Today Mike and Grant are going to give some guidelines on when to invest in your growing business. In any business there are aspects that are necessary to invest in and things that can be added as the business grows. This episode offers sound advice on when to recognize that need to grow and when your business has reached a peak.
Other bits of advice are:
- Keep your costs as low as possible or your “burn rate.”
- Know what items you need to spend money on how they will save you time.
- Check out the work of Chris Ducker and the concept of “Superhero Syndrome.”
Mike and Grant want to give you a realistic portrait of how a business grows and why investing in that business will fuel growth. Their advice is meant for longevity and will give up and coming business owners great food for thought.
Leave us a review iTunes and head over to our site www.ecomcrew.com for more news and updates on what’s working for e-commerce today.
Full Audio Transcript
Mike: Hi, this is Mike.
Grant: And this is Grant.
Mike: And welcome to this edition of the Ecom Crew podcast. This week, we’re going to be talking about a pretty cool topic. It’s [inaudible 00:56], especially for me since we’re looking at moving offices and stuff, and basically talking about expansion and expectations and, you know, cash flow and when you should be cashing in, when you should expect to see cash and stuff like that. So this was actually a topic that Grant suggested and I was like, “Oh, couldn’t be more perfect timing.” So I’m going to throw it over to him and let him kind of kick it off and we’ll go from there.
Grant: Okay. Thanks, Mike. So one of the things that is going to be one of the biggest issues that you’re going to encounter as a new owner or even as somebody that’s been running the show for a while is going to be, you know, “When should I actually take money out of business or when should I actually be cash flow positive?” Nobody obviously wants to be cash flow negative, but it’s one of the things that you’re going to have to deal with when you first start off and in pretty much every business out there, it’s the expectation that you’re not going to see money for at least the first 12 months, and sometimes even in like – at the restaurant industry, service industry, a lot of people say that, you know, you’re not going to see money in the first 24 months.
So what does that really mean? So what that means is that, you know, a lot of times you’re going to be cash flow positive, but you’re going to be net negative because it always takes an initial investment in order to get things off the ground. With ecommerce, one of the benefits that most of you guys are already aware of is that generally, for the most part, you don’t need a huge upfront investment. Other than inventory, you don’t really need to go too crazy. You don’t have to do a [T and I? 02:27] and, you know, build out a giant retail space and put in fixtures. You don’t have to, you know, redesign your façade or, you know, put in all sorts of crazy POS systems and staff like 20 people on the floor or anything. You’ve just got yourself, you’ve got a website, and you’ve got inventory. And that’s that beauty of it.
So going from that, you should really start thinking about, “Okay, so what should I be putting into my business in order to grow it and what should I be expecting to take out?” A lot of the things that you will be paying for in your ecommerce business is going to be your software platform, of course. You’re going to be paying for things like email, your technology, your inventory cost. And then the bigger things are going to be rent, labor, and pretty much shipping. Now, when you first start off, like most people, you’re probably going to be thinking about doing it out of your garage or out of your home in order to save on rent, which, you know, we don’t have any issue with. That’s how a lot of businesses get started and it works. You know, you don’t have to pay rent out of your home other than, you know, what you’re already paying so it’s not an added cost. So at that point, your burn rate is pretty low. So it really comes down to, you know, how much inventory should you get? And I think Mike, maybe you can give some feedback here. Like what do you think is a good amount of inventory for somebody to start off with? Like maybe like a months’ supply, two months’ supply, three months’ supply?
Mike: Yeah, I mean I think a lot of it depends on your niche and where you’re getting the inventory from and the reliability of your suppliers. You know, if you’re dealing with US-based suppliers and they’re reliable at getting you inventory pretty quickly, you know, there’s that whole concept of just in time inventory where, you know, you’re basically carrying, you know, one or two, maybe three weeks’ worth of inventory. You know, if you have a little bit more seasonal business or you’re still getting started and you don’t really know what your sales are going to be, you might have a little bit more inventory. Or in our case, sometimes we’re dealing with manufacturer’s who are a little bit less than reliable at getting us stuff. We’ve noticed backorders and stuff where we’ve had to anticipate longer lead times and build that into our forecasting.
