In Berlin, we meet Locafox co-founder and CMO Fabian Friede. He shares his story how he co-founded this startup and how the current business model works (supply and demand side), as well as how he plans to enter the market, and some advice for young entrepreneurs.
The transcript of the interview is below.
Martin: Hi! Today we are in Berlin with Locafox. Fabian, who are you and what do you do?
Fabian: I’m Fabian and I’m one of the founders of Locafox and I’m responsible for marketing here. What Locafox is, Locafox is local commerce marketplace that enables consumers to find products, all available products in retail stores nearby.
Martin: From my understanding, is that you have five founders and some of you did know each other before and some were new. How did you, what did you do before you started this company?
Fabian: So, before I worked for big German incubator and some of the other founders did as well. But you’re right, we are five founders and some of us worked together on another projects and we kind of, everyone knew somebody and in the end we kind of got together to build Locafox together, because I think we were very complementary team and with very good team fit and very good skill set that we brought together.
Martin: And what made you change from being, let’s say, entrepreneur in incubator to starting your own company together with your friends and colleagues?
Fabian: I think I always wanted to. It was always, like, this goal I had, but I never had the right idea, the right thing to do, to start. But then, yeah, the idea of Locafox basically came around and I think it was good time to jump on it, because you don’t often get these opportunities and really believe in the idea and also have a great team assembled. So, yeah, it was just the right time.
Martin: And how did you process to find this kind of idea?
Fabian: I think that came some… it was not this hurricane moment where we said: “Let’s build Locafox!” It was more like we all worked in e-commerce, and e-commerce is, if you look at the numbers, it’s around 10% of revenues in total retail. But if you work in e-commerce, you have like the Zalandos, the Amazons, you think e-commerce is everything. But then you look at the numbers, and like we worked for this tiny fraction, that’s interesting. And that time when we thought about this idea, there was very interesting study that spoke about the so-called ROPO customer. So, research-online-purchase-offline. So, there are a lot of people who actually use the internet to gather information in the whole buying process but never buy online, they just buy offline. In this study it was around 38%, which I think is amazing, right? You work in this e-commerce space, which is 10% of the industry and there’s the large group of people, 40%, who use the medium you use to sell to people, to just get information, and then buy offline. If you combine these two, these two findings that are basically which lead us think of Locafox.
Martin: And this ROPO group, do they especially advise specific product segments or do they buy generally offline?
Fabian: I think you’ll find them in all verticals, all product verticals, but in some product verticals you have them more than in others. I think fashion is where you have companies like Zalando but still, a lot of people buy offline. and why do they buy offline? Because you can touch the product, you can see if it fits correctly, you can see the color. Also, electronics, right? If you want to buy a new computer, which is worth 1000 Euros, some people just feel more confident to go in the store, to speak with someone, because they also want to know “If I want to return it, I can just go there” and it’s just, they just feel more confident with it. So, I don’t think you can say this is in one specific vertical, but it’s in basically every vertical. And, I also think about it that you can’t really say “You’re a ROPO customer, you’re an online customer, you’re an offline customer”, right? We’re hybrid. We do everything. It just depends on what feels right in that situation and what product it is and where you are. So, a lot of things come together, which is when you make the decision: do I buy it online or do I buy it offline?
Martin: From you, it’s the same, so I sometimes buy more expensive goods offline just because of the servicing and the return policies, makes it much easier to go there to the store.
Fabian: And, I, for example, just yesterday I had this example, right. You’re looking for something because you’re, for example, invited to dinner and you want to look nice and you just have two hours. You can’t order online. You have to go somewhere and then is really important to know where to go, and I think this is also where Locafox comes into place.
Martin: Great. Great pictures. Let’s talk about the business model. How does the business model currently work and, I mean, it’s something like a marketplace where you have some demand side and supply side. Can you tell us a little bit more about that?
Fabian: So, yeah. Locafox is two-sided marketplace. What do we do? We digitalize the store inventory of retail stores and then make this information accessible to consumers. What does it mean? We get all the inventory information, so availability, price, and so on. Let’s say from electronics store next door, and then, I’m looking for a new smartphone, I go to Locafox, I’m looking for new Samsung Galaxy, and what Locafox does, it shows you hey, these are the products in your area around you, and these are the stores that offer these products. And they are actually available, this is how much they cost and this is how you get to the store. And then, what you can do at Locafox, you can actually reserve the product and just go there and pick it up. And yeah, in the future what we will offer is also same day deliveries, so you don’t even have to get out of the house, but we can bring it to your door. But I think this is rather simplification.
Martin: Ok, so one of the major value drivers for the Locafox business model is this instant gratification, meaning that the customer can get the product within the next one-two hours offline. How do you make sure that the process flow is that automated, so that all of the inventory is really available and with true and transparent information on your platform?
Fabian: I think before we go into instant gratification, instant information, that’s our first USP, right? Because you can get information immediately, right, we have real time information about if the product is available, what it costs and where it is available. And this is the first step. And then the next step is the instant gratification, because you now know that you can have the product for that certain price at that certain retailer, you can just go there and pick it up or get it delivered. So, this is the first USP and second USP and then, the question was…?
Martin: How do you want to make sure because some of the big retailers maybe don’t have an API, so you get all data immediately, or they need a lot of time for responding to some customer requests, which would mean that the time between question and response would be quite high. That’s contrary to your value proposition.
