What factors give an ambitious start up venture the best chance of success? Julian Hunt assesses the outlook for Last Mile Solutions Here's an interesting recipe: take three former Goldman Sachs bankers; add a couple of top notch guys from the M&S empire; stir in a potentially lucrative deal with the John Lewis Partnership. What do you get? Another load of unjustified e-commerce hype? Or a dotcom startup that maybe, just maybe, has found a way of turning the dream of online food shopping into a profitable reality? The answer depends on your point of view, of course. Cynics will no doubt argue that hard facts about what Last Mile Solutions actually plans to do are hard to come by. It's one thing saying you are going to develop a £2bn online grocery business within five years; it is quite another making that happen. Fair enough. But it would be wrong to dismiss the LMS project out of hand. The company is being valued in some quarters at £200m ­ before it has sold a single tin of beans online. And there is evidence ­ albeit anecdotal ­ to suggest this is one startup that could actually be made to work. Here, we outline some that evidence so that you can decide for yourselves. - Point one: the guys at LMS have a clear idea of what they want to do... LMS was launched this year by Tim Steiner, Jonathan Faiman and Jason Gissing, who quit merchant banking to exploit what they saw as an obvious gap in the UK home shopping market. Even if only 10% of grocery spending switched online, they figured, that still meant there was £10bn of business up for grabs. And if their business could sort out the fulfilment headaches suffered by rivals, while offering quality products, the trio felt they could grab a significant chunk of that £10bn market. Gissing, CFO of LMS, says: "We thought taking on the likes of Asda and Tesco was lunacy. But we feel there is an opportunity to create an alternative, in much the same way that Virgin broke into transatlantic flights and Orange into mobile phones. If the market is big enough and you offer good service, there's room for a new player." - Point two: they've persuaded some good people to come on board... Soon after setting up shop, the trio persuaded investors that theirs was not another venture caught up in the "romanticism and hype of the internet". They also managed to poach Nigel Robertson and Roger Whiteside from M&S who joined as mds. They were followed by logistics expert Robert Gorrie, whose career includes stints with Christian Salvesen and TDG. Former head of food technology at M&S Dr Tom Clayton joined the board as chief scientific adviser. And Jez Frampton of Interbrand Newell & Sorrell fame signed up as a non exec director to provide marketing and branding nous. - Point three: they've bought a neat bit of kit... For a company that claims it will be the most technologically advanced online retailer of them all, the deal to use the DeliveryNet logistics software developed by Descartes is significant. We are reliably informed by the Descartes web site that DeliveryNet is state of the art stuff that allows shoppers to use a web based van reservation system, ensuring that LMS can "deliver goods to people's homes both on time and at their convenience". - Point four: LMS has created a joint venture with the John Lewis Partnership... A conservative organisation like John Lewis would not have invested £35m in cash, plus its Waitrose brand, systems and distribution support, to take a 40% stake in a business that did not have a chance of getting off the ground. Would it? Waitrose thinks the deal will expand its national reach, double its existing business to £4bn within five years, and do it in such a way as to not create any real problems of cannibalisation. The LMS team say their starting ambition was always to provide first class service and products, which is why the deal with Waitrose is their idea of heaven. Robertson says: "The biggest problem in the internet arena is to try to establish a new brand in a market where there are well known players. It's expensive and difficult ­ as many have found to their cost. But when this business is launched it will be recognisable as selling Waitrose products. We will have a brand name that will refer to the Waitrose brand although we are still working with them and Interbrand on that." Gissing explains that there are effectively two online grocery shopping models in the world at the moment ­ Tesco.com (established player; instore picking) and the US Webvan type of operation (new entrant;depot picking). The former is generating sales but not making profit (how can it, picking in store?); the latter struggles to establish itself in the face of strong competition from established players. LMS plans to sit somewhere in between the two as a hybrid operator gaining all the economic benefits of the Webvan model while enjoying the halo effect from its association with the "finest grocery brand in the UK". That association also means LMS will not have to spend millions developing product ranges; it will simply sell Waitrose products instead. And because LMS will remain independent of John Lewis, it can remain totally focused on online retailing without having to worry about the mundane things that are always on the mind of bricks and mortar retailers and which often lead to compromise ­ namely how to make best use of existing store assets and how to work with legacy IT systems. - Point five: although we don't have much detail, the LMS strategy appears to be quite simple... Standalone semi-automated fulfilment centres are at the heart of the LMS business model ­ and two of them should be up and running by next summer. Gissing admits each centre needs to generate significant volume and will, therefore, have to cover large catchment areas. But he insists the economics of depot picking are better than rivals suggest: "You would be surprised how quickly you can make it profitable because of the costs you don't have ­ particularly when you are not spending millions on marketing." Nevertheless, it could take two years for a centre to move into profit. LMS and Waitrose will remain independent, although both companies will work together to ensure maximum commercial benefit for each other on the buying and selling front. Stock will come direct into the LMS supply chain (although in the early days some may come from Waitrose). And LMS will have its own head office team, with Robertson promising "very open communications with suppliers" that will be "totally interactive". At the consumer end of things, LMS is promising to learn from the teething troubles experienced by the likes of Tesco with online shopping sites. An example of how LMS may not have first mover advantage but how it intends to win best mover advantage, claims Robertson. In addition the LMS service will link seamlessly with Waitrose's other online initiatives to ensure there is no consumer confusion. Robertson adds: "We are learning all the lessons of what others have tried. We want this business to be using the best technology in all its aspects ­ from web fascia to fulfilment automation." - ...but will it all work? As online grocery shopping gets more established, thanks largely to the efforts of Tesco and Iceland, there will be room for other players to carve out their own slice of the action. But the newcomers will have to differentiate themselves if they are to be successful. LMS says its strategy is to work hard to get the fulfilment issue sorted from day one, while offering a quality range and recognisable brand through its links with Waitrose. If they can be made to work, both strands of the LMS strategy should give it the sort of USP needed to get off the ground. But there's plenty that could go wrong. First, LMS needs to find a trading name that will stick in the minds of consumers ­ not easy. Tesco.com works because it is the first place you would think of pointing your browser to access its service. LMS is trying to develop some sort of LMS@Waitrose type name. That will need plenty of advertising to establish ­ which will invariably add to costs. There are plenty of commentators who have very strong doubts about the economics of automated fulfilment centres. And the fact LMS does not go live until next summer means its biggest rivals have time in which to strengthen their hold on the market. Sainsbury is trying to get its act together, and will be going after the same sort of shoppers as LMS, while Asda's dabblings may soon get more serious. More worrying for LMS is that Tesco.com now has critical mass and has moved from being an operation formed for defensive reasons into one that will do everything necessary to dominate the mainstream. So ­ will the new kids on the e-tailing block make it? You've read the evidence, such as it is. What do you think? {{FEATURES }}