End-to-End Operators: The Future of Consumer Business

At Battery, a key component of our investment strategy focused on consumers is monitoring the changes in how individuals discover and acquire products and services. Our annual Battery Marketplace Index has revealed significant alterations in consumer buying patterns over time, beginning with the shift to the internet and, more recently, to mobile and on-demand access through smartphones.

This progression can be summarized as follows: Initially, platforms such as Craigslist, Angie’s List* and Yelp essentially transferred the Yellow Pages to an online format – allowing users to locate a new eatery or a plumber on the internet, though contacting them generally still occurred offline. As consumers became more accustomed to the web, marketplaces like eBay, Etsy, Expedia and Wayfair* appeared, allowing transactions traditionally completed in person to take place online.

In more recent times, and largely driven by mobile technology and on-demand services, managed marketplaces including Uber, DoorDash, Instacart and StockX* have advanced the process of online consumer purchasing even further. These platforms assume a more active role in the marketplace’s operations, encompassing automated matching of supply and demand, quality assurance of the supply side, and dynamic price adjustments.

Each phase of this development has generated billions of dollars in economic activity, and many of the companies mentioned continue to be leading consumer internet businesses today.

At their foundation, these companies act as intermediaries, connecting consumer demand with the available supply of a product or service. While these companies undoubtedly provide substantial value, we are increasingly convinced that simply enabling a transaction or service is insufficient. Specifically in sectors where supply is limited, or in established industries with slow product or service innovation, a digitized marketplace – even a managed one – can result in unsatisfactory consumer experiences.

In such cases, a complete overhaul, starting from the beginning, is truly necessary to provide an ideal consumer experience. Chris Dixon touched upon this concept in 2014 with his article on “Full stack startups.” Several years later, a growing number of startups are adopting a “full stack” approach, or as we term it, becoming “end-to-end operators.”

These businesses are fundamentally redefining the product experience by controlling the entire value chain, from beginning to end, and consequently delivering a significantly improved experience for consumers. Managing a greater portion of the operational stack provides these companies with enhanced control over quality, customer support, delivery, pricing, and other factors – ultimately resulting in a better, quicker, and more affordable experience for consumers.

It is important to recognize that these end-to-end models typically necessitate greater capital investment to achieve scalability, as a larger initial investment is required for launch compared to more specialized marketplaces. However, in our experience, the increased capital requirements are frequently offset by the value gained from owning the complete experience.

End-to-end operators span many verticals

A significant number of these companies have achieved substantial growth across diverse sectors:

These organizations have all determined they can enhance the benefits provided to customers by controlling each component of the product or service they offer—for example, encompassing both the bicycle and the fitness programming with Peloton, or integrating the banking account with the credit card through Chime. They have fundamentally changed and redesigned the complete customer journey, from beginning to conclusion.

What does success for end-to-end operator businesses look like?

As investors, we have been fortunate enough to engage with numerous emerging end-to-end operators and have observed that the most successful ones consistently demonstrate the five key characteristics outlined below:

1. Targeting exceptionally large markets

The end-to-end strategy is most effective when applied to significantly large markets. As illustrated above, many companies employing this approach operate within expansive, yet traditionally outdated industries such as banking, insurance, real estate, and healthcare. Established companies in these sectors are substantial and well-established, but their legacy systems hinder their ability to quickly embrace new technologies. They have largely failed to address the requirements of today’s digitally-focused, mobile-first consumers, resulting in experiences that fall short of current expectations (often reflected in low, or even negative, Net Promoter Scores). A complete overhaul of the experience, starting from the beginning, is often necessary to satisfy modern consumers within these substantial markets.

2. Delivering a significantly improved consumer experience compared to existing options

The primary goal of an end-to-end approach is to provide a superior value proposition to consumers when compared to traditional alternatives. Achieving this requires pinpointing the most significant pain points in the current landscape and structuring your business to specifically address them.

Peloton serves as a prime illustration. Traditional fitness often meant going to a gym, which many found unpleasant (with less than 20% of members exercising regularly) and, during recent events, potentially unsafe. While many digital fitness content providers have emerged, Peloton has achieved the greatest success. This was accomplished by integrating its own hardware, software, and media to create a novel, convenient, and enjoyable at-home fitness experience.

The company, with a market capitalization of approximately $50 billion according to CapIQ, consistently reports NPS scores in the 80-90 range and maintains a monthly churn rate of under 1%. This exemplifies what a substantially enhanced customer experience looks and feels like.

