How Australian & New Zealand startups are navigating the shifting tides of ecommerce, and judging the best ways to fund the operation.
Once new-fangled and eyed with suspicion, ecommerce has well and truly bloomed. It’s no mere subsection of the retail space; it’s an all-consuming behemoth that’s impossible to ignore for consumers, retailers, and almost anyone who buys anything.
At its core, ecommerce is buying and selling over the internet. And back in the late 90s, that would have said it all. But today, with subscriptions, social commerce, next-day delivery, and online communities forged around favored products, ecommerce is much more than simply transacting.
According to a 2022 report from Savvy, Australia’s online shopping industry is worth more than $47 billion – up 8.9% from the previous year.
In the 12 months to December 2022, Aussies spent a record $62.3 billion online, with 30% purchasing goods via social media.
Globally, more than 90% of internet users visit online retail stores.
Some 5 million Australian households spend money online each month. That’s up 39% compared to 2019. And while the trajectory may have been going that way already, there’s no denying that the COVID-19 pandemic, and related lockdowns, contributed to a massive boost in ecommerce spending.
Unable to physically visit the high street, many shoppers were won over to online spending for the first time. Retailers turned to delivery where they never had before, and innovative business models for entertainment at home emerged – think online whisky tastings and high-end home cooking.
At the same time, tech is ever-improving, and the generations that grew up online are now earning good incomes and racking up spending power.
All of this equates to a fast-moving space with tremendous opportunity. As we will discover, it’s a space of enormous challenges too.
A varied sector:
Tractor’s portfolio includes a range of ecommerce businesses and those operating in the ecommerce sphere. They’re an eclectic and diverse bunch, showcasing the sheer variety of models the ‘ecomm’ label spanned.
Part & Parcel
Headed up by business and life partners Daniel Kagen and Lia Gery, Part & Parcel taps into consumer demand for ethical and organic produce, as well as for convenience and affordability.
The business was born out of the couple’s frustrations. As a full-time parent, Daniel sought the best produce for his family and found himself trawling health food shops to see what he wanted. Anyone who has shopped with a small child will understand this was inconvenient. It wasn’t cheap either.
Lia says that the time and money it took to shop in line with their values was eye-opening for a socially-conscious family.
“It made us aware of how unsustainable it is for young families – working families – to buy and shop for quality, ethical and organic products for everything, and how overwhelming it is for people to prioritise.”
While he had run, and exited, tech businesses, Daniel needed to gain experience to speak of in retail or ecommerce. But he had a problem that he thought others might share – and an idea of how to solve it.
Part & Parcel is a membership-based and curated online marketplace offering quality organic and ethically-sourced goods at close to cost price.
The idea is to offer convenient delivery of the type of produce and household staples Lia and Daniel sought. At the same time, the curation is intended to remove the overwhelming amount of options. Lia and Daniel have researched, so customers don’t have to.
Urban Plant Growers
Urban Plant Growers is an urban agtech that’s out to ‘greenify’ homes and public spaces through vertical farms powered by hydroponics – the art of growing plants directly from the water.
The product itself is a rig of specialist lighting and high-tech kit. Founders Dilhan Wickremanayake and Peter Cole face a more significant challenge than most regarding inventory.
“You’ve got to put much money on the line because you’ve got physical assets; you’ve got to think about storage; you’ve got to think about actually moving these things around; you’ve got to think about the labor to do all of that; you’ve got to think about how the products can get damaged, and how to store them safely.
“You also have to consider the fact that, with a physical product, each time you do a new iteration or make improvements, the products you already have in store might be slightly different, so suddenly all your manuals have to change, your boxes, packaging, and website have to change.
“There are a lot of moving parts.”
– Dilhan, Urban Plant Growers
Last year, Urban Plant Growers raised $1 million in equity crowdfunding, and the founders are putting that capital to work alongside debt funding secured from Tractor.
Peter explains that equity funding is primarily being plunged into research and development. But as they expand the product line, Tractor funding will be invested into manufacturing, stock, and operations.
