Grant LaFontaine

Whatnot's $20B valuation beats Wendy's, Under Armour, Hertz and Harley combined

Shaan puts Whatnot's roughly $20 billion valuation in context: it is worth more than the combined market caps of Wendy's, Under Armour, Hertz, Harley-Davidson and American Airlines. Grant LaFontaine co-founded the live-shopping marketplace about six and a half years earlier.

“You built a company that is worth $20 billion. But just put that in perspective. That is more than if you add up the entire market cap of Wendy's, Under Armour, Hertz Rental Car, Harley-Davidson, American Airlines also. Isn't that bananas when you hear that?”

Kill a bad idea in two calls: ask operators what the costly part really costs

Whatnot started as a 'full-service Craigslist' that would also handle delivery. Grant LaFontaine messaged delivery heads (for example at Bob's Discount Furniture) on LinkedIn to get per-leg delivery costs. After two calls it was clear there was no margin on low-value used goods, and the team changed direction within about 24 hours.

“So I go on LinkedIn and I LinkedIn all of these people who run delivery businesses, like the guy who runs delivery at Bob's Discount Furniture, the guy who runs delivery at all these other companies. And they take calls with me. I'm like, how much does a delivery cost at scale? And so how much is each leg and how efficient is it? And they were nice enough, they sort of told me. And after doing 2 of those calls, like, this just doesn't work. Like, the cost per delivery relative to the value added on the used item is just, there's no margin there for the business.”

Steal thisBefore you build, cold-message the people who run the most expensive part of your model at existing companies and ask what it costs per unit at scale.

Pick a marketplace wedge by charting eBay category sales over time

To choose a starting category, Whatnot's founders used Terapeak to plot sales over time for every eBay collectibles category. All of them were booming, and more Funko Pops sold than comic books, so they started with Funkos (Pokémon was the runner-up).

“There was a tool, I think it was called Terapeak, and We went across every single collectibles category and plotted the sales in collectibles through time and how it was growing. And in every one of these categories, it was like going gangbusters. So there was clearly a broader trend happening in the market. And when you looked at it then, there were more Funkos being sold on eBay than comic books, which is one of the reasons we ended up choosing comics, or sorry, Funkos over, you know, say comics or a bunch of the other categories.”

Steal thisPull historical sales by category from the incumbent marketplace and launch in the fastest-growing, highest-volume niche it serves badly.

Start in a tiny market, win it, then expand

Investors balked at a 'Funko Pop company' as too small even while Whatnot was growing 100% month over month. Grant LaFontaine argues that almost every great consumer company began in a niche, because a four-person team cannot create real value in a mass market.

“But the reality is when you dissect history, All of those companies started in an incredibly small area, and almost every great company starts in an incredibly niche or small area and then takes that and catapults it forward. Because if you're a 4-person company like we were in the early days, you can't compete in a mass market. It's almost impossible to drive a ton of consumer value in a mass market. So instead, what you have to do is you have to compete in a small market, build a really great user experience for a smaller subset of people, and then expand it.”

Steal thisChoose a market small enough that your tiny team can build the best experience in it, then expand from that beachhead.

eBay's first sale was a broken laser pointer, not a Pez dispenser

The Pez-dispenser founding story was reportedly invented for PR. According to Grant LaFontaine, eBay's first real sale was a broken laser pointer bought by a collector of broken laser pointers, and PR did not want eBay known for junk.

“The real one was like the first item sold on eBay was a broken laser pointer sold to a broken laser pointer collector. And, and the PR just didn't want eBay to be known for like broken junk. And, and so, you know, told the Pez dispenser story.”

Solve marketplace chicken-and-egg by being the only seller

Whatnot launched with itself as the sole seller, listing Funkos it did not own. When someone bought one, the team sourced it from about 100 online stores (with help from a team in Brazil), authenticated it, and shipped it. That built the buyer side first while adding authentication as extra value.

