Podcast 09: 6 Steps to Building a Million Dollar Ecommerce Business, Part 1

Drew: All right. Hey everybody. Welcome to the Nerd Marketing podcast. My name is Drew Sanocki. I am the host and today I have a co-host. A special guest, a blast from the past, my former business partner Sina Djafari. Sina welcome to the Nerd Marketing podcast. You are the first guest.

Sina: Thank you. I am extremely honored. I’m honored that you still talk to me.

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Drew: Occasionally. This is like podcast episode 10 or 11.

Sina: It’s the only way I could talk to Drew is if I agree to be on this podcast.

Drew: Yeah. We are not going to catch up during this podcast. We are going to talk about something the audience might actually be interested in. That is how to build a retailer to $1 million in revenue. Actually historically how we built our own retailer design public to 1 million in revenue over the first 18 months. Sina that is one of the more popular articles on my blog.

I think it’s popular because everybody wants to be a millionaire overnight even though 1 million revenue doesn’t equal millionaire, it’s just a promise of ramping up a company pretty quickly, is something that attracts a lot of interest. As you know it’s harder than you think and it doesn’t often mean a whole lot. I thought that would elaborate on that article and drill down and get your two cents as the guy who went through with me.

Sina: Absolutely and a fine article it is.

Drew: Thank you Sina. In the article I have the five reasons. I think I wrote that now at this point to years ago. I look at that article again and I probably want to pull out a couple of those reasons may be add a couple more. We’ll start with those as a point of departure for discussion. The first reason was that we chose a blue ocean. I talked about this book called Blue Ocean Strategy. It basically argues that when you start a business, you try to find a category where there aren’t a lot of competitors.

That is opposed to red ocean where the waters are bloodied with the blood of all your competitors, right? I think in 2003 if you go back to when we started Sina, there weren’t a whole lot of people selling furniture online. Design Public was there, I think they thought of themselves as a catalog first company because their website didn’t really embrace any sort of best practices of SEO or anything like that at the time. We were fortunate to just choose a niche where there was a lot of search activity, a lot of people were looking to buy brands online and there weren’t a lot of sites optimized for those brands. I think that was a big contributor to our early success,

Sina: Yeah absolutely. I know we talked about some of the, in the bullet points of what makes a blue ocean strategy in terms of competition and the fact that the products were essentially kind of marketing themselves. One thing I thought about when I was reading this, I think back to the very early days of why we even picked this industry.

I also remember getting some of the signals from the suppliers, the designers and manufacturers really just complaining about their distribution network and that they couldn’t reach their entire audience and they didn’t have a lot of online distribution. They didn’t know how to get into it. One thought on that is selecting the niche is there’s a lot of different ways you can get signal. Some of it is from the demand, from customers. A lot of the signals can come from a lot of different places. In our case some of it came on the supply side and just hearing from the suppliers that they just didn’t have good distribution. That’s something to remember.

Drew: Yeah I forgot about that. I forgot the internet was like this new thing and Google was this new thing. I think we got a lot of questions like “Hey, you sure people can buy stuff online?” Or maybe I do remember certain vendors telling us a lot of people are contacting us asking if they could buy online but they had no way of selling online. That was like a huge green light right, that we should go ahead with it.

Sina: Yeah. I remember one company we met was just astounded at the fact that somebody there had put some of their products on the website and selling several thousand dollars of it a month. Again your signals can come from anywhere but just sort of, teasing, getting into an industry and teasing out whose doing well, who’s not doing well and understanding from an insider’s perspective what’s happening, I think is important before you jump in anything.

Drew: Yeah. Would you say we were sort of proactive about the selection and category selection or did we just kind of back into it?

Sina: I’d say it’s kind of half and half. We got into the design industry because we just liked it. You may I remember we wanted to actually sell like build and sell furniture. A lot of our industry research just came from meeting with other small manufacturers of modern design. We just kept hearing the same recurring thing from them that first of all it’s a bad industry to be in from a supplies perspective. We hear all this nightmare stories about the, their containers getting destroyed on the way over from the manufacturer and tons of excess inventory whatever.