For a business like this, it makes sense to marry debt funding for short-term, predictable returns with equity for longer-term investments.
“Funding from Tractor is fantastic for stock turnaround – day-to-day stuff,” Peter says.
“If we can invest a dollar in manufacturing and turn that into $5, we’ll be able to pay back the loan in three to five months after we do that manufacturing run.”
Jordan Coulter is the founder and CEO of PlantWater, a drink infused with chlorophyll and 15 other nutrients and vitamins, designed to provide an alternative healthy beverage to things like coconut water and kombucha or even old-fashioned H2O from a tap.
As Jordan puts it: "It's water, but better."
About 70% of PlantWater's sales are via stockists, but 30% go directly to consumers via its online store through one-off sales or subscriptions. That's considerably more than he had anticipated.
He's found that customers will discover the drink at a local store and start stocking up with 12-packs ordered online. One customer, Jordan says, has stopped drinking regular water altogether.
PlantWater launched in January 2022, and since then, Jordan has faced significant challenges with manufacturing timelines and supply chains.
Coupled with the lovely problem of unexpectedly high demand, he's been out of stock for large portions of his first year of trading.
When the business was nine months old, he had increased his manufacturing orders from 10,000 units to 20,000 to 100,000. That caused a cash-flow challenge – and that's where Tractor came in.
About 80% of the debt funding he secured has gone on inventory, Jordan says.
"It's straightforward to run a business if you continue the same amount of volume and no growth. With the revenue from 10,000 bottles, you can happily buy another 10,000 and keep doing that.
"But when you want to grow extra volume order in 12 months, obviously the revenue from that 10,000 doesn't allow for that."
ScentGod is a subscription business delivering designer perfumes to customers’ doors every month. A scent enthusiast himself, founder Hargurpreet Singh found he was spending big bucks on expensive fragrances.
But, trying multiple smells in store can confuse the nose, he explains. He would often find after a few days that he’d splashed out $200 on something he didn’t like.
Wondering if this was a problem other people faced, Hargurpreet built a “very scrappy” website. Soon, he had 50 paying customers and the validation he needed to ramp up the work.
Hargurpreet also has a passion for consumer behavior and has spent much time researching the best way to sell scents online.
He notes that Millennials and Gen Z will go to physical stores to browse and order what they want online for convenience and sometimes cost benefits.
He explains that these consumers are price-conscious and tend to have a monthly budget for things like cosmetics and skincare.
Subscription businesses are also becoming increasingly popular and high-profile – look at Aussie toilet paper subscription powerhouse Who Gives A Crap.
Subscription models reduce almost all the friction in the buying process, Hargurpreet says. In ScentGod’s case, consumers only have to commit once to line up 12 months’ worth of fragrances, with the startup’s algorithm recommending options they’re likely to enjoy.
“They’re not wasting any time; they’re not wasting any money. It’s straightforward. I think that’s working in our favour.”
The ecommerce support segment
With more and more businesses selling online, the ecommerce boom led to a whole new segment of companies facilitating transactions and generally providing support for those selling online. Beyond Amazon, eBay, and even Shopify, some startups offer apps and other tools to make retailers' lives more accessible and help them manage the increasing complexity of online life.
Syncio is a tool that allows vendors in the Shopify ecosystem to effectively 'share' stock, bringing a new category to the segment that co-founder and CEO Jimmy Zhong calls "collaborative commerce."
The tech makes product information easily shareable across online stores and syncs stock information. A designer, for example, can have their storefront but also sell products via other online stockists. Once an item has sold out, it automatically shows as unavailable everywhere, avoiding awkward sales double-ups.
For Jimmy, this is just the next evolution of commerce, bringing the natural behaviour of collaboration, partnerships, and support into the online sphere.
It's also not his first ecommerce rodeo. Syncio was first developed to solve a problem the founder was experiencing himself.
Jimmy's first foray into online retail was with an app facilitating 'Dutch auctions.' The platform sold designer clothes, with high prices gradually dropping until someone committed to the sale. The first bidder won the item, not the last.
