Podcast 10: 6 Steps to Building a Million Dollar E-commerce Business, Part 2

Drew: Hey everybody. Welcome back. I’m joined with my former business partner, Sina Djafari, and we are discussing how we built our e-commerce retailer to $1 million in revenue over the first year and a half. Sina, we’re talking about how to grow an e-commerce retailer to $1 million in revenue.

Sina: Yup.

Want to save this transcribe to read later? CLICK HERE to download it as a PDF.

Drew: We left things off when we talked about 3 reasons last week, finding a blue ocean, finding a flywheel of growth, and using merchandising sort of strategically as marketing to grow the business. We’ve got a couple other reasons left. My fourth reason, Sina, is that we were able to measure everything, or we had this metrics mindset in the early days. I think that comes from the fact that we weren’t from the design industry. We had a little more analytical mindset. Certainly you did as an engineer. We lived and breathed in the analytics and had some pretty key insights in the early days, as I list in my article under marketing that we realized pretty early on that email was killing it for us.

In order to grow the company, we probably should grow our email list. That became a strategic priority. We looked at things like 20% of our brands were driving 80% of the revenue. We liked to highlight a lot of those brands that were doing well for us. We put them in email marketing campaigns. We put them on the home page, that sort of thing. I know I in marketing did a lot around how frequently customers purchased. Once we figured that out, we were able to build some email marketing campaigns to keep people buying longer. That did a great job at improving customer lifetime value. Do you agree that this metrics approach was something that helped us in the early days?

Sina: Yes, absolutely. It’s funny actually, that you remember that it would be easy for me being the engineer, because I actually find I need to be even more disciplined about going back to metrics even today. I think I do tend to do things a little more off the cuff, but I do think it was key because the numbers didn’t lie. Especially when there were 2 of us as co-founders and co-CEOs, whatever, of the company, that if there is any sort of question about what we should do, we could go to the numbers to do it.

I think that was very important, just in terms of being able to move forward on different things and cut things back and double down on other things. Yeah, because in the early days especially, you’re so … Actually at all times, you’re so resource constrained. There’s only so much effort and money and personal resources you can put into any 1 thing. I think that understanding what’s a success and what’s not a success is important so that you can double down on certain things and then shelve or get rid of other things. Yeah, I actually think it’s very important.

The 1 thing I was actually going to add to what I saw in your article that I would recommend most people do because, and it’s again what helps me become more disciplined about metrics is, even before starting something, so defining just what that metric is that’s going to define success, just asking … This isn’t a multi-day or even multi-hour exercise. Just off the top of your head, if this is successful, what number should change? Make sure that you’ve got something that’s measuring that from day 1 so that you’re not trying to backfill information later and trying to get historical data. You may end up dropping it. That was my 1 thought, just in terms of disciplining yourself is before you start any campaign or any effort, just really quickly, 1 sentence, what’s success look like, and what number should go up or down for success.

Drew: Yeah, I have another popular article on my site where I talk about instituting regular metrics reviews and some of the 7 metrics, I think I came up with, that e-commerce retailers should use in the early days. I know I was in the metrics religiously every Friday or Monday. One of those days was my metrics day, and I was in Google Analytics looking at the same things, reviewing the same campaigns. I know you did the same thing on the ops side in terms of, and we got better at this over time, but which vendors were performing for us and which weren’t.

Sina: Right. Yeah.

Drew: I talk a lot on my blog about the 80-20 rule too, and I think we just had that mentality where we were going to test everything. I’m thinking of the affiliate program now. You hear a lot from other retailers like, “You should be doing an affiliate program, or you should be on Facebook, or you should be on Twitter.” When we looked at the data, we found that a lot of those programs just weren’t moving the needle for us and weren’t driving good customers. I think it allowed us to cut them and focus some more on what was working.

Sina: Yup, exactly. Yeah, because you’ll get all sorts of advice from the world on what you should be doing and what you shouldn’t be doing. If the reality isn’t that, then it’s important to recognize that. I have actually seen in my business, 1 thing that’s always interesting is for I don’t know how many years now, you [plug 00:06:14] mobile first on everything. 90-sum-odd percent of people who are coming to use our app are doing it on a desktop. Until recently, most of them were doing it on Windows XP computers. It goes to show that not everyone’s advice is the reality of what’s happening. It really depends on your audience, and it depends on the industry you’re in.

Drew: Yup, yup, whereas Karmaloop I think is over 50% mobile now.

