Nik Sharma & Keith Rabois on turning DTC into passive income

Nik Sharma sat down with Keith Rabois in NYC to talk about the future of e-commerce. The pair covered challenges for direct-to-consumer (DTC) brands and how Shopify merchants can currently leverage a new offering to generate passive income from their online store.

Both donning entrepreneurial backgrounds and sneakers: Nik is also an investor and growth marketer, and Keith is the CEO of OpenStore and a general partner at Founders Fund.

Stress of running a Shopify store

Keith Rabois realized that the reason many Shopify founders approached OpenStore to sell their business was because they were bogged down by the day-to-day grind and stress of operating their stores.

Running your own e-commerce store and all that comes with it (marketing, operations, fulfillment, hiring vendors, taxes, etc.) often leaves e-commerce owners with little time, energy, and money.

Despite that, entrepreneurs aren’t always ready to sell their stores outright — Keith explains:

“Not everybody wants to sell it and it's emotional to sell your business. I think that was probably the biggest insight: a sale of a business you've built is both a financial transaction and an emotional transaction.”

Generating passive income for Shopify store owners

Keith and OpenStore’s latest offering aims to address these challenges: “by launching OpenStore Drive, we were able to focus on the financial transaction without a lot of emotional baggage.”

OpenStore Drive’s value proposition is simple:

“Without the 24/7 grind, the headaches, we'll give you a guaranteed year's cash flow — in exchange for us running your business. We take longtail Shopify merchants, so say $500,000 to $10 million in GMV, or sales, and we offer them stress relief.”

OpenStore owns and operates 40+ stores, making it the operator of the largest number of Shopify stores in the world.

Who operates the stores?

OpenStore’s team of e-commerce experts look after the Shopify brands that are acquired or operated through OpenStore Drive. Keith elaborates that there are teams for customer support, customer acquisition, retention, branding, visual design, and there’s even a video creative team. 

Nik Sharma summarizes: 

“It sounds like there's basically pods that within OpenStore: you have a direct response pod, you have brand pod, a design pod.”

Correct. Keith shares more about how the teams are organized:

“So we have a customer acquisition team. Within that team, there’ll be someone who's an expert on paid social, someone who’s an expert in Google. And then there's a video creative team that creates and feeds creative to all those teams. So we’re organized by skill set and craft, and tend to be excellent in the crafts.”

Nik asks, “How many people are within these pods? If somebody is saying, OK, I'm making $2 million a year, I'm gonna hand my business over to OpenStore. How much attention am I getting?”

Keith explains, “Probably 60% of the company works in these pods. So we have a fulfillment team that minimizes the shipping cost, minimizes the storage costs of the third-party logistics and as we have more scale, we get better terms.”

What is their track record?

“If you look at the profiles of these people, the people running fulfillment, supply chain stuff have been doing this for 10-30 years. At very interesting companies, and almost all of them worked at Amazon at some point, interestingly enough.”

Pricing & requirements

Keith elaborates that most Shopify stores could be eligible to join OpenStore Drive — in all DTC e-commerce categories from activewear, hearing aids, jewelry, skincare, swimwear, furniture, homeware, beauty, electronics, and food.

He addresses the current discounted management fee for OpenStore to operate your store and guaranteed passive income payments. Timestamped section below:

The present and future of e-commerce

Keith and Nik discuss how e-commerce has flatlined in the last few years, and how online shopping is missing the magic of discovery. Keith brings us back to his childhood, when malls and shopping centers were cultural and social gathering places:

“It'd be a way to hang out with your friends, to go on dates, it’d be a way of consuming time. We often went when we had no specific purchase in mind. And then while we were there, we would wind up buying things. But nobody's replicated that online. Because it's very challenging.”

Keith relates this back to a clash between intent-based searches vs. the discovery of products. Even in e-commerce today, Keith explains, “most purchases — around 30-60% — are not things that people have initial purchase intent or search intent for. And it's been a very difficult problem to solve.”

So far, the best solution for this is for business owners to leverage interruptive ads on social media.

But Keith reminds us of a low click-thru rate of around 1.2% for ads when people are browsing content on Meta’s Instagram and Facebook platforms. It’s not the perfect place for buyers and sellers.

What’s next for OpenStore

Keith hints about an upcoming product later this year: 

“If you can recreate the social experiences, I believe that you can get the purchase intent to be higher than the interruption marketing of like 1.2% on Meta and other social networks.”

Nik Shama adds, “that sounds a lot like a marketplace that helps inspire purchases, or prospect for purchases.”

Keith elaborates further: 

“eBay was part entertainment, part purchasing — meaning you’d have a thrill participating in the auction, bidding, closing at the last second. And then the rest of the content on the web got better. There were things like YouTube invented and there were much better ways to consume time if you had free time, social gaming…

eBay lost the ‘here's where you go for fun and commerce’ and we're going to bring that back.”