That particular business was plagued with challenges, including the tendency for items to go out of stock before the auction was over. Winners ending up empty-handed didn't make for an excellent customer experience.
So when Jimmy launched a new online store, selling ethically-made clothing curated from other Shopify stores, he built a tool to make sure inventory was updated in real-time.
The store was successful, but the tech that powered it garnered interest from other sellers who wanted to use it elsewhere - evolving into Jimmy's full-time role as CEO of Syncio.
Having yet to do marketing, Syncio is now used by 10,000 merchants, including Volcom, Nine West, and Gap.
"It's been a crazy, crazy journey," Jimmy says.
Far More founders Sebastian Farias and Scott Mortimore didn’t set out to launch an ecommerce business. And while they operate in the ecommerce ecosystem, selling online is still not their primary focus.
Instead, the business was designed to facilitate direct trade with farmers in developing nations while allowing for scalability – connecting them to consumers worldwide. They’re starting with one of Australia’s significant consumables: Coffee.
The founders explain that agriculture around coffee in many developing nations needs to be more sustainable, relying on outdated supply chain models.
Far More offers independent farms more direct exposure to a global market, cutting out many middlemen. The idea is to help farmers get more from their yields and help them operate more sustainably and innovatively.
The team facilitates sales from those farms to coffee roasters worldwide. But in 2020, when the COVID-19 pandemic hit, they were forced to launch a D2C element, selling beans directly to consumers.
“Noone stopped drinking coffee,” Scott notes.
“Coffee demand didn’t go down. If anything, it went up.”
This was always a direction the founders were thinking of taking. But “consumer behavior is one of the things that are the hardest to influence,” Sebastian says.
Now, they still don’t necessarily consider Far More to be an ecommerce business. It works in the digital space and uses digital tools to facilitate trade. But for the most part, its trade is B2B.
The founders aren’t even sure they consider themselves tech-enabled.
“We always counted ourselves as tech agnostic; we build something, then we find the technology to enhance it, or scale it or make it better,” Sebastian says.
“We’re market makers.”
Finally, Submarine was built out of Disco Labs, an agency working within the Shopify ecosystem to build custom apps, software, and integrations for more prominent merchants.
Now, co-founders Gavin Ballard and Victoria Beal have taken the learnings of their eight years in business and packaged them into a software product.
Submarine allows merchants to build tools for subscriptions, pre-sales, crowdfunding, and anything else that goes beyond a one-time transaction, focusing on flexibility and customer experience, Gavin explains.
Disco was a “secret weapon” for large merchants with complex requirements, Victoria adds – merchants like JB HiFi, YouFoodz, and, internationally, Four Seasons Hotels.
“Essentially, we’re providing that same solution to agencies in a more streamlined and democratised way,” she says.
“We’re still doing things in the Shopify space that no one else is doing. We’re just doing it in a more scalable way.”
The needs of ecommerce players are changing, and platforms like Shopify have to evolve to meet them. At the same time, vendors are expected to offer more complex solutions to an ever-more demanding consumer base.
Tools focusing on personalised and pleasing customer experiences can give vendors an edge.
Any fast-moving sector comes with its challenges, and in ecommerce, the goalposts are constantly moving, often with no warning.
For example, the rollout of Apple's iOS 14.5 update introduced a requirement for apps to ask permission to track users across other apps and websites. Users can also change their preferences to prevent tracking altogether.
For the public, it's a win on the privacy front. But for marketers, it hampers targeted advertising, makes customer acquisition more expensive, and adds more pressure to sell through marketplaces.
It could also lead to more businesses experimenting with their business models, considering subscriptions, membership, and loyalty programs, to retain their customers.
As Submarine founder Gavin notes, this challenge will likely drive innovation in the long run.
Elsewhere, however, age-old logistical challenges prevail. One of Part & Parcel's significant frustrations is the high shipping cost.
