Anatomy of The Perfect Business

Imagine finding a magical bottle with a genie inside, capable of granting you one wish: the perfect business. If money, time and options were endless, what would you want out of your ideal business? And what would it look like? Here’s our take on the perfect business.

The perfect podcast co-host and the founder of his newest venture, Nerd Marketing, Drew Sanocki, joins me to discuss fourteen attributes of a perfect business. We look at the two separate components that make up that type of business – the product and the structure. You don’t want to miss our high-level look at the anatomy of and strategies for building and running a perfect business.

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(With your hosts Andrew Youderian of eCommerceFuel.com and Drew Sanocki of NerdMarketing.com)

Andrew:Hey, guys. It’s Andrew here, and welcome to the eCommerceFuel podcast. Thank you so much for tuning in today.

Today we’re going to be chatting about the perfect business. If you could wave a magic wand and have the ideal, most incredible e-commerce business materialize right onto your MacBook, what would it look like? What would be the attributes and different components of it to maximize profitability, minimize headache, and just make for an awesome business overall? And joining me to dive into all these different attributes, Drew Sanocki from the new NerdMarketing.com.

Drew: The perfect podcast cohost, Drew Sanocki. That’s what I thought you’d do.

Andrew: Oh.

Drew: You missed it.

Andrew: If I was as witty as you, I would’ve come up with that.

Drew: You missed it.

Andrew: But I did not. Shoot! Should we re-record this? Maybe we’ll re-record it. Drew! Nerd Marketing, man. I love the new design, love the name. Oh, it’s pretty slick.

Drew: Thanks. Thanks. Yeah, nobody could spell Sanocki, so Nerd Marketing is what I want to talk about. I want to talk about customer analytics, and data, and how it applies to marketing, and it just made a lot more sense. So NerdMarketing.com.

Andrew: And you just figured that’s the second-most-common thing people call you after your name, is they just refer to you as a nerd. So it just was a perfect fit.

Drew: Been called nerd my whole life. Went to Harvard. I went to Stanford, so I might as well just embrace it.

Andrew: Oh, man, and…

Drew: Nerd Marketing.

Andrew: …we actually had the chance couple days ago. I was in New York, and had a chance… You’re a real person! We actually had sat down across from each other, and shared a meal, and…

Drew: Yeah.

Andrew: Yeah. I think our…

Drew: An hour maybe, but yeah, it was good.

Andrew: So now our ratio of virtual time to in-real-life time is only half a percent to 99.5% as opposed to even worse.

Drew: Yeah, and the other times we’ve seen each other at your conferences, you’ve been so busy, understandably, that it’s just we never get a chance to hang out.

Andrew: Yeah, it was good, man.

Drew: It was good.

Andrew: I saw your work digs, which are really cool. I met your brother…I didn’t meet him, but saw your brother again. We sat down, had tacos, talked about Legacy stuff. We got pretty deep on a few issues.

Drew: Yeah, yeah. It was fun. You got to come back.

Andrew: I’ll be back. I’ll be back. Well, great! Should we dive into the elements of the perfect business?

Drew: Let’s do it.

Andrew: With the perfect podcast host? Here we go.

Drew: That’s right.

Andrew: All right, so Drew, when I was thinking through, these are assuming, not necessarily if you had a business to buy or to start, but if, overall, again, using the magic wand analogy, if you could just create one up from thin air, what would be the perfect elements if you could just wish them into existence? And of course, hopefully they’ll have some applicable elements as people are thinking about starting or buying businesses.

Repeat Customers With a High Lifetime Value

Andrew: But the first one…and I don’t know if this is the most important. Maybe we can go through all of these, and at the very end, Drew, we can come up with the one that we think is, “If you had to pick one…” So these aren’t necessarily in order based on importance, but the first one on our list is repeat customers with a high lifetime value. I’ll say, in my niche right now, CB radio, this is one of the things that grinds me the most is that we have some repeat business, but a lot of times, it’s a one-off purchase. And so no matter how great you treat the customer, no matter what type of impression you make, yeah, maybe you get a little bit of referral action going on. But you lose so much of that because a lot of times, they don’t need to come back and purchase again.