And then of course if you’re ordering from China, you know, or someplace abroad where, you know, it’s a nine- to 12-week lead time to get products, you obviously need to get a little bit more inventory to be flush to be prepared for a reorder. And there’s two schools of thought on – you know, some people would just say it doesn’t matter if you run out of inventory. You know, if it’s just your own ecommerce site, it’s better to be in that situation than to be over-inventoried and tie up all that capital. But the challenge comes in if you’re selling on Amazon, where you get kind of like a massive penalty for running out of inventory and you have that added stress. So for us, we’ve actually changed our forecasting model for things that we’re selling on IceWraps.com and our own platform on-site. If we run out, we just aren’t as stressed out about it these days. We kind of accepted the fact that we might run out of inventory versus on Amazon, where we keep more inventory in stock just to make sure we don’t run out.
So I’m not sure it’s, you know, quite a black and white answer, but I do feel pretty strongly that you want to keep as little inventory in stock as possible because, you know, cash is king as they say and, you know, once you buy that inventory, it’s hard to get rid of if you need to liquidate it.
Grant: Yeah. Yeah, there’s nothing that store owners hate more than inventory sitting around and anytime you go into a retail store and you see that clearance bin in the front, you can guarantee that all of that stuff is simply product that hasn’t moved and they’re just trying to clear that off the shelf and stop it from staying there. In just about every business, they do metrics based on, you know, that amount of sales per shelf space and if there’s shelf space that’s pretty much not being used, it’s just, you know, going to waste. Same with inventory on ecommerce. It’s like rent that’s not being used.
And so what Mike was saying is also a good segue into talking about capital investments and also profit margins because one of the big things that me and Mike are big proponents of is trying to get – you know, squeezing the most margin out of what you can do. And when you can buy a lot of inventory at once, you get the benefit of having a good negotiated rate with your vendors. You know, for example, with CuttingBoard.com, on most of our vendors, we get at least a 10% discount, most of the time free shipping with that because we buy in a good amount of volume and that’s really not as much as you would think it is. It’s only about maybe $3,000 for a lot of the orders. Some of our larger vendors, we’ve had to put in like a much, much larger order in order to get a similar kind of discount and it’s really based on, you know, what they think is a large order. But we’ve gotten like a 25% plus free shipping off some of our product just by placing an order for, you know, multiple pallets of the product.
So on the other side is like drop shipping where you have zero inventory holding cost but then the cost for the product is generally going to be much higher, much, much higher than you would ever get by buying the inventory directly. Sometimes, there’re certain industries were drop shipping doesn’t cost you any extra because that’s just the nature of it, but in a lot of the industries out there, drop shipping, you don’t make as much margin.
So talking about that, there’s really two ways that you can go about, you know, bootstrapping your business. One of them is to keep your burn rate very low and if you do drop shipping, you work at home, you pretty much get a Shopify or BigCommerce platform, you don’t pay for any kind of special support software, you don’t pay for anything, I mean you seriously could get your burn rate to $50 a month for your shopping platform and, you know, if you know somebody that can do the website design or maybe even you, you know, you can get a premade template and you don’t put all that much money into the upfront investment, I mean you can essentially get this off the ground. That said, is it going to be difficult moving forward? Yes, because really what you’re doing is that you’re subsidizing your time in order to make more money. So it takes a much longer time to get any kind of cash out of the business.
For example, I always try to use like a support software, for example. A lot of people don’t want to pay for support software and I’ll admit I’m kind of one of those guys. I don’t like paying for things that I feel like I can do myself. I say, “Hey, you know, I’ve got a Gmail account with my Cutting Board domain. I can answer support questions myself if a customer has a question about sales.” But, you know, in the beginning, you know, one or two emails a week, you know, you can handle it. What happens when you get to five or 10 emails, you know, a day? Well, do you really want that being mixed with your personal email and now you’re starting to lose track of what those were? You know, not really. And if it takes you an extra, you know, 10 minutes per email trying to figure out what’s going where, that’s taking up an extra hour of your time. At that point it really becomes just a question of, you know, how much is your time worth?
And the way that we look at it – and Mike is in agreement with me here – is that you’ve got to figure out what your time is worth and put an actual value onto that. And I think a fair amount is to say $50 an hour. Now, that equates to $100,000 a year. To a lot of people, that’s a good chunk of money. But to me, it’s kind of setting the bar high. And what that really means is that if you’re trying to build a business that’s going to cap out at $100,000 a year for profit, I mean that’s certainly a good thing, but you’re not looking at scaling yourself properly. And if you pretty much look at yourself as being worth $50 an hour, it kind of gives you the right expectation of what your time is worth. Because I think, for the most part, most people are going to be, you know, fairly happy making $100,000 a year. Well, not fairly happy; I think most people will be happy.