Selling household and pantry staples means oversized packages, often containing glass. Much thought has gone into the packaging – it's all paper-based and recyclable, down to the tape, and the boxes are exactly the right size to be economical.
But once products are released from the warehouse, the team has no control over what happens. When things go awry, that can be incredibly frustrating.
"We send things in a particular way, and sometimes they don't arrive in a particular way," Daniel says. "Or sometimes they just don't arrive."
And the cost of that service is high, leading to difficult decisions about how much to pass on to the end customers.
"We just want these products to be accessible, and we didn't want barriers," Lia explains.
They assumed the shipping cost would be one such barrier, so they worked to make it as low as possible. Ultimately, that came back to bite them.
"It's just unsustainable, especially when orders are three or four boxes."
It also requires more work to communicate the actual shipping cost to customers. As ecommerce services improve and competition ramps up, consumers have come to expect cheap or even free shipping. But that comes at a price.
"I must understand how ecomm businesses will survive if they stick to free shipping.
"I understand they bake it into their margins, but even so, I know what the margins are. More is needed to sustain what some businesses do.
"I can't increase our price to shield the shipping cost because that's not what we do – we're all about delivering savings. So we don't have any leverage there.
"That's something we constantly try to explain to our members. It's a constant conversation we're having."
With more people spending online, Submarine Co-founder Victoria notes that expectations have increased more quickly than anticipated.
"So for brands, it's becoming more about the experience than the product."
She says that retailers need to ensure every touchpoint is seamless and agile enough to adapt to a fast-changing environment.
Research has shown that even when dealing with a brand they love, 32% of customers will stop interacting after just one bad experience, and 59% will walk away after several bad experiences.
ScentGod founder Hargurpreet encourages entrepreneurs to determine what motivates their customers and offers them as much value as possible. That means thoroughly researching before jumping in – surveys, tests, a soft launch, and whatever else might give you valuable insights.
"Test the waters; research again; experiment a little; hypothesise," Hargurpreet advises.
"Collect the results and see what works for you. Once you have the winners, take them and run with them."
Another critical element to running any retail business that can become very challenging very quickly is ensuring you have something to sell.
Between unexpected demand and an unreliable manufacturer, PlantWater has faced significant challenges around inventory.
Those were only exacerbated when a warehouse fire destroyed the bulk of its stock and 15 to 20 other businesses.
Founder Jordan spent the weeks after the fire trying to spread around what he had left, “but you can only do that for so long.”
In the early days, he says customers forgive when they don’t have stock to sell. Thus far, both stockists and direct customers have been understanding.
But delays – particularly those caused by unforeseen circumstances like fire – mean time spent on admin and sending apologetic emails.
When the stock does come in, a portion goes directly to those left waiting, meaning a month with little to no new revenue. Then reorders are pushed back further, too.
When you’re a new business gaining momentum, it’s frustrating to see it stall, Jordan says.
Tractor Inventory Advance
Jordan's example is extreme, but Tractor's new inventory advance loan product is designed to help businesses weather these stock challenges.
The loan funding does pretty much what it says on the tin – it allows founders to stock up on their products so they can sell more quickly without facing a cash-flow crisis.
Bulk orders and bigger shipping containers often mean better value for money, and not having to wait around for stock to be ready means founders can handle the slowdown in momentum, as Jordan did.
At the same time, the cost of the capital is defined, and businesses essentially pay for it when the value is realised.
For Part & Parcel, the Tractor funding did exactly its job, allowing for more investment in stock, better deals with suppliers, and more margin.
It also allowed for investment in advertising.
Daniel explains: "We were spending $1000 on ad-words; if we can now pay $2000, we know what our ROI will be, and we know that money is coming in.
"It allows us to grow quicker, having that cash injection."
For a family-run business (and a growing family at that), revenue-based debt funding takes some pressure off. Of course, there is a cost of capital, but Daniel says it's well worth it.
"I can sleep better at night knowing I'm not going into my savings every other week," he says.
"It's the opportunity cost – worth its weight in gold. If it alleviates some of the stress, I will pay that."