We kept hearing the recurring theme of just not having a lot of distribution and marketing expertise and sales were an issue, reaching outside of the major metropolitan areas was an issue. I’d say we kind of backed into it in the sense that we got into the industry for one reason. Then I think we listened to the signals of really where the opportunity was once we got to know the industry. I think that’s an important thing to do, is keep your ears open and don’t be kid of wed to one particular thing. I don’t know if this is relevant to the audience or not.

I think our members were always saying was we got into the industry because we liked modern design, we liked the idea of like building products. I think in the end what we really ended up loving was building a company. The original reason why we got into it was very different than I think what we ended up getting out of it once we started running the business.

Drew: That happened quickly. Like within a year we were way more passionate about marketing and running a company that we were about modern design.

Sina: Yeah, anyway it’s a fun industry to be in. Lots of parties.

Drew: It was lots of parties. I remember listening the first years we went to the trade show maybe even before we started the business doing a lot of listening and talking to the vendors just to hear what they were doing. Because we were thinking maybe we are going to do op software, maybe we are going like power their sites, we didn’t know from the beginning. Also I don’t know if you have the, do you ever play trivial pursuit?

Sina: Yes.

Drew: The trivial pursuit e-commerce edition? There’s a question in there which is what industry were Sina and Drew thinking of going into before they chose modern design? The answer?

Sina: If I remember correctly it was fire masks or fire face.

Drew: I was after that. Yeah fire masks is one. There was like one other industry, yes slipcovers.

Sina: Yes and we wanted to be kings of slipcovers.

Drew: That was when we were thinking like MBAs.

Sina: Yes.

Drew: I think we looked and we saw this big fat industry and one company, sure fit the dominant player making like 250 million-a-year, right?

Sina: Yeah.

Drew: All we need to do was design a more effective slipcover. I don’t know why we left that line of thinking and ended up with the modern design but we did.

Sina: Yeah I remember we had, as part of it I made a foam sofa. Remember that?

Drew: I do, we were wrapping up different stuff.

Sina: The old model foam sofa for the fit models around. We have that in our office, the design public foam for like five or six years.

Drew: Yeah I remember that.

Sina: Now I own a sewing machine so maybe I’ll get back into that.

Drew: We went to Timbuktu, member we got a tour of how they do custom manufacturing. Those were good old days. Anyway the audience isn’t interested in that. We want to get your own addition of trivial pursuit e-commerce edition. The second reason Sina I had was, I talk about Jim Collins and good to great in the article and how there are certain self-perpetuating cycles that drive growth in early-stage companies. For us I think early on I made the connection that if we are going to be known for something, it’s good to be new design. Because that’s what the bloggers like to pick up.

If we are better than anybody else at adding new product in the site and publicizing that we have that, more bloggers will link to us. The more bloggers that link to us, the more traffic will get the more traffic will get, the more sign up from our mailing list and more we can sell and ultimately put right back into merchandising new product design. In my mind at least I don’t know if I ever shared that with you, that was a nice little flywheel that we had going. What do you think about that?

Sina: Yeah I think those in particular, the really interesting thing about becoming known for a new design was we could we could put new design out there, people came to us repeatedly for product discovery. It may not have been what they bought, they may have ended up buying the tried-and-true. Being seen standing for something and in our case new design and making that a focus of what was part of our newsletters, what went on our homepage, how do we promote ourselves,

I think was definitely very important. In terms of the lesson for the broader world I think that … Almost every industry there is that angle I think where you can be known for something or where there is there some element to that. To the industry or the market, but at the audience really cares about. In content in general can be part of that. I think with us it’s part of the continent. I remember when we did those inspiration boards, they were very popular pieces of content the people kind of kept coming back to.

