Today’s startup raised 185 million dollars in investments on a simple idea. Digital products for small businesses need to be sold through intermediaries! Moreover, these intermediaries are other small companies looking to earn extra money by selling these products to their existing customers. And to enter this large market, such a platform needs to be created.
THE ESSENCE OF THE PROJECT
Vendasta offers “earn even more money” to companies that are already selling digital products and services to small and medium businesses.
Companies that can earn more with Vendasta are web design studios, advertising agencies, those involved in social media promotion, search optimization, creative and content creation, as well as cloud service developers.
The method Vendasta suggests is for these companies to sell not only their products but also third-party products and services, making additional money from their resale.
For this, Vendasta has created a marketplace of products and services whose creators are ready to have them resold by other companies. They offer special purchase prices, additional discounts for sales volumes, and the ability to set their own prices for these products and services for end customers.
The marketplace features a variety of products and services that can be useful for small and medium-sized businesses in finding new and retaining existing customers, as well as enhancing their work productivity. This includes tools for organizing online store sales, managing online reviews and reputation, uploading and updating product catalogs on marketplaces, publishing content on social media, placing advertisements, creating and enhancing website functionalities, interacting with their customers, and optimizing operational activities.
Among the products from third-party developers on the marketplace, you can see products owned or managed by Vendasta. This is the same scenario when we see supermarket-branded products on the shelves in supermarkets – on which sellers earn more than on the sale of other brands.
Vendasta doesn’t even develop these products. They buy them from developers if they see that they are already selling well on the marketplace, or if there’s a high demand in that category but a clear gap in the offerings.
When a company decides to become a reseller of products from Vendasta’s marketplace, they can create their own mini-marketplace under their brand on the same platform. This allows them to assemble a collection of the most useful products for clients and the most profitable for resale.
The company can showcase and advertise this marketplace among its clients so they can purchase the products listed on it. Then, the company earns from these sales, and along with them, the developers of the purchased products and Vendasta earn too.
Vendasta earns not only from commissions on the sale of products listed on the marketplace but also from a subscription fee from resellers. The cost of the basic subscription is $359, $749, or $1,579 per month, depending on the features received.
At advanced levels, resellers can, for example, receive additional volume discounts and even rename the products they resell – presumably to be able to sell them at higher prices 😉
In reality, this mini-marketplace is part of another product – a “business portal” which resellers initially offer to their clients. This business portal is a platform that allows the client company to manage its business.
It includes a CRM, provides a platform for employee communication and interaction, can be integrated with business analytics, and can generate reports – but all at a basic level. To expand and enhance the functionality of the business portal, additional products can be purchased from the mini-marketplace embedded in this business portal, curated by the reseller.
The twist is that the reseller itself can manage its own business and product reselling through a similar business portal, but connected to Vendasta’s “big” marketplace.
Presumably, this is how Vendasta evolved. Initially, they created a digital product marketplace with a user dashboard. This dashboard then evolved into a full-fledged business portal. After that, Vendasta gave its users the opportunity to become resellers – selling to their own clients marketplaces and business portals under their own brand but built on the same platform.
From a technical perspective, nothing prevents a reseller’s client from becoming a reseller themselves, who would then resell the same business portals and their mini-marketplaces to their clients. This way, all levels of the resale chain, starting with Vendasta, would earn money from the resale. This would essentially form a classic MLM (Multi-Level Marketing) 😉
However, it seems that the Vendasta -> reseller -> client chain was enough to create a thriving business. This year, Vendasta ranked 296th on the list of Canada’s fastest-growing companies, increasing its revenue by 136% over the past three years. Vendasta serves 200,000 companies, with revenues exceeding 100 million dollars annually.
In 2021, Vendasta even planned an IPO. However, as the IPO hype drastically dropped that year, they instead raised 120 million dollars in investments, 52 million of which was in the form of debt that has now been converted into equity.
Along with this, the startup raised another 14.63 million dollars in new investments, bringing the total investment in the project to 185 million dollars.
What’s interesting
A growing trend is that intermediaries are becoming increasingly involved in the sale of digital products and cloud services. While it used to be believed that a fundamental part of the business model for selling digital products was direct sales to end customers, this changed as every digital product began to have multiple alternatives, intensifying competition. Digital product creators began looking for new sales channels and suddenly recalled the old-fashioned method of selling through intermediaries capable of actively seeking new customers.
The startup Pump resells Amazon cloud services to small and medium-sized businesses. Pump’s business model revolves around group purchases, where they get wholesale prices from Amazon and then add their commission when reselling to end customers. Still, the final prices for end customers turn out to be lower compared to what they could get if buying these services directly from Amazon.
I discussed a startup named SaaShop, which created an entire marketplace for selling cloud service subscriptions to small and medium-sized businesses.
Then there’s Vendr, which I noticed back in 2021, which negotiates more favorable terms for the activation and renewal of cloud services for larger clients. They’ve managed to attract $216 million in investments, with $150 million raised in the last two years since my review.
In essence, this is part of a broader trend where intermediaries are making a comeback in modern business models. Intermediaries can alleviate bottlenecks in many business models, making them more sellable, efficient, and scalable across various sectors. Here are just a few examples:
HirePort created a marketplace where companies can hire employees, but not directly. HirePort gathers recruiters (freelancers and agencies) that companies can use to find candidates. Similarly, Jomigo and several others operate on a similar model.
Jobox has compiled a large database of home repair professionals. Instead of turning this database into their marketplace, they offer local websites and SEO specialists the opportunity to use the Jobox API to create their local marketplaces for finding and calling professionals in specific areas or themes.
Sella helps people sell used items. Instead of creating their marketplace for these items, they collect requests to sell such items and then distribute them among individuals who have the time, resources, and experience to sell these items through existing services like Craiglist or eBay.
Where to run
The general trend is towards the creation of platforms that allow the sale of digital goods and services through intermediaries.
This old method could become the “new norm” in selling such products and services, especially since modern startups might either be unaware of it or have already forgotten it. 😉
Vendasta’s model is an interesting specific example to consider for replication, mainly because its target audience, both among intermediaries and end-users, are representatives of small businesses. And on practically any market, 99.9% of all companies are small businesses.
These businesses are currently undergoing rapid digital transformation. It’s projected that by 2026, 75% of all organizations will start using cloud services as the foundation for their business processes. As a result, they’ll need an even broader range of digital products.
Therefore, the potential market for marketplaces like Vendasta is not only vast but also growing.
Furthermore, if you’re developing digital products yourself, today’s overview might prompt you to consider two things:
- How can you introduce intermediaries into the sales funnel of your products? Who might they be? Why would it be of interest to them? How should you structure the pricing of your product to ensure a margin for the intermediary?
- Whose external products could you resell to earn more from your existing clients? What kind of products might they be? Why would it be beneficial for your clients to purchase them from you instead of directly from the manufacturers?