For many of the ecommerce businesses we spoke to, the beauty of Tractor's funding model is that it provides an alternative to an early equity investment without ruling out the possibility in the future.
Syncio founder Jimmy almost raised a VC round in early 2020. However, between the pandemic and being a new dad, he says it didn't feel like the right time.
"People say the average relationship with a VC is longer than a marriage," he says.
"I wasn't 100% confident I could commit to that or give it my all."
At the same time, the business was growing and profitable, so it didn't need money to survive. What it did need was a cash injection to accelerate growth.
Tractor funding allowed Jimmy to make two crucial hires – his CTO and customer experience lead – without worrying too much about the initial financial outlay and taking the option of a future equity raise off the table.
Similarly, Jordan didn't want to give up equity in PlantWater out of necessity while knowing his business would be worth more than 12 months down the line.
Gavin and Victoria of Submarine used the funding to take a step back from Disco Labs (entirely bootstrapped and profitable) and focus on proving their concept. And it paid off.
Having the space to focus more on the product is quite significant. That led us to do an equity round.
We weren't completely opposed to the idea of equity funding, full stop. We just wanted to make sure we knew before we went down that path that we would move the needle with it. It was an exciting experiment."
For the Far More team, while the Tractor funding allowed for a boost in inventory, and investment in marketing and hiring, it also gave the founders access to a network of valuable connections.
Tractor investors include Who Gives a Crap founder Simon Griffiths, Adore Beauty founder, and ecommerce pioneer Kate Morris.
"As well as their alignment and the way [the Tractor team] sees the working capital, it's also the type of people that are part of the organisation and the network," Sebastian says.
"That's what made Tractor a priority for us."
Part three: Evolution of ecommerce
Data from the International Trade Administration shows that, globally, the ecommerce share of all sales shot up from 13.6% in 2019 to 18% in 2020. As the COVID-19 crisis continued worldwide, that increased again to 19.5% in 2021 and 20.4% in 2022.
Today, with the worst crisis behind us (touch wood), that growth has slowed again. But while we may be seeing a plateau, we do not see a dip, and the online share of all sales is not predicted to return to pre-pandemic levels.
The reasons for this likely come back to shifting consumer behavior – people spent two years doing everything online and won’t stop now. Those who built enough trust to type in their credit card numbers online are seemingly not looking back.
The pandemic also led to consumer behaviour that no one saw coming.
ScentGod, for example, launched in April 2020, just as lockdowns went full swing. On paper, that should have been a disaster, but to Hargurpreet’s surprise, demand remained high.
Even though people couldn’t go out, they wanted to smell nice.
“They were treating themselves,” he surmises.
Younger consumers are also living and spending on social media, with data from The New Consumer finding that more than a quarter of TikTok users have purchased a product after watching a video on the platform.
Buying online takes face-to-face interaction out of the equation – and perhaps for many, that's the appeal. But far from being faceless corporates, online businesses are building communities and finding new ways to connect with customers.
Initially, Part & Parcel as a brand was intended to stand alone without Daniel and Lia being the faces of the business.
But especially during the pandemic, the pair found that wasn't what people wanted. Increasingly, consumers want to know who is behind the business and their motivations. For a company selling ethical produce, that's even more pertinent.
"Businesses exposing their vulnerability was something that came forth during COVID," Lia says.
Entrepreneurs were honest about their challenges, staffing concerns, shipping delays, and the realities of working from home while homeschooling.
"It kind of broke down those barriers."
Community is also hugely important to Urban Plant Growers, particularly in how the team approaches product development.
This is a relatively new technology, and the founders have to ensure it's simple enough – and enjoyable – for everyday customers.
Dilhan and the team do much work on education, helping people understand hydroponics, how it works, and its benefits. The website content is designed to be as user-friendly and accessible as possible, giving people the knowledge and confidence to complete their purchases and get the best out of them.
"If you're building a product that customers don't want, you won't succeed. And if you're out of touch with who they are, what they're interested in, and what their drivers are, then your future will be pretty atrocious," Dilhan says.
