The dynamic duo returns to help answer listener questions. Today we tackle a wide range of topics from how to structure your business joint ventures to what the best sources are for buying and selling eCommerce sites. If you’ve got questions, Andrew and Drew have the answers.
(With your host Andrew Youderian of eCommerceFuel.com and Drew Sanocki of Nerdmarketing.com)
Andrew: Welcome to the eCommerceFuel podcast, the show dedicated to helping high six- and seven-figure entrepreneurs build amazing online companies and incredible lives. I’m your host and fellow e-commerce entrepreneur, Andrew Youderian.
Hey guys, it’s Andrew here, and welcome to the eCommerceFuel podcast. Thanks so much for tuning in to the show. Today on the show, going back and doing a round of your questions, reader questions from the blog and online, just doing a random grab bag of questions we thought were interesting to tackle. And joining me to really answer all these…
Drew: The tough ones.
Andrew: The tough ones. I’m going to take all the softballs, Drew, and hand you off all the really, the ones I have been stressing out about. The men, all the hard answers, Mr. Sanocki, how are you doing, sir?
Drew: Good. How are you?
Andrew: Good, good. Drew, things in New York well?
Drew: Things in New York are great. It’s getting warmer and spring is just around the corner.
Andrew: And you recently sold Karmaloop, correct?
Drew: We did. I did not, we did, but yeah, that was a quick turnaround. We bought it out of bankruptcy last summer and just sold it a week ago to a sneaker retailer on the West Coast.
Andrew: That’s fantastic. Congratulations, sir.
Drew: Thanks. It was a great chance to really try out a lot of the things that I preach on my blog, and they work so it was a good case study.
Andrew: Yeah, well, you mentioned that a lot of the tactics and things you talked about at your talk at ECF Live which we’ll link, well, it’s available to all eCommerceFuel members in the community, but a lot of the things from that talk are the things you used to really turn that retailer around.
Drew: Yeah, that’s right. One of the first things I did was I talk a lot about figuring out who your best customers are and then building the business around that group of customers. And I spent about a month doing that at Karmaloop, and once I figured out who that group was, the next step was really developing the marketing campaigns that kept those customers around, acquired more of them and kept them buying.
So that took about a year to implement and it worked. We brought it from a money-losing company, month-over-month losing hundreds of thousands of dollars, to about break even and that’s when we sold it.
Andrew: That’s awesome. Well, congratulations, sir. That’s a pretty big accomplishment. Nice little cap in the feather, that’s really cool.
Drew: Thanks.
Andrew: All right, sir. Should we get into some questions?
Drew: Let’s do it.
Andrew: So the first question we’ve got is from Matt, and Matt says, “Hey guys, listen to the podcast and love it. I’m looking at starting a store with beauty and face care products similar to Nurture My Body which is Bill’s store, but in a different vertical. If you were starting a business like this, would you immediately try to set things up with a Chinese supplier and have them develop formulas for you, or would you do everything small in-house to perfect the formulas first? A little stuck on which avenue is the best to try and pursue.”
Drew, what are your thoughts?
Drew: I don’t really know a lot about this kind of production, but it seems like you’d want to do something like this domestically just to figure out the formulation before you deal with sourcing anything from overseas. There’s a million qualifiers you put on that. If you’re experienced in sourcing things from China, then go right ahead, but I would probably want to operate at break-even or even at a loss for a while while I dialed in the formula.
Andrew: Yeah, agreed. I just got done prototyping a product that we had made and the way we did it was we designed it in the States, sent it to China to have them make a sample, sent the sample back, and we went through probably three or four prototypes and it took six-plus months before we could get to a production run.
And in retrospect, I really wish I would have paid more up front to work with a local prototype manufacturer in the U.S. where I could have iterated much more quickly. And then once I had what worked, gone ahead and sent that over to China for production because just the lag time between sending them my revisions and getting the sample, it just probably stretched out the process two or three times as long as it could have been. So I think in house would probably be the way to go.
Drew: Yeah, and that’s, and you’re talking about a physical product in your case that is not, well, he’s talking about skin cream, which I would think, so many other things could go wrong from a health perspective.
Andrew: Yeah, agreed.
Drew: Right, like acid’s burning my skin. Call back to China to try to get, take the acid out.
Andrew: Yeah, any kind of ingestibles or skin creams, I know you can, again, this isn’t a market I know anything about. Bill would be able to speak to this much better than either of us, but anything you put on your body or ingest that just sounds terrifying and I wouldn’t be interested in getting into that.
Drew: Right.