“So the way we got things going is, so classically with a marketplace, you have a chicken and egg problem. How do you get sellers if you don't have buyers? How do you get buyers if you don't have sellers? So the way you solve that is you solve for one side of the equation. And so we were initially the seller on Whatnot. And so all of the early inventory was us. Now obviously we can't own 28,000 Funkos. So what we did is we would go and authenticate them.”

Steal thisAt launch, be the supply side yourself by listing inventory you can source on demand, until buyer demand is strong enough to bring in outside sellers.

Weekly grail giveaway where every referral earns another raffle ticket

Whatnot's early buyer growth came from Funko YouTubers plus a weekly giveaway of a $500 to $1,000 'grail' Funko. Entering required sharing, and each signup through your link or code earned an extra ticket. That let Whatnot effectively take over Funko subreddits and Facebook groups.

“And what we would do is once a week we'd give away like a $500, $1,000 Funko Pop. And in order to be able to enter, you would have to share it. And we sort of built these mechanics where you could sort of have unlimited sharing. So someone could sign up with your referral link, Someone could sign up with your code. You could share it on Twitter, you could share it on Instagram. And each time someone used your link or your code, they would get an extra ticket in the raffle.”

Steal thisGive away the most coveted item in your niche every week and award an extra entry for each referral signup, with no cap on sharing.

Whatnot's first $500 giveaway flopped: 104 entries, zero purchases

The first grail raffle drew 104 entries from perhaps 30 to 40 accounts and no sales, while the company ran on Grant LaFontaine's shrinking savings. They kept going, used push notifications to bring entrants back, and the second raffle drew about 250 entries, enough to show the loop could compound.

“So we gave away this like $500 item and I think 104 people, there were 104 entries total in the raffle, maybe that's like 30 or 40 accounts or something like that and no one purchased anything, which you're like, uh-oh. And we didn't have, we had like no money for the business back then. It was like all coming out of my bank account. So like, oh, this is painful and I'm not working. So like the bank account's dwindling at that point. Yeah, I think there's always just a sweet spot between when do you know a thing's actually, when have you proven a thing wrong that it's not going to work and when have you given it enough legs to make it work?”

Steal thisBefore you kill a growth experiment, decide what result on the next run (say 2 to 3x more entries) would show it has legs.

Keep early sellers by cross-listing their items on bigger marketplaces

Whatnot did not let outside sellers in until about three months after launch, once it had demand. Even then, each new seller's inventory was cross-listed on other marketplaces through Whatnot's own account, so the combined demand got them sales and kept them around. Sam compares it to Airbnb's Craigslist hack.

“And so I think we, you know, we, we launched the platform in December 2019 was when we launched our app. And then we didn't open it up to our first seller until I think towards the end of February was when we started to have enough demand in the marketplace. And even then we, we did another hack, which was anytime a seller would come on Whatnot, they'd get our audience. And then we figured out a way to cross-list it across other marketplaces. Using our Whatnot account.”

Steal thisBorrow liquidity for new sellers by syndicating their listings to larger marketplaces under your account until your own demand can keep them.

Whatnot sales: $2.3M in 2020, about $165M in 2021, $1B in 2022

After 30 sales in its first month and a live-auction launch in July 2020, Whatnot ended 2020 at $2.3M in sales with 17 to 18 staff. It closed 2021 at roughly $163M to $168M (Grant says 168, then corrects to 163) with about 100 employees, and reached $1B in sales the following year, taking about 10%.

“Yeah, our take's probably like 10% of that. Then continued to inflect up. By December of 2020, we sort of ended the year at $2.3 million in total sales, and the number of employees in the business would have been, I think, about 17 or 18. We closed the following year at $168 million.”

Big-company résumés are a bad hiring signal for startup execs

Grant LaFontaine says an early Whatnot mistake was acting 'too corporate' by hiring executives from well-known companies. A big title elsewhere did not mean they knew what they were doing; what matters is whether someone can explain in specific detail what they do and how.