Just in general the design world, pictures. House obviously is an amazing example of the power of just inspiration through pictures. I think that in every industry there is something like that where if you know the customer really well and what drives them, it may not be directly related to what they’re buying, but you can create something for them. Some other sort of experience that is very relevant to them that keeps them coming back to the commerce side of things.

Drew: Yeah and I think for us we’d always talked about having multiple customers. We definitely thought of the design blogging community as … First of all a phenomenon because back then I don’t know if anybody thought of marketing through bloggers. That was almost like our primary customer we knew they were more interested in just talking about what was new and if we could court them, the ultimate consumer at the end sort of shops through the design bloggers. They don’t shop through designpublic.com.

Sina: Right, exactly.

Drew: Just doing something simple like peeling off our newsletter and tailoring that newsletter list just to bloggers. How would it be different from the general consumer list? We had a What’s New newsletter that went to bloggers only. First we had to make that list of blog, blogs or bloggers that were pretty influential in our niche. Second we had to approach them and get them on the list. Then we sent them a customized newsletter which was easier to navigate for them, had links to, at one point I think it had links to high resolution photos or whatever they could use their blog. Did a little write up, like it was much more consumable for a blogger.

Sina: Right, yeah. The phenomenon of design bloggers at that time was amazing. When we first started, there was just a couple of magazines and magazine mentions were very important to us. Then the design bloggers really came on the stage and were highly influential and the readership was going through the roof. For us to be able to make life easy for them, by providing the content that they could use and in providing steady flow of new products they could include in their article was huge.

Drew: I want to say, that was like a sea change. We saw it I think before anybody else largely because of economics. Like we get the ad package from Matt Holm or Dwell and that would be five or 10k for like a quarter page. As a bootstrap company, we didn’t have that. We just saw the traffic from blogs taking off and decided to go after that I think. Maybe today,

I know today that most bloggers are much more savvy than they were back then. They charge commission or whatever to mention you. There’s still like sea changes going on I think. I certainly see a lot of retailers scaling off of Instagram and finding influencers there. I’m sure it’s only a matter time before all Instagram users’ wise up a little bit. Those channels still exists.

Sina: Yeah. I think they key is the learning from back then isn’t directly relevant other than … There’s always something you can look for that where maybe its influencers or somewhere else and they’re influencing your audience. How you get in front of them? Instagram phenomenon over the past few years has just been amazing. The amount of money that some of these top to Instagram kind of celebrities are making from doing posts, I would never have predicted.

Drew: Yeah. Yet you could still find some that will do it based on trade which is refreshing and good if you could find it. Trade or free product? This is related to the third reason I had in the article. That was we merchandised well and in a way that … I guess there was a lot of untapped demand. We had sort of a system to figure out what the customer wanted. I remember on the merchandising side, it was one of us sitting in front of a keyword tool I think we used word tracker and just entering brands.

Like every design brand we could, we’d go to the trade show and would get the list of all the design brands there, all the product categories we could possibly move into, all the home design categories, baby bedding, lighting. Putting them in the word tracker and then ranking them not only on the traffic, the likely organic traffic we would get off that brand name or category name. Also the number of competing sites.
You can do that manually today with Google keyword tool through AdWords for free, there are a number of other tools that do it for you. I think we just had that disciplined approach room merchandising and we’re able early on to get some brands wind up and we were the first drop shipper for them, but brands that really did well for us and kind of knocked the ball out of the park. I’m thinking of like Dwell Studio.

Sina: Yeah I remember the day when you showed me the numbers for Dwell Studio. You had done the keyword research. With a clear winner, the number said it would be and it certainly was for us. The idea of merchandising using numbers back then especially in the design industry was sacrilege. Not only did nobody do it, I think people viewed it as like the absolute wrong thing to do, I mean curation. Curation obviously has a place. It wasn’t something that necessarily, we were only able to do because I think there’s a strong middle ground between things you like and that fit within the aesthetic.

