Thomas Plantenga & Alex Taussig: Vinted CEO's Ultimate Guide to Scaling Marketplaces | E1114

Intro (00:00:00)

• Vinted is Lithuania's first tech unicorn.
• Many doubted the success of a pan-European marketplace.
• Vinted's transformation involved eliminating revenue streams, creating new ones, and investing heavily in television advertising.
• The company's success led to a $3.5 billion valuation and the title of Europe's largest online secondhand marketplace.

Becoming CEO of Vinted (00:00:53)

• Thomas Plantenga, the CEO of Vinted, initially had no intention of becoming the CEO but was approached by LOD Ventures to consult for the struggling marketplace company in Lithuania.
• Impressed by the founders' stories and the potential for growth, Plantenga agreed to a five-week consulting gig that eventually turned into a permanent position.
• Plantenga proposed a radical change in the business model, which involved eliminating existing revenue streams, creating new ones, and investing significantly in television advertising.
• Despite the risks, the founders agreed to implement the plan, and Plantenga stayed on to help execute it, leading to Vinted's continued growth and expansion.
• Thomas Plantenga and Alex Taussig discuss the early challenges Vinted faced as a pan-European marketplace, including scaling issues due to the dominance of sub-regionally dominant companies and the lack of a well-formed business model for monetizing their large user base.

Impact of Business Model Change (00:06:08)

• Vinted's initial business model charged a 15-20% seller fee, similar to eBay and Poshmark.
• In Europe, free classified platforms like Craigslist were popular, offering higher liquidity at a lower cost.
• Vinted's value proposition was inferior due to higher fees and lower liquidity compared to free classified platforms.
• To address this, Vinted shifted to a multi-revenue stream model, reducing transaction costs and generating revenue from other sources.
• AB tests in multiple countries showed immediate positive impact on the business.
• Vinted determined the optimal fee structure through price elasticity testing, resulting in a 5% fee plus 70 cents per transaction.
• This pricing strategy has become a significant contributor to Vinted's revenue and gross margin.

Alex's Involvement & Expansion Plans (00:08:36)

• Alex and Thomas's relationship began through a shared connection at Lightspeed, a venture capital firm.
• Vinted's initial success in France was counterintuitive to investors due to its unique business model and focus on demand-side fees.
• The decision to expand beyond France was driven by the need for a larger market and the potential for cross-border growth.
• The UK expansion faced challenges and took several years to gain traction.

Thomas's Role as CEO (00:11:54)

• Thomas's contributions to Vinted were comparable to those of a founder, despite not being present at the company's inception.
• Thomas's leadership and skills were instrumental in transforming the company's trajectory.
• The founders' decision to appoint Thomas as CEO demonstrated their trust and confidence in his abilities.

Vision for Vinted's Growth (00:12:59)

• Vinted's potential growth was discussed, with a focus on resale's potential to reach 20% of the apparel market by 2030.
• The company aimed to become a pan-European leader in resale, leveraging its competitive advantage in low shipping costs.
• The goal was to create a dominant regional marketplace, similar to eBay's success in the US, and build additional services on top of the engaged user community.

Competition & Market Positioning (00:15:17)

• Vinted's internal concerns about potential failure centered around the uniqueness of France's success and whether it could be replicated in other countries.
• There was a prevailing thought that Vinted should focus on solidifying its position in France rather than expanding internationally.
• Despite these concerns, Vinted remained committed to international expansion and has since demonstrated its ability to build market share in multiple countries.

Entering New Markets (00:16:57)

• Focus on creating successful buyers and sellers.
• Ensure high conversion rates by:
  • Implementing effective recommendation engines.
  • Mitigating negative effects through robust security, trust, and safety measures.
  • Providing seamless transaction processes (shipping, payments, wallet, etc.).
• Be brave in deploying marketing investments based on forecasted efficiency and profitability.
• Gain confidence by tracking predictions against historical trends.
• Develop a playbook based on successful market entry strategies to guide expansion into new countries.