Sina: Right, exactly.

Drew: Yeah. Another thing I talk about, more and more I think, on the blog, and I’ve come to this conclusion after working with a couple other companies, is that you’ve really got to build the business around your best customers, not just all your customers. It’s again the 80-20 rule. We’re talking about metrics now, so to the extent that you can measure which marketing campaigns or which products are really driving your best customers, and then put your money and effort behind expanding those, I think you really win out in the long run. I don’t know that we were as proactive about that in the early days, but looking back, I think we did a lot of that. We ended up doing a lot of that. I don’t know if we were doing it at the time or calling it that, but I think that’s what we were doing, building the business around our best customers, with 1 notable exception, which I don’t know if you’ll remember it.

Sina: I’m not sure I do, but you can tell me afterward when we’re not recording anymore.

Drew: No, I think it’s not … I wasn’t thinking it was [crosstalk 00:07:47].

Sina: I thought you were talking about 1 particular customer.

Drew: No, not 1 guy. I’m thinking of a customer segment that we kind of ignored and we shouldn’t have. You were always talking about going after it.

Sina: Was that the commercial buyer?

Drew: Yeah. This is also in the Trivial Pursuit e-commerce edition. The customer segment we ignored was B2B buyers, so trade buyers. I don’t know. They still bought from us, but if you looked at the data, they were really punching above their weight. A small percentage of our customers were buying a lot of product, and it wouldn’t have taken much to roll out an offering specifically for them.

Sina: Yeah. Yeah. I don’t know if we want to get into it now. One thing I’ve always thought about is in e-commerce, sometimes thinking about your audience and then thinking about your offering to them is kind of an app almost, in terms of what experience and what functionality and what … I guess just generally what experience do you want to give to that audience, which is different than a different buyer segment. This doesn’t have necessarily to do with the metrics part. It’s just something I think people ought to think about when they do identify an audience segment that is more profitable or is just an audience segment they want to service more, is what can we specifically do for them that other people might not want and that other people aren’t doing in this industry?

Drew: I like it. Think of your e-commerce company like an app.

Sina: Yes. You heard it here first.

Drew: Number 5, the fifth reason why we were able to make a million, I think we both embraced technology. When I say that, I mean you and I both learned how to code on the job in that first year. We built our first website. We weren’t afraid of getting into the code. We weren’t afraid of things like hosting or making changes to the site. To put this into context, in 2003, we didn’t have Shopify, we didn’t have Magento. We had a bunch of open source software to build e-commerce sites. It was either that or we pay $100,000 for some developer to build our site. Just that knowledge, that ability to code, I thought in the early days was instrumental in really helping us craft some key differentiators.

For example, Sina, improving service. I remember it was within days or even weeks, maybe, that the customers started asking about when their order’s going to ship. It was pretty common for drop shippers. You order a product and the customer has no idea when it’s going to ship. They email in, and we said, “You know, what we need to do is put this on the product page.” We started putting stock status and estimated ship times on the product page. Immediately we had a differentiator which, if we didn’t know how to code, we probably wouldn’t have gotten that up for weeks, months, because it was a very specific piece of functionality.

The other thing I could think of, 2 other things, the second might be how we learned everything we could about SEO and were able to just constantly tweak the site, both tags, content, image tags, categorization, and ended up creating something that was in many ways like an SEO machine in the early days. We’d add a product or a brand, and we’d rank number 1 in search for that brand. Then the last thing I could think of was just the way you scaled our drop ship operation, and it gets to what you were talking about in the last episode, but the ability to add a vendor to our system very easily. There was a lot of technology we developed there, and really good processes in order to do that.

Sina: Yup. Yeah. I completely agree. I think all e-commerce retailers need to embrace the technology aspect of things. I’d say the 1 thing that’s very different today than when we started is back then, I think if you were in the e-commerce world, you had to be a technology player. I think I’ve seen almost a generational shift of companies that were started sort of late 1990s to early 2000s, were fundamentally technology companies, basically built everything themselves. Then as the Magento and Shopify and big commerce hosted and the open source available software came, you didn’t really have to do as much of that anymore, almost to the extent that you don’t even have to do any of it anymore.

It doesn’t mean that you shouldn’t embrace it, but you also probably shouldn’t get bogged down in becoming a technology company yourself, the same ways you shouldn’t be bogged down in becoming a logistics company just because you deliver physical products. Obviously there are companies that are good at that. There’s 3PLs and there’s UPS or whatever. I guess that’s just the 1 thing I would say for people starting out today is know what’s possible. Know how to find the right resources to do things. Don’t obviously go build your own shopping cart from day 1.

