E-COMMERCE

For booming subscription box industry, Austin's Cratejoy is the engine 

Cratejoy provides the back-end support for subscription box companies. 

Posted April 15th, 2016

Daniel Dabbs watched as his wife got makeup and skincare products in the mail every month from popular subscription box company Birchbox. And he thought, well, I could do that - but with survival gear instead. 

What sounds like a dubious business plan -- selling survival and tactical gear online under the name BattlBox --has now blossomed into a $5-million annual business with 9,000 monthly subscribers and 16 employees. 

But the Atlanta-based company wouldn't be in business at all without Austin-based Cratejoy, which helps merchants launch their own subscription box businesses by streamlining the process for them. 

Cratejoy offers everything from website templates to billing and bulk label printing. 

"It allowed us to not have to create our own platform and use theirs to go to market faster," said John Roman , the chief marketing officer with BattlBox.

Founded in 2014 by software engineers Amir Elaguizy and Alex Morse, Cratejoy has reaped the rewards of the popular subscription box business, with 2,000 active merchants now using their service. 

"You have to be an expert in your product and your packaging," said Elaguizy, CEO of Cratejoy. "We'll tell you how to do the rest."

These subscriptions are an increasingly popular niche in e-commerce. 

Much like food trucks are a toehold into the restaurant scene, subscription services help small business owners sell their wares online, generating predictable revenues streams with fewer inventory problems. 

Cratejoy has raised $10 million in venture capital, including a previously undisclosed round of $4.5 million in 2015 to help launch the Cratejoy Marketplace, an online shopping mall for Cratejoy-built subscriptions.

From poker to boxes

Cratejoy isn't the first company Elaguizy and Morse have teamed up to launch. 

In 2006, they founded Market Zero, which developed data analytics for online poker sites. Elaguizy said they helped online poker sites find fraudulent poker players. 

In 2011, their company was purchased by game developer Zynga. 

They stayed on as game developers but left in 2013. Working at Zynga "wasn't particularly fulfilling because it felt like if our own game were to go away, the people would just choose another game to play," he said. 

Their next venture was a site called Toutpost, which integrates consumer product reviews with Facebook. Toutpost earned them a spot at popular San Francisco-based tech incubator Y Combinator. 

But while he was at Y Combinator, Elaguizy realized their idea wasn't working. Meanwhile, he kept hearing from fellow Y Combinator company Le Tote, a clothing subscription service, about their struggles with technology.

"They were making more money than probably any other company in our Y Combinator combined," Elaguizy said. "They were doing really well, but their website went down all the time."

That was the lightbulb moment for Elaguizy and Morse. 

They started doing research, talking with hundreds of merchants who wanted to start a subscription box service but were stymied by the technical logistics, like building a website and tracking orders online. 

"People on the phone would do things like offer to pay me money for my hypothetical software," Elaguizy said. They pivoted to developing Cratejoy and began crafting turnkey software for subscription box companies. After opening it up to private beta users in 2014, they opened it up to the public in late 2014.

Every Friday is game night

Like a lot of tech startups in Austin, Cratejoy started life at local incubator Capital Factory, but quickly outgrew that space. They now have offices across the street in the basement of a downtown office building. 

The 35 people working in their Austin office will expand to about 50 by the end of the year, Elaguizy said. Currently the company is hiring for product managers and people with experience in marketing and design.

DEBORAH CANNON/AMERICAN-STATESMANCratejoy employs about 35 people. 

Workers sit in open rows of desks, while offices line the back walls. Elaguizy said he wanted to build a workplace culture that doesn't make his employees choose between "your life and your work."

"When you are starting a new company, there are periods of time, not all the time, where it is very stressful," Elaguizy said. "It's important that the people in your life, the people who love you, understand that." 

For instance, he encourages spouses and children to attend company events. Every Friday is "game night" with pizza and board games. Cratejoy offers free lunch to its workers every day and a free membership to Gold's Gym. 

Merchants who use Cratejoy and have success launching subscription services tend to be small business owners, Elaguizy said, who already have a following on sites like Tumblr or Instagram. 

"These are the type of people who you would never see on Venture Beat - they have never raised a dime of angel investing or venture funding in their life," Elaguizy said.

Cratejoy charges $39 per month for its service, plus 1.25 percent of all subscription revenue and a 10-cent fee for each transaction.

Dallas-based entrepreneur Nick Triantafellou fits the description of a typical Cratejoy retailer.

A former merchandise buyer for 7-Eleven stores, Triantafellou launched Game Day Box in November of last year. The subscription service mails sports fans boxes filled with sports apparel or memorabilia from their favorite teams.

Triantafellou said Game Day Box has just reached 100 subscribers and has revenue to date of $25,000. 

From the outset, Triantafellou used Cratejoy to start his business.

When he was trying to teach himself how to code to build his own website the Cratejoy programmers would dive into his website to fix it, and then teach him what the problem was. 

"They hadn't even received any money from me yet," Triantafellou said, because his site hadn't launched. He said he's hopeful that he can eventually use his subscription service to launch a full-scale site selling sports merchandise.

Retail transformation or passing fad?

Monthly subscription companies really started to take off in 2010 with the launch of Birchbox, which specializes in beauty and skincare products. They have raised $60 million so far in venture funding and employ hundreds. 

Their success spawned other venture-back monthly subscription startups, such as Stitch Fix, which mails women's clothing and accessories that are hand-selected by a personal stylist. Stitch Fix has raised over $45 million. Then there's Bark Box, which has raised nearly $17 million and sends subscribers monthly boxes of dog treats and toys. 

Their success has led to the proliferation of thousands of copy-cat subscription box companies catering to every retail whim imaginable, from hair care products to cat toys, and even hard-to-mail items like baked goods.

But skeptics point out that most consumers don't have an endless budget for subscription boxes, and that many of the most popular ideas -- such as Stitch Fix or Bark Box -- are already taken. 

A recent article in Fast Company questioned whether monthly subscriptions have reached a saturation point, with a wave of consolidations and mergers coming. Elaguizy disputes the idea that Cratejoy is propping up a retail fad, saying what his company does is help small business owners start an e-commerce business.

That's what distinguishes them from competitors such as Scotland-based Subbly, he said.

"We're actively trying to help people start businesses," Elaguizy said, pointing to the company's "Subscription School," which gives away "tons and tons of advice" on starting a subscription business. Elaguizy said that he's motivated by the idea that his products helps people, but acknowledges that Cratejoy makes money when its merchants make money. 

Liz Cadman, who runs My Subscription Addiction, a website that tracks and reviews subscription services, says that by nearly every metric subscription services are still attracting new subscribers and are growing. 

She started her site in 2012 and it now gets 8 million page views a month. 

My Subscription Addiction went from a directory of 200 subscription services to over 2,000, Cadman said. 

"We get new submissions from companies to get their box listed every day," Cadman said. Their traffic is up every year.

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