Or in the philosophy whatever your e-commerce store is trying to do. Things that customers want. You’ve got to keep your eyes open for both those types of things and not be blind to the fact that there’s demand for something that may not be your favorite thing. I’m an engineer, nerdy kind of guy. Drew was in the navy. He dressed nicely but probably didn’t know the first thing about design. I think being in the design industry, I think people had very strong opinions and very strong case.

I think that actually one of our strengthens was the fact that we made a point of saying we actually don’t really know that much. We know what we like but other people might not know it, so we have to rely on something else. Those types of signals, metrics and feedback customers and things like that. I think that was a big reason why we are able to break out in the early days. We saw a lot of other companies picking and choosing a product that they liked personally.

Drew: Yeah. I think a lot of the tension was within our own company, with our own employees who wanted to kind of … I think this is a subject for another podcast. We ended up hiring from the design industry. They wanted to take the company in a very different direction than Sina and I did at times. When Sina and I would kind of come out of our office with a list of brands to merchandise, it was just entirely based on data not really how the products looked. I think everybody was a little bit scared.

Sina: Yeah. I think that is a topic for a whole other conversation in terms of deciding what your company wants to be and how you and operate. Not letting different factions within the company slow you down.

Drew: Yeah. Getting back to the Dwell Studio thing like the data said Dwell Studio is going to be a hit and nobody was selling an online. It still took us a while to convince them to sell if not years, right? At ICFF of kind of talking to their sales rep convincing them to go online, convincing them to drop ship. When all was said and done we had them on the site, we became their top retailer I think, right?

Sina: Yeah.

Drew: On and off-line. They were pleased by that and I member when you similarly came out of your office one day saying, “We’ve got to do a kids and baby site.” We merchandised that thing quickly … Sorry, kids and baby category on the site. We knew there’s lot of search traffic for it, we knew it was popular, we merchandised it almost overnight. Again we had one of our top categories.

Sina: Yeah we did a lot of effort around that. Kids Pulitzer, guest blog post. Yeah just really going back on the Dwell Studio lesson from bringing them online. One of my thoughts that I think is general in e-commerce is still true, but is even more true as more people try to get into it. Supplier relationships are so important. It so easy to start a store and it’s very hard for most manufacturers and distributors to bring on a new retail account. It just kind of a pain.

I think one of the lessons also that I continually learned was that, not everyone’s going to sell to you and you’ve got to make life easy for them as a supplier. There’s still a little bit of this overall mentality of retailers and suppliers are kind of at odds and that they have to … If one of them wins, the other one has to lose. I think the lesson we learn continually and Dwell is a great example of this was, we put so much effort into making it so that they didn’t have to do anything. It was our first true integration where we actually electronically integrated with another company’s systems.

To the extent that they didn’t have to do anything within their organization, the people who didn’t want to deal with us, didn’t really have any more arguments against it. That was just huge for us. I think that’s an important thing for retailers to understand is that there are so many retailers out there and suppliers can have limited bandwidth on who they can work with. To the extent you’re able to make things easy for them and make them happy. You’re going to be a lot happier as well.

Drew: This might be a good point in the podcast to take a break and maybe talk about what you’re working on right now Sina. Because that was spoken like a true ops guy.

Sina: Sure. That wasn’t meant to be a flag of what I’m doing.

Drew: Sina you could have just asked. I would have flagged this stuff at the end.

Sina: That actually wasn’t even in my notes coming into this. After Drew and I sold Design Public, I founded a company called Duoplane which is, it’s actually software for e-commerce retailers who don’t hold their own inventory to manage all of their orders, their supply chain and essentially all of the backend processes. Our customers are e-commerce retailers who drop ship, who hold inventory at third-party warehouses or who manufacture on-demand or print on-demand.

We manage the entire process from once an order is placed all the way through the routing it to the different vendors, getting the track information back, putting it into the shopping cart, dealing with all the vendor invoicing, vendor score carding, basically every process that needs to happen between you and the vendor, we automate.

Drew: Sina it sounds like that would be really tough to integrate with your front end. You would have to hire a developer just to get that thing set up with like Shopify store.

