Episode 22: A Cautionary Tale on Bootstrapping an Ecommerce Business on AmazonApril 7, 2016 in Amazon, Ecom-Crew-Podcast, Ecommerce, Social Media
We offer a cautionary tale on today’s episode. Our guest Charles Lee was bootstrapping his business Petphabet with Amazon. Until a simple misunderstanding and a careless login cost him his account. Charles’s account was shut down for 6 to 7 weeks and he lost hundreds of thousands of dollars in revenue. The lack of funds also forced him to let his team go.
Today Charles tells us how they went about correcting this disaster and what he and his company plan to do to get back on track.
The topics we discussed today are:
- Charles’s business and how his problem began
- Why you should hire an agency to help in these situations
- Why you shouldn’t rely on one platform for sales
- Charles’s launch plan for his new website
Thankfully Charles’s story has a happy ending. But so many of these stories are out there. Always keep a close eye on your equipment and monitor who uses your business accounts. A little vigilance goes a long way.
Resources from Today’s Episode:
If you have any questions or anything you’d like us to discuss on the podcast please go to ecomcrew.com and fill out the contact form. Also we would really appreciate if you would leave us a review on iTunes. Thanks for listening!
Full Audio Transcript
Mike: Hi, this is Mike.
Grant: And this is Grant.
Mike: And welcome to this week’s edition of the EcomCrew podcast. This week we have a special guest joining us. His name’s Charles. We’ll bring him on in just a minute, but Charles is actually going to be telling a cool story about bootstrapping an ecommerce business and that’s something that Grant and I have talked about quite a bit here on the show and our philosophy is basically launch our business first on Amazon and use that for leverage and then, as a second prong approach to bootstrapping your businesses, then launch you actual website, which is exactly how we did ColorIt and we’ve talked a lot about ColorIt and how we’ve grown that business here on this podcast. But Charles ran into some interesting roadblocks, and a little foreshadowing here, along the way he ended up getting his Amazon account locked and banned. The good news is that he was able to get that taken care of and we’ll talk about the process of that here. But we have some context coming out on EcomCrew specifically talking about Amazon businesses and the risk of all that and I think that this is a topical point to be talking about here and it’s great to have Charles on the show. With that said, let me introduce Charles Lee to you. Charles, how are you doing today?
Charles: Good. Thank you for having me, guys.
Mike: Of course. Yeah, definitely. And Charles and I have known each other now for quite a while. We met at an eCommerceFuel Live event, which I’m always talking about eCommerceFuel on the podcast here and if you aren’t a member over there, another plug for Andrew and the team over there at eCommerceFuel. Definitely go join. You get to meet awesome people like Charles through that community. So, Charles, maybe just take a few seconds here and introduce yourself to our audience and what it is that you do and the brand that you’re trying to launch here.
Charles: Sure. So I’ve been in the ecommerce industry for about four years now, previously working with an organic brand and now I’m involved with this new startup. We’re bootstrapping a pet supply ecommerce business. We started this operation back in October but everything got finalized December 1st of 2015.
Mike: And I know you have some investing behind you and things of that nature. Can you maybe talk a little bit about the makeup of the business and what your goals are over the next year or two?
Charles: Sure. So the company is backed by a subsidy, a parent company, that’s based in China. And we have some decent funding, I’d say minimum $1 million to get this business started. The game plan is to bootstrap and start selling products on Amazon while we’re developing our platform. Our website is scheduled to go live by April 15 of 2016.
Mike: Gotcha. So you basically had a five- or six-month rollup to getting the site live and in the meantime were selling on Amazon.
Charles: That’s correct because on Amazon, you list your products, you do some marketing, sponsored listings and whatnot, you know, you’re off to the races, you can start selling. As you guys know, building a website is not as straightforward. Driving traffic, building a social media profile and so on and so forth takes a little time.
Mike: Yeah. Couldn’t agree more. Yeah, I mean take advantage of Amazon in the good sense of the word. Use them to do market research, like you’re saying, and get the products bootstrapped and get your name brand at least started and see what works so by the time your website goes live, you have some traction built in already.
Grant: And, Charles, are you selling your own branded products from the manufacturer or are these generic type products?
Charles: So we started with generic products with the plan of doing private label. So we’ve already released three to four branded products at this time.
Grant: Okay. So you guys are essentially all vertically integrated then. The manufacturer or the investor designs everything, you make it under your own label, and then you get into Amazon. So there’s really no middle man at all, right?