There's a "pretty tight-knit" Facebook group of Urban Plant Growers customers who share their projects and what they've been able to grow beyond the specs of what the founders originally intended.
It's a group of incredibly engaged customers, and the team uses that to run polls and get feedback on things like unit designs. They can also learn about customers' challenges and start a conversation about how to solve them.
Submarine co-founder Victoria Beal explains that where once ecommerce companies were solving for reach – that is, figuring out how to attract customers on social media and elsewhere – they later shifted to solving for targeted reach, making sure they were reaching the right people in the right headspace at the right time.
Now, companies are solving for influence, she says.
"How do we connect with people, create an experience, build a connection with them that's more than the single transaction?
"I think that that's where we're going to see many tech solutions coming in – there will be much more thinking about a brand's experience and how to do things differently that tap into people's values."
Kate Morris, founder of Adore Beauty and Glow Capital Partners
Kate Morris founded Adore Beauty in 2000 and grew it into Australia's leading online beauty store, stocking over 200 brands. In August 2022, the business reported a record $200 million annual revenue.
Kate has seen some things as a pioneer of Aussie ecommerce (now also a Tractor angel investor).
Besides the gradual incline in popularity and the "COVID spike and freedom dip," she says what we're seeing now is consumer experiences starting to evolve.
Yes, she says there's a convenience aspect, but people shop online now for other reasons. Product selection, the ability to research products, and the immediacy of things like commerce via social media.
In some ways, things are easier for ecommerce startups. Many logistical barriers to getting set up online aren't there anymore, and the more sophisticated landscape means there's much support available.
At the same time, however, marketing is more costly and complex, and there are more data management and regulatory hurdles to consider – the iSO 14.5 update, for example – more competition and much higher consumer expectations.
"There was an opportunity for solely online D2C brands to cut through relatively easily; I don't think that's as easy as it was, so we're now seeing more omnichannel strategies," Kate explains.
"That's reinforced to me the importance of brand in creating a sustainable competitive advantage that can withstand the things that naturally change all the time."
As a Tractor investor, Kate believes in this model of funding. But as someone who has been deeply embedded in the ecommerce space for a long time, she is also uniquely positioned to understand what it can mean for these businesses.
"For an ecommerce business – or any consumer business that operates online – if you set up the unit economics correctly, then most of the time, you should be able to scale to profitability.
"The challenges tend to be around cash flow. You can get stuck if you have an inventory cycle longer than a month and your business grows quickly.
"That's the sort of problem you don't necessarily need to fund with equity funding because it's typically a shorter-term squeeze, so [Tractor's model] does solve those inventory pain points."
What happens next?
In the wake of the past few years of change, many of our interviewees were reticent to make predictions as to where ecommerce is going. But if there was one common thought, the change would continue, and innovation would follow.
ScentGod's Hargurpreet predicts that, like in so many other sectors, the future of ecommerce will be shaped by artificial intelligence.
ScentGod is already starting to incorporate AI systems to help offer customer recommendations and automate processes, saving the business time and money.
It's a pleasing cohesion of deep tech and commerce; innovation, and one of the oldest industries in the world. And ultimately, Hargurpreet believes those not on board with this tech revolution will stay caught up.
"There is no other way," he says.
"Consumers are sophisticated. They want things to be more productive. If technology is helping you do that, you must do that."
Syncio founder Jimmy sees ecommerce becoming more democratised and blended with entertainment and immersive experiences.
Content creators will be able to have their online stores, where they can sell a curated collection of items, with orders fulfilled by the original merchants. Everyone will have the power to be an influencer and a marketer, seamlessly directing sales to their favourite designers or to small businesses that align with their values.
He suggests that the evolution we're already seeing in social media commerce is just the beginning.
The evolution of ‘impact’ in startup land and how success evolves in an ever-growing sector. We focus on funding opportunities and challenges, and the shifting narrative around what an impact focussed company is.
Amplified Intelligence are attention measurement specialists, leading the global attention economy.