Challenges & Failures in Expansion (00:19:32)

• Vinted's CEO, Thomas Plantenga, discusses the challenges and failures faced during the company's expansion.
• Balancing demand search and recommendation-driven experiences on the buy side is crucial.
• Recommendations are more critical in resale than in new items due to the uniqueness of each item.
• Resale platforms need to provide more recommendations to users to increase the chances of transactions.
• Building a user interface that encourages browsing and window shopping is essential for resale platforms.
• Vinted's social media-like time spent in the app in 2019 was unusual for a shopping platform.

Retaining Sellers & Market Maturity (00:21:54)

• The first two transactions are crucial in determining if a seller will become a retained seller.
• Vinted's initial failure in Germany was due to differences in shipping infrastructure compared to France.
• Vinted's success in France was attributed to favorable marketing, pricing, and collaborations with local companies like Mon and Mangope.
• Vinted's eventual success in the UK after multiple failures was influenced by improvements in shipping, payment, and external factors such as the pandemic-driven shift towards online shopping.
• Vinted's Market phase model allowed them to focus and invest heavily in the business when they saw positive numbers.
• The end of zero interest rates and the subsequent fears of recession and inflation benefited Vinted as it allowed them to gain market share while competitors struggled.
• The acquisition of Depop by Etsy posed a significant threat to Vinted, prompting them to make the UK a "bet the boat" decision to secure their position in the market.
• Vinted remains cautious of competitors like Teemu and Shine, acknowledging potential challenges in the future.

Competition with Fast Fashion Retailers (00:30:03)

• Vinted is not significantly impacted by the ad dollars spent by fast fashion retailers like Shein and Temu because Vinted focuses on attracting sellers of secondhand clothing, while Shein and Temu focus on attracting buyers.
• The value proposition of resale is different from fast fashion, as resale offers high-quality brands at a significant discount, while fast fashion competes with H&M, Zara, and other fast fashion companies.
• The rise of fast fashion companies like Shein and Temu is primarily due to their efficiency in production and shipping, which allows them to spend heavily on marketing.
• Companies like Zando and Shein have reinvented fast fashion by optimizing production and shipping, allowing them to offer free delivery and compete with traditional fast fashion retailers.

Breadth vs. Depth in New Markets (00:34:21)

• Vinted prioritizes depth over breadth in new markets.
• Depth creates a working two-sided marketplace and drives network effects.
• Depth is crucial for the business model to function effectively.

Time to Profitability in Each Region (00:35:22)

• The ramp time to profitability varies depending on the region and the level of aggressiveness in expansion.
• It can take as fast as 12 months or as long as 3 years to reach profitability in a new region.
• Vinted considers marginal transaction profitability, country-level profitability, and company-level profitability when making expansion decisions.
• The efficient frontier is a key consideration in scaling the marketplace, balancing supply and demand while maintaining a high-quality experience for both buyers and sellers.

Getting the Efficient Frontier Wrong (00:37:59)

• Misjudging the lifetime value of users is a common error in determining the efficient frontier.
• Short-term payback periods can be misleading if the long-term value of users is not accurately assessed.

Importance of Accurate Projections & Cohort Analysis (00:38:32)

• Accurate projections and cohort analysis are crucial for effective planning and avoiding cash burn.
• The pandemic disrupted consumer behavior, leading to inaccurate projections based on 2020-2021 cohorts.
• It's important to consider the efficient frontier, payback period, and cash flow when making projections.
• Balancing aggressiveness with conservatism is key to avoid missing long-term opportunities.
• Building a growth framework that incorporates lifetime value, payback, and cash flow is essential.
• Predictive values, such as LTV over five years, should be distinguished from actual truths.
• Marketplaces should control multiple variables, as steering marketing investments based on a single metric can be misleading.
• Liquidity and inventory generate higher conversion rates, but there are diminishing returns.
• As inventory grows, conversion rate may not increase linearly, requiring adjustments to search and discovery experiences.

