When Ryan Cohen was launching online pet retailer Chewy, he spent a lot of time thinking about how to compete against Amazon.
Now, a decade later, after selling Chewy for $3.35 billion and exiting the company, Cohen is still thinking about the best way to beat Amazon.
It’s harder now, he says, but still possible.
And the best idea to bet on could be the one that everyone says can’t possibly succeed.
“Whenever there’s a lot of skepticism, it usually means there’s a lot of white space. In the case of Chewy, there was white space because no one wanted to invest in someone going head to head against Amazon,” Cohen said in a recent phone conversation.
Since exiting Chewy in spring of 2018, following the 2017 sale of the company to PetSmart, Cohen has been taking his time figuring out he wants to do post-Chewy.
He has a checklist of questions a startup direct-to-consumer brand needs to be able to answer before it goes head-to-head with Amazon or other online retailers.
He’s also been thinking a lot about the valuable business lessons he learned from his father, Ted Cohen, that helped him make Chewy a success. His father died suddenly in December at age 69.
Cohen, now 34, was a 20-something college dropout when he cofounded Chewy in 2011 with Michael Day.
Back then, Cohen used the 1997 Jeff Bezos letter to Amazon shareholders as a roadmap for how to grow Chewy. Bezos’ comments about the need to scale, to achieve market leadership and to make bold bets, became Chewy’s playbook.
“We knew we needed to be number one or that we would fail,” he said. “If we were number two or three, we wouldn’t have a sustainable business. We needed to build an even larger pet business than Amazon or anyone else in retail.”
Chewy played by Amazon’s rules for supply chain, logistics and the convenience of shopping online, but added its differentiator, the old-fashioned customer service of a neighborhood pet store, for its winning strategy.
“At the end of the day we were really connecting with customers, and people are emotional beings,” Cohen said. Chewy’s hand-written holiday cards, pet portraits, and flowers for deceased pets showed customers “that we’re human, we get it, unlike Amazon.”
When PetSmart bought Chewy in 2017, it was the largest acquisition price paid to date for an e-commerce startup. PetSmart spun off Chewy in June, in a successful IPO.
Since leaving Chewy, Cohen has been looking at investments, both public and private, but hasn’t yet seen, or come up with, an idea as good as Chewy.
“Sometimes the best strategy is just to be patient and wait for that,” he said.
But he shared these thoughts about how a new e-commerce idea might compete in an Amazon world.
Amazon has chinks in its armor.
Its user interface is dated, and the shopping experience has become more difficult for the consumer, with a flood of third-party merchandise and sponsored ads pushing aside organic search results. Those are weaknesses a competitor can exploit, Cohen said.
Amazon’s advertising platform has been a game-changer for Amazon in terms of driving profitability, Cohen said, but “it does feel like a deviation in their strategy of being the most customer-obsessed retailer. When you search Amazon the default search used to be best-selling product. Now the default search is really sponsored ads.”
Sell something the customer connects with emotionally.
Chewy’s genius was connecting with pet owners on their level, mirroring their obsessive devotion to their pets and recognizing they were pet parents, not owners. Cohen was an obsessed pet parent when he started Chewy. He saw how customers were responding to online shoe seller Zappos, “and I thought wow, if customers can go bananas for shoes online, imagine if we could do it for pet customers who are as fanatical and obsessed with their pets like I am.”
Emotion is great but you also need existing demand.
An emotional connection and a differentiated niche isn’t enough unless there is existing demand. In the pet space, there was demand – a $75 billion addressable market for consumable products that people needed to order repeatedly. “There’s a lot of startups where they’re differentiated, but there’s not really existing demand,” Cohen said,
Sure you want a direct-to-consumer relationship, but does the consumer want one with you?
“Everyone is trying to build direct-to-consumer brands because it is easy to do and because the barriers to entry are such that anyone can create a widget and sell it direct to consumer,” Cohen said. “But I think you need to be really mindful of whether or not it makes sense for the consumer, or whether you should sell on Amazon or [for pet products] on Chewy because it’s the most convenient for the consumer. Everyone wants to have a direct-to-customer relationship, but does the customer want to have one with you?”
Cohen’s also been thinking about how the life and business lessons from his father that helped him succeed with Chewy, and how they are valuable lessons for anyone starting a business.
His father, who died in December at age 69, was an entrepreneur and glassware importer in Canada. “He had an amazing business mind,” Cohen said.
Hearing Cohen talk about his father’s influence provides insight into why Chewy did a better job than other startups in focusing on the business fundamentals.
While building Chewy, Cohen spoke to his father two to three hours each day, while driving to and from the Chewy offices in Florida. “He was this silent board member and full-time adviser who I was able to talk through every single issue with, whether it was what our gross margins were, or any of the key operating metrics in Chewy.”
“He knew our financials like the back of his hand and he would ask me all the time how they’re progressing. When you’re scaling a company, everyone has their own invested interest. His only invested interest was seeing me succeed.”
His father taught him three key lessons that served Cohen well at Chewy.
Be involved in every aspect of the business
“He knew all of his numbers” and every part of his business, and Cohen followed his example. “I think that’s what really allowed me to be successful as an entrepreneur,” Cohen said. “For the first five or six years of building the company I was involved in every single major supplier negotiation. I learned to be involved in every single aspect of the business. but especially where major expenses were involved, from him.”
His father, Cohen said, never considered himself better than the employees who unloaded his trucks, or anyone who worked for him. When a truck would arrive at the warehouse, his father would take off his suit jacket and unload the pallets with the warehouse crew.
“He put himself at the same level as people doing the hardest work,” Cohen said. “That’s where I learned empathy, that’s where I learned humility,” two important traits in a startup entrepreneur when they are trying to convince others to join them in a new company, he said.
Sell the customer the product that will make them the happiest
Cohen’s father frequently used the example of two trucks of merchandise arriving at a warehouse. One truck will make you more money, but the other will make the customer happier. The answer, he said, is always pick the truck that will make the customer happier.
Cohen said his father “was never one to relax and he always needed to be doing something to feel a sense of accomplishment.” Cohen says he is the same way, and right now he is trying to figure out what the next “something” will be for him.
“I look at almost everything that comes to me, but I say no to 99.9% of it. That was true at Chewy too in terms of just programming all of our executives that generally the best answer is no. As Warren Buffet says, the difference between successful and really successful people is really successful people say no all the time.”
But if you’re a startup entrepreneur and Ryan Cohen asks “Want some advice on how to go up against Amazon?,” you probably should say “Yes!”.