Drew: Yeah, and if you could layer consumerable one that or something because I think of maybe, if I like BMWs and I only buy BMWs, but I buy them every five, or 10 years, or whatever it is, that I’m still a repeat customer with a high LTV, but it’s just I don’t come back that often. And I would probably would like someone who comes back a little bit more frequently than that. But I agree with you. That’s huge.

Andrew: Yeah, something like just Eric Bandholz from Beardbrand.com comes to mind. He sells three-month supplies of beard oil. So that every three or four months, the beard starts losing the luster, getting a little bit stinkier, and people got to come back. It’s a good model.

Drew: We’ve talked about it before, that high LTV makes so much possible. High LTV combined…maybe that’s the result of high margins. Maybe it isn’t. But just you got a high LTV, you can do all sorts of things on the paid acquisition side. You can really build your marketing engine if you’ve got that high LTV.

Andrew: Were you the one that mentioned Eric’s Beardbrand? From the stage, when you were giving your talk, you referred to it as…

Drew: Beard oil?

Andrew: No, you called it…it was beard ointment or beard something or other.

Drew: I don’t remember. Not having a beard, I have no idea what you call something like that.

Andrew: Oh, it was great.

Drew: Beard lube? Lube, maybe.

Andrew: Lube, that’s what it was.

Drew: Yeah.

Andrew: And I think Eric just looked at you with almost disdain.

Drew: Yeah. Like, “Who is this guy?”

Andrew: “It’s beard oil, man. It’s beard oil.”

Drew: Right.

Highly Brandable in an Easy Niche

Andrew:: Number two, a highly brandable or easy-to-market niche or product. And what I mean by that is, man, just some products are so much easier to market. Some products, if they’re hobby-based or passion-based, obviously it’s the kind of thing that you would procrastinate at work browsing online for. Those are great for marketing because people are just…it’s something they’re passionate about.

Or secondly, a product with a really good story, kind of a tried-and-true, classic made-in-America story, or something along the lines of TOMS shoes. You got a great story there. One of those two, if it’s brandable or easy to market, it just makes your job as the guy who’s trying to get the word out so much easier.

Andrew: Yeah. Rob Walling, who blogs at “Startups for the Rest of Us,” who runs a really good startups podcast, he wrote a book called “Start Small, Stay Small.” And he talks about choosing a product where the audience is all hanging out at one place, and usually that’s where they’re super-passionate. So going back to the beard example, maybe beard owners all hang out at the same place. Maybe not. I don’t know that. But certainly there are a heck of a lot of products where you can find that market just all hanging out in one place, and it makes it a lot easier to market to them.

A Big Enough Market

Andrew:Absolutely, and Drew, this third one’s yours, size and growth of the market. Why don’t you take that one?

Drew: What I was thinking of there was just you want it to be big enough or potentially big enough to make it worth your time. Starting a business is hard, and working on it’s hard. And you don’t want it to be capped at, at the end of the day, you can take $50K out of it a year and you’ve hit your plateau. I would like something that is potentially bigger than that.

Andrew: And this is something that we’ve, or at least I’ve, delved into a little bit in the past. Do you think there’s a sweet spot right in the middle? Obviously you don’t want too small. Do you get into too big if you’re starting to go enormous market? You’re competing with just behemoth companies with billion-dollar ad budgets. Is there a sweet spot there?

Drew: I don’t know, and if there is, maybe I haven’t found it yet. But it certainly seems that people hit this plateau around somewhere in the low-to-mid seven figures, based on the people we’ve met at your conference. Maybe it’s you’ve got a small market, easy to dominate, but one that might serve as a stepping-stone into an even bigger space when you’re ready. For example, if you start a food product or a skincare product, you can niche that market down to people who just like popcorn or people who just have beards. But you might be able to leverage that brand into a related market that’s bigger when the time comes.

Andrew: The next one is a business with a proprietary product line, and again, we mentioned in the previous episode, kind of recapping, ECF live with Bill. That was a theme of the conference, building something out that’s unique, that’s proprietary, that’s custom, and it takes your business from looking at Amazon as a huge competitor to looking at them as a major opportunity and distribution platform. It gives you a monopoly on something when, yeah, reselling existing products, the future for that is bleak in the long run.

Drew: Yep. Yeah.

Andrew: Any more thoughts on that, Drew?