Charles: Yes. That’s one of the biggest advantages that we have right now. That’s very fortunate that we are vertically integrated.
Grant: Yeah, that’s really awesome. I think that probably terrifies a lot of other people in the pet space because there’s really no way to really, really compete against that because that’s as streamlined as you get but that’s great for you.
Mike: It makes me want to spend my trip to China (when I go there next month) buying a manufacturer. So a few months into this, Charles – I mean I guess we’re recording this in mid-March or late March. How many products did you have on Amazon let’s say by early March? I know you had some problems with getting banned there, but before having a problem with Amazon, how many products did you have at Amazon listed in the total quantity of SKUs you had there?
Charles: I’d say we have about 30 SKUs. Those are on the parent level. Each SKU will have anywhere from two to four children, like variance.
Mike: And how many sales a day do you think you were at before you ended up getting in trouble there with Amazon?
Charles: If I’m not mistaken, we were at 700 to 850 orders per week before our account got suspended.
Mike: Okay. So like about 100 a day then, which is pretty substantial. Congrats and great job for building a business that’s able to do 100 orders a day in just about three months. That’s really awesome.
Charles: Yup. Thank you.
Mike: So I guess the elephant in the room here is one day you woke up or you were drinking your afternoon coffee and you get an email from Amazon. Exactly what happened there?
Charles: Yes. Yeah, that was one of those things that you don’t ever imagine will happen to you; you only hear about it on other podcasts or read about it on blogs. But when we finally got that email, we couldn’t believe what just happened. No warnings, no explanation from Amazon. It’s just a pretty cold email saying that, “Hey, your account is now suspended because we’ve discovered that you have more than one account.” And yeah, we were surprised.
Mike: Yeah, I mean I feel for you because this is actually something that I worry about every day and it’s one of the reasons why we’ve been trying to get as many sales off of Amazon as we can and working hard on Facebook ads and email marketing, but even still I mean we’ve bootstrapped our brand with Amazon and we plan on bootstrapping more brands on Amazon and Amazon’s not an insignificant amount of our sales regardless. So I mean it’s scary because like really, through no fault of your own – I don’t know how much of a backstory you want to give our audience, but I mean you guys certainly didn’t do anything to deserve what happened. I mean you didn’t break any rules specifically. It was through a third party.
Charles: What happened was a friend visited the office. He’s been selling on Amazon for quite some time now. What we didn’t anticipate is while discussing random optimization techniques and strategies about an Amazon listing, he logged into his suspended account, logged out, and then logged in using the same computer –
Mike: Oh no.
Charles: Seller. So that technicality can get your account suspended and it’s mind-blowing that these things are cause for suspension.
Mike: Yeah. I mean it’s made me like worry about logging in at a hotel or at a Starbucks or anything after hearing this story. And Amazon takes the “you’re guilty until proven innocent approach,” certainly not like the U.S. justice system. Again, like you said, no warning, no justification for it really. It was just a very cold-hearted couple sentence email of, “You broke a rule, again, with no warning. Your account’s been suspended. If you want your inventory back, here’s the process to get it back. Good luck to you in the future.”
Grant: That’s if they even get your inventory back. I’ve even heard about cases where everything just gets locked over there, especially if it’s related to like a counterfeit issue or a type of quality issue, and they can lock up funds, luck of product and everything. People talked about how bad PayPal was back in the day with EBay but apparently Amazon can take the cake if they feel like something bad has happened.
Charles: Absolutely. We got an email after the suspension saying that we have until the end of March to remove all out inventory and according to them, it would cost us 60 cents per unit to do a removal over. And the thing is we have 20,000 units stored in FBA, so just do the math. You know, we’re talking about $12,000 just to do a removal.
Grant: Oh my gosh.
Mike: So you went from selling 100 units a day and making probably $200, $300, $400 a day or whatever it worked out to, to now you’ve got to pay $12,000 to get your inventory back and good luck to you.
Mike: Yeah. So I guess walk us through the process. I mean obviously you get this email and you guys commiserate in the office. What was your next step? What did you do at that point to try to rectify the situation?