But if you are, let’s say, in your warehouse, you know, fighting with inventory, you know, you’re in your garage, in your den, in your basement, you know, shoving inventory around every weekend just trying to make things happens and it takes you, you know, 10 hours a week or 40 hours a month, you know, working with inventory, you know, using our calculation of $50 an hour, that’s $2,000 kind of potential value that you’re essentially putting into inventory. So it’s like $2,000. Now, you kind of ask yourself, “Well, if I take those extra 40 hours, instead of trying to make, you know, $2,000, if I simply pay $2,000 and get an office space and pay for rent, you know, I can save that $40 an hour,” and use the rest of the time to grow your business. And that’s really what it’s all about at the end of the day: trying to figure out how much you can grow your business. And if you’re spending all this extra time doing support and you’re, you know, fighting with inventory, you know, you’re the one updating the website, you’re the one writing the newsletters, you’re the one adding product onto the site, eventually all your time is eaten up and you can’t grow the business.
So this is why, you know, the topic of expectations and expansion is, you know, a really, really good topic for us and, you know, we’ve seen this all the way from, you know, ground zero where you’re building it out and you’re just waiting for customers to come, you know, there’s nothing going on. And in the first few months. That’s just going to be the way it is and if you don’t want to pay for rent and if you don’t want to pay for people there, that’s totally fine and, you know, that’s a good way of saving money. And at some point when you, as the owner – and I think, you know, using this $50 an hour or whatever number works out for you (you know, it’s not a hard number) – when it comes to the point that the amount of time that you’re spending managing your business versus actually growing your business – when you spend more time maintaining is versus growing it, that’s pretty much a good sign that you need to like stop what you’re doing and figure out how to scale better, whether that’s hiring a virtual assistant, whether that’s, you know, paying for rent, whether that’s hiring a real assistant or, you know, getting an employee to help with you.
And, you know, I’ve been talking a lot about this and I think the best thing to do is kind of hand it over to Mike, who’s actually in his own expansion process right now. So, Mike, maybe you can pick up this and kind of talk about your needs of expanding and also hiring.
Mike: Yeah, definitely. There’s a couple of other points there I want to talk about just real quick as well. You know, for everyone listening to this podcast, I think this is a good time to just kind of mention Chris Ducker, ChrisDucker.com. He’s kind of the guy that preaches this type of thing all the time. I’ve read his book and been to a couple of his events and, you know, it’s something that I always knew was a problem but like, you know, he calls it superhero syndrome where you’re trying to do everything yourself and you find yourself, you know, working long, long hours and basically doing tasks that are these $20 an hour tasks or $15 an hour tasks or whatever. And the point really is that those are things that you should be hiring for, whether it is a virtual assistant, a real assistant, a full-time employee or whatever.
You know, on the opposite side of the coin of that argument all the time is that, “Well, you know, my business can’t support, you know, that salary,” which, you know, is certainly a viable thought process or argument. But for me, you know, I’m always looking at the big picture. You know, this is not my first business that I’ve started and, you know, we are capitalized enough to be looking at the long-term and for me, it’s, you know, I want my business to be doing X number of million dollars next year and in order to get to that goal, you know, I know I can’t do everything to make that happen. And, you know, I need to be doing the $50 or $100, $200 an hour type tasks and all the other things that kind of fall in between, I need to pay someone else to do if I’m going to hit my goal.
And, you know, it’s kind of a scary thought because, you know, you’re possibly running cash flow negative or at a break-even and not taking cash out of the business, which is something we’re going to kind of get into here shortly, but it’s where you have to be if you want to be hitting these goals. And, you know, Grant just mentioned expansion. I mean that is something where we’re kind of at is again where we’re going to be increasing our burn rate, which is something I’ve very cognizant of. I don’t just, you know, go out – this isn’t a venture capitalized business where it’s someone else’s money and I don’t care about it. But at the same time, you know, we basically have run out of room in our warehouse.
I mean we’ve grown to the point we possibly can. We’re busting at the seams. We’re at the point where it’s so inefficient in our current office or warehouse because, you know, we have about 1,800 square feet and, you know, we’re receiving between three and five pallets of stuff a week and as stuff comes in, there’s not a lot of room to move around and maneuver so we have to like move stuff off the pallet just to get it off the pallet and then move it in another spot to get it labeled and then move it back, and it’s just incredibly inefficient. And then we’re moving things from shelf to shelf to reconsolidate to try to keep things organized and, you know, if you look at the amount of time that we’re wasting doing all that, it just, you know, advocates us getting another space.
