5 Questions to Ask Before Investing in an eCommerce Company

As the eCommerce industry continues to grow, investors are eager for a piece of the profits generated by online retail. However, one of the biggest challenges eCommerce startups face is rapid growth and scaling their business strategies to meet increased sales.

Investors don’t want to put $20 to $400 million in an eCommerce startup that can’t grow. To protect their investments, VCs need to properly assess the capabilities of a retailer’s third-party logistics (3PL) provider before committing to the next round of funding.

By asking the right questions, you can more accurately determine whether a retailer’s 3PL is capable of scaling fulfillment to accommodate a sharp growth curve:

1. Does the 3PL have a performance-based history and experience with larger online retailers?

Most 3PL providers can leverage basic infrastructure to help retailers reach the $5 million/150 orders per day benchmark. But investors must determine if the 3PL has the ability to handle a “hockey stick” growth curve to take a retailer from its early stages to $50 million without completely retooling infrastructure.

2. Does the 3PL provide retailers with key performance metrics on a consistent basis?

Accountability is the driving force behind a 3PL relationship that is both healthy and sustainable. It’s important to look at whether or not the logistics provider regularly delivers mutually agreed upon performance metrics to the retailer and its investors.

3. Are the 3PL’s shipping and packaging solutions tailored to meet the retailer’s needs?

VCs must determine whether a retailer’s logistics provider has the equipment, technology and facilities to provide tailored shipping and packaging solutions on a large scale. Signs that a 3PL is equipped to deliver these solutions are customer software development and first-rate client services departments.

4. Does the 3PL prioritize evolution and improvement initiatives?

The best 3PLs constantly evolve through continuous process improvement initiatives. They generate ideas that cut supply chain costs and they use technology to help clients grow their business. To assess a 3PL’s improvement agenda, ask about the company’s current initiatives to drive change and examples of past initiatives.

5. Is the 3PL culturally aligned with the retailer?

The company cultures of the retailer and the 3PL must be aligned before the retailer can grow rapidly. While technology is important, startups poised for rapid growth should have a solid relationship with a responsive 3PL that can continually provide a high level of customer care – even after capacity has increased tenfold.