Most entrepreneurs worry about how to continue growing their business once they hit the inevitable plateau. For many companies, this happens once they hit the high six to low seven figures. If your business has tapered off and you can’t seem to move the needle, here are six key questions you need to ask yourself to determine your next step.
Drew Sanocki returns to discuss what to do when your business stalls. In this episode, we share decisions that we’ve made in the past and present with our business. From the cause of the stall to the tough decisions you’ll need to make, we cover all of the options so you can give your business a much-deserved bump.
The Full Conversation
Andrew: Today we’re going to be tackling something that’s… Initially a lot of people run into it at some point if you stick with this long enough and that’s what do you do when your store stalls out, when growth just stops, it stagnates, or maybe even the store starts, your business starts contracting? What happens? How do you deal with that? It’s a tough time. And joining me on the show to tackle this issue, the man behind Drewsanocki.com, none other than Mr. Drew Sanocki, surprise, surprise. Drew, how are you doing, man?
Drew: Good. How are you doing?
Andrew: I’m good, good. Thanks. I knew this day would come, but I didn’t know it would be so soon but you’ve got a new podcast that you’re branching off on.
Drew: I’ve got a new podcast. Yes, it’s only taken me three or four years to roll it out.
Andrew: I finally drove you to the point of madness and you’re like, “I love the podcast. I can’t stand Andrew. I’m going to do my own.” What is it?
Drew: It is called Ecom Dojo, Ecom with one M, and it is a podcast for makers. I looked at the audience of my blog and I’m doing this podcast for my brother Matt. My brother Matt runs a Shopify development agency here in New York City. We looked at our audiences and we realized that there is a significant amount of them that are makers — so fashion, design, food. They produced a product and they’re trying to go direct. So that’s who we’d like to speak to with this podcast.
Andrew: I love that the premise and we’ve talked a lot about this on the show, but just increasingly people who are just making the product direct to consumer products or brands are going to be where almost everything is for our segment in five years. So going from being great at reselling, marketing, and the infrastructure of running an e-commerce business to actually making. The last five, ten years have been all about those aspects. I think the future five to ten years is all about actually making the product because the distribution and marketing is so much easier now. That’s really cool. So what kind of topics are you guys going to be focusing on, primarily, beneath that maker label?
Drew: I think we’ve got to keep that audience in mind so a lot of… We did a lot of surveys before we started the podcast and there’s just a strong need for playbooks. People are challenged because most of them are product designers and creators and they’re not marketers or e-commerce people. They’d rather focus on the product, innovating the product, bringing out new product. They’d like to budget a certain amount of time every week to e-commerce and going direct and that’s it. So what’s the low hanging fruit? What are the things they need to do with that one day a week they spend on their website to really maximize their return? That’s kind of the approach so we’ll have a lot of playbooks, really just walk through all the different online marketing channels, a lot of the operational elements of setting up a store online, and getting started.
Andrew: Very cool. I’ll be listening. We’ll let people know about it again in the future. But ecomdojo.com. Again, that’s Ecom with one M.
Let’s go ahead and get into today’s topic. Talking about what to do when your e-commerce store stalls?
So most companies, again, if you do this long enough, are going to hit a stall point. Not always. Some companies have this wonderful linear growth that goes up and to the right, but it definitely happens. It happens a lot of times to six, in the high six-figure and low seven-figure ranges. A lot of what Drew and I are going to be talking about today is based on the book “No Man’s Land.” It’s a fantastic book. The premise is most businesses grow up to that high six-, low seven-figure level based on the skill and the expertise and the passion of the owner, but if you want to scale beyond that, you really have to invest in systems, invest in infrastructure, and there’s kind of this really rough patch which he calls No Man’s Land that you’ve got to make your way through to come out on the other side and build a viable business that can grow to high seven- and low eight-figures and beyond. Yes, awesome book. We’ll link up to it in the show. It’s a good one.
Find Out What’s Causing The Stall
Andrew: We’re going to go through specifically six questions to ask when your store stalls out. And the first one of course, is to try to figure out what’s causing the stall? This sounds obvious right? But it’s not always as obvious and straightforward as you’d think. Did you go through this, Drew, when you were doing Design Public? Did you ever have a point where you stalled out and it wasn’t immediately obvious why growth or profitability had just…
Drew: Yes, I think we probably had several of these, but I think high six, low seven figures is definitely a stall point. In my case, I was the enthusiastic founder that was doing a lot of the personal outreach and branding and blogger outreach and things like that, and that only gets you so far. I think we did have to do a lot of thinking when we hit this point on how to press through it.
