by oneafrikan on September 18, 2014
I’ve spent almost two weeks writing this. At first it was too personal, then it became too anecdotal, so I’ve settled on a list of things which I think are concrete lessons I can impart, and which are easily digestible. Hope you find it useful!
eCommerce is hard.
The startup world is largely populated by tech people. Or led by tech people. I think that eCommerce went through a phase where technology was a barrier to entry, but that phase is over and it’s now becoming a barrier to growth, markets and customer data. In other words, most retailers are now doing something with eCommerce, so the first mover advantage is gone for all but the manufacturers. That means you have to be smarter to win than you did at the start of the recession.
So when you recognise that, winning becomes about margin, supply chain, steady growth and building a brand people love. The nub here is that whilst the web, and essentially Google, has allowed everyone to access bigger markets, they’ve also made it easy to compare products and prices, so customer acquisition then becomes paramount. Big brands rely heavily on brand traffic online, so you can compete there by acquiring traffic more efficiently than them and everyone else.
In the end as an entrepreneur I chose eCommerce over any other play because I think that doing the hard things is what creates the most value in the long term. It’s tougher, it requires more grit, it takes a special kind of person to get through the tough times. But ultimately I think that if you succeed it’s a safer bet than being one app of thousands in the app store which may or may not be “de rigueur”. In other words, I don’t like building something based on fickle consumer novelty.
The market is big. There is a lot of competition. Find your niche fast.
Because the market we’re in is so big, we made the mistake of trying to do everything and be everything, for everyone, and do it fast. Others are still doing it and hemorrhaging cash in the processs.
There are much bigger overseas companies than us (I’m talking $1Bn in size) who have entered our market and failed miserably because they didn’t adapt to the way the local market works, whilst also trying to do everything and be everything, to everybody.
So that’s a mistake I’ll never repeat no matter how much other people are telling me it’s the right thing to do.
Stay away from Amazon and others like them. Until you’re big enough.
The first and obvious point is that you don’t want to take on Amazon. They’ll beat you into a pulp quicker than you can say “I’m getting outta here”. So you want to pick niches which Amazon doesn’t do, products which Amazon can’t sell, a proposition which Amazon can’t offer, or a market where they don’t operate. Ideally all 4.
So in our case, the furniture market can’t support the commission that Amazon charges for anything other than a small marketplace seller; the big, difficult to ship products we sell don’t fit into a neat parcel conveyor belt; and we’re moving to a proposition Amazon can’t do.
That said, there will come a time when it makes sense for us to benefit from the additional volume Amazon can provide. But we’ll do it on our terms and when it makes sense.
Pick value over novelty.
When was the last time you opened a Groupon email? Or tried a Groupon deal?
In the time I’ve started I’ve seen a lot of people try eCommerce approaches which I think are pretty binary. In other words, it’s either going to work or it’s not.
I think that the most successful brands, companies, people and things, give the customer or user value. The best ones do it every day, so that they essentially become a part of the day.
For the customer, the novelty of trying something new soon wears off. For the business, the practicality of having to come up with something new to offer every day / week / month is difficult to keep up, and the supply chain and people required to do this continually is incredibly hard to achieve, but for the largest players with other revenue steams who can subsidise this cost from the the rest of their business.
So in eCommerce I think that doing something which isn’t necessarily sexy, but which does something useful, is smarter and more pragmatic in the long run.
Avoid top line growth for growth’s sake at all costs. Grow consistently.
It’s easy to acquire customers if you are prepared to spend more than you make on them, and there are many companies doing this. They make the assumption, or take the bet, that they will figure out how to make acquisition profitable at some point. Some succeed, some fail. I don’t think top line growth only is an accurate predictor of success. I did at some point, but I don’t now.
It’s much harder to grow whilst staying profitable. But not impossible. And if you do this, you’re more likely to grow a bit slower than someone throwing money at every acquisition channel they can. I think in this case consistent growth is better.
So the problem is one of dual demands. As the entrepreneur you’re tasked with showing growth almost at all costs, whilst also showing a route to sustainability. No investor gets excited by a small company. So you have to think about this up front, and be honest about which approach you’re going to take. And then you need to get everyone on board.
So there isn’t an easy answer here. It’s hard. Pick your companions wisely.
I wouldn’t bet on Lifetime Value of the customer.
Ties into the point above. I think what’s key here is that unless you are a destination for a huge number of shoppers (as Amazon is) or you have a huge brand, where you can offset acquisition costs and the margin loss from lower prices against the profit from multiple orders, it’s more important to build your business around making a profit on the customer’s first order. If your Average Order Value is sub-£50 I think you’ve got your work cut out. If it’s above that, then once you start adding the second or third purchase you’re making a LOT more profit.
Each niche will have different ways to do this, but the take home here is that building a business model on the 10%-20% that will return to shop again, in my view, is riskier than figuring out how to be profitable on first order.
There’s a big difference between data, information, and wisdom.
We’ve got a poster on our wall. It says “In (a) God we trust. All else must bring data.” Without visibility of what’s happening you’re pretty much flying blind. So if you’re going to optimise your acquisition and conversion rates, you need enough data to turn it into information that can be acted upon, so that you will make wise decisions.