Drew: The conference was just…I heard so many stories of people launching products into Amazon only to have them ripped off within three months, and it just seemed like you’re on this treadmill. The revenue’s good initially, but if there’s nothing proprietary there, you’re in trouble.

I know a guy up in Boston who only invests in highly-customizable, proprietary e-commerce sites, so his latest investment was in a tin roof company, for example. It’s a highly-customizable product. It’s totally proprietary. No one else makes these kind of old tin roofs, and the guy sells them online. So it’s great if you can dominate that niche.

A Minimal Number of SKUS

Andrew: Next one up, the perfect business is a minimal numbers of SKUs, and I guess you can contrast this with, obviously the more SKUs you have, the more products you can sell, the bigger you can get. But as a smaller merchant…I was chatting with someone actually on a plane ride back from New York, Drew, and great guy. It sounds like he’s got a very cool business. But it’s him and a small team, and they’ve got something like 14,000 SKUs in the office supply space. And I just was thinking to myself, “That’s crazy!” In terms of just keeping the pricing updated, in terms of having good product descriptions, and images, and it just sounded like a nightmare from my side.

Drew: Yeah.

Andrew: The fewer number of SKUs you can manage to grow a great business with, the better.

Drew: Unless you’re ultimately going to compete on selection, maybe become a Wayfair or something like that, but it’s usually harder for the little guy to do that. My DesignPublic had 50,000 SKUs, and…

Andrew: Oh, my goodness.

Drew: And now at Karmaloop, it’s something like 80,000 SKUs, and it’s really a nightmare. Yeah, the feeds go down. How do you give all the products the attention they deserve? And you’ve got that tension. You’ve got to automate it and have SOPs to manage a catalog that size, and it really pushes you in the direction of becoming a marketplace.

But to do the proper merchandising that you alluded to, to really price things properly, and make sure everything’s optimized on a product page with a product description, it’s almost impossible. You got to narrow down on that catalog to just a handful that will drive the business.

Andrew: Yeah. It’s in just stark opposition with the one we just mentioned, the proprietary product line. Making one proprietary product is a good amount of work. Making half-a-dozen or a dozen is impressive. Unless you’re GE or some behemoth, you can’t do that for tens of thousands of products. It just doesn’t work.

Drew: Right. Right.

Products That Are Small and Easy to Ship

Andrew: Drew, this next one I’m going to let you tackle as a man who has shipped enormous sofas across the country and perhaps the world, small physical size.

Drew: Yeah. I don’t know if I need to explain that, but I want the product to fit inside of a standard FedEx or UPS box. Because anytime you deal with freight, or freight forwarders, or white glove delivery, it just introduces such complexity, especially when you ship to a city and you’ve got to bring things into an apartment. It’s such a pain.

And if you look at the life cycle of DesignPublic from when we started, we did emphasize things like sofas and tables, to where we finished and we became much more about gifts, gifts, bedding, things that were easier to ship. And there was a reason for that. It was the margin you have to give up, if you offer free shipping, is just huge, and it’s just a customer service and operations nightmare to ship something like that.

Andrew: Oh, that’s one of the reasons why I ended up selling TrollingMotors.net was, same thing, just shipping these enormous, 60-pound, five-foot-tall trolling motors. I would say we probably had problems on at least 50% of the shipments, just nightmare problems…

Drew: Wow. Whoa.

Andrew: …and a lot of the ones you mentioned. But yeah, it was not something I’m real eager to get into again.

Drew: Right.

Products That Require Little Updating

Andrew: Next one, products that require little or no updating. One thing I’ve got to say I love about the CB industry is 30-year-old technology doesn’t change that frequently. We’ll occasionally get a radio or a new line of antennae, but by and large, probably 90% of our product line stays the same, year to year, which is great. Because we can take time and invest in great product pages, photography, all this kind of stuff.

If you’re in fashion, a lot of things are going to be changing every year. Electronics, a lot of times those change as well. Having something that’s timeless and that you don’t have to re-freshen up your catalog every spring is, oh, just a huge advantage.

Drew: Yeah, and I had my lesson there too with DesignPublic. We thought it was a good idea in the early days to do a photo shoot because we figured we’re going to be like Williams Sonoma. We’re going to do our own photo shoots. And not only did it cost a lot of money to do that photo shoot, but within three months, half the products were obsolete and discontinued. And now we’re just left with this great photography that we can’t use, so I agree.