Charles: Yeah, sure. So we did some research, and followed the guideline that you have to kind of explain from your point of view as to what really happened. And Amazon has a very strict guideline. You have to tell them what you did wrong, what you’re going to do about it, how you’re going to improve the current situation and so on and so forth. But like I said, our situation is somewhat odd because we didn’t really do anything that violated their policy. So we followed all those steps and there was no response. You know, one email after another to their seller performance email address. We finally have to hire an agency who’ve dealt with similar situations, who knows the system, and we ended up paying $2,000 but I’d say now that we’ve gotten our account back, it’s worth it. Total time lost is about six to seven weeks. Estimated revenue anywhere from $100,000 to $150,000 opportunity.
Mike: I’m sure Amazon, when they emailed you back, they said, “We’re sorry with the confusion. Here’s a check to make up for it.”
Charles: Yes, I wish.
Mike: So, since you seem happy with the agency and they were able to get you a heck of a lot further than you were able to get yourself, do you want to talk about them or is it something that was kind of under NDA?
Charles: I’ll just keep it as generic as possible, just the name “agency.” So what they did is a three-step approach. The first step was to send to the regular seller performance inbox, followed by an escalated email which starts with “911.” I can’t remember the actual email address. So that’s the second step. So steps one and two didn’t do anything. The final step, and this is the last chance I’ve been told by the agency, was to send an email to [email protected] Obviously Jess Bezos. It took five days after we sent that email to Jeff to get our account reinstated.
Mike: Interesting. So sending to Jeff at Amazon actually did work then.
Mike: And what was the response that you got back? Was it just as generic as the original response or did they give you any condolences or, “Sorry that we kind of messed up,” or was it just, “Okay, just don’t do it again?” I mean how did they handle that?
Charles: Oh, it was just one of those boiler plate email templates that they’re using. “Your account is now reinstated. Thank you.”
Mike: That’s so funny.
Grant: Well, you know, Jeff’s a busy guy so you’ve got to understand if Jeff can only like type in certain templates at a time.
Mike: Crazy. Wow. I feel like emailing Jeff now and see what I can get out of it. Well, cool.
Grant: I’ve actually heard that before and being in Seattle, Amazon’s right in my back yard. I’ve got quite a few friends that work there, I’ve got family members that work there, and Amazon is a very, very big company and they’re taking over half of Seattle, really. And so the turnover rate, I’m sure you guys both know, it’s something like two years at Amazon. Whereas most companies you have a turnover rate of five to six years, Amazon you just have such a high amount of people going in and out that I’m not sure if there’s ever yet a culture built around really having somebody that becomes an expert in any one side. So there might be only a few dedicated groups of – this is kind of my theory I’m just going to say more than anything, but a dedicated group that kind of takes care of all of the things that fall through the cracks. I really think that the Jeff at Amazon email is one of those because I’ve heard from multiple people that you can email Jeff at Amazon and obviously it doesn’t go to him directly but there is somebody that has some sort of like leeway that is actually taking care of a lot of those emails apparently.
Mike: Yeah. Definitely interesting. Well, I’m glad that this part of the story has a happy ending, Charles. I’m sure you were beyond stressed for the five or six weeks that you were banned and at least at this point, you know better not to let this guy log back into at your office again and hopefully it won’t happen again, so at least it does have a happy ending there.
Charles: Yeah, absolutely. I just want to say just because we got our account reinstated, everything is fine and dandy. We reviewed our listings and realized that the products that used to show up on page one are not showing up on page eight. So obviously we’re back to scratch. We have to do a lot of marketing and sponsored listings and what have you to get back to where we’re at.
Mike: It’d be interesting to do a follow-up episode and see if it’s something like Google Penguin or Panda penalty, and I hope that obviously isn’t the case and hopefully it’s just more like it’s treating you as if you were out of stock for six weeks, which obviously has adverse consequences on Amazon for a little bit, but you can always recover from that.
Mike: So before transitioning to the other stuff we want to talk about, which is now launching your own website and brand, after going through all this, do you have any advice for people with ways to approach Amazon. I mean as a person that’s been in the trenches now and had this awful experience, to you have any advice for our listenership?
Charles: I guess the takeaway for us here is to make sure you’re using other channels to sell your product other than Amazon because it’s a cliché: putting all your eggs in Amazon’s basket is really a terrible idea. I was thinking about the worst case scenario that I have to let go of my entire team because of loss of revenue and from late last year until this day, 100% of our revenue is coming from Amazon.