Sina: Actually no. it takes minutes. We’ve developed integrations with a lot of the major shopping carts and marketplace tools and on-boarding and set up his is pretty much automated.

Drew: Where can people go to find out more about this? Miraculous system?

Sina: Duoplane.com, its D-U-O-P-L-A-N-E dot come. Feel free to drop me an email at Sina S-I-N-A at duoplane.com, I’ll be happy to talk to you about it.

Drew: All right.

Sina: Thank you Drew.

Drew: You’re welcome. That was completely unplanned, an unplanned plug.

Sina: I feel like Peyton Manning at the Super Bowl talking about Budweiser.
Drew: I missed that one. What did they do?

Sina: You missed that? You’ve got to watch the videos. Even though supposedly he wasn’t paid for to. To me it was one the most awkward moments I had ever seen in a kind of interview. He just continually referred to what he’s going to do next is kissing his kids and going drinking a lot of Budweiser. He said it a couple of times and I found it very odd.

Drew: Budweiser marketing guy was like just watching the Super Bowl. It’s just like yes, right?

Sina: I think they were cross promoting, I think he had … He used it the world’s biggest Budweiser fan or he had some sort of financial connection to it.

Drew: Interesting. I have to go back and look that up. While you were starting off about ops software, I had another thought on March. That is that for just bring it back to these reasons why we succeeded, I think the mentality that merchandising is marketing was pretty important. You merchandise and you category, you add a new brand to your site, you add a new product to your site or you add a new category.

You’re creating content, you’re creating content that will rank in Google. Pull in a lot of organic traffic. You also are creating customers like somebody who comes in and buys the chair might be very different from somebody who comes in and buys the lamp. I think just that mentality that merchandising is marketing and use it to your advantage online.

Sina: Yes. Also there’s a bit of a different angle in what you’ve said. Going back to what we were talking in terms of becoming known for new designs and innovative designs, I mean to the extent that your audience cares about the product that is in there, whatever their interests are. Product discovery is such a huge piece of e-commerce that I still think is untapped. I think there’s the kind of the idea that if I’m going to sell something, people will come buy it.

Just discovering new products and understand what’s cool, what’s new, and what people should pay attention is often the role of a blogger or some of the media company that I think that the e-commerce company can actually take on that role. Because they’re merchandising all these new product, they’re getting to know what’s new there. Helping people just sort of see what’s new. I think it’s a very interesting in this tender world of swiping right and left. I think people want to see what’s new and they can pay attention to it or not. It’s another angle on merchandising as marketing.

Drew: I think new is always good, there’s always a business around there. The flash sale sites in many ways were about new. If you could release new on a predictable basis whether it’s every day or every once a week, then what that does is you end up pulling people back to the site at a very low customer acquisition cost. The problem with e-commerce typically is the customer acquisition cost. At least of the first purchase it’s usually high, you make a lot of your money on repeat purchases but you often have to reacquire that customer.

For businesses that are known for new or releasing new products on a regular basis, I think you’ve got a little bit of a nice feedback loop where you pull people back to the site without having to pay for it.

Sina: Yeah, exactly. You create a habit around it for your customers too.

Drew: Yeah. Sina what I think we should do now is take a break and end this episode because I think we’ve gone into three reasons and by my count we have two or three left. I like to keep the podcast short, you might not know that because you probably have never listened to my podcast before.

Sina: I have.

Drew: If it’s okay with you, I think we should wrap this up and have you back as a guest maybe next month or next quarter.

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Sina: Sounds good.

Drew: I’m not sure, what do you think? Or next week.

Sina: I’m at your beck and call Drew.

Drew: Great. Well you’ve been listening to this Nerd Marketing podcast. My name is Drew Sanocki. For more information on this episode or transcript, go to nerdmarketing.com. Be sure to check in next week where Sina and I complete our discussion of how to get to $100 million in revenue. Talk to you next week.