Andrew: Straightforward customer support. Drew? Any thoughts on this?

Drew: I don’t know. Maybe this relates to a low SKU count too. But in order to have a knowledgeable customer support team, I guess it’s one thing that ties together a number of the things here, not just the SKU thing, but easy to ship, just easy to service.

Andrew: Yeah, for us, the fact that customer support, for our niche, radio equipment…one of the only reasons we’re in business as a drop shipper is because we can provide a lot of that because there’s that complexity we’re able to offer specializing in that. But that’s our value add.

But if we’re in the perfect business, if you’ve got a proprietary product and all these other things, if you can make it fairly straightforward where you can limit it to the things like all returns, or refunds, or questions about your four or five different products, etc., etc., it’s a lot easier to trade off support people. You don’t need people that are necessarily as sophisticated, or you don’t have to pay them quite as much. You can get people that are probably going to be able to provide good service that don’t require as much onboarding. All things equal, it’d just be great to have a product that is not rocket science to put together.

Drew: Right.

Can You Personally Add Value to Your Brand

Andrew: Drew, next one was yours as well. Can you personally add value? Can you talk to that for a minute?

Drew: When I first saw the show notes here, I was wondering if you wanted to talk about what to look for if you were buying a business. And so the thing that immediately came to my mind was can I personally add value to that business? So everybody’s got a cross-section of marketing that they’re really good at, or operations, and you want to be able to bring that talent to the business. For me, I really like customer segmentation and email marketing. And if I’m looking to buy the perfect business, I want to find, not only everything that we’re talking about now, but also the fact that they are not doing what I’m good at so that I can go in and immediately add value.

Andrew: Yeah, agreed, and this wasn’t necessarily just from the sake of buying. But if I’m going to take that perspective as well, for me, my expertise is content marketing and SEO. Those are probably the two things I do better than anything else. So if I was looking to buy a business, looking at a site, perhaps, that had a lot of domain authority, some good inbound links, but wasn’t structured well, hadn’t been optimized, didn’t have good site navigation and on-page work, it’d just be a home run. Look at that and just say, “Oh, this is going to be, with a week or two of work, I could probably double the traffic that’s coming in here.”

Drew: Right. Right.

A Viral Element

Andrew: Next one, a business that contains a viral or a self-promoting element, and this is a little bit harder to nail down. But I think, at the very ground level, just building an amazing product is the best marketing you can do. But that being said, some products, I think, lend themselves more to being seen by other people and being promoted.

Like that classic example, Diamond Candles, they’ve got the thing where you burn the candle and then there’s a ring inside. And people will often, once that candle burns down, they’ll do videos and Facebook posts about the ring that comes out and how much it’s worth. Or a product that’s just really visible, for example, a bag. Whipping Post and Minaal come to mind. They make some great bags and the kind of things where, if you’re wearing it, people say, “Wow, where’d you get that? What? That looks awesome,” things that market themselves.

Drew: Happens to me all the time. When I carry my Whipping Post bag, people ask me where I got it. And it probably speaks to just having a proprietary product too. Because if you’re a drop shipper, and you don’t own your own product, and you’re just selling other brands really, there’s no way somebody in my house knows that that product came from a specific retailer. So it just speaks to having a proprietary product.

Andrew: Which Whipping Post bag do you have?

Drew: I have the leather tote bag. The tote bag.

Andrew: Oh, the tote bag. Very nice.

Drew: Yeah.

Incredible Margins

Andrew: Very cool. Yeah, I’ve got the wallet. I haven’t sprung for the bags yet. But I’ve got that wallet, and I love it. Although this little wallet with the guitar pick built in, although sadly the pick has been missing for years. That was so long ago.

Next one up, incredible margins, and this one just goes without saying. I don’t think we need to tell people the reasons why making more money is better than making less money on every product, but ideally something that you can mark up at least 100%. And Drew, you kind of touched on it. And some of the benefits as well, when you’re talking about high LTV for customers, more money you have per sale, the more you can spend, the easier you can scale it via paid channels, and at the end of the day, more money you just get to put in your pocket.

Drew: Yeah, you can make mistakes. You can try different things. I’m reminded of David Hecox’ presentation at ECF Live where he just talked about the company with the biggest margins wins. And yeah, that’s what he meant.