Fabian: If I reserve a product at Locafox, what we do, we basically ping the retailer and say: “Hey, this product is reserved by a customer X”. What the retailer then does – he picks the product and puts it at, it depends on retailer, right, how their infrastructure is within the store, but let’s say this is a retailer who has an information stand and then they put it there and it’s reserved for you. Obviously, there’s some timeframe, but normally the response rate is very quick. In the end, that’s something we have to interact on. I mean, that’s why we are startup, because we have to build the solution to a problem, not because we already have it. I think how it works now, we never had a complaint that this part of the process didn’t work, but that’s why we have to funnel the rescheduling if we might have problem, because, in the end, you have to educate the retailer, you have to be open with a consumer, like, what is the status, you have to inform them, you have to be very transparent with the status of your reservation, and, basically, manage the expectations there.
Martin: Can you tell us a little bit more about the major hypothesis that you want to test and how do you try to test it?
Fabian: When we first set out to start Locafox, we didn’t say “Hey, let’s build Locafox!” We said “Hey, we have this hypothesis that people actually want this information that we now try to deliver”. We had several hypothesis, also that people want to get delivered within the certain amount of time, and so on. And what we did is, we first had to basically verify that. And we did that with speaking with lot of potential customers, so, we went out and interviewed a lot of consumers about all the expectations when they go shopping: when they go shopping online, when they go shopping offline. But also, we wanted to know how we can combine these both worlds to get the best out of it. Then we basically had this qualitative feedback, we then quantified our findings there with surveys, then we built an MVP to further test our hypothesis with real traffic that we brought…
Martin: With end user or…?
Fabian: Exactly. So, we had aside the basic offer, that exact same services like Locafox, but it’s not fully-functioning site, it didn’t look as beautiful as it does now. I’m saying that because we just had a re-launch last week and it really looks beautiful. That’s what we tested with.
Martin: What was this that you test with the retailers?
Fabian: With retailers in terms of if they…
Martin: If they would be interested in becoming a part of…
Fabian: That’s a qualitative research that we did, so we basically speak with them. We went to the big retail chains and we spoke with them, we also went in every lunch break, we went into different retailers in our area and just spoke with them: “Hey, just imagine you could do this. Would you like this kind of service?” And that’s what we did.
Martin: Ok. Great! In terms of corporate strategy, how do you plan to enter the market?
Fabian: We have a double-sided marketplace. It’s always that you can act problem. First, because we need retailers, so we have inventory on our side, and then we need to get consumers. But we always say “You can just serve one king” and the king is the consumers, because they, in the end, bring the money in. That’s why we’re doing now is we’re building density, how we call it, so we need a lot of retailers, the offers that we can show to the consumer. So, at the moment, our focus is to acquire all the retailers and then we have a city-by-city approach, because density in Germany is rather hard to get if you need to get all these small retailers where you have like hundred thousands of them. So, we can only focus on Berlin, Hamburg and Munich and acquire first big retail chains because if they bring in hundred stores we can get the density rather quickly. But then we also have free sales teams who really walk through every street of the city and speak to every retailer “Hey, guys, do you want to come aboard? We have this great idea, this great business, we bring value to you, we bring customers to your store that you’ve never had before.” This is what we do on the one side. Once we have the certain density, within different cities, we can then start market it. From the marketing perspective, what I think is very interesting for us, because we have a lot of unique information, on the other side, we have a lot of people looking for local information about the retailers. There was a study actually coming out in May this year from Google, and it stated that 4 out of 5 customers are looking for local information and they also found out what are they looking for, and in the retail section they look for store information like opening times, but also about product availability and so on. So, obviously, the organic potential here is rather high, but also to build that, it obviously needs some time. So, in the beginning we will definitely focus on paid, but in the end, what we want to build is a product for the mass market. It’s also about brand building. So, a lot of things are coming together here.
Martin: From my point of view, this is model with a lot of networking effects, if you once establish good marketing example, but how do you think about balancing being very dense in the German market, with internationalization, for example. There’s only specific window opportunity in several markets but would you rather focus only on Germany first until you get 50% market share or would you rather go abroad if you had, let’s say, 2% of market share?
Fabian: We have a certain strategy for going international, but we need to see. We are building a business here that didn’t exist before and we don’t know how fast the adoption rate will be and so on. But I agree that it makes more sense to first go for higher market share than already start internationalization at the market share of 2%. But in the end, that’s what you need to judge when you really are there at the point and you see that opportunity window might be closing out of the market and that you have to decide – go or don’t.
Martin: We always try to share some kind of insights with first-time entrepreneurs and people interested and they are starting their own company. What have been your major learnings for starting and scaling companies?
Fabian: I think, if you start a company, you have to be really passionate about what you do, about the product you build, about the problem solved, because there will be a lot of ups but a lot of downs as well. If you’re not really passionate about it, it’s a lot of stress, probably not worth dealing with. So, I think, if you’re going into starting your own venture, do something you’re really passionate about. What I think that is also very important, and what I think a lot of companies might improve is: be very close to your customers. You want to learn. Especially a startup – you build something and need to reduce risk. And how do you do that? By speaking with your customers. By knowing exactly what they want, what they’re willing to pay for. That’s why you never lose touch with your customers. If they make an order just call them, follow up, most of them are really happy if you’re calling and ask them “Hey, how was your experience? Is there anything we can do better?” I think that is very important because otherwise you might build a picture-perfect product, but nobody wants to pay for it. That would be very bad thing, not only for you, but maybe for your investors as well, and you probably could’ve done something way more productive in that time as well. I think – never lose the touch with your customers.
Martin: Thank you very much, Fabian.
Fabian: Thank you.