“Like, I think one of the mistakes we made early on, the business was just trying to be, you know, too corporate, for lack of a better word, which is like hire some executives from well-known companies, hire people from well-known companies. And it's sort of like one of those things where the story sounds good, but the reality is often, you know, a lot different. 'Cause you'd sort of go like, oh, you ran such and such at this big company, you must know what you're doing. And that actually turns out to be broadly incorrect. No, someone needs to know and be able to articulate in specific detail what they're doing and how they're doing it.”

Steal thisIn executive interviews, ignore the logo and make candidates walk through exactly how they did the work, step by step.

A/B tests are notoriously bad on two-sided marketplaces

Grant LaFontaine explains why Whatnot does not trust feed A/B tests on their own: changing what buyers see moves them into different streams, which changes how sellers behave and contaminates both arms of the test. Looking at each seller's impression elasticity showed that higher buyer engagement could still shrink sellers' businesses.

“so A/B tests are notoriously bad on network systems. So if you like A/B test a thing, you change the feed, which means you change what users see, and then people all of a sudden start to go into different streams. Now, as they start to go into different streams, the sellers will behave in different ways, which means you pollute both sides of your A/B test, as an example.”

Steal thisOn a marketplace, check seller-level impression elasticity over longer time horizons instead of trusting a feed A/B test alone.

The middle-school test: if you can't explain it simply, you don't know it

Grant LaFontaine says smart hires often hide behind big words. His rule is to keep asking 'what do we know and how do we know it?' until the person can explain it at a middle-school level. If they can't, they probably don't understand it. Shaan compares it to Emmett Shear's Socratic questioning at Twitch.

“And so my job oftentimes is to try and get to the simple sets of truth around things. What is the simple sets of things? What do we know and how do we know it? And so if you start to use a bunch of fancy words, I'm going to make you explain it to me like I'm in middle school. And if you can't explain it to me like I'm in middle school, you probably actually don't know what you're talking about. And I just will keep going and going and going and going and going until it can be explained.”

Steal thisWhen someone uses jargon in a review, ask them to explain it at a middle-school level and keep asking 'how do we know?' until they can.

If you think you're moving fast, you're probably moving slow

Asked about a line of his, Grant LaFontaine says almost everyone who claims to be moving fast is not. If you have time to talk or even think about your speed, you are too slow, and you can always go faster.

“Yeah, almost everyone who says they're moving fast is moving slow, if I'm being honest. If you have to talk about it, you're moving too— you're moving too slow. If you even have time to think about it, you're moving too slow. And frankly, you can always move faster.”

Live commerce will be 30%+ of all e-commerce within a decade

Grant LaFontaine predicts live shopping will grow from single-digit percentages of e-commerce today (the top three US and European players total about $30B) to over 30% within ten years, a 20 to 30x jump. His comparison is China, where it is about 40% of e-commerce.

“Yeah, I mean, I think so. Just stepping back at like a macro level, I think you're gonna see over the next decade that live commerce will be 30+% of all of e-commerce. It means this is just like an absolutely enormous market.”

Picks and shovels for live sellers: wholesale supply and live-shopping MCNs

Asked what to build on top of Whatnot's growth, Grant LaFontaine points to wholesale marketplaces that supply inventory-hungry live sellers (several have raised large rounds mostly on Whatnot demand) and multi-channel networks that help people run live shopping businesses.

“Um, then there's, there's a bunch of peripheral services around there. So one of the things we're starting to see is, um, like wholesale marketplaces directly supplying, supplying our sellers is a really big opportunity because they need a lot of inventory. Um, I've, I've definitely seen a couple of wholesale marketplaces get pretty substantial fundraisers. And I know a huge chunk of that growth is off the back of Whatnot, as an example. So I think there's, there's a lot of opportunity around helping these people source really great supply. And then you're sort of starting to see what they call MCNs around this stuff. So multi-channel networks, which is a bunch of people who specialize in helping people run their, their live shopping businesses.”

Steal thisStart a wholesale sourcing marketplace or an MCN-style agency that serves high-volume live-shopping sellers.