Mike: Right. Yeah. So moving past that, it’s a perfect segue into how you guys are launching this brand now in a very crowded space. I know some of the backstory from knowing you and we talked a little bit before recording this podcast, but can you maybe tell our listeners exactly how you guys are planning on launching and the promotion that you’re running right now, which I think is brilliant, by the way. I can’t wait to see the results but I think it’d be cool for our listeners to kind of hear firsthand what you’re doing there.
Charles: Yeah, of course. So we’re doing a prelaunch promotion right now where we’re inciting some contest or battle like Star Wars, dark versus light, and obviously a lot of people own pets here in the United States. Either you’re a dog owner or a cat owner. Obviously other people own other pets, but these two animals are the main ones so we’re currently doing a campaign based on people voting for their favorite pet, whether it’s a dog and a cat. This is also a good way for us to segment at the same time so that we have a readily available dog audience versus a cat audience when we go live by April 15.
Mike: Yeah, I think it’s brilliant because I’m a dog owner and I hate cats. And I think that most people that I know are, you know, it’s either like Stones or Beatles kind of thing. It’s one of these things where people get like up in arms about it and get passionate about it so I think it’s just a really brilliant promotion and things that people will want to share on their Facebook and social media, which is really important obviously.
Grant: Yeah, the whole cat internet thing is just blown out of proportion. I don’t even know how that got started. But I actually am one of the guys that own cats and dogs so I don’t know why it’s been a huge thing to put cats and the cat meme and the LOL cats, but that guy actually is in Seattle too, the I Can Has Cheesburger guy. And so if you want somebody to blame, I guess you can kind of blame him and Forchan for the huge cat thing. But I haven’t heard of this promo until now but definitely I think it’s great because people are hugely attached to their cats and dogs, and like Mike said, there’s enough of a crowd that, like Mike, hates cats or hates dogs. What do you have against cats, man?
Mike: I don’t know. Like I think the biggest thing honestly is that I am allergic to them and it’s been like that since I was a kid, so whenever I’m around them my eyes are itchy and my nose is running and I associate that with cats. I mean I like all animals at the end of the day. As long as they aren’t making me sneeze it’s fine but I think it’s just one of these – I don’t know that I would ever want to own a cat. I think dogs are more fun to own but cat people will disagree with me on that and that’s the fun thing about Charles’ promotion. You know, it’s like talking religion or politics with people. you get people really passionate about the topic.
So the thing that I think’s really brilliant about your promotion, Charles, you hadn’t quite gotten into it yet, but it mimics – I think like Harry’s was like the de facto standard for this when they got started and everyone has been kind of copying these days, which we’re in that same group. We’ve been copying them for similar promotions and sites like UpViral come out that do similar things. But I think you guys built this on some customized platform but the real thing I want to just kind of mention, or if you can maybe talk about it I guess in your own words, is how people kind of level up and get prizes and really make this viral.
Charles: Yes, absolutely. Harry’s prelaunch promotion is a huge part of this. There’s a blog article on Tim Ferriss’ blog, “How to Collect 100,000 Emails in 10 Days.” Very catchy headline so you’re right. We patterned this promotion using that same flow. The different, or I would say what we did to up the ante, is to – on the Harry’s promotion, you have to refer a friend to get a prize. In our promotion, just by opting in, just by signing up, you automatically get a prize. Obviously, the more friends you refer, the better prize you get. The prizes can go all the way up to $5,00 worth because there’s three level of prizes and then there’s the leaderboard. The top five people will get the best prizes and then there’s the team element. Let’s say for example the dog team wins. All the people who voted for dogs will get an additional $10 store credit in addition to all the prizes that they already got.
Mike: Very cool. That’s really neat. And I know you just launched it and I haven’t talked to you since you launched it, but I mean have you had pretty good traction in the early going with this?
Charles: Yes. So far, our developers, people who are monitoring this campaign, they’ve been very, very busy. We’re releasing Facebook ads almost every hour testing and optimizing and retesting them again and again. So far, the results are very, very good.
Mike: Cool. Awesome. Yeah, man, I love the concept. And I don’t want to put you on the spot here, but I know you want more people signing up for it. Do you want to share the URL for the audience or is it something you want to kind of keep under wraps?
Charles: No, absolutely. Everybody should sign up.
Mike: Okay. I didn’t want to be presumptuous but yeah, let’s –
Charles: It’s dogsvscats.petphabet.com. So D-O-G-S-V-S-cats.petphabet. Petphabet is like alphabet.