Andrew: And what did you find? Were you able to really point at something and say, “This is the problem,” or was it a little more involved than that?
Drew: I think it was more involved. It was more about systematizing the business was a big part of it, in particular, around customer acquisition. How to get off that hamster wheel of trying to get good press for certain products which bring in a lot of traffic and then the traffic kind of fizzles out. How to really scale past that?
Andrew: I think you can kind of boil it down to maybe three issues. You can look at one, is there something in the business we’re doing incorrectly, a structural issue that we can fix, and some things you can look at. Look at conversion rates over time. Are they declining? Look at your traffic and your lead growth, whether that’s traffic from web traffic or inbound phone calls. Is your revenue going down because you just don’t have as many prospects coming in the door? Has competition increased? Are your margins decreasing over time because maybe your costs have gone up? Your income statement and your Google Analytics are great places to try to ask these questions and figure out something structurally.
The other two issues are, like you were mentioning, Drew, are you just getting run too thin? Do you need to bring other resources or team members in to be able to continue to grow the business? That can sometimes be an aspect. And sometimes, this is the worst of all of them, it’s a market issue. It’s a broad market based issue. Maybe demand for the products is decreasing. Maybe there could be a myriad of things. If that’s the case, you’ve got some big problems and decisions to make. That’s the worst of all scenarios. Trying to figure out what’s causing the stall is number one.
Are You Focusing on Your Business Exclusively?
Andrew: Point number two focuses on are you willing to focus on it exclusively? Drew, I don’t know about you but a lot of times when you see things start to taper off and you can’t really point to it, if you think through it, “Hey man, am I really focusing on this as much as I used to exclusively or giving it a ton of time?” A lot of times that’s not the case. A lot of times it’s pretty strongly correlated with you getting distracted by other things.
Drew: Yes, you know, I would have this discussion with my business partner all the time because it was sort of like around a million dollars in revenue, it was that point where if you backed into what we were taking out of the business was enough, just enough to live, and so on some subconscious level, were we satisfied at that point that we were getting enough out of the business and not as focused on it to drive it to the next level?
Andrew: Yes, it’s tough. Someone in the forum, this week, said, and I apologize I can’t remember who it was, they said, “A business is either growing or it is shrinking.” And maybe a little bit simplified, but I think there is a lot of truth in that you can’t grow something and leave it for any extended period and have it not have any kind of decay or atrophy issues. We’ll link up to an episode we did here on the podcast about running multiple businesses which talks about this. So tempting to do and I’m guilty of it. As Drew, I know you’ve got a lot of stuff going on, but it can cause a lot of problems as well.
Are You Willing to Heavily Invest To Get Past The Stall Point?
Andrew: Yes. Number three, the third question you need to ask. Are you willing to heavily invest in the business to get it to continue to grow past that stall point? And Drew, did you do this? When you guys did stall out, what did you end up doing? Did you take that step and start pouring resources back in? What was the next level for you guys there?
Drew: Yeah, I would think the biggest resource being our time. I think there was a period of time where my co-founder and I were, I don’t want to say checked out, but the business was kind of running and we were both doing other things and had a million other business ideas and I think we had become complacent. It was more about investing that time back into the business and curtailing the other projects we were working on. That was probably the biggest investment we made.
Andrew: Yes, time can definitely be a huge one, going back to the focus in ventures. I’ve done the same thing. Maybe even if I’m still running, I’m just not quite as nose to the grindstone as I was. A lot of times, and the author of “No Man’s Land” makes this argument pretty heavily that to get through that No Man’s Land, low seven figures, to get to that high seven and above level, you’re going to have to invest heavily in people and technology and other things to move past that, and makes the argument that you’ve got to build, a lot of times, the infrastructure ahead of when you need it.
So the premise being that to be able to achieve the growth you need to maybe have a full time marketing guy and a full-time customer service guy and you need to have someone who deals with all of your wholesale orders. But you can’t…it’s kind of a chicken and the egg thing, right? Sometimes you can’t necessarily afford them until you reach that level, but you can’t reach that level until you have them. You have to go through this No Man’s Land where you’ve got to hire ahead of the curve and it can be difficult. So questions to ask yourself, if you’re in that position, are you willing to hire, train, and manage more people? Are you willing to go from a doer to a manager? I don’t know about you Drew, but I think managing people is one of the hardest parts of running an e-commerce business.