Andrew: Next question is from Brent. Brent says, “I’m semi-retired from the corporate domain and looking for a viable e-commerce opportunity. I was hoping you might point out some trustworthy sources and perhaps a process for uncovering such a pipeline of sites or businesses to buy.
I’m perusing the typical channels, Flippa, BizBuySell, Acquisitions Direct and some more, but would be interested to know your input on navigating the due diligence of the search phase. Are these channels for real and would you recommend seeking out a personal business broker? Thanks.”
Drew, what are your thoughts on that? Really the big things are, what are the best channels to look for deals and thoughts on due diligence?
Drew: I applaud Brent for considering buying instead of building, because when you buy a company, you take a lot of the risk out of the equation. You buy something that already has customers, already has a presence. Brent will not have to figure out a lot of the basics that you would have to do if you were starting from scratch, right? So that’s all good.
I would probably, for your first purchase, want to purchase a very simple business. A very simple e-commerce business and Flippa is like the Wild West and probably too small. Is his goal to just get some spending money or is this something that he wants to retire on? And also, what is he retiring from? Is it a job where he knows marketing or operations, or is it a job where he has nothing to do with e-commerce and he’s going to be starting from scratch? Those are all important things to think about.
Andrew: Yeah, in terms of the channels, are they for real? Drew, you mentioned Flippa, there’s good stuff in there, but there’s a lot of noise and a lot of junk. BizBuySell, in my limited experience, has some listings that you can definitely check out. Brokers like FE International or Quiet Light, those are a couple of reputable places, they’ll definitely go through and do some diligence so that, not going to be listing lemons for sale that are just blatantly fraudulent.
But at the same time, like most businesses are going to have some warts and some issues, even the best ones, and the diligence process, you can’t trust a broker to do that.
So you asked should you seek out a broker? Yeah, they can help you, you can get some good deal flow that way, but you just got to realize great brokers, they’re incentivized when a deal goes through. So thinking through how they’re compensated and what their personal incentives are and and realizing that you’ve got to do the diligence yourself. You can’t depend on a broker to clear those things for you.
And I think knowing where to look and what issues to look for, that takes time. And so, like you said, Drew, I would probably, if you are going to get into it, try to buy one first, get some industry experience first before you scale up and really try to buy something that if you don’t do the diligence right, you could regret having purchased.
Drew: Yup.
Andrew: Next question is from Rainier. “I have found a bricks and mortar health shop which has a limited online presence, but really no real online shop with an older, non-tech-savvy owner. My idea is to propose a JV, joint venture, where I would set up a proper web shop and do extensive content and e-mail marketing.
The sticking point for me is how should I go about structuring such a venture? One of the possibilities I was thinking about is running the online shop separately and using the existing shop almost as a drop-shipping supplier. Do you know of anyone that’s done something similar and if so, what kind of structure did they use?”
So she’s really looking to partner up with someone who’s got a brick and mortar shop and take them online and get a percentage of the profits. Drew, do you have any experience with this or any thoughts?
Drew: It’s very common. I see a lot in the media space where there’s a magazine property or a media property, a content property and they want to diversify into e-commerce, but they don’t really have the chops internally to do it so they license out their brand. That might be a licensing fee. I’ve also seen someone like Rainier come in and charge a percentage of the upside or a percentage through that channel.
So yeah, I think they’re pretty common and it really all comes down to what you can negotiate and there are a couple different levers. There could be a monthly flat fee with a percentage of the upside or you could structure it like you proposed, as a separate store where you make everything through that separate store. But what does the brick and mortar health shop really make in that case? I think they’d probably want to have some share in that upside but I don’t know. Andrew, do you have any experience with it?
Andrew: I don’t have any personal experience. I know I’ve talked to a handful of people who have done this and sometimes even in the case where they’ll do it, it’s one of the cores of their business model. So I think it can be done. I think that the tricky part is yeah, setting up a comp structure that works well. I think you either need to A) get compensated really well if you’re not going to be getting a big chunk of the sales.
And if you are getting a big chunk of the sales, you need to set up a pretty transparent and very clear agreement that protects you in the future because I can see what could happen potentially is the brick and mortar owner, they say, “Oh yeah, I’ll give you 20% of the sales, what’s it to us? We’re not doing anything on that channel anyway right now. It’s only upside.”
But then if you work your tail off for 6 months, 12 months, 2 years, you really build up a presence online, all of a sudden if that becomes a major channel for them, that store owner might start thinking, “Why am I every month, I’m paying that huge percentage out to this person, who…?” You’ve earned it because you did the work up front but there could be some resentment there. So I think making sure you have pretty clear expectations about how things look long-term would be really important.
