Just over a year ago I wrote about how MakeSpace had raised $17.5 million in capital to build out its operations in 4 cities: New York City, Los Angeles, Chicago and Washington D.C. I pointed out that the storage market in the US alone is ~$30 billion / year and there is no dominant provider — the largest player has < 10% market share.
If you have a storage need in one of these cities please consider checking out MakeSpace.
Today I’m excited to announce we’ve recently raised $30 million in growth finance led by 8VC, with Kimmy Scotti joining our board. We’ve been delighted with 8VC as a co-investor.
So how did a company that provides storage grow so fast (we’ll exit 2017 with 10’s of millions in recurring revenue), why is it so defensible and is it really a tech startup? In short — how the hell did we raise $30 million?
If you buy that Amazon is a tech startup then essentially you’ve already answered the question. Amazon took a consumer value proposition (buying books, then all retail products) and made the consumer experience significantly better, faster & cheaper. They didn’t do this by selling better books or electronics, they did it by building a logistics & warehouse powerhouse.
- Amazon didn’t need physical retail so it didn’t have an expensive cost structure
- Amazon put its distribution centers centrally located in cheap locations and can store significantly more inventory due to cheaper square footage and they can stack products high because you don’t visit the Amazon warehouse
- Amazon delivers the product to your house, which costs them money but due to large volumes of delivery, route density and large purchase volumes they make more than enough margin to cover their additional logistics costs
Essentially Amazon invested in being the world’s best logistics, warehouse and inventory management company. In the early days this is expensive because the logistics & warehouses are amortized over a small customer base but with scale this infrastructure and the technology that drives it becomes a powerful moat and hard for new entrants to compete.
MakeSpace is building the exact same systems but in reverse.
- MakeSpace doesn’t need large numbers of local storage facilities near your house, so it has a greatly reduced cost structure for its facilities. Today our physical costs are less than 50% of traditional storage providers and that’s trending towards 20% with volume.
- MakeSpace puts its distribution centers outside of expensive commercial zones near where customers live and given our warehouses don’t need to visited by humans we can stack our customers storage much more efficiently, driving higher yields
- MakeSpace will pick up your goods and bring them back to you so it is a vastly improved service for end consumers. Plus, we photograph your inventory and provide a beautiful app so you can know what’s in your storage at any time.
We have no doubt that the storage market is being disrupted and that each city is lined with what will look like ex Blockbuster Video locations one day or frankly be converted to more productive / high value use since many of them are urban.
Our defensible infrastructure comes from the fact that we now have huge volumes of customer storage earning the equivalent of SaaS revenue and any new entrant would have to invest in the fleet of cars, bins, drivers and warehouses that we now have not to mention 4.5 years of software development.
We now have enough density in each city to drive productive routes where we can do enough pick-ups & drop-offs per truck to operate profitably in our markets and density is something that most local businesses overlook.
We have built route management software so that drivers have productive routes and can cluster pick-ups and drop-offs. We’ve built warehouse software that helps us massively reduce the time it takes to unload inventory and pick, pack & ship back to you when you’re ready. We’ve invested heavily in inventory management software so we can track every bin and every item of your stuff and know where it is at all times.
And we’re investing in computer vision technology to better image your storage items and soon we’ll be able to predict what you have in storage based on artificial intelligence algorithms that can probabilistically determine which things are pictures, lamps, dressers, skis and so forth.
Building logistics businesses are never easy and it’s not always as sexy as building a consumer application that goes viral. But finding a market which is large, out-dated, has zero tech and is ripe for disruption can lead to very large outcomes. That’s some of what I suspect that team at 8VC saw in MakeSpace.
When we look at customer surveys we realize that the number one reason our customers are looking for storage is to de-clutter their lives and we believe that today’s young urban professionals are nearly universally looking to get rid of clutter.
I can’t wait until we can bring the service to your geography. Contrary to many people’s perceptions the storage market isn’t only in dense, urban environments like NYC or SF. In fact, is a national market where all of the 25 largest cities have more than 25 million rentable square feet each of storage space and many of the top 10 markets are in semi-suburban cities.
With our increases in capital we hope to be able to serve you in the near-term future.
(Cross-posted @ Both Sides of the Table)