Easy to Manufacture

Andrew: And then finally, at least in terms of the attributes of the product, low complexity in manufacturing. The more and more I’m learning about this, some products you need, that are plastic especially, you’ve got to have molds, injection molds made out of steel, and it costs $20,000 to get them made. And they’ve got five, six, seven, a dozen, 100 different parts.

Other products, they don’t. Other products, especially if you’re looking in the fabric, or the fashion, or things that are just non-plastic, more or less. It can be a little less complex, and all things equal, would love to have something that you don’t have to invest five, six figures in tooling for. It gives you a lot more of a defensible advantage, I guess, but it sure is nice if you can get away with not having to do that.

Drew: Yep. All right, great.

Andrew: All right, so in terms of business structure…those are the attributes for the product. And maybe before we move on, just really quickly, if you had to pick one or two…let’s do two to make it easier on ourselves here. Drew, what would be the top two of all the ones we’ve talked about that, if you had to pick two and you didn’t know about the rest, your top two. What would they be?

Drew: I would go for repeat customers with a high lifetime value and incredible margins.

Andrew: Ooh, nice. Nice. I think I would share your LTV, high repeat customers with a high LTV, but I think I would go with a proprietary product line instead for number two. Just because if you get the high margins and it’s not proprietary, they might…yeah, maybe for a while, it’s great.

Drew: Yep. Yep.

Andrew: But I think eventually they got to come down.

Drew: You got me. You got me, Youderian.

Andrew: So that mean you’re switching over to my side?

Drew: Well, yeah, because high LTV is basically…if you have incredible margins, you can get the high LTV, so there, mine are more related than not. So I would also back you on either brand or proprietary product line. I’ll go with brand just to make it different.

Andrew: Just to spite me. Just to spite.

Drew: Yep, repeat customers with a high LTV and brand. Branded product.

How to Structure The Perfect Business

Andrew: So one thing I want to move on…this is a little more for fun than anything else, but we were talking about the product. But if you get the perfect business and the business structure, what would that look like in terms of how your business is structured, your team, etc., etc.?

And one I thought about, one thing I’ve been thinking a lot about the last year or two, especially as I talk with entrepreneurs that have a lot more experience than I do and have run small businesses, have run big businesses, is what’s the perfect size business to run? Do you want to swing for the fences, have a ton of people work like crazy? Do you want something that’s smaller and more lifestyle-focused? What would your perfect company size and team look like, Drew?

Drew: I think I, just from where I am right now, I’ve run teams before, and it’s just I don’t get as fired up to do that as I used to. And I think I’d go more for a small team of self-starters or just good people that don’t need to be managed or led as much, and that would probably be number one, I think. You mentioned low overhead. I would be on board with a distributed team. I have no need for an office to go to. I really like spending time with my family, and those would probably be number one and two, just elite team and distributed.

Andrew: Yeah, I’ve kind of come to the same conclusion too, I think. Having a team is awesome. I love having a team because it’s people to bounce ideas off of. You get some camaraderie, of course. It’s really hard to build any meaningful business without some type of team.

But I love the idea of keeping it lean, keeping it to a small number of highly competent people, kind of like you were talking about, and having people that are able to manage each of their own areas and be able to lead, and work on product development, the high-level stuff, but keep it small and manageable. And the same thing, low overhead.

I love the fact that every day I come into my office and it’s a sanctuary where I can work. And I’m a very binary guy when it comes to work or fun. I either like to be cranking in solitude and get a ton of stuff done, or be not working at all and just having fun, chatting with people, having beers. So I love that. People call me a robot sometimes, and it’s probably true, but I love having the work in a really quiet environment. So distributed teams, I think, are fantastic, and then, of course, means you can work from anywhere in the world.

Yeah, and this was more of just a pipe dream than anything, but if there’s any way you could set up an offshore structure that allowed for all your profits to be untaxed without you having to go to jail, and having it all be above board, I’d sign up for that too. But I have yet to find one that looks compelling and actually feasible.