Drew: Yes, this was such a tough… I’m remembering back to my own business. This was such a tough phase because what you need really is middle management. For zero to a million in revenue, it’s the founders and then more or less entry level people who are great and enthusiastic, but the onus is on you to manage and train them and vet them. And yet getting up to seven figures and beyond, what we are talking about is building out a team, and if it’s a $10 million, $20 million business, you need that level of middle management in there. You need to hire the marketing professional to run marketing and the merchandiser to run merchandising, the ops guy. And that will really help you scale up, but there is this No Man’s Land that those people are expensive. It’s hard to suck it up when you’re doing a million dollars in revenue. You can’t really afford them but you need them at that point to grow.
Andrew: Yes, and that’s jumping ahead to one of our other points. Can you… I’ll hold off. I’ll try to restrain myself. Those people that you can bring in, you can give a couple high level things to and let them take a light of ownership over really complex areas of your business, they’re not cheap. And a lot of times in that million dollar range, you can make good money, you can support a team, but hiring those very experienced people, a lot times, that’s going to suck most of the profits, if not all of them or even all your profits and more, dry. Another couple of questions. Are you willing to make less money or no money for a one- to three-year period to get through that area? And are you willing to give up more of your flexibility in the short run? Because to try to make that push is it’s very time intensive. It’s resource intensive. It’s difficult.
Can You Grow & Profit By Paying Market Rates to Support Your Selling Proposition?
Andrew: Number four, transitioning to what you said about how expensive they are, Drew, is can you grow profitably paying market rates to really support your core unique selling proposition, and this is another tenet of the book is that most founders, myself included and Drew, I would guess you, we built the business based on our cheap, our expertise, and the cheap labor of us. I did that with SEO with Right Channel Radios. I built that up with SEO and investing heavily into that. I don’t think that I could’ve built the business profitably paying market rates to a SEO firm to grow it up. It would not have penciled out. Do you see anything like that with you building Design Public in terms of the expertise you leveraged that you just probably couldn’t have for?
Drew: Oh yes, across the board. I think I started my businesses on ’03, so there wasn’t a whole lot out there. So I had to learn SEO, e-mail myself and I feel like I became one of the best at those things. This was in ’03, so there wasn’t a lot of competition, but you couldn’t go out and hire that expertise and we had to develop it in house. Same with drop-shipping, when we first started drop-shipping, there wasn’t a body of knowledge out there or even a talent pool to pull from. It was our own learning and really cheap labor building it out.
Andrew: Yes, for me I got started a little bit later. SEO, it was pretty established. It’s just hiring good SEOs is exorbitantly expensive. You either pay not very much and get someone who doesn’t do a very good job or you pay out the nose to find someone who does it right. We’ll link up to a forum discussion about how hard it is to try to outsource SEO and do it in-house versus paying other people. It’s really the businesses that can scale to high seven and eight figures and beyond, you’ve got to figure out if you have a core offering and a core USP that you can really support with market rates. And sometimes you can’t. Sometimes you can build a great seven-figure business that makes you a great profitable income and you can use a supporting team of employees or contractors to help you manage that, but it’s not something that it can be a $20 million-business and scale without you. Having an honest discussion with yourself about what type of business do I have is important if you’re thinking about going through this.
Are You Willing to Make The Tough Decisions?
Andrew: Question number five, are you willing to make difficult decisions and trade-offs? This is another aspect of getting past that stall out point is with people. Sometimes the people who helped you get from 10,000 to just shy of a million aren’t necessarily the right people to help take you from a million to 10 million. It’s a different skill set. A lot of times the entrepreneurs, the skill set that took you from those early stages isn’t going to get you to those later stages. Are you willing to, if it’s not a good fit, replace them or move them somewhere else within the organization? That’s really hard to do, especially if you have tight relationships with people. That’s something that the guy in the book argues that if you want to grow to that level, you have to be willing to do. Did you ever have to make any really tough personnel calls like that in your company?
