This made us wonder — for those prospective founders interested in starting their own ecommerce store, what kind of expectations should they have? How much can a brand new ecommerce store expect to make in this environment?
Lucky for us, we have a massive data set at our disposal. We were able to answer this question once and for all using data from our 2015 Ecommerce Growth Benchmark. Here’s what we found.
Average Monthly Revenue for a New Ecommerce Site
The chart below shows the average revenue for the first 36 months after an ecommerce store opens its doors.
According to this chart, at three months the average ecommerce site is generating just over $150,000 in monthly revenue, by the end of year one in business they are averaging almost $330,000 in monthly revenue, and after three years they’re bringing in over $1 million in revenue every month; an increase of over 230% between year one and year three.
So, that was easy, right? On average, an ecommerce site has generated over $20 million in revenue by the end of year three in business.
Not so fast.
At first pass, this seems to provide a quick answer for how much an ecommerce site can make, but it doesn’t give the whole picture. As we mentioned at the beginning, ecommerce behemoths like Amazon often muddy the story on ecommerce potential. While Amazon wasn’t included in this research, we did find a group of companies that dramatically outperform the average. And while these companies are inspiring stories, they still don’t tell us what “normal” looks like.
So, to look closer, we split our sample of ecommerce retailers into quartiles based on total revenue in their third year of existence. This lets us analyze the fastest growing companies, identified in the first quartile, compared to companies in the second, next-fastest quartile, and so on.
Average Monthly Revenue for a New Ecommerce Site by Quartile
Now let’s look at average monthly revenue again, but this time broken out by quartiles, through the first three years of business.
This chart paints a very different picture than the first chart. Here you see that the top quartile of companies are growing at a considerably faster rate than everyone else, and their growth is skewing what “normal” looks like for the rest of the pack.
By segmenting the companies, we get a glimpse at how the top performers are impacting the industry-wide average we saw in our first chart. And by taking these top performers out of the picture, we’re able to answer the question “how much money can a new ecommerce company make?” a little more accurately.
At three months, the average ecommerce site (those in quartile two to quartile four) was generating just over $63,000 in monthly revenue, at one year they were averaging $127,000 in monthly revenue, and after three years they were clearing $352,000 in revenue every month; an increase of over 175% between year one and year three.
So, to get back to our question of how much money can an ecommerce website make. Take a look at total revenue broken out by the same four quartiles.
After three years in business, total revenue breaks down as follows:
Q2 companies have reached over $12 million in total revenue
Q3 companies have reached over $5 million in total revenue
Q4 companies have reached over $2 million in total revenue
Meaning the average in total revenue for these ecommerce companies is just over $6.5 million after three years.
So there it is. On average a new ecommerce company can expect to bring in just under $39,000 of revenue in their first month in business, and generate $6.5 million in total revenue after three years.
The single biggest input that determines the success of a startup is the quality of its human capital. If you want to measure the quality of a startup ecosystem five years ago, count the number of companies it has today. If you want to predict the quality of a startup ecosystem five years from now, measure its human capital.
But how do you measure startup human capital?
Meetups are human capital factories. If you want to measure the human capital of a startup city, you measure its meetup activity.
We’ve done just that. Using Meetup’s public API, we’ve pulled data on every tech meetup in the entire world. In this post, we’ll share what we’ve learned and how your city stacks up.
A note on the data. For this analysis, we used Meetup’s publicly accessible API, downloaded the data for every global meetup in the technology category, and analyzed it in RJMetrics. If you’re interested in running analysis like this on your data, sign up for a free trial. While we focus on the US technology scene in this post, you can find meetups almost anywhere in the world on nearly any topic you could imagine.
Technologists Love To Meet Up
The tech industry has been meeting up forever. It was “hobbyists” like Hooke, Newton, and Wren, talking shop, drinking coffee and smoking opium in the Royal Society who ushered in The Enlightenment.
Historically, these gatherings of the geek-elite have been closely-knit groups of personal associations, but that started to change in 2001.
It’s significant that Meetup started in New York City and not Silicon Valley. The dot com collapse left many companies in the North East shuttering their doors, and without a strong core of established technology companies to turn to, thousands of technologists found themselves hunting for jobs. There was a need for community, and for a central organizing platform.