Drew: I’ve done a little bit of research there, and there are certainly people who offer that. I haven’t gone ahead with it. I’ve always thought that was a good play, is to set one up and then acquire a bunch of businesses, and offshore them, but…

Andrew: But it seems like…and just totally non-sequitur, off the core of what we’re talking about, and I will speak from a lot of ignorance. Drew, maybe you know more. But doesn’t, when you do that…let’s say you set up an offshore structure in Hong Kong. Don’t you have to pretty much, given the fact that, if you’re an American, the IRS taxes all your income, you can defer the taxes as long as you don’t distribute them to yourself? But anytime you ever distribute those profits to yourself, they get taxed no matter where the corporation is?

Drew: Correct.

Andrew: Okay.

Drew: Yeah, yeah. So the money doesn’t get taxed as long as you keep it offshore, but as soon as you start paying yourself out, you’re paying taxes on it.

Andrew: Okay. So you can do some interesting things where maybe you defer taxes for a while. You can really reinvest in your business without taking it out.

Drew: Yeah, really reinvest in the business, really, without paying taxes.

Andrew: Okay. Interesting.

Drew: Only when you bring it back to the US, or bring it back to yourself.

Andrew: Yeah. Maybe our next move is our $20,000 course with Drew Sanocki on saving taxes.

Drew: Yeah, as I get led away in handcuffs like, “I’m pretty sure you can do this.”

Andrew: With the small print in the bottom that says, “This course is not guaranteed to protect you from criminal prosecution.”

Drew: Yeah. Yeah.

Andrew: “Do not call Drew if you end up in the clink.”

Drew: Right. Right.

Final Thoughts on Reaching Perfection

Andrew: Oh. Drew, final thoughts on this. It’s interesting. I’ll link up to one of my first posts, oh, probably three years ago when I started eCommerceFuel was a post called “Anatomy of the Perfect Niche.” And I’ll link over to that because it’s interesting how my thoughts have changed on that over the last three, four years. And that was a little more niche-focused. This is more business-focused.

But biggest difference that I saw, looking back on those where some of them were the same, but there was also a lot of differences between I was trying to optimize for the perfect drop shipping niche back then, in terms of how do you find products that are well-suited to drop-ship? Because you have to be very careful, given that you’ve got to have some ability to add value, and you’ve got to try to combat people price-shopping a lot. Because if you try to compete on a price in that realm, you’re going to die, whereas now it’s much more focused on creating a brand and creating something proprietary. And so that was the biggest differences I noticed in my thinking for the last…between those two times.

Drew: Right. Right. I would just add in that any…this is just an arbitrary list, and a handful of these characteristics of a great business. If they’re absent, you could actually turn it into a huge competitive advantage. For example, if you were selling a product that required a lot of manufacturing complexity and you were good at that, that’s a great barrier to entry. The same with customer service. If you sell a super-complicated product and customer service is a pain, but you develop that capability, again, it could be a great barrier to entry.

Andrew: No, that’s an incredible point, and I think it’s the whole saying, “If there’s not a hard part, you don’t have a business.”

Drew: Right. Right.

Andrew: Right. And this is kind of a wish list of you and I just sitting down and fairy-dust dreaming, but well-spoken, yeah. And maybe if you do have something like this, there’s a problem because you may have the perfect business for three months until it gets knocked off by somebody else.

Drew: Right.

Andrew: That being said, if you have this business, if we just described your business and you are sick of raking in cash with almost no work, give us a call. Drew knows lots of people with money. I could scrape together a couple dollars and maybe chime in on his syndicate. Let us know. We will want to talk to you.

Drew, it’s been fun, as always, man. Thanks.

Drew: Yeah. Thank you.

Andrew: That’s going to do it for this week. If you enjoyed the episode, make sure to check out the eCommerce Fuel private forum, a vetted community exclusively for six and seven-figure store owners. With over 600 experienced members and thousands of monthly comments, it’s the best place online to connect with and learn from other successful store owners to help you grow your business. To learn more and apply, visit eCommerceFuel.com/forum.

What Was Mentioned

Photo: Flickr/Luciana Cristante

Post tagged in: Podcast, Starting a New Store

2 Comments

  1. Repeat business is the life line of business. But what if your small ecommerce store never gets any repeat business from customers and only gets new order’s.

    In your eyes is this business hitting a doldrum?

  2. Loved the podcast as always. Andrew, your sound had a lot of echo in this episode though. Made it a bit harder to enjoy your silky smooth, dulcet tones. 🙂