3. Integrating technology and data as a fundamental advantage and barrier to entry

Technology and data are essential components of all thriving end-to-end operators. When used together, they can streamline customer acquisition and distribution, reduce both fixed and variable costs through automation, lower prices for consumers, expand or generate new supply, and ultimately enhance experiences (leading to increased customer loyalty). Data and technology distinguish next-generation companies from incumbents and create robust competitive advantages over time, making it difficult for new competitors to challenge them.

Emerging insurtech companies such as Lemonade (for renters insurance; NYSE: LMND), Hippo (for homebuyers), Ethos (for life insurance), Next Insurance (for small businesses), and Root Insurance (for autos; NASDAQ: ROOT) provide compelling examples. These companies utilize technology to simplify the traditionally complex insurance purchasing process, enabling consumers to obtain coverage more quickly and easily. As digital-only providers, they do not rely on traditional offline agency networks for distribution, and their customers can access policies from any location. Leveraging real-time data allows for more accurate risk assessment, potentially leading to cost savings (particularly for lower-risk customers).

4. Achieving superior unit economics compared to legacy businesses

Technology should also result in more favorable business models for end-to-end operators. While these businesses may require greater initial capital investment (due to rebuilding infrastructure and owning more of the value chain), their long-term profit and loss statements can be more appealing due to improved unit economics and reduced overhead associated with traditional businesses.

Neobanks like Chime, N26, and Revolut are excellent examples. Despite offering fee-free services to consumers, they demonstrate attractive unit economics. This is achieved by operating without the costs of physical branches—they are entirely digital. Their revenue model is also effective: for instance, merchants pay an interchange fee each time a consumer uses their debit or credit card, a portion of which the neobank retains. This provides a predictable, consistent revenue stream with high margins. Customers who establish direct deposit into their neobank accounts exhibit greater loyalty, allowing the bank to offer additional services like lending, trading, or wealth management, increasing average revenue per user (ARPU) without incurring additional acquisition costs.

However, not every venture succeeds. WeWork, for example, provided a pleasant experience but was poorly managed and lacked a sustainable business model, with unit economics that were ultimately unsustainable. It was a compelling product, but a flawed business. If you are developing an end-to-end business, ensure you have both.

5. Building a brand that fosters trust and drives organic growth

By owning and managing the entire experience, you can cultivate a distinctive and enduring brand. This, in turn, attracts more customers organically through word-of-mouth referrals or simple brand recognition.

Many direct-to-consumer (D2C) e-commerce companies have pioneered the end-to-end approach, with a strong emphasis on building compelling brands. Away’s luggage is central to a brand culture focused on travel and visually appealing content. Dollar Shave Club leveraged humorous, memorable advertising to establish a digital brand for all men’s grooming products. Glossier (beauty/wellness) utilized influencers to expand its brand through social media platforms.

Nothing good comes easily

Establishing a fully integrated operator business presents considerable hurdles and isn’t suited to all entrepreneurs. Constructing such a company is demanding because, as Chris Dixon observes, “proficiency in a wide array of disciplines is essential: encompassing software development, hardware engineering, product design, direct-to-consumer marketing, supply chain logistics, sales operations, strategic alliances, and regulatory compliance, among others.”

Founders in the process of securing capital may encounter the need to thoroughly explain to venture capitalists the scope of their investments and articulate how these investments will generate returns in the future. Nevertheless, successful implementation of these initial investments can lead to substantially improved customer satisfaction, businesses that are difficult for competitors to duplicate, exceptional financial performance, and the creation of leading brands – all of which can generate considerable long-term value.

An astute investor will be able to identify the presence of these key success factors and assist in maximizing the company’s overall potential.

Battery Ventures offers investment guidance exclusively to privately offered funds. Battery Ventures does not offer its services to the general public or other advisory clients, nor does it solicit them. Further details regarding Battery Ventures’ prospective funding options for potential portfolio companies can be found on our website.

*Indicates a company that is currently or has been part of the Battery Ventures portfolio. A comprehensive list of all Battery Ventures investments is available by clicking here. The investments mentioned above are presented for illustrative purposes only. It should not be assumed that any of these investments have been or will be profitable. Future recommendations should not be expected to yield profits or match the performance of the companies listed above.

Information sourced from external parties, while considered reliable, has not undergone independent verification for accuracy or completeness and cannot be assured. Battery Ventures assumes no responsibility to update, revise, or amend the content of this publication, nor to inform readers if any information, opinion, projection, forecast, or estimate contained herein changes or proves to be inaccurate.