Most of my post ideas arrive the same way, during my walk via my earbuds and often after a few thousand steps. I’ve written before about where angel ideas come from, and for me it’s rarely a desk and a spreadsheet. This one arrived courtesy of Ryan Cohen, CEO of GameStop and co-founder behind Chewy, which sold for billions. Cohen was on the All-In podcast, talking about why GameStop has bid around $55bn for eBay. Cohen talked about the collectibles side, the secondary market, and the ability to give consumers liquidity. And somewhere on that walk a sentence I’ve used with founders for years clicked into place in response to what he was describing.

Beanie Babies was eBay’s go-to-market.

I say it to founders on purpose, and it always lands as a non-sequitur for a beat. A founder comes in to talk about go-to-market, braced for a conversation about customer acquisition cost and channels. They think it’s money in one end, customers out the other, treating it like a tap you turn on, and that’s the wrong way to think about it. Your go-to-market should be a structure. Cohen was describing one. eBay built one. And the toy is how it started.

eBay built it. And the buyers came to them

History says eBay started with a broken laser pointer bought by a collector of broken laser pointers. At least that’s how most people half-remember it. And while it’s a little more than that, the truth is that eBay’s whole model came down to one transaction: a buyer wanted a specific thing and had nowhere else to get it. eBay was created as a place where collectors found each other. The “online marketplace” came afterwards.

The catalyst was Beanie Babies. By 1997, these pellet-stuffed toys were running at roughly 6% of everything sold on eBay. Ty Inc. ran the supply like a central bank runs a currency: retiring designs, capping how many a store could take, and manufacturing scarcity. The latter was the perfect fuel for a secondary market. People needed somewhere to chase the retired Princess bear, clear the duplicates, and find its market worth.

To be fair, the demand was the easy half. The thing eBay actually built, the go-to-market, was the seller side. eBay built tools for the people who owned and traded collectibles; bulk listing, the feedback and reputation system that told a buyer the seller wasn’t a crook, the apparatus a serious dealer needed to run a real business on the platform. Win the collectibles dealers and you win the supply. Win the supply and the buyers have nowhere else to go. So that’s where eBay aimed: not at buyers with advertising, but at sellers with tools they’d use.

But there was something the founders missed. eBay didn’t sell Beanie Babies. The Beanies were the wedge; the seller tools were the go-to-market. People came for the Beanies and then stayed to buy and sell everything else, because the dealers were already there with everything else. The toy was worthless within three years but the tooling the dealers ran their businesses on was not.

So, when I say Beanie Babies was eBay’s go-to-market, I’m compressing it. The full version is: build the tools the collectibles sellers depend on, in the one category hot enough to pull them in, and let the dealers bring the supply and the buyers with them.

Why nobody caught them

Once the dealers ran their businesses on eBay’s tools, a competitor couldn’t buy that back with a marketing budget. You are looking at entire inventories, detailed listings, years of accumulated feedback all living inside the platform. Google and Facebook ads stop working the moment you stop paying for them, and they confer no advantage, because the same ads are for sale to your competitor tomorrow. But a professional seller base that has built its livelihood on your tooling doesn’t move for an ad. The tools the sellers used became the moat. That’s why no one caught eBay in collectibles. eBay didn’t “outspend” anyone because the thing that won wasn’t spend. It was lock-in earned by being the tool the supply side ran on.

This is the same lesson, from a different angle, as the one I drew from 600,000 domain names: the structure of a business is usually hiding in plain sight, in something that looks too trivial to be the answer. It could be a box of stuffed toys or a list of web addresses. The trivial-looking thing is the model.

Ten years on, the winner’s story is a go-to-market story

There’s one more thing I tell founders when sharing this insight. In ten years, when somebody writes up who won your category and why, the story they write will be a go-to-market story. Products come and go with imitations. Big markets attract everyone and protect no one. The winner will be whoever found the first and best go-to-market and sped off so far ahead that no-one could catch them.

eBay’s go-to-market was the seller tools for collectibles dealers. Cohen knows this, and it’s part of why GameStop’s bid is more interesting than the noise around it.

Cohen had built a large GameStop stake by late 2020. Then, on 11 January 2021, news broke that Cohen and two former Chewy colleagues were joining the board. To a crowd of retail investors already circling a stock with short interest above 100% of its float, that appointment was the signal: GameStop could become a profitable e-commerce player, and here was the man who’d built Chewy coming to do it. Cohen didn’t orchestrate the squeeze that followed (the buying frenzy and the mechanics of forcing the shorts to cover did that) but his arrival was the spark, and the stock ran up around 1,500% in two weeks. The thesis the crowd was buying was the e-commerce pivot.

The irony is that the plan that turned GameStop into a phenomenon is the same plan that, by Cohen’s own account on the podcast, didn’t work. Cohen brings the Chewy playbook, GameStop goes e-commerce. Simple. Cohen took control, reached for his own greatest hit, and it stalled. Everyone, the market included, was looking at the wrong asset. Only when the obvious plan stopped working did he find what GameStop really was underneath the mall retailer. It was all about the infrastructure of trusted collectibles resale. The stores, the trade-in counter, the people who price and authenticate a used game or a graded card. That’s GameStop’s version of eBay’s seller tools. It wasn’t about the software, but the physical rails that let collectibles change hands with someone standing behind the trade. Once Cohen could see it, he migrated the whole company onto it, deeper into collectibles and graded trading cards, which continues to grow while hardware and software decrease.

So, let’s look at GameStop’s bid for eBay again. eBay built the digital tools the world’s collectibles dealers run on. GameStop has the physical apparatus of trusted resale. Cohen is trying to put one on top of the other, bringing the company that re-found the wedge on top of the company that built it first, closing a thirty-year loop on a single idea.

And notice that neither winner designed it. eBay didn’t set out to build a collectibles marketplace, but when the Beanies arrived, eBay was smart enough to build the tools the moment it was needed. Cohen didn’t set out to build a collectibles business, but when the Chewy plan failed, he was paying enough attention to find the one already running underneath. The go-to-market was discovered in both cases. That’s what the market kept mispricing: the asset that mattered was never the thing on the surface. The seller-tool moat eBay built in 1997 is still, a quarter of a century later, worth $55bn to the man who re-found it. First-and-best go-to-markets don’t get caught; they get bought. Cohen is the proof, including the part where he got it wrong first.

What I’m listening for

When a founder comes in to talk about go-to-market, I’m not waiting to hear about Google and Facebook ads. I’m waiting for them to pitch me their Beanie Baby, the creative wedge that is their go-to-market. It doesn’t have to look like eBay’s, or even be anything to do with supply or marketplace. It simply has to be the first and best way into the market, the one that gets them far enough ahead that the second mover can’t follow. The founders who lead with a giant market and a plan to buy their way in with ads make me nervous. Name your Beanie Baby and you have my attention.

Now, you can’t usually reverse-engineer it from a market map. It comes from deep affinity with the problem space. eBay’s people understood collectors. Cohen understood resale because he’d lived in e-commerce for a decade and could see, once his first plan failed, what GameStop was underneath. The first-and-best go-to-market is almost always spotted by someone who knows the terrain well enough to see what everyone else walks past. As I argued about the problem statement, the most important things a founder tells you are usually the ones they think are too small to matter. The Beanie Baby is one of them.

Beanie Babies was eBay’s go-to-market. The toy was worthless. The lesson is not.

Richard Moore — MooCoo Ventures

Richard Moore is co-founder of MooCoo Ventures, an angel syndicate that co-invests alongside Brisbane Angels, one of Australia’s most active angel groups. He has made over eighty personal angel investments since 2013.

moocoo.vc