Drew: Right.
Andrew: Next question is from Tom. Tom says, “I love listening to the podcasts. I’ve been listening to ‘This Week in Startups’ for four years now and find yours as informative if not more so and useful from a practitioner perspective.” Thanks, Tom, that’s awesome. “Quick question. What was the best way to go about incorporating your business? What service, if any, did you use? LegalZoom? Something else? Please let me know. Keep up the good work.”
I’ll take a quick stab at this one, Drew. So personally for me, and it think it varies by state, but it was really incredibly easy in Montana to incorporate. Really cheap, too. It was $115, it took 20 minutes to file as an LLC and the fees were pretty low. So personally, I just did it straight through my department, through the state, I can’t remember what, the Department of Commerce or something like that, but just did it directly and it worked out fine. Is that how you have set your business up legally? Did you use one of those intermediary services?
Drew: I didn’t. Only because New York’s a little bit more complicated. You’ve got to write a press release and publish it in a paper and just do all this weird stuff. But I went with my accountant, who just did it as a service.
Andrew: Yeah, and for me, I think the total fees were, again, it varies by state, but I spent maybe $200 at the end of the day, all in. Do you remember what the fee was for setting up your business?
Drew: Probably $1,000 to $2,000.
Andrew: Okay, I think it depends where you’re at, Tom, in terms of how complex it is.
Andrew: Next question’s from Will. Will says, “I’m big fan of the podcasts and found them to be very helpful. Thank you. I run a whiskey brand and we’ve recently began selling bottles of product through our website. Here’s the complication: only licensed liquor stores can fulfill the orders and so there’s a need for a third party, i.e., a third-party liquor store, to control everything from the ‘Purchase Now’ button all the way through the purchasing funnel to fulfillment.
The problem with that is when someone clicks ‘Purchase’ it takes them off the site so it looks like, to the website analytics, that they are exiting or bouncing. Is there anything I can do about this so I can better track my customers? All of my third-party liquor sites that fulfill use Shopify. I’m trying to optimize my e-commerce site, but it’s not easy to do with the analytics spread across multiple domains.”
And fortunately, we’ve got an analytics expert and a numbers man on the show. Drew, what do you think about that? Obviously, he has a little bit of an unorthodox setup here, but thoughts for tracking conversions when people leave a domain and go to another one? Is that possible or does he just have a model that’s going to make things really difficult to track?
Drew: It’s going to be tough using Google Analytics’s e-commerce tracking. You could always track a click on the Purchase button and set a value to that as a goal, right? Track it as an event or something in Google Analytics, but you’re not gaining access to the full repertoire of e-commerce functionality in GA.
Another thing would be is there any way you could get that customer to come back to your site after they’ve checked out on the third-party site? Could they come back to your site on a checkout success page or a thank you page? And if that’s the case, then yes, you can e-commerce track, put the tracking on your own page. That would be the preferred route. Then you can figure analytics such that it doesn’t count that when you go off-site and come back on-site.
And a lot of Shopify stores, we have to do this just because Shopify has their own branded checkout that when you check off, if you’re using the basic program when you check out in Shopify, you go through their cart. And you don’t want that to show up as a third party or referrer or something like that. You can do a workaround as long as they come back to your site at the end.
Andrew: So you can just really redirect them for that liquor store, that third party, have him when they complete the transaction, send them back to the original referring site. You can set up your analytics to count that as the conversion. Got it.
Drew: Right.
Andrew: Hope that’s helpful, Will. Next question’s from Scott. Scott says, “How much did you save as a cash cushion before leaving your old job? How many months of expenses did that represent? I’m on the verge of jumping ship and want to know about how much of a safety cushion to have so I can compare it to someone who’s actually done it?”
Drew, are you comfortable answering that question?
Drew: I don’t know, maybe six months which I just had as an emergency fund back when I started my job, I’m sorry, my business.
Andrew: Six months. I probably had a couple years in the bank, but largely because I was a single guy who only had to pay for rent and beer and cheap take-out food.
Drew: Yeah, it was very different when I was starting my business in my early 30s or late 20s, whatever it was, versus now in my early 40s. Now I would, I need income to provide for my family so I’d probably want a year in the bank. I’d be more open to raising money now doing something where I could pay myself earlier in the process.
Andrew: I agree. I think a year is a good number. Six months would probably be a little bit less for me, because for me it took me about a year to build up the business to get to a point where it was meaningfully replacing the income I had lost and I think that’s probably a best case scenario. So for me, Scott, I would look at least a year’s worth of living expenses.
