A look inside Swedish e-commerce incubator Nordic Etail
October 11, 2016 05:20 PM
Swedish e-commerce incubator Nordic Etail has slipped under the radar of most industry analysts, although its investments have been very successful. This could change with the launch this summer of its ”e-commerce factory”—a hub for e-commerce entrepreneurs where they can collaborate and exchange knowledge and experiences, and receive support on implementations and the system features that every e-retailer needs.
Founded in 2014, Nordic Etail starts, invests in and develops early-stage e-commerce companies. The company also says it is excited about "complicated" offline verticals and aims to deploy its experience from multiple e-commerce projects to develop growth and profitability. Its most successful project is Bythjul.com, the leading Nordic company in online sales of tires and rims that was sold to French auto parts and service company Mobivia Group in 2015.
Current investments include Cykelkraft, the largest Nordic online cycle retailer, and Mekster, an online retailer of car parts and services.
”We want to attract the most exciting entrepreneurs based on our model,” says Marcus Fredriksson, one of Nordic Etail’s founder. “We replace, recruit and motivate key staff in portfolio companies and attract top e-commerce talent in central functions that we share with our portfolio companies.”
“Our business model allows us to fast-track growth,” says Nordic Etail’s cofounder and CEO Torkel Hallander. ”Smaller companies often struggle to attract and afford the right competence, people and systems. Specific industry knowledge is key to success in any business. In addition, there are a number of central functions that everybody needs, like marketing, finance and accounting, logistics and IT. We can provide all that and let the entrepreneurs focus on the core business.
“Many of us know how difficult it can be to achieve scale in an e-commerce business. As an entrepreneur you have to understand and work with a wide range of critical functions, like IT development, marketing (especially online), customer service, etc. Many end up in a situation where they try, but fail, to manage everything yourself.”
Outsourcing central functions is not the solution
Most e-commerce entrepreneurs solve that problem by outsourcing many of these actually quite central e-commerce expertise to consulting firms, which could prove quite costly.
The outsourcing strategy often works for companies operating in immature verticals with low e-commerce penetration rates, because margins tend to be high enough to finance the whole thing. But an increasing number of verticals are seeing increasing competition, price erosion, price comparisons and increasingly demanding customers. These developments make it difficult to pay the middlemen’s margins. Also, many e-commerce entrepreneurs feel that they do not always get the best and most effective solution through outsourcing.
If you can not afford to outsource everything, you must try to deal with it yourself. But small e-retailers can seldom afford to buy the best IT systems and hire the best staff for all the various supporting functions. Especially in big cities there is fierce competition for the best IT developers, online marketers, and customer service representatives. Anyone with e-commerce experience is piping hot.
The founders of Nordic Etail have seen these problems with their own eyes, and apparantly managed to solve at least most of them. The track record is impressive. Bythjul.com grew from zero to a $40 million annual revenue and was nicely exited, and Cykelkraft is already the largest online bike shop in Sweden with over 100 per cent annual growth (and is profitable).
”A dynamic, exciting environment”
”We want Nordic Etail to be a dynamic exciting environment where young rising stars wants to work, where skills are intermingled with the experience and track record, and where everything is connected with a holistic IT platform,” Hallander says.
Nordic Etail invests in, develops and operates e-commerce companies in early stages ($0-10 million annual revenue). In order for companies in Nordic Etail’s portfolio to succeed, Nordic Etail has has created a “factory” with its own staff and expertise—and systems—in all the important functions, such as marketing, IT development, purchasing, logistics and so on. At present there are around 20 people working in all these core functions, and with four different verticals (bicycle, auto spare parts, bathrooms and pharmaceuticals). The portfolio companies are plugged in to Nordic Etail’s factory in everything from the flow, operations, IT systems and experience. Nordic Etail functions as a business accelerator that invests equity, experience and operational expertise.
The difference between Nordic Etail and many venture capitalists is that the founders of Nordic Etail roll up their sleeves and put a lot of time and effort into their portfolio companies. In many ways, Nordic Etail is Scandinavia's version of Britain’s 'the Hut Group'. The founders include Torkel Hallander (management and business), Marcus Fredriksson (business development and marketing), Oscar Fredriksson (business development and purchasing/logistics) and Victor Fredriksson (IT and IT development). (Yes, the three Fredrikssons are brothers). Svante Andersson is Nordic Etail’s chief financial officer. Together, they have extensive e-commerce experience and track record.
According to Nordic Etail, the key to success is the people—both the entrepreneurs and the central functions staff. To attract the best people, and keep them happy and productive, the company has recently moved to a modern and functional office next to the Hammarby canal on trendy Södermalm Island in Stockholm. There are wide-open spaces, sea views, high ceilings and large windows, flexible workplaces, table tennis and a really cool environment for the hard-working people of Nordic Etail to enjoy.
Nordic Etail is presently searching for additional ”family members” (as it calls its portfolio companies) to its factory and has several ongoing discussions. It is worth keeping an eye on this ambitious Nordic actor.
Peter Karaszi is a public relations consultant and author.