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The power of Prime

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Amazon’s logistical operations continue to grow with the addition of their first plane, featuring a tail number that is (wait for it) prime. You might ask why Amazon needs to add planes to it existing fleet of trucks, cargo ships and drones (pretty much all that’s missing is a train). The answer is that customer experience trumps all. Having its own planes will help Amazon speed up delivery times and grow market share.
The ultimate goal for Amazon’s Prime service has got to be that you buy everything from them. There are two ways that Amazon can eliminate the competition – lower prices and a more convenient service. Lower prices come with scale, and are probably the easier objective to achieve. Convenience means having as many products as possible available for delivery to you as quickly as possible, and this means under the surface Amazon needs a massive and highly sophisticated logistics network. Hence the plane.
So what can startups learn from Amazon here?
I think Amazon is a great demonstration of the value of vertically integrated operations and the greater flexibility and agility this provides. Amazon also shows how a well-honed supply chain helps shorten order times and control working capital. This all contributes to a great customer experience (in Amazon’s case, cheap products delivered quickly), which leads to customer loyalty.
New retail startups don’t have to pick ‘quick & cheap’ as their brand message. Quality, fit or unique products may be equally good choices. But startups do need to work out what their message is and communicate it clearly.

Estimated reading time: 2 min

 

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  1. You could lose all the money you invest
    1. If the business you invest in fails, you are likely to lose 100% of the money you invested. Most start-up businesses fail.
  2. You are unlikely to be protected if something goes wrong
    1. Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here.
    2. Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
  3. You won’t get your money back quickly
    1. Even if the business you invest in is successful, it may take several years to get your money back. You are unlikely to be able to sell your investment early.
    2. The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
    3. If you are investing in a start-up business, you should not expect to get your money back through dividends. Start-up businesses rarely pay these.
  4. Don’t put all your eggs in one basket
    1. Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.
    2. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest
  5. The value of your investment can be reduced
    1. The percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
    2. These new shares could have additional rights that your shares don’t have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

 

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.