And the timing has actually worked out perfectly because our lease expires at the end of this year and, you know, we basically sat down, it’s like, “Okay, well, do we use a public storage unit down the street to kind of get through another year or two option in our space?” and just kind of ran the math and realized that we kind of have to move. So, you know, we’re going to increase our burn rate with a larger office, but I hope to, you know, make that money back in efficiency, just not having to move things around. Plus, you know, we’re in the process of adding several news SKUs and I’m about to leave for China right after this podcast gets recorded for a big inventory purchasing trip and, you know, we need a place to put all of that. So that’s, you know, part one.
Part two is, you know, hiring another person. You know, it’s kind of gotten to the point where, you know – and this is just a natural ebb and flow for a small company. We’ve been here before and started several of these types of companies where, you know, when you hire your first employee, you know, you’re probably running at like 150% of, you know, capacity. So you’re basically, instead of working 40 hours a week, working, you know, 60 or 80 to do all these different things. And you hire an employee and it’s like, “Ah, okay.” You know, your first few months, you have to spend training them and getting them up to speed but, you know, after they are up to speed, you know, they’re taking all these different tasks on for you and you can forget about those things and get those off your plate. But all these other things that, you know, start to pile up and you’re kind of back in that space where you’re, you know, overly taxed and that’s certainly where I’m at now.
So we’re going to hire another person as soon as I get back from China and, you know, we’re getting ready to move offices so we’ll have a place to put them but that’ll certainly help, you know, get some of those lower-dollar value tasks off my plate and have someone else deal with them so that I can focus more on the bigger picture and growing the business because that’s really – you know, the key is, you know, I should be coming in and spending, you know, four to six hour of my day at a minimum, you know, thinking about how am I going to get to that X number of million dollar goal next year, which is basically $5 million where I want to be at the end of next year. You know, that’s basically going to require doubling our business next year, which, you know, we were able to do this year. I think we can do it again next year but it requires more and more high-level thought. You know, it’s not just getting products, but as you expand, there’s a lot of other things that kind of go along with it and, you know, your burn rate and stuff goes up along with it as well. You know, it’s kind of like this fallacy to think, “Oh, well, you know, once I hire this person or once I get this software or once I do that, like I won’t need to spend any more money.” Like every step of the way, there’s always something else that you need as you expand because your business gets a little bit more complicated each step of the way.
Grant: And if I could jump in here, Mike, one of the things that I think a lot of people struggle with early on in the business is that they kind of feel like, like you said, you have to do everything because you’re like, “Well, I don’t make enough money for my business and if I spend more money then I’m – you know, it’s going to be in the red.” And there is a truth in that statement, but the reality is that one thing that really stands out is that once your business is really going along, and we’re talking maybe, you know, making more than $250,000, $300,000 in like sales per year, or probably $500,000 especially – and that might sound like a big target out there, but when you get to that point, things get much easier because they scale. And it’s really hard to emphasize how much things scale in the future, like Mike was talking about, you know, growing to $5 million. I mean if you’re talking $0 to $5 million, I mean that’s just a colossal jump.
And on the bigger side, if you’re talking, you know, $2 million to $5 million, I mean it’s still a big jump, don’t get me wrong. But it’s not the same colossal jump from 0 to 1, you know. Going from $0 to $300,000 in sales is probably going to be one of the hardest steps that you’ll ever make. Actually, anything from $0 to $100,000 is going to be incredibly hard. It’s really getting out of that gravitational well. And if during that time, during liftoff, instead of helping to push the rocket, you are pulling it down because, you know, you’re drinking the oil, it is just going to kill your business and a lot of people just don’t really get that. The easiest analogy I can even think about is think about your bank account, you know, maybe your IRA or your 401K, and let’s say you’ve got this stock market that is the most flat market in the world but it grows at 5% per year and, knowing that, some people would put $100 in there every year and then add another $100 every month and you’ll get a nice steady growth out of it. Other people would, you know, look at that 5% and then take that out at the end of the year or maybe take out a few percent and it’ll kill your rate of growth.
So essentially what the whole purpose of this kind of podcast is really here to say is that, you know, don’t kill your business before it gets started. Kind of realize that you’re going to need to try to, you know, keep things afloat for sure, but know that it’s best to keep reinvesting when possible. So anyhow, that was a long interruption, so back to you, Mike.