Drew: Yes, I can think of three, and it was not pleasant, and we probably didn’t do it as soon as we should have because it was so hard. You bring in people, in the early days, because they’re generalists. They can help with all sorts of aspects of your business. And then when it’s time to scale, maybe you need more specialists as you get bigger and bigger. And a lot of those people can’t make the jump, but they’ve been with you working for peanuts from day one and you’ve got to make the call. Do you get rid of that person if they just can’t make the jump to what you actually need when you’re a bigger company? Those were easily the worst days of my life as an entrepreneur, were the days when you have to let somebody go and everybody is in tears and it’s not fun. It’s tough.
Andrew: It sounds miserable. Yeah, it’s one of those trade-offs that he talks about. That sounds miserable, Drew.
Drew: You have a whole other lesson on firing people.
Andrew: Yes, I fortunately haven’t had to go through that but that would be a great episode. Maybe I could just pepper you with questions and reassure all of my existing team it’s not because I’m preparing to make any layoffs.
Drew: A handful of the people I’ve fired are listening to the podcast someday are just like in tears.
Andrew: Maybe we’ll publish that one privately.
Drew: I don’t want that to happen.
Andrew: Along those same lines as difficult decisions, trade-offs, get through equity and debt. We were just talking about, Drew, how expensive it is to scale up and bring on some of these team members, and to get through that, of course, you need funds. So that either means you bankrolling it or if you don’t have that, a lot of times, bringing on either debt or additional shareholders to bring equity into the situation, either of those brings on additional risk or both of those decrease control or flexibility. Another really difficult decision.
Drew: We had a situation where we hit that dip and we were in No Man’s Land and we had a couple of competitors who raised money and went big and then they just blew right through No Man’s Land, and so then you’re in this conundrum. The pressure’s really on. Do you raise money to compete or do you try to press through yourself?
Andrew: And what did you guys do?
Drew: We pressed through and we grew the business for a couple more years and then we sold it. I don’t know. I go back and forth on that, looking back, because one of the competitors was fab and they ultimately got up to almost a billion dollar valuation. They flamed out. The business was essentially the same as the one I ran. Did I do the right thing? I don’t know.
Andrew: That’s tough. But you could also think again, they flamed out, maybe you stuck with it for a lot longer, and what’s worth to sell a business at the top and get a valuation that’s maybe not quite as much monetarily or grow it to a billion dollars and ride the wave down to 15 million?
Drew: I don’t know. That’s a good question. There’s no clear answer. I do think if you take capital and you go big like that, you might have the option of taking money off the table in each round, so probably lessens the blow. I’ll probably be more open to it in the future.
Is Your Niche Big Enough To Warrant Further Investment?
Andrew: The final question, number six, is your niche big enough to merit further investment. Again, this is a tough judgement call. When you’re looking at a niche, if you’re in the automotive industry, selling air filters or selling steering wheel covers, that’s a pretty big market, you could probably scale that up quite a ways. If you’re selling gourmet tea pots, these are terrible examples. But if you have a really small niche, you pretty quickly get to levels of diminishing returns, where the more effort you put in, you’re just not getting the same level you did at the bottom. You might be able to put in a year or two and grow a business to a million dollars, and it might take four or five or six to get it to two million, to double it because it’s just the low hanging fruit there and again to use another buzz word, it’s gone. You have a pretty good chunk of the market already. Hard to measure.
Look at things like where you are in the SERPs if you do SEO or how much profitable ad spend you have left? How much more difficult it is getting to grow? How many marketing opportunities you’ve tapped out? How many product lines that make sense you’ve tapped out? Again, we’ll link up to our episode on when it’s time to sell a business. It talks about some of these things. Think through how big of a business can your niche support? Is it worth going through all of this to continue to grow? For you, Drew, the furniture business, that probably wasn’t as much of an issue? Or was it? Was that something you guys thought about?
Drew: It wasn’t because it was a pretty big niche but I would say it’s huge for… I’ve talked to many business owners who are in a smaller niche. They’re like, how do I grow my business and make this, your tea pot example, I make this really targeted small product that’s consumed by a handful of people, and at the end of the day, you can’t. You probably already dominate the market now. There is nowhere else to go in that space. Add on to that the fact that it should… There are a set number of customers for your product and it should get harder to acquire them the more that are acquired, right? It’s going to get more and more expensive to acquire customers as you grow. If your market is small, you’re between a rock and a hard place. It’s a very common problem.
