Thrasio, a US-based unicorn, has created a lot of buzz in the startup ecosystem because of its unique operations of buying and scaling up select online brands. Thrasio follows an acquisition-entrepreneurship template, by surfing Amazon’s third-party ecosystem. The company focuses on acquiring Amazon sellers’ businesses and scaling them up, earning $100 million in profit last year. In the startup ecosystem Thrasio’s success is now known as the Thrasio Model.
What is the model?
Thrasio’s business model revolves around the fast acquisition of different online businesses from Amazon sellers. The company follows a multi-brand and multi-product strategy, which is consumer-brand-focused. After acquiring the businesses, Thrasio overhauls them by customizing their product portfolio, changing the branding, and developing a long-term revenue growth strategy. Thrasio has over 50 experts working on improving the brand and turning it into a profit-doubling machine.
In the words of Thrasio itself “We don’t optimize, we mastermind ”. Informed by billions of rows of data sourced from hundreds of APIs every day, Thrasio’s teams make the best possible decisions to maximize sales of every product they own and purchase
Even though Thrasio runs the ecommerce business full-time, the previous owner still benefits long-term as they continue to get a percentage of future revenues. Thrasio’s acquisition platform is a win-win for every party involved, as there is a continuous revenue stream for both Thrasio and the previous business owner.
Success of Thrasio
Thrasio was founded by entrepreneurs Carlos Cashman and Josh Silberstein in mid-2018 and have built a business that has been profitable since inception and growing multifold. Thrasio is a digital consumer goods company that acquires other third-party private label Amazon FBA (fulfilment by Amazon) businesses. The company operates by way of acquiring these businesses after which it optimizes the operations of these businesses. This is done in an attempt to expand their reach through the market, develop the product, as well as the supply chain management. This in turn leads to the expansion of the sales, improvement in financial growth and ultimately scales up the business under the umbrella of the acquiring company.
Thrasio’s success reflects in its most recent earnings. The company reported $300 million in revenues and obtained $260 million in public funding, giving it a $1 billion valuation, earning the company unicorn status.
Startup Ecosystem in India
Based on the Thrasio Model’s proven success, many startups in India have adopted this concept for their success and attracted investor interest. These startups have a similar pitch to that of Thrasio, making fast-growing online brand acquisitions and building their portfolio. These startups have their own strategy, offering unparalleled market expertise, a founder-friendly relationship, or guaranteeing media coverage. Funding has been the main activity in this sector in India, with over $300 million invested in Indian startups.
Thrasio is becoming the fastest-growing e-commerce acquisition company worldwide, with its current portfolio comprising 60 Amazon business acquisitions, 6,000 products, and a spot in Amazon’s top 25 sellers’ list. The company has already paid out over $100 million to sellers. The Thrasio Model’s success has been emulated across many startups in India, with each one having a unique strategy for acquisitions and portfolio building.
Thrasio Model: Pros and Cons for Small Businesses
i. Big cash payouts – these startups pay the businesses money based on the valuation done which usually is much more than they make in a year through their sales in the e-commerce space.
ii. Speedy Exit – for those founders who wish to get an easy, hassle free exit from their businesses, this seems the best bet. The entire process is smooth and quicker as compared to the traditional exit mechanisms and completed within 4-6 weeks.
iii. Legacy and Goodwill – the most important thing any founder could be worried about is the brand image and the goodwill attached. The Thrasio Model focuses on scaling up the acquired businesses and also smoothening the supply chain. With this being the main objective of these startups, the interest of the founders in terms of brand image is protected.
i. Losing long-term profitability – the most important reason for these startups to acquire smaller businesses is the potential they see in the business. They will make the business reach new heights with their expertise but the founders also lose out on the long term profitability attached to the businesses growth.
ii. Losing your ownership – eventually when the startups functioning with this model purchase controlling stakes in the business, the founders lose their controlling rights in all future operations. The fact that most of these startups work collaboratively with the founders to scale up the business, the founders in that case have negligible say in the operations of the business and are bound by the decisions taken by these startups.
Viability of Thrasio Business Model in Indian Startup Ecosystem
When it comes to implementing the Thrasio Model in India, it’s important to understand that the success of the model depends on numbers. The USA’s large number of brands, even the smallest of which can generate millions of dollars in revenue, makes the Thrasio Model perfect. India, on the other hand, has a smaller online market and many consumers prefer traditional retail markets, which may limit the success of startups using the model in India.
Maintaining the balance between online and offline businesses is critical for success. Startups need to consider acquiring offline-led brands as well to enter the large offline market. Investors should also weigh the risks of entering into deals at extremely high valuations, as it may not be commensurate with the company’s growth.
Investors are contemplating a valuation fight and warning startups of the sameas all startups may approach the same top sellers and have more leverage to command prices. They will then be in the position to command the price as they wish and that’s where the problems begin. The future of these startups based on the Thrasio Model will be determined by what price they buy the brands at, and how they buy them – using equity or debt. Companies usually prefer using debt to fund acquisitions. Using share capital for buyouts results in founders diluting their stake more than needed and is less efficient.
While the Thrasio Model offers many benefits, there are also risks to consider. By understanding both the advantages and disadvantages of this model, small business owners can make an informed decision about their exit strategy.
FAQs on Thrasio Business Model
- How does Thrasio identify potential acquisition targets?
Thrasio employs a rigorous evaluation process, considering various factors such as revenue, profit margins, market demand, product quality, and brand potential to identify viable Amazon FBA businesses that align with their acquisition strategy
- What happens to the acquired Amazon FBA businesses after Thrasio’s acquisition?
Once acquired, Thrasio integrates the acquired businesses into its operational infrastructure, streamlining processes, enhancing marketing efforts, optimizing supply chains, and implementing data-driven strategies to drive revenue growth and improve profitability.
- How does Thrasio monetize the acquired Amazon businesses?
Thrasio generates revenue by leveraging its expertise and resources to scale the acquired businesses. This involves optimizing product listings, implementing marketing campaigns, expanding distribution channels, and driving operational efficiencies to increase sales and profitability.
Disclaimer: The content of this article is for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof
Last Updated on: 7th December 2023, 04:38 pm
The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.