Mike: No, it’s fine. You know, and it really is two schools of thought. I mean I just went to eCommerceFuel Live and one of the favorite presentations at the show was from a guy named Paul Lepa, who runs Pearls Only, and, you know, he’s in the same mindset that I am. It’s that, you know, big growth, don’t worry about, you know, the fringe things that are happening during that stage, you know, don’t worry about a percentage point here or two or there on profitability or if things are going as efficiently as possible. You know, if your goal is to go from $1.5 million to $5 million, you know, the next year, you need to be thinking big and worrying about those bigger things and as your business starts to plateau and slow down a little bit once you kind of reach that, then it’s, you know, a good time to kind of revisit, you know, some of those smaller things in the profitability and kind of squeeze, you know, a couple points out here, a couple points out there.
And, you know, I’m certainly in his camp and I can kind of hear like murmurs in the audience where people are like, “Oh my God. Like that seems like so reckless,” or, you know, whatever, but to me, it’s, you know, if you’re trying to grow a large company in, you know, a sector that has a finite amount of time, then you need to be aggressive and you need to be putting as much money back into the business as possible in the early days and/or taking money out of your pocket, which is easier said than done if, you know, you don’t have savings to live off of, which, you know, we’re fortunate to be in that position. You know, if you need to put food on the table out of your business, it’s a different story and it makes it a lot more difficult. But, you know, for me, it’s just thinking longer term or reinvesting every penny and more back into our business and, you know, keeping a close eye on our burn rate. You know, we don’t want our burn rate to outpace our sales, but we are having our inventory purchases outpace our sales, which, you know, basically means that on a profit and loss or income statement, we’re showing a profit, but at the end of the day, there’s no cash in the bank to pay our taxes kind of situation because we’re spending more cash than is coming in. And I think that that’s, you know, basically going to be the way our business is going to run for the next couple of years and then, you know, at some point when you stop lighting the flame under the growth bucket or whatever, you can let your business plateau out a little bit and, you know, at that point, the cash flow will naturally flow out to your bank account.
But, you know, to me, the main reason that I’ve been as aggressive as I have been and will continue to be is I feel very strongly that there’s a finite amount of time in the ecommerce world with what we’re doing, which, you know, to be specific about that, building our own brands and, you know, selling things on Amazon to launch those brands and slowly getting off of the penance for Amazon. But, you know, more and more people are getting into ecommerce every day. Other people are figuring out what we’re doing. You know, we’re even doing podcasts and telling people how to do what we’re doing and there’s dozens if not hundreds of other podcasts and training systems out there and there’s a lot of other smart people with money. And you don’t need a whole lot of money to even get started in this. You know, the competition’s going to continue to ramp up and, you know, it’s something that we both learned in our past life from being in that type of industry where – you know, in the online poker industry (online poker affiliate industry to be specific), it was situation where there was huge fast growth and we kind of made a bet early on that that wasn’t going to last forever and we wanted to be the big player when things kind of started to plateau and we were and that’s when we started really cashing out of our business.
And, you know, I’m curious to see what Grant’s opinion is, but for me, my feeling is that there’s basically a two- to five-year horizon here where it will continue to be amazingly easy to like ramp up these types of businesses and make really, really good money, but after that it’s going to – and it won’t be overnight. I don’t think it’ll be like an event where, you know, one day you wake up and it’s all over; it’ll be a slow squeeze. But I do think that over the next two to five years, it’s going to continue to get harder and harder. People have, you know, arbitrated everything to death already on like the drop shipping model, you know, the easy end of ecommerce and we’re trying to be on the harder end where – you know, there was a great quote that came out of eCommerceFuel Live as well, which is “Your complexity is my opportunity,” where, you know, we’re been trying to do things that are more complex and harder to copy and I think that keeps our window of opportunity open longer. But it’s still, in my opinion, in that two to five years and I’m ultra curious to kind of see where you’re at, Grant.
Grant: Yeah, I’m actually right in that same boat. I think it’s – I’m actually a little bit tighter than you. I think it’s like a three- to four-year, and a lot of that deals with Amazon, which is a topic that we haven’t really talked a whole lot about on this podcast or on EcomCrew.com and if we’re perfectly honest, I think that’s one of the things that me and Mike keep a little bit closer to our chest because it’s a pretty big opportunity. It’s not that Amazon is a big secret. There’s a huge amount of, you know, people out there talking about selling on Amazon and everything. But what Mike says, I think, is completely true in that the ability to take – you know, just go from zero and have a product that’s selling well and, you know, making a brand is going to be something that’s not going to be available in a few years, and the reason is that – think about it.