Complexity of Customer Acquisition Costs (00:41:47)

• Customer acquisition costs (CAC) can be cheaper for the first users as they are the most dedicated fans.
• CAC may increase over time as the core user base becomes saturated.
• Increased brand awareness, word-of-mouth, and network effects can offset the rising CAC.
• Defining the specific customer segment is crucial for accurate CAC analysis.
• Blended paybacks should become cheaper over time due to increased organic growth.
• Direct marketing costs for new listings, sellers, buyers, etc. tend to increase as the marketplace matures.
• It's important to focus on the marginal cost of customer acquisition rather than the average cost.
• Inaccurate cohort analysis due to external factors like COVID-19 can affect CAC predictions.
• Vinted experienced a boost in activity during lockdowns but anticipated a post-COVID dip and planned conservatively.
• Lithuania's cautious mindset, shaped by historical experiences, influences their approach to business growth.
• Europe is currently the biggest cash cow region for Vinted.
• Older countries tend to contribute more in terms of free cash flow.
• The size of a country's population correlates with its cash flow generation.

Determining Attractive Markets (00:45:34)

• Vinted considers factors such as competition, infrastructure, shipping, payment options, and e-commerce maturity when choosing new markets.
• Vinted prioritizes markets based on the probability of success, which is determined by the above factors multiplied by the market size.
• Vinted initially focused on smaller markets like Belgium to minimize risk and then expanded to larger markets like the UK, Italy, Spain, and Germany.
• Vinted thinks about market expansion in terms of "surface area," which refers to the potential for increasing transactions by existing customers rather than just acquiring new customers.
• Scaling marketplaces involves setting ambitious growth targets, such as increasing annual contract value (ACV) from $50k to $200k, $300k, or even $1 million.
• The goal is to build long-term relationships and increase customer lifetime value through customer retention, repeat purchases, and upselling.

Government Collaboration & Relations (00:50:20)

• Thomas Plantenga, CEO of Vinted, expresses concern about Europe's current economic situation and its impact on job creation and societal development.
• He criticizes Europe's regulatory environment, particularly its inability to effectively tax Chinese and American companies, which hinders the continent's ability to extract value from the economy and fund societal needs.
• Plantenga emphasizes the importance of CEOs and companies demonstrating their commitment to society through fair taxation and responsible business practices to gain trust from governments and influence policy decisions.
• Europe has a large population with significant spending power, making it an attractive market for businesses.
• Traditional European investors have been more conservative in their approach to investing compared to Silicon Valley investors.
• The European venture capital product is very different from the US, with seed and Series A term sheets often being unfavorable to founders.
• Founders need to be aware of the terms they are agreeing to and should not accept unfavorable deals simply because they are unaware of better options.

Debunking the Rule of 40 (01:01:33)

• The Rule of 40 is a concept that suggests that a company is healthy if the sum of its revenue growth rate and its adjusted EBITDA margin is 40% or higher.
• The Rule of 40 has become popular among investors as a way to quickly assess a company's financial health.
• However, the Rule of 40 can be misleading as it is an output metric that does not take into account the underlying factors that drive growth and profitability.
• Focusing solely on the Rule of 40 can lead to companies making poor decisions, such as sacrificing long-term growth for short-term profitability.
• Instead of focusing on the Rule of 40, companies should focus on the input metrics that drive growth and profitability, such as customer acquisition costs, retention rates, and product-market fit.

The Flaw in EBITDA Margin Optimization (01:05:45)

• EBITA margin optimization is not a fundamental metric for business valuation; the absolute amount of cash flow or free cash flow is more important.
• Best-in-class companies in each industry have best-in-class EBITA margins, but a high EBITA margin does not necessarily indicate a great business.
• Vinted's CEO, Thomas Plantenga, believes that the success of a company should not be solely based on industry margins, as it can potentially harm the industry.
• Plantenga considers Arean to be their biggest competitor.
• Vinted's other CEO, Alex Taussig, highlights Plantenga's strength in being a systems thinker and effectively integrating quantitative and qualitative insights.
• The secondhand marketplace is expected to transform into an Amazon-like platform with the same level of ease and sophistication as the primary market.
• Vinted's success in Europe has led to discussions about expanding to the US, but there are debates within the company about whether to focus on Europe or venture into the untested US market.
• The CEO's attention and bandwidth are seen as constraints in scaling the marketplace, as there are limited resources to effectively manage multiple markets simultaneously.