Meetup was born in this environment. Since 2002, Meetup has grown in lock-step with the tech scene. Today, the number of technology meetups is growing faster than ever (89% in 2013 alone!):
We often get asked to explain our attribution modeling algorithm. Our response: “What attribution model would you like to use?” RJMetrics doesn’t use one specific algorithm; rather, we can support whatever algorithm our customers would like to use…provided the data exists in your database or in one of the many marketing tools we integrate with.
The question we get asked then is: which algorithm should we use? Last click? First click? Some mixture? And how does user source vs. order source tie into it?
My advice to our early stage customers is this: keep it simple. When you’re young, you likely don’t have many users and transactions. Even if you do, you don’t have the benefit of time to understand what the impact of pulling different marketing levers has for your business.
When we started RJMetrics, Bob and I were able to stay on the same page without much trouble. We had similar ways of thinking, and collaboration between two people in the same room is easy.
As we have grown, it has become both impossible and undesirable for us to stay in the loop on everything the company does. We hired all of these amazing people, and we think it’s great that they conceive their own initiatives and run with them. However, it’s more important than ever to clarify what we do, why we do it, and have a guidepost for all of our actions as a company. That guidepost is our mission statement.
While our mission statement is first and foremost for our team, we’re happy to let everyone in the world know about it. We think that it will be useful for our customers, partners, vendors, and friends to have a clear sense of what drives us.
I recently heard the term alligator arms at a conference and had no idea what it meant. While I was looking up what it meant on Google, I realized everyone around me was doing the same thing, with poor results. I brought it up to the team and everyone agreed, there are a bunch of terms we throw around at startups that take a while to learn.
The team decided to put together a resource where people could go to find all of these terms in one place. Weren’t we all confused the first time we heard of a founder showing everyone their deck?
Hopefully, StartupDefinition.com will clear up that confusion and get everyone sounding like professional entrepreneurs from day one. Some terms, like Customer Lifetime Value, are really important to us at RJMetrics. Others, like Purchase Pretzel, are just frustrating to not know about when someone else uses the term.
We’ve just launched StartupDefinition.com and plan to keep adding to it. Are there startup terms that we haven’t included? We’d love to add to this list. If you leave a comment or send us a message, we’ll make sure all new terms get added promptly.
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As an entrepreneur who previously worked in VC, I’ve become fascinated by how much investors rely on each other to get comfortable with deals. I’ve always observed venture investing to be a “clubby” game where politics, rivalries, and friendships play a large role in how companies get funded.
I decided to test my theory by looking at the data. I used RJMetrics dashboards to analyze data from Crunchbase, a public database of VC deals. This data included investment history for over 12,000 venture-backed technology companies and their 6,000 investors. (Note that Crunchbase is a community-edited resource that is not fully comprehensive and includes sparse data before the early 2000’s. Despite this, we believe it to be a representative population of modern venture investments.)
Here’s what I found:
60% of venture-backed companies have more than one investor.
Among firms who have made at least 50 investments, the average firm is the sole investor in just 10% of their portfolio companies.
Prolific co-investors like SV Angel and DAG Ventures are the sole investor in under 2% of their investments.
Benchmark Capital may be the most cliquey investor when it comes to co-investing with other leading firms. They share 36 investments with DAG Ventures (more than any other pair of highly active investors) but only one with Draper Fisher Jurvetson (fewer than any other pair).
Well-known firms like Kleiner Perkins, First Round Capital, and Accel Partners appear to keep it in the family, investing in the highest number of companies with the smallest number of distinct co-investors.
Lone Rangers and Socialites
According to Crunchbase, 60% of funded companies have taken money from more than one investor. This may seem high, but it makes sense if you consider that seed-stage investments are increasingly being made by syndicates of angel funds and later-stage investments are almost always follow-ons to investments made by other investors.
So, who are the lone rangers who are investing in the other 40% of companies? We looked at the percentage of “solo investor deals” made by firms with at least 50 investments to find the answer.
The average firm was the lone investor in only 10% of their portfolio, but Edison Venture Fund topped the list by investing alone on 53% of their companies. Next was German VC High-Tech Gruenderfonds with 42%, followed by a steep drop-off with Austin Ventures at 28%. (Note that there may be some sampling bias here. I suspect that High-Tech Gruenderfonds may have such a high number because the investments of other European VCs are under-represented in Crunchbase.)
