortcomings and increase velocity, but it introduces complexity that has to be actively anticipated and managed. Partnerships, like financing opportunities, turn on the question of how to balance autonomy and competitive advantage.
Which part of your business do you need to accelerate? How can partnership affect that acceleration? Are you clear on the value both parties bring to the relationship and the red lines that should govern how you organize shared resources or resource exchange? Do you have a contingency plan if the partnership creates more problems than it solves?
If the answers are clear in your mind, business upside is high and risk is within your realm of tolerance, partnership can put you in a speed boat when your competitors are still hoisting sails.
DJ: Which alternative models can start-ups follow?
Lagoni: Ideally, the business model develops concurrently with the product, and both should be shaped according to an analysis of (or virtuosic intuition about) the size and price sensitivity of the addressable market, the strengths and weakness of competitors, projected short-term operating costs, and efficient go-to-market opportunities. Successful startups assimilate the findings to formulate an approach that answers the core questions of business (preferably in clear layman’s terms): What will I offer that’s unique? Who is my customer? How will they value my product? How will I generate and fulfill their demand? How much will it cost me to deliver?
DJ: Why did you start Stackline?
Lagoni: Working for Amazon several years ago, I saw how e-commerce would continue to grow and transform retail and marketing landscapes across the globe. At the time, the industry was supported by a long-tail of small, singularly-focused software and service providers, and that created a challenging environment for brands. I watched them scramble to assemble and manage portfolios of agencies, each one offering a different angle on the truth. My belief was that if a single company could consolidate all of the data, software tools, and services on one platform, clients could operate far more effectively.
From that founding idea, Stackline has emerged as a leading retail technology company helping more than 500 of the world’s largest brands and retailers grow their e-commerce businesses. We collect and analyze all sales, advertising, and marketing metrics to give clients unmatched visibility into their online retail channel. Our teams of experts then use that body of insight to build and execute tailored strategies that accelerate our clients’ growth.
DJ: What is your business model?
Lagoni: We built our business on the unique combination of enterprise software and premium managed services, which work hand-in-hand to simplify and accelerate our clients’ path to e-commerce success. When I started the business four years ago, our first clients were services-only. I took on holistic management of their e-commerce channel, running everything from merchandising and inventory planning to content and SEO. Starting the business on the basis of broad subject matter expertise actually allowed us to fund the development of the software, which now lightens the manual and cognitive load by visualizing data, automating execution, and analyzing marketing performance across the world’s major e-retail platforms.
DJ: What are your plans for scaling-up?
Lagoni: We’re on our way to building the largest multi-platform database for e-commerce analytics in the world, and we’re focused this year on expanding to new geographies, launching new data-driven tools, onboarding new retailers, and doubling our headcount.
DJ: Do you have any general advice for someone considering launching a startup?
Lagoni: Treat every customer as if they were your only customer. That mindset will help you deliver the highest level of service and give you access to the feedback you need to refine the early versions of your offering.