I always think about ecommerce as a land grab. And if you ever imagined, you know, the very first days of America and everyone just, you know, was trying to grab land and put down their stake. There’s only so much land available. And, you know, with the internet, you can say, “Well, of course. There’s always going to be dot-coms out there and more, you know, domains and everything,” and I’ll say yes, there is. But in the areas that we are looking to do, which are like evergreen industries, things that you will always need, in those industries, they are very, very locked down. I’m not saying that, you know, there’s never going to be another person that’s going to come in and sell diapers on the internet. You know, Amazon decided to go fight Diapers.com and, you know, big boy like Amazon can decide that they’re going to want to win. But the idea that, you know, “Hey, Diapers.com got started off by like some dude who wasn’t very big and then a big guy came by and decided to take them on.” Are you going to be big enough to take on Amazon on diapers? Probably not. Contact lenses: there’s very, very big people in there. Tires: incredibly big people.
So essentially, all of the low-hanging fruit are being snatched up and in order to even think about fighting against them, you need a massive war chest. I mean completely massive. You’re not listening to our podcast if you have that kind of money. And so the kinds of industries that me and Mike go into, I mean, you know, I’m in cutting boards, chopping blocks. Mike’s in ice wraps. You know, these are like no secondary markets. These are practically like tertiary. You know, like these are like tiny little products in a tiny little space. But they’re big enough on the internet that they work. And eventually, you know, these are even going to get crowded. In that regard, you know, that land grab is happening. It’s already been happening and it’s going to be going away. So…
Mike: And to me, it’s somewhere between like a land grab and gold rush. I think it’s kind of like in between those two things because, you know, with a land grab, you still have the land. I think with a gold rush, the gold’s kind of gone. I think that, you know, drop shipping or a lot of this – if you like carry like an amazing sewing machine or a lot of these places that are, you know, advocating selling stuff on Amazon and doing it the easiest way, to me that’s a complete gold rush where you go on Alibaba and, you know, get a bottle opener or something or a spatula or grill brush cleaner or something that you can just, you know, cookie cutter take it off Alibaba, do almost no modification except stick your name on it and then sell it on Amazon, to me, that’s the gold rush part.
You know, I think that that is going to dry up first and that’ll probably be sub-two years because, you know, you can go onto Amazon now and look for that same grill brush or bottle opener or whatever it is and like 30 different people are selling the same damn thing with, you know, 30 different names on it. I mean it’s the exact same thing. You can look at the picture on Alibaba, look at the picture on Amazon, and there’s 30 different people selling it. And what ends up happening is it’s that race to the bottom again where it’s effectively the same as, you know, buying it from an [inaudible 28:42] manufacturer and having 30 people on the same listing and everyone is trying to get rid of their inventory and the price continually gets driven down, so to me, that’s the gold rush part.
The land grab part is if you’re actually going to put real effort into building a legitimate brand, which is what we’re working on, where, again, the complexity’s the opportunity, you know, not just taking a product from Alibaba and slapping your name on it, but working hard to figure out what’s wrong with that product and what can be fixed with that product and, you know, making an ultra-premiere product that will absolutely get nothing but five-star reviews unless the person just, you know, had a bad day. The products that we’ve been developing are getting, you know, literally 99 out of 100, five-star reviews without soliciting them. And the one non-five-star review’s typically a four- or a three-star and even that bothers me but, you know, it’s just a part of life. Not everyone’s going to like your product.
But, you know, you take some of this crap off Alibaba and I don’t know, Grant, what do you think? It’s basically a three-star product and you’ve got a finite amount of time that you can be in the gold rush I think.
Grant: Yeah, pretty much. Everybody’s selling the same exact stuff at some point. And I think, without getting way too far off the track, if everyone kind of imagines the frozen yogurt phase and the reality is, you know, most frozen yogurt’s all made from the same damn ingredients, but frozen yogurt, pretty darn popular, and everyone thought that – especially from a franchise industry side – that frozen yogurt was going to be here forever and, you know, all these stores are going great. So all these frozen yogurt places popped up and then people realized, “Hey, you know, for the most part, most of these guys all generally taste the same.” You know, some of you will say, “Oh, you know, Yogurt Land is the best,” or, “[Inaudible 31:21] is the best” and whatever, but at