On the other end of the spectrum, Jafco Ventures and Sutter Hill Ventures each have 59 investments but were not the sole investor in a single one of them. DAG Ventures was the sole investor in just 1 of their 101 portfolio companies, and SV Angel was the sole investor in just 2 of their 147 investments.
Best Friends and Worst Enemies
Some investors appear to get along very, very well. Benchmark Capital and DAG Ventures share a whopping 36 investments, more than any other pair of investors in Crunchbase. Lerer Ventures and SV Angel, who openly share deal flow, come in second with 30. (Disclosure: SV Angel and Lerer Ventures are investors in RJMetrics)
So what about the investors who were least likely to work together? We used RJMetrics to isolate every possible pairing of the 10 most active investors and found the answer. Among these 45 pairs, the average pair has made 7 investments together and every pair shares at least one portfolio company.
Benchmark is an interesting case here because it is part of both the most and least frequent investor pairs, despite being only the 10th most active investor overall. Playing in these extremes suggests that Benchmark may be the most cliquey investor in Crunchbase.
Welcome to the Club
So, who are the clubbiest VCs? To quantify this, I looked at the number companies a firm has co-invested in vs. the number of distinct firms it has co-invested with. In other words, this “clubbiness ratio” grows higher as a firm invests in more companies alongside the same tight network of co-investors.
To reduce the noisiness of the data, I only included firms who had co-invested in at least 50 companies (there were 77 of them).
While the average ratio was six investments per co-investor, SV Angel topped the list with a whopping thirteen. Next up was a four-way tie at ten companies per co-investor between Kleiner Perkins, DAG Ventures, First Round Capital, and Accel Partners. Sequoia Capital and NEA were next with nine companies per co-investor.
It’s noteworthy that the high-ratio group includes some of the best known and most successful firms out there, whereas the middle of the pack is full of lesser-known players who still do a high volume of investments. In other words, it appears that many of the most prolific investors are also the clubbiest.
In case there was any lingering doubt, industry politics and personal networks are a major factor in how venture capital deals get done. However, the data from Crunchbase suggests that the networks of investors may be just as influential as the networks of the investees.
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So, as you’ve heard, Facebook has acquired Instagram for $1 Billion worth of cash, stock and PBR. That’s more than the New York Times is worth.
Since the announcement, the general conversation is this:
Instagram isn’t worth $1 Billion since it has no revenue.
I should start a company that Facebook would want to buy.
Let’s focus on that last one. I’ve ranted about this before, but to put it frankly, we’ve got bigger fish to fry. I mean that as a society.
I think it’s relatively safe to say that the photo-sharing problem has been solved. There’s 1001 real problems on this planet that have no solution.
So, I’m proposing something different. Before starting a business or joining a startup, ask yourself if that startup is solving a problem. And I don’t mean a “this photo could use more filters” problem. I mean a real, “this will actually make people’s lives better” problem.
Roughly one year ago, in April of 2011, I quit a promising job at a Fortune 100 company to find work at a startup. I had wanted to work on break-through technologies and be part of a starting team, but I lacked the programming skills that are necessary in most cases.. Over the next nine months I made various attempts to get a job at a company that would not only give me an income, but also give me opportunities to grow and impact the world. Many of my job searching techniques did not work, but I’ve compiled a list that helped me land an awesome position here at RJMetrics.
Learn to Program
One of the first things I did was to start boning up on programming for the web. I went through most chapters of Learn Python the Hard Way, skimmed The Bastard Book of Ruby and did every one of thoseinteractive tutorials. It doesn’t matter what language or framework you choose. Learning anything is better than knowing nothing at all. If you mention that you went through Rails for Zombies, the interviewer is jotting down that you understand some basic knowledge of what is going on behind the scenes.
Don’t apply, ask for an introduction first
While you are thinking and working towards joining a company, you should also be cultivating meaningful relationships in your local startup scene. Go to meetups, hackathons and StartupWeekends. Heck, host a Startup Job Fair in your town. In the startup world it isn’t who you know, it is who knows you. This is a small world, and it only gets smaller when you make friends. When you see a job listing on craigslist for a startup position, send a text to the most well known guy in local startups to see if he would be ok with introducing you to the CEO. I did this once and had a job offer from a company 24 hours later.