Charles: It’s by Google’s pet company.
Mike: Right. I love the name. It’s brilliant. Yeah, definitely. I mean I think, and again, it might be presumptuous, but yeah, if everybody listening goes to the dogsvscast.petphabet.com and signs up, obviously help out Charles, but also I think it’s just a good lesson in how to launch a business. I mean I’m jealous. I can’t believe what he was able to put together here. I don’t know, I always like being the winner and having the nicest looking things at ecommerce and this just kicked out butt. It’s just brilliant and something that we’re going to try to mimic for some other things that we’re launching later this year. But I think it has every element. It’s clean, it’s obvious to me like what you’re supposed to do here but it hits at the heartstrings of people that have a dog or a cat and then you get something for free so it hits that as well. It’s like how do you lose with something like this? And obviously the most important thing is you get their email address and we’ve talked a lot about email with this podcast. Actually the last three episodes of this show were about email marketing and what you can do with people on a list. And now you’ve got them primed that they basically have a store credit with a freebie but they have to pay shipping to earn it so why not buy more things and get over the free shipping threshold and hopefully you get more sales out of it. I think it’s just ingenious.
Mike: So we’re kind of running out of time on this episode. I don’t know. Grant, did you have any other questions for Charles maybe before we sign off here this week?
Grant: Yeah, maybe for Charles, you ever consider doing like a sweet 16 like dog versus cat runoff, I don’t know like who’s cuter and you have the whole thing? I’m always a big fan of like things that draw mass marketing and that’s obviously what you guys are doing and I remember when I think it was Warren Buffett who bankrolled – what was it you won if you guessed the March Madness correctly? Do you remember, Mike?
Mike: I think it was $1 billion.
Grant: Yeah, it was something like that. It’s hard to say no to a free billion.
Grant: And they figured the odds were pretty much one in a trillion or something against that.
Mike: It was harder to hit than the Powerball, which just seems crazy but 64 times 64 – well, it’s 128 I think bracket on both sides and picking all those permutations right the whole way through was basically impossible.
Grant: Yeah. So yeah, you could do your March Madness, like the 64-bracket, you’ve got to pick the cutest dog and cat name or something and you can offer $1 billion if you can get Warren Buffett behind you. But yeah, I love the idea. So yeah, keep thinking up crazy stuff.
Mike: It just makes me think of – we were involved in fantasy sports stuff at one time, like very distant, and it’s actually a promotion that is done every week now. The NFL’s doing it and it’s been copied. I think Draft Kinds, Draft Day, all these companies are doing it now. But they had this perfect lineup promotion which is just similar to what Warren Buffett was doing and if you picked perfect fantasy lineup each week or in any one week through the 17 weeks of the NFL season, you win $1 million and it’s free to enter. And they use an insurance company and pay them like $10,000 a year to insure this because it’s basically, again, astronomical odds of picking the exact right player for every position to have the best score for the week because like every week there’s some random like guy that you’ve never heard of that like runs back three touchdowns or something crazy so it’s really basically impossible. But yeah, those types of promotions can be quite viral because the headline, as you mentioned with Tim Ferriss or with the promotion you’re doing, it’s like, “Win A Million Dollars,” or, “How to Get 100,000 Emails on Your List.” Like those types of things can really blow up in a great way.
I’m just trying to think of like any other. Any other questions, Grant, for this week?
Grant: Nope. I’m good. So yeah, I appreciate you coming on here, Charles.
Charles: Thank you guys for having me.
Mike: Yeah, it’s definitely been an interesting podcast. We don’t get a whole lot of guests so we definitely appreciate you coming on and I’m definitely glad that you got your account un-nuked over at Amazon, and it’d be great to have a follow-up with you in maybe six or twelve months, after you get some traction with this brand, and kind of tell our audience that you’re making $7 million or something crazy or whatever pace you’re on by that point. It’d be a great story to tell.
Charles: I’ll be happy to.
Mike: Cool. All right, everyone. As I always sign off every week, if you have a chance to leave a comment or review on iTunes, we’d really appreciate it if you enjoyed this episode. If anybody wants to get ahold of you, Charles, what’s the best way to reach out to you if they want to get ahold of you for any reason?
Charles: Sure. They can send an email to [email protected]
Mike: Cool. And with that, we will see you guys next week for the next episode of the EcomCrew podcast. Thanks for joining us, everybody.
Grant: All right. Have a good one.