Andrew: I think, ultimately, what this boils down to what the author of “No Man’s Land” would argue and something I’ve been thinking a lot about too is you really got to be really honest with yourself and decide what you want. Do you want a highly profitable smaller business that’s nimble, you have control over, and isn’t it stressful, maybe? It’s not going to be the next Apple, but it’s your business. Or do you want something that’s a lot larger, that maybe has the potential to scale into an eight- or nine-figure business, but that you’re really going to have to pour a lot of blood and sweat into. You’re going to have less flexibility. In the short room to get there, you’re probably going to have to take a hit to profitability, and it’s a lot rockier road to get there. And there’s no right answer.
I think, Drew, I don’t know if you agree with me, I think you probably could point to a lot of people who run smaller niche profitable businesses that are probably happier on a daily basis than people running massive, bigger businesses that take more time. It’s just really a decision of what you want and what’s important to you.
Drew: There are no clear answers there. I chose the former. I stayed the course. We didn’t raise money. In our case, that was the option to grow through this dip. I don’t know if that was the right decision. I was certainly happy at the time. I’m happy now. But I missed a much bigger opportunity and that’s just the price I paid for staying the course. I don’t think there’s a clear answer to that.
Andrew: Yes, it’s tough. It’s one of those ones you get yourself a drink and sit down and spend an afternoon or maybe a couple of years contemplating. It’s one of those questions you never truly find the answer to. I’m kind of in your camp as well. I’ve got big ambitions for eCommerceFuel. On the retail side, for eCommerce actually selling products, I kind of find it would be… I would rather have a business that is a little smaller, a little more nimble, and easier to run and made a product that I was very proud of, and offered services that I was very proud of. And maybe it doesn’t scale up to be eight figures and plus, but it’s something that’s kind of that sweet spot between a great business that’s profitable but also is not sucking the lifeblood out of you, if you know what I mean.
Drew: Yeah, it’s the longer you stay at it, you got to think about opportunity costs, I think. It may be nice that you have a little lifestyle business that is throwing off 50K a year, but if it’s sucking up all your time, eventually there’s an opportunity cost there that you’ve got this body of knowledge just by running your business that you could apply to a much bigger business. That opportunity cost matters after a while.
Andrew: Yes, it’s interesting. Another forum discussion we’ll link up to that kicked off this week, really interesting. Somebody posed the question: What would you do differently if you were starting today? I haven’t read any comments yet in there where people said, “Oh, I would do things exactly the same.” Again, there is no perfect niche. The business, the skills and the things that you do differently two, three, four, five years in are so different.
Like for me, Right Channel Radios, kicking it off, it was a great business to start off. I don’t know if I could’ve picked a better one. Low risk on drop-shipping. It was a complex niche which allowed us to actually build a drop-shipping business and make it profitable where a lot of times it’s not easier to do with just straight up commodities that are very straightforward. But getting it higher up, it’s a much harder business to scale beyond low seven figures, because just buying in bulk, the margins aren’t there. The market is smaller. The CB market is not an enormous one. It’s interesting. It does have those dynamics.
Drew, this has been a lot of fun to dive into in terms of this topic. Maybe we’ll revisit in a couple years and see if either of us have made a deal with the devil to try to grow something into a billion dollar business. At that point, we probably won’t be hosting the podcast on a regular basis. I’m guessing.
Drew: Sounds good.
Andrew: Drew Sanocki, thanks so much. And if you’re not following Drew’s stuff, drewsanocki.com. He’s got a fascinating, did some really great in-depth, long form blog posts over there. And, of course, ecomdojo.com, the podcast for Makers. Make sure to check that out. I definitely will be.
Talk to you soon, Drew.
Drew: Thanks. Talk to you soon.
Andrew: That’s going to do it for this week. But if you’re interested in launching your own e-commerce store, download my free 55 page ebook on niche selection and getting started. And if you’re a bit more experienced, look into the eCommerceFuel private forum. It’s a vetted community for store owners with at least $4,000 in monthly sales or industry professionals with at least a year or more experience in the e-commerce space. You can learn more about both the ebook and the forum at eCommerceFuel.com. Thanks so much for listening and I’m looking forward to seeing you again next Friday.
What Was Mentioned
- Drew Sanocki | ECOM DOJO | Mineral.io | Twitter
- No Man’s Land: Where Growing Companies Fail by Doug Tatum
- eCommerceFuel: 1Things to Consider When Deciding Whether to Sell Your Business
- eCommerceFuel: The Entrepreneur’s Curse: A Temptation to Manage Multiple Businesses
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