Jump through hoops
We’ve highlighted our data-driven hiring process in the past. As someone who went through that process, I will tell you that there are tests and tasks to complete before you are even considered. It would be easy to ignore or half-heart them. We count on applicants to do that, and weed them out. We use Resumator.com to help organize our applicants. Resumator has a cool feature that has applicants enter a blurb about what makes them unique in 150 characters or less. Many applicants leave that field blank, or input “n/a”, instantly removing them from the candidate pool. I’ve included my 150 submission. Bob also let me know recently that the misspelling slipped past him. Yikes!
I take the initiative. I went on a Punch-Drunk-Love-pudding-like trip, compaired movies to hundreds of listeners, and had 3 kids in under 17 months.
At most small state startups, if you are not coding, you are most likely in a client facing position. This means a lot of emails, marketing copy and sometimes phone calls. Founders are looking for someone that can bridge the gap between the code and the marketing copy. The ability to communicate has to be evident throughout your candidate process. In your resume, emails, and interviews be diligent to be clear and make sense. Learn the art of active listening. Spellcheck everything. Be confident and honest. I wrote out a script for a voicemail I was going to leave for a founder. Then I practiced it, twice. You have to assume the level of scrutiny is high, because it is.
Be passionate and picky
When you are reaching out to your network and getting callbacks from startups, be clear about what you are passionate about. This starts with knowing what you love to do and not lying to yourself; it’s something that may take you years to discover, but start today. If you aren’t using twitter and think it is a fad, your network shouldn’t refer you to a social media company using twitter’s api.
I had a call with a sales and marketing company, and after the CEO explained what their market was, and what my role would be I told them I didn’t think we would be a fit. If I had continued the conversation and had the interview, I probably wouldn’t have gotten the job anyway. My lack of enthusiasm would have become apparent to the CEO, and if he had any smarts, he wouldn’t hire me. In contrast, when you interview at a company that is doing interesting things and facing complex issues that you can solve, the interviewer will make note of that as well. Being enthusiastic about things you like is a good thing.
My colleague Xiao used a tactic that exudes passion. When you come for the interview, bring a document that details all of the areas in the company that you could improve and how you would do it. I’ve since seen a video on this called “the briefcase technique” which is a great explanation of the presentation of this.
I wish you the best in your job search. Oh, by the way, RJMetrics is hiring!
2011 has been an outstanding year for RJMetrics. We’ve tripled our headcount, creating eight new high-tech jobs in Philadelphia and filling our Center City office to capacity. We’re proud to have done this profitably and without the use of any outside capital.
Today, we signed a new lease that will significantly expand our office space in The Philadelphia Building at 13th and Walnut. This was not a decision that Jake or I took lightly. 2011 brought with it a number of strategic opportunities, including offers that would have involved moving our company to New York or Silicon Valley.
We turned down those offers and we’re doubling-down on Philadelphia. Not because it is the path of least resistance, but because it is the right path. We believe that Philadelphia is the best possible home for our start-up. Here are five reasons why.
1. Philadelphia is a Lean Startup’s Paradise
We’re huge fans of Eric Ries’s “Lean Startup” approach to building products and companies. If you’re not familiar with this entrepreneurial philosophy, it involves moving as quickly as possible to collect actionable information, acting on that information, and then iterating. It’s not about being cheap– it’s about being fast.
From day one, we were able to acquire actionable information faster in Philadelphia than we could have elsewhere. How is this possible? It’s simple math: time is money and it costs less to do business here. Rent is lower. Beer is cheaper. I live comfortably on a salary that would have me sleeping in a broom closet in New York. With a fixed budget, we’ve been able to conduct more tests, iterate more frequently, and get smarter faster — all without prematurely raising capital.
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This effect is amplified when you remember that we sell a hosted product in a world that gets flatter by the day. RJMetrics has customers on five continents, but our physical location has no bearing on what we charge them for our product and what it costs to deliver. This leads to higher margins and more money invested back into growth.