Drew: Yeah. I don’t know if I would … I think it contributed to our early growth, but I don’t know that I would recommend that everybody do it today for that reason.

Sina: Yeah. I think for us it was almost a requirement, just because there wasn’t really anything out there. There were a couple of hosted solutions. Yahoo Stores was really the only one, but I think we would have moved a lot slower had we been on that method. These days, I think you can just get going much easier, literally within a day have all the capability you need. Then focus your effort on, kind of what I was saying earlier about thinking about your e-commerce store as an app, focus your effort on the part of the experience that’s going to be unique to you.

If you need to develop something around there or mash up a few things, you can do that, but certainly the very basics of taking an order and processing a credit card. I think a lot of people would be listening to this and say that’s obvious, but I actually in my position still see people trying to do that. I don’t understand it. I don’t understand why they’re doing that. I heavily advise them to get out of any kind of custom development in the shopping cart side that’s not going to completely differentiate them. I have to say it because I literally still see it, and I shake my head every time I see someone trying to develop something that could get going for 19 bucks a month from Shopify.

Drew: Yeah. Maybe this factor is not about technology. Maybe it’s just doing things, innovating around things that matter to your customer. In our case, in the early days, a lot of those were technology-based, but now you can get a lot of it out of the box. It’s just paying attention to what your customer wants. I know the flip side of this was that you and I did become obsessed with the technology after a while. We were building this totally smooth running machine instead of focusing on some much more obvious ways to grow the business. A lot of times, we got hung up on the tech.

Sina: Yeah, but I think the lesson, you got to be somewhere in between. You can’t be a tech company. You also can’t be afraid of it. I also see people these days who don’t know enough about what’s possible to either … There are certain things that they want to do that are easily possible with a very quick plug-in, or I often see companies who essentially want to do the technically impossible. They get bogged down on that instead of asking themselves, what can I do that’s off the shelf? You’ve got to be … Also, if you’re going to hire a designer or anyone to do things for you, that’s just a world that’s ripe with getting screwed over by someone who says they can do more than they can. I think it’s important to understand that world and have a clear vision on what you want to get done, but obviously don’t be a tech company. You want to be a marketing company essentially.

Drew: Nice, and spoken by an ops guy.

Sina: Yes. Who provides technology to e-commerce retailers, so it’s self-serving.

Drew: I know when a lot of people talk about how we got to a million, there’s a lot of argument around the tech thing. People argue. People go back and forth. Should they have been as good at tech as they were? So, for what it’s worth.

Sina: Yeah.

Drew: When we come up in case studies at top business schools.

Sina: Right, all the top business schools, yes.

Drew: Yeah, this is where the class gets divided, but then someone brings them to reason 6 and the class all agrees. There’s a lot of head nodding in the class.

Sina: What is number 6?

Drew: Number 6 is that we went all in on this business, maybe not all in financially, but mentally, emotionally. It was our sole focus. Sina, you read a lot on blogs about internet millionaires who kind of … They’re running 10 companies at a time or they’re lying on the beach in Bali while some passive income site throws off a ton of money. I just think those things are exceptions to the rule, and they’re famous because they’re so rare. In our case, we both … When we started this company, we were both single. We worked 7 days a week on it. I know I thought about it all the time, in the shower, as I went to bed, when I woke up in the morning. Really I think it was because we went all in on the business that we were successful.

The nice thing about e-commerce to me is that it’s not rocket science. We didn’t have to develop some sort of new technology or new pharmaceutical drug or something that was based on a big quantum leap. E-commerce is a lot of the basics. People have been buying stuff for thousands and thousands of years. It’s just on a new distribution channel. It’s just online now, but the same rules apply. Sooner or later, you’re going to figure it out and get growth. All you have to apply is a lot of effort. I think we did that in the early days. Would you agree?

Sina: Yes. Absolutely. I think that, yeah, in my current world, I also see some people who are trying to start businesses on the side while they have a day job. I’ve frankly never seen that really work. Not that I would discourage someone from just giving it a go, but the thing that is so hard today is it’s so easy to start an e-commerce retailer. There’s so many people probably selling the same things as you are. Unless you figure out that angle, which means that you really get to know your customer, you really get to know the supply side, you really get to know what is that angle, what’s going on in this industry, who the influencers are, et cetera, unless you really get to know that and you spend a lot of time digging deep, I think it’s going to be very hard to differentiate yourself. Yeah, going all in I absolutely think is the right thing to do.

