Well before Cyber Monday arrived, Carlos Cashman and Chris Bell were on Amazon spending sprees.
But rather than hunting for a PlayStation 5 or festive holiday vests, Cashman and Bell have been buying up companies that sell a range of utilitarian products on Amazon, shelling out $2 million here, $10 million there. They’ve bought companies that make hiking poles and silicone straws, milk frothers, and yoga apparel.
What they’re doing has attracted the attention of venture capital investors in a major way: Cashman’s company, Thrasio, and Bell’s company, Perch, have collectively raised about $650 million — and both of the Boston-area startups are less than three years old. (Thrasio’s most recent funding deal in July valued the company at $1 billion.)
Partly, it’s because Thrasio and Perch have discovered some of the dynamics that persuade you to purchase certain products over others. And partly, it’s because once they acquire the companies that sell these products through Amazon — often called third-party sellers — they have the expertise and technology to optimize things such as advertising, customer service, and shipping.
Thrasio is the older of the two companies, founded way back in 2018. The name comes from Thrasos, which in Greek mythology is the personified concept of boldness. “Worst name ever, right?” Cashman says. “But it makes people remember it.”
Cashman and his cofounder, Josh Silberstein — who previously worked separately on a string of marketing, media, and analytics startups ― had been looking at e-commerce sites, thinking they might raise some money to acquire a bunch and find some operating efficiencies. But most small e-commerce companies rely on different technologies to run their online stores, and different back-end providers to warehouse and ship their products to buyers. So instead, they started focusing on businesses that used Amazon for all that. All you had to do was understand the dynamics of one provider and how it worked, Cashman says.
The first business they bought, Café Casa, makes a handheld milk foamer that sells for $17.99. They’ve since added companies that make liquid pet deodorizer, weight belts for working out, and mini stationary bikes that can sit under a desk. “By the end of the year, we will have acquired 100 companies,” Silberstein says. “That’ll add up to about $500 million in revenue with $100 million in profit.”
But they’re not just buying products that they think are cool. Silberstein says there are five dynamics that separate an also-ran product from the product that you decide to buy. The title of the Amazon listing has to effectively describe what the product does. It needs to have a great photo and an appealing price. But the fourth and fifth factor are the number of reviews it has, and the average number of stars, he says.
When a product has four-star or better reviews, and several thousand of them, Silberstein says that creates “a review moat.” You’re more likely to buy those products because other people say they’re high-quality. And the products that sell well on Amazon get a more prominent ranking in Amazon’s search results. That creates “a virtuous circle,” Silberstein says, where “if you’re ranked #1, you’re selling more product, then getting more reviews, and that strengthens your position.”
Once Thrasio has acquired a company that sells its products through Amazon, it looks for ways to make it more efficient. Of its 600 employees, Silberstein says Thrasio has about 75 people who work just on marketing, and another 75 who focus on the supply chain. Sometimes, a product’s packaging can be redesigned so it fits in a smaller Amazon box — that saves money. Sometimes, it can be made by a different contract manufacturer in a different country to save a few bucks, Silberstein explains.
And sometimes, you can bundle in other products. Thrasio owns the Angry Orange brand of pet deodorizers. The company noticed that many people who buy pet deodorizers also use black lights to see where there may be stains on a carpet or couch. So they’ve designed a spray bottle with a mount that holds a black light, and will sell black lights with the pet deodorizer as a package deal. Silberstein says that Thrasio will release about 150 new products next year, largely to help expand the revenues of businesses it has already bought.
“The average company we’ve bought has seen its EBITDA grow 156 percent annually, after the acquisition,” Silberstein says, referring to earnings before interest, taxes, depreciation, and amortization. “When you can buy a business that is doing $2 million in revenue, and it’s doing $30 million two years later, it just works. That core thesis is at the heart of everything we are doing.”
Perch is the younger and smaller of the two companies. It has 20 employees, and was founded in October 2019 when Bell left Wayfair, the home furnishings merchant; Bell had overseen the company’s supply chain and delivery. Perch’s chief operating officer, Matt Montgomery, also came from Wayfair. And the company’s biggest investor, Boston-based Spark Capital, was among Wayfair’s biggest backers before that company went public.
“As an investor, it’s tricky,” says Alex Finkelstein of Spark. “There are not that many Wayfairs in the world” to put money into while they’re still growing fast and privately held. Backing Perch, he says, “is a way to be able to invest in a company that is going to benefit from the growth of e-commerce.” Finkelstein, who oversaw Spark’s investment in Wayfair, predicts that while many companies may try to buy up popular products on Amazon, as Thrasio and Perch are doing, perhaps two or three primary players will emerge “that get to major scale,” he says.
Cashman asserts that Thrasio is already one of the fastest-growing companies America — and it’s profitable. His cofounder Silberstein says that the company could emerge as the Procter & Gamble or Newell Brands of the e-commerce era. “If you look at the consumer products market 15 years ago, companies like Newell, Unilever, or P&G were powerful competitors with pretty material advantages,” he says. “You didn’t want to go up against them. They had brands like Tide, they could use national TV for marketing, and they had a stranglehold on retail.”
“If you fast-forward to today,” Silberstein continues, “what are those competitive advantages worth? The answer is nothing.” You discover new products by seeing an ad on social media, or searching Google or Amazon. Often, you’re not searching for a brand like Tide or Crock-Pot, but for a generic term like “detergent” or “slow cooker.”
“If 10 years ago someone proposed taking on P&G, you’d ask, ‘With what army?’ ” says TJ Mahony, a Boston venture capitalist who has followed Thrasio and is friendly with Cashman. “But things changed. You don’t need shelf space to move product anymore, you just need to rank [well] on Amazon.” (Mahony says he isn’t investor in Thrasio, “but wish I was.”)
The dynamics of what it takes to have a successful product in the Age of Amazon are still evolving. Figuring out exactly how to benefit from that is what Thrasio and Perch are trying to do, as you’re shopping online for this year’s holiday gifts.