On a budget that would be razor-thin in many other cities, we can provide our employees with a world-class working environment, top-notch benefits, and some of the most compelling personal development opportunities in the region. This is helping us create Philly software jobs that tap into our city’s tremendous pool of local talent.
2. Philadelphia is Rich with Talent
I’ve heard peers complain about a talent shortage in Philly. I agree that one exists, but a shortage of technology talent is not a Philadelphia problem. It’s a national one. We know startups in every corner of this country and the complaint is the same everywhere: demand outweighs supply, prices climb, and cash-rich companies like Google monopolize the top talent.
Yes, there are a higher number of talented developers in New York and Silicon Valley than in Philadelphia. But it’s important to remember that competition for those developers is proportional—big companies will open their doors anywhere they can find clusters of talented people. For example, I wasn’t surprised to see Facebook’s recent decision to open a development office in New York (although I said a prayer for my friends who are running startups there and already competing with each other, the banks, and Google for new hires).
There are plenty of excellent developers in Philadelphia, but it is admittedly a smaller pond than other major tech cities. Developers do not gravitate here, but there are a lot of them here for personal or circumstantial reasons. We have found that population to be rich with ambitious, talented people.
Our proximity to leading universities like UPenn, Princeton, Drexel, and Villanova also allow local companies direct access to top-notch engineering grads. Many of these talented engineers are “in play” every year. As we’ve grown, we’ve seen an increasing level of success with university recruiting.
There are also a number of large technology companies in the area (from Comcast to Oracle to SAP) who have sizable technology teams. Professional recruiters are proactive about syphoning candidates out of these larger companies, and many startups like us have had success tapping into this pool of talent directly as well.
Overall, I would say that the caliber of talent in the Philadelphia area is strong and the landscape of candidates is proportionally lower-volume and lower-competition than in other cities. In other words, the inputs look a little different but the absolute yield is comparatively attractive. We are building a world-class technology team here and see plenty of runway ahead of us.
3. Philadelphia’s Startup and Technology Communities are Thriving
When we moved to Philly in 2008 to start RJMetrics, the startup community was fledgling. An organization called Philly Startup Leaders was picking up steam and we’d often bump into talented freelancers who spent their days at a coworking space called Indy Hall.
In just a few short years, these groups have flourished into nationally-recognized organizations with hundreds of members. We’ve seen events like Philly Tech Week and the Philly Tech MeetUp surge into a successful existence. We’ve also recently gained exposure to some amazing mentoring organizations that exist for later-stage companies.
In my opinion, the diversity of the organizations in the Philly tech community is a great thing. They allow a widespread population of technologists to each find a voice that works for them. For the most part, these groups peacefully co-exist and share the common goal of making Philly a more awesome place for tech and business.
As these organizations continue to evolve and collectively impact the local economy, I think the pieces are moving into place for a coalition of tech players to exercise greater influence on local politics and work together on initiatives to raise outside awareness of the broader Philadelphia tech community. Today’s appointment of Bob Moul to the presidency of Philly Startup Leaders is evidence of this progress. Stay tuned.
4. Philadelphia Companies Have Capital and Strategic Options
One of the many lessons Jake and I took away from our previous jobs in VC is this: there are awesome companies everywhere and, if your company kicks ass, it doesn’t matter where it’s located. You will have no problem raising money and you will have no shortage of options when the timing is right for an exit.
As we’ve grown, this truth has become increasingly clear. Any venture firm that invests in New York or Boston companies will gladly invest in a Philadelphia company. These include funds on both coasts.
And doing business from Philly is easy. We have a major US Airways hub that provides easy access to the west coast and Europe. We also have extremely close proximity to New York, Washington DC, and the rest of the the eastern seaboard.
Recently, Philly has seen big exits like Invite Media (to Google), Boomi (to Dell), and MyYearbook (to Quepasa). We have also seen major investments made into companies like Monetate (from First Round & Openview) and DuckDuckGo (from Union Square). Don’t be surprised to see more announcements like these soon.
5. We Love It Here
Philadelphia is an awesome city. It’s rich with history, has one of the best restaurant scenes in the country, and is full of great people. The arts scene is incredible. We have great sports teams and even better cheesesteaks.
We are proud to call it our home. Stop by anytime.