Drew: The hard thing for me, I know, is I am just always attracted to the shiny object. You can be working on 1 thing and then think, “Man, we should really pivot and roll out ops software,” for example, or change into a marketplace. That was hard for me to resist that and stay focused, but I think it’s because I had a business partner and there was a team there and we were already making money doing what we were doing that that was enough to keep me focused on Design Public.

Sina: Yeah, you had more freedom to think about how you might want to pivot or slightly change things once you’re making money. That’s another conversation of how do you avoid that, but certainly I think when you’re just starting out, not getting attracted to the shiny object, even if it’s within your industry. I think that within e-commerce, I think we’ve seen so many different shiny objects of different ways of doing things. I don’t know if you remember the whole F-commerce. I’m sure it’s going to come back at some point, because Facebook isn’t going away, but at 1 point, I think I remember reading that no one should ever start their own e-commerce store anymore. Everything should be on Facebook. Someone put a stake in the ground saying that’s how it should go.

Drew: Really? Was the article written by Mark Zuckerberg?

Sina: No, but actually I think that was a common thing. We laugh about it now, but it’s like AOL Keywords. You see these things all over the place, just shiny objects constantly that everyone is telling you is the next thing you need to focus on. I think that when you’re resource constrained and you’re early, it’s the tried and true getting to know who your customer is and getting to know what’s going on in the industry and how do you sell to them, and not doing what the pundits are telling you to do, and certainly not doing something that is probably expensive and hard to execute on. I think that again in the mobile first world, I don’t know if I would … Would you build a native mobile app for something when you can probably get by with just your HTML, your web-based shopping cart? I probably wouldn’t. I would focus on just getting the basics done and then really devoting your time to the things that are really going to differentiate you to your audience only, because they’ll accept a bunch of things that are not hyper-optimized as long as it’s for them.

Drew: Right. Right. I remember the early days of going all in. A couple stories pop out. I remember you quit your job to do this. We were going to do it on the side and then it sort of took off, so you left a successful career in product development. Is that what you were going to do? Whatever you were going to do, you quit.

Sina: Actually it was a business development job.

Drew: Then I remember we worked out of your apartment, and the inventory was in your apartment. This was all bootstrapped. I remember going to the trade shows and using Airbnb in the early days and getting the cheapest rooms we could find with you, me, my brother. We just had a handful of guys in a 1 bedroom.

Sina: There was no Airbnb back then.

Drew: It might have been Craigslist. Yeah, Craigslist. For some reason, being in Newark, a Newark airport hotel, with your dad on the floor in his hotel room. We were working on the business. I don’t know why we ended up in his hotel.

Sina: We were in New York for a trade show. My dad happened to be there as well. We had a …

Drew: Free room.

Sina: We could stay free in Newark. Yup. Take the PATH in.

Drew: Yeah. I think that was what the early days were like. It was like, okay, we just want to work on the business. We’re going to save money wherever we can. There’s this saying of work on commission and not on salary, that you can tell the difference between somebody who works on commission or salary. We were definitely on commission in those early days.

Sina: Yes. Yeah. We never really paid ourselves for years, paying other people first. That’s part of the benefit of going all in. It had to work or we were going to be done with it. I personally believe that’s the only way to do it. I think that it’s very hard to have discipline around doing anything part-time. I think just also it’s very hard to do a good job around it, because you don’t get to know what’s going to differentiate you as a winner versus someone who’s not going to get any attention from customers.

Drew: Yeah, which makes it so much harder now in my life personally when I’ve got a wife and kids and can no longer work on the weekends or at night. I don’t know if I could start a Design Public today.

Sina: You’d have to leverage your decades of enormous experience.

Drew: That’s it. Now I’ve got more financial resources or contacts I would leverage to execute, but I couldn’t do the 7 days a week thing, 24 hours a day, anymore.

Sina: Right.

Drew: Looking back we talked about 6 reasons, blue ocean, the flywheel, strategic merchandising, our metrics culture, our familiarity with technology, and then going all in. Sina, do you think we left anything out in your opinion?

Sina: That’s a doozy of a question I don’t know if I can answer. I’m sure we did.

Drew: I’d say luck, but I guess luck is also in a lot of those other things, in the blue ocean thing maybe. I think we were lucky. We started a company in 2003 I wouldn’t start today, but maybe we would have started another company today.

Sina: Yeah. I totally agree. I think luck was a big part of it. I think the key thing is to have a strong sense of whether or not you’re basically being lucky, or if you just find yourself in the wrong place. There’s obviously all this talk about pivoting. You shouldn’t pivot too early, but you should know whether or not … You should have that compass that says, “Okay, I’m heading in the wrong direction,” versus I’m not. If you’re not heading in the right direction, figure out what the right direction is.

Drew: Yup. Yup. I would say that that was probably one of the more satisfying times of running that company was that first year …

Sina: Yup, absolutely.

Drew: … because the growth was just … It was so fun, right?

Sina: Yeah.

Drew: From when the first sale came through, I remember we were aiming for $1,000 a day, then $3,000. Just that kind of rush, you just can’t beat it.

Sina: Yeah. If there’s other things to add, the only … I actually wrote a couple things down while we were talking that I thought would be useful for people to know is … One was being in a partnership, I think, was very important. I think there are times when a partnership can slow you down, maybe because you’ve got 1 person wanting to do 1 thing and another person wanting to do another thing. There’s compromise in the middle. I think for us because you were probably more growth-focused and I was more operationally focused, I think it helped that you were always pushing the envelope forward. I was frankly probably keeping us back a little bit, but also just making sure that everything was neat and orderly as we went along. Drew, we’d go to these trade shows, and Drew would go up to a vendor. They’d say, “Hey, we need … This is really where the industry is going. You guys should do this.” Drew would say, “Oh, we’re working on that. It’ll be done in 2 weeks.” It would be my job to go get it done. I think frankly that worked well.

What else? I guess the other thought I had, I can’t remember what this is relevant to from our earlier conversation, but I just wrote down, “Don’t worry about the competition.” Obviously you have to be better than the competition, but there were so many competitors of ours that over time went out of business for 1 reason or another. If we had followed them down the path they were going down, we also would have gone down the business, or if we had obsessed about them too much, we also would have just lost sight. Obviously there are competitors that did very well that we probably should have learned some lessons from, but there’s not really any reason to obsess about the competition, and focusing on what you’re doing well. There’s going to be competition in every industry, even if you go into a blue ocean type world. You’re going to find competition. Focusing on the customer is way more important than focusing on the competition. They’re always going to be there.

Drew: Yeah, that one’s huge. In retrospect, looking back, there had to be a handful that would keep me up at night, right down to the end, with [Fab 00:29:54]. Yet how many are still viable today? They caused us no end of anxiety back in the day.

Sina: Yeah, and following up on some of the ones, just keeping tabs on the ones that have done well since we were there, I think that some of the tactics that they employed that kept us up at night actually ended up not being the things that made them win. You don’t want to follow them down a rat hole only to realize that they don’t really know what they’re doing either.

Drew: Right. Right. Sina, it’s been real.

Sina: Fun catching up.

Drew: Yeah, it’s been fun. This has been a good podcast. You were good as the first guest.

Sina: I hope to be back one day.

Drew: We’ll see. We’ll see.

Sina: I hope you’ll keep talking to me. It’s been years.

Drew: I got to ask the audience. It’s out of my control, Sina. We’ll see if they liked you, but I’m sure they did.

Sina: Nice.

Want to save this transcribe to read later? CLICK HERE to download it as a PDF.

Drew: Yeah, we’ll have to have you back on the Nerd Marketing podcast. Sina, where can people get a hold of you?

Sina: The best way is to email me at sina, S-I-N-A, @duoplane.com, D-U-O-P-L-A-N-E.com, probably the best way to get a hold of me.

Drew: Duoplane is operations software, correct?

Sina: Duoplane is operations, supply chain, order management software for e-commerce retailers who employ just in time inventory strategies, so drop shipping, 3PLs, manufacture on demand type retailers.

Drew: Yeah, I don’t think we mentioned that in this episode. Yeah, reach out to Sina if you have any operations questions. That’s all I’ve got. We’ll do this again soon. Thanks for listening. My name’s Drew Sanocki. This is the Nerd Marketing podcast.That’s all I’ve got. We’ll do this again soon. Thanks for listening. My name’s Drew Sanocki. This is the Nerd Marketing podcast.That’s all I’ve got. We’ll do this again soon. Thanks for listening. My name’s Drew Sanocki. This is the Nerd Marketing podcast.