If you’re able to pare those back of course you can make your own last way longer, but that’s where I would be comfortable with. And we’ve got an episode, I think Bill and I did an episode on knowing when it’s time, when to quit your job and move into your business, and we’ll link up to that in the show notes for this.
Andrew: All right, the last question comes from Tim. And Tim says, “I wanted to ask your advice on how to tackle product information and copyrighting for large inventories. I’m trying to stick with a small niche and maintain roughly about a thousand SKUs to start with, but in order to compete, I need great product information.
Not to mention I want great product details throughout, but how do you tackle this when you have an inventory of this size, that’s this big and possibly growing as you continue down the road? I know you must have had similar obstacles when setting up your first store, Right Channel Radios.”
And I’ll talk to Right Channel in just a minute, but Drew, I mean you just got done selling Karmaloop, how many SKUs did you guys have over there?
Drew: Maybe a hundred thousand.
Andrew: Yeah, 100,000, so…
Drew: Yeah, and my store, I think we had 50. You’ve just got to use the 80-20 rule and realize that at any time only 20% of your products are the ones that matter. They’re the ones that are being looked at. It’s easy going to Google Analytics and go under I think it’s “Behavior to Landing Pages” or to “Content,” and just you’ll see how many pages are actually being looked at, how many products are actually selling and start there. Start at the top.
You aspire to have your whole catalog embody your brand, but sometimes it’s not just possible. We hired very good copywriters and we focused them on the top products. And then the other thing you can do, it really depends on what you sell, but when you get into 50 or 100,000 SKUs, start to think more about customer-created content. And it can be customer-submitted images or product reviews, but moving those dynamically higher on the page and it relieves you a little bit of producing original content for every product.
Andrew: Yeah, I think as independent merchants, especially if we’re not enormous, I think it’s really difficult to pull this off if you have such a large catalog. And I’d almost make that, I mean obviously, Tim, doesn’t sound like you’re already there, but if you’re thinking about getting into a new business or how to expand your current one, I think it makes a lot of sense to keep your SKU count really small. Because at Karmaloop, how many copywriters or what kind of marketing sized team did you guys have, Drew?
Drew: Oh, it was still just a handful of people. Three? Four?
Andrew: Oh okay. Wow, that’s crazy. That’s a lot of products for three people.
Drew: Yeah, actually products probably fell more under merchandising, so that was again, another five people.
Andrew: But still, that’s like five people that can focus on that versus, Tim, I’m not sure how big your business is, but let’s say it’s just, even if you’ve just one person dedicated to that, that’s a lot for them to do. And so, yeah, for us, when we did our redesign for Right Channel Radios and we were going through the copywriting, Laura did a lot of that copywriting.
But we went through and prioritized how much time to spend based on what our best sellers were and that was only, we only had 300, 400ish SKUs and we still had to prioritize. So I think, yeah, you hit it right on, Drew. If you can do the 80-20 rule, if you can, keep your SKU count as low as possible. I think the quality over quantity, especially for small merchants is, yeah, it’s the way to go.
Drew: Right.
Andrew: Drew, that’s it, sir. That’s all we got for questions.
Drew: That’s too bad.
Andrew: Yeah.
Drew: I could keep going.
Andrew: Do you mind if I ask you maybe a couple of personal questions here?
Drew: Go for it.
Andrew: On the record?
Drew: Let’s do it.
Andrew: I can’t think of anything adequately embarrassing enough. I’ll have to come back.
Drew: Yeah, maybe next podcast.
Andrew: Drew Sanocki from Nerdmarketing.com. Drew, always a pleasure. Thank you, sir.
Drew: I’m always appreciating being here, Andrew.
Andrew: And if you’d like to ask a question, love to hear from you. You can reach out, eCommerceFuel.com/contact is the best way to submit your questions or you can hit us up on Twitter. I’m @Youderian Y-O-U-D-E-R-I-A-N. Drew, are you just @DrewSanocki?
Drew: @DrewSanocki.
Andrew: @DrewSanocki.
Drew: S-A-N-O-C-K-I.
Andrew: Perfect. Thanks so much. We’ll talk to you next time. Want to connect with and learn from other, proven eCommerce entrepreneurs? Join us in the eCommerceFuel private community. It’s our tight knit, vetted group for store owners with at least a quarter million dollars in annual sales. You can learn more and apply for membership at eCommerceFuel.com. Thanks so much to our podcast producer, Laura Serino, for all of her hard work in making this show possible. And to you for tuning in. Thank you for listening. That’ll do it for this week, but looking forward to seeing you again next Friday.
