Flash and burn: A TechCrunch writer gets it wrong by blaming VCs for the fall of flash sales sites.

Fifty two degrees Fahrenheit. Blue skies, shining sun. It’s an unseasonably pleasant January day in Manhattan, but somewhere on that great northeastern island, Jess Kimball Leslie is pacing, hot under the collar. Her favorite flash sales sites have not panned out as she’d hoped. Bursting onto the scene just a few years ago, they’ve since fallen loudly, flatly, and in quick succession, like a stack of billion dollar dominoes. Being someone with a finger on the Silicon Valley pulse, she seeks to pen a profound explanation portraying the root of their demise. She brainstorms, scribbles, types. Nothing seems to stick. Unable to summon the words for the perfect narrative, she throws down her pen in frustration, and opts for the failsafe she knows will always get a rise: social politics.

Writing at TechCrunch just after Saks Fifth Avenue’s $250 acquisition of Gilt Groupe (at a fraction of its once billion-dollar valuation), Ms. Leslie’s chosen list of casualties — One Kings Lane, Gilt, Groupon, Wish,, Living Social — tells a story of bad bets and poor practice from both sides of the table: the startups themselves, and the venture capitalists funding them.

Alongside Gilt, most of these upstarts have gone from hero to near zero with remarkable speed. One Kings Lane, specializing in discount furniture sales, once valued at $900 million at its peak, sold to Bed Bath & Beyond this year for less than $30 million. Groupon’s stock price of $26.11 at its IPO on November 4, 2011, had fallen to $2.86 at the time of Ms. Leslie’s write-up on January 15, 2016. Wish, described by Ms. Leslie as the “supreme leader” of “junkyard e-commerce”, looks to be on very shaky ground itself, with a poorly designed site, a generic product selection, and $578 million in invested capital to date, all portending future trouble. “Want to know how much of that $578 million they’re going to lose?” asks Ms. Leslie, grinding salt into the wound. “My guess is, all of it.”

By all accounts, she paints a grim picture detailing the mishaps and missteps of VCs and their e-commerce investment failures. But her main argument deflates like these startups’ once sky-high valuations by laying the blame exclusively at the feet of VCs. Rather than embarking on perhaps a more rigorous explanation behind the failure of the companies in question, she effectively takes the easy way out. Those running the businesses escape scot free, yet venture capital gets a flogging for its small proportion of female partners. “[A] reason for this loud series of abysmal failures may have something to do with gender,” she declares. Her claim: Since these sites are driven primarily by female customers, the lack of women in venture capital who know how to merchandize to women online has led to the downfall of these sites. “Perhaps in the hubris of backing but not comprehending a category in which women play a very significant role, Silicon Valley is now getting its just desserts.” Her message, in closing, to VC leadership: “Shopping is trickier than you thought. Admit defeat and quit while you’re behind.”

“Maybe the CEOs in the space (myself included) should have focused first on building profitable $100M revenue companies rather than shooting for unicorns.”

Reasoned readers will view her assertion as tenuous, at best. Quite simply, I find it a tad too convenient to chalk these businesses’ failures up to a lack of social sensitivity. Surely if one were to analyze the operational or strategic causes — absent of politics — they might arrive at a more thoughtful conclusion.

I was not the only one to think this. Not long after, in a (tactful) rebuttal of sorts, Jason Goldberg, a former member of the engineering team behind, offered a more nuanced counter-theory. “The article got it wrong,” he said. “It’s not that venture capital is terrible at online shopping, it’s that online shopping is currently a terrible space for venture capital.” (There are plenty of people who might debate that notion, but at least he’s putting in some effort to think critically.) The reason, he continued, is owed to the dominance of Amazon, which, in the commodified, winner-take-all e-commerce stakes, has already won, and is only getting stronger.

The flash sales and daily deals formula has been exposed as a fool’s game, which does and (did not) help these companies. Thrillist and JackThreads CEO, Ben Lerer, added credence to this recently, saying that flash sales sites were on the way out “because they’re hacks on how to take advantage of a customer. You get addicted to winning through bad audience behavior.” To make matters worse, none of the companies cited in Ms. Leslie’s article (perhaps due to an over-reliance on venture capital) evolved into mature operations, either. Not a single one “developed large standalone viable businesses …that could generate enough operating margins to overcome the considerable costs of flash sales operations.” It is also clear here that each lacked the conviction and security to reject chasing endless growth for its own sake. In unilaterally gunning for billion dollar valuations, and pushing an undifferentiated (or highly-prized) product assortment in a commodified marketplace where Amazon rules, this was a game they were doomed to lose. The more sensible direction would’ve been to settle on a more sensible size, say $25-70 million in annual revenue. They could have edited for a narrow, high-quality product selection centered on providing exclusives at full price. They could have courted a discerning and loyal customer instead of deal seekers. And they could have cultivated unrivaled expertise in a single high-touch field or product category. These strategies would have been an excellent way to carve an e-commerce niche, particularly at a time when Amazon is aggressively ramping up their fashion bonafides. Mr. Goldberg alluded to this: “[M]aybe the CEOs in the space (myself included) should have focused first on building profitable $100M revenue companies rather than shooting for unicorns,” he conceded.

Gunning for endless growth, lacking in clear differentiation, and competing on scale and price with Amazon was a poor decision. The smart companies that are succeeding remarkably well in e-commerce (think: EverlaneLedbury, and Cuyana) have turned their disadvantage — their comparatively small size — into their advantage. They’ve built a reputation for expertise and excellence in a single market or a single product category. That’s how Davids can exist among Goliaths

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  • Monil

    Incredible rebuttal! I especially like the point about Amazon. I personally feel that anyone in the e-commerce space should always ask themselves “what are we doing that Amazon can’t?”

    • LeanLuxe

      Agreed, that’s the only way to win. Specialize — and be comfortable in the knowledge that you’re very, very unlikely to reach unicorn status. That shouldn’t be the end goal anyway.