More than that, once you start growing, you need to take that same approach to your on-site data and do the same with your product and customer data.
The real point here is that too much data is a bad thing. It pollutes thinking and creates unnecessary friction where there doesn’t need to be. I think the smarter thing is to work backwards from the questions you want to answer, pick the top questions which will unlock value for you, and then go about getting the data to answer those questions.
Much easier said than done with something like Magento, or most other retail systems, but worth the work when you get it right.
- Use spreadsheets for longer than you think you should. You can do a lot with pivots and vlookups.
- Build them yourself. Don’t trust someone new to do it until you trust they know what they are doing given the objectives you’re working to.
Observe the 80/10 rule as early as you can.
When we made the decision to move away from the catalog approach we started with, we analysed our data in a way we hadn’t done before (that’s a whole diatribe on it’s own), and the wisdom we gained from it was that we were generating about 85% of our monthly revenue from 10% of our product SKU’s, and that 20% of our suppliers were causing 80% of the problems we dealt with every day.
So we stopped advertising for products we didn’t sell, we removed problem products and suppliers, and we trimmed our range.
And a beautiful thing happened: our revenue stayed relatively consistent, our problems decreased, and our profits increased.
Now we do this every week, because the insight is so valuable.
It’s a marathon, not a sprint. But it’s a sprint at the start.
This is probably the thing I need to work on the most: I tend to put my head down, forgetting food, rest, exercise and most everything else. That’s OK when you’re in your mid-20’s, but after doing that for a long time it’s definitely not sustainable in the long term.
Now, everyone you ask will tell you to maintain a balance and look after yourself, but I think that when you’re starting and certainly in the early years, it’s super hard to create momentum and progress to tight deadlines and cashflow without huge amounts of work. It’s a nice idea, and makes for good magazine reading with good looking lean models, but it’s harder to do in practice. And I’ve found that most of the people that give this well meaning advice haven’t done it before.
So my thinking here is that it’s better to know yourself, know where your limits and boundaries are, and work accordingly. You only really understand where your limits are by pushing them, so in many ways it’s worth the sprint to figure out how fast you can go.
Are you a survivor?
But if you look at the above, you’ve got to be pretty confident about your ability to move fast, adapt to the market, change tack and continually improve things, in order to feel you’ve got a reasonable chance of succeeding, when things aren’t going to plan.
On top of that you’ve got to be able to get through it all without losing your mind and becoming a douche in the process.
So I think this point is really about taking a long, hard look at yourself and then evaluating whether you think you can keep going regardless. Mark Suster writes honestly about this, recommend you read his essays on the matter.
Pick your companions wisely.
I could write for days on this, so I’m just going to jot down some bullet points.
What to look for:
- good generalists who can adapt
- someone who sticks their hands up
- someone who wants to get stuck in
- someone who contributes on Day 1, and is still contributing at Day 180
- someone you can have lunch with
- someone you can debate with
- someone who you will go to bat for
If you can’t say yes to the 7 points above, it doesn’t matter what their background or skills are, it’s unlikely to work. When you’re bigger you can replace point 1 with whatever role you need to fill.
What to avoid:
- big egos
- a sense of entitlement
- not taking responsibility
- not learning new skills
- no sense of humour
If you spot any of the above, they should be a non-starter.
- Set probation periods to 6 months. 3 is not long enough.
- Create hiring processes which weed bad people out, without manual intervention.
- Delegate a decent (but non-critical) project to start with in the probation period. Set the deadline for 2 weeks before you think is reasonable. Then see what happens. The results should speak for themselves.
As a corollary to this, I have the most amazing wife in the world. Without her I don’t think I would have gotten this far. I’ve also got an amazing group of friends who know me well enough to support me I prioritise work over other things, like fun. So I think that support from family & friends is essential.
Find your motivation.
A little while ago, I was sent an online chat transcript by one of our customer support team. In this transcript, some investor I’ve never heard of and whom I won’t name here (maybe one day though) described how he was betting on our company failing with his other investor mates. ** Note, not one of our investors!
Who the F&$! does that? Seriously, who the F&$! does that?
Any good investor in this ecosystem knows that success and failure are both sides of the same coin. They know that the odds are stacked against anyone starting something new, growing fast, and trying to disrupt an industry. They know that the journey is pretty tough, unforgiving, and that the path to success is paved with obstacles at each step of the way.
Do we really need some dude jumping onto online chat and sharing his negative bets with the customer service team?
So when I read this transcript my blood boiled. I had to go for a walk. I wanted to call the guy and swear and curse at him. I wanted to reach out over the telephone and rip his eyes out. I wanted to find out where he lived and camp on his road with a big sign saying “Here lives an arsehole”. But I can’t and I won’t.
So that, and many other things, are my motivation. It’s not about the money.
I want to the prove the first supplier I met with who told me it couldn’t be done, that he was wrong. I want to show a big £11Bn industry that they have their eyes closed and a storm is coming. I want to prove to my friends that I’m capable. I want to prove to myself I’ve got what it takes.
But right now, today, I want to prove to that douchebag of an investor that he was dead wrong, and that he’s missed the whole point of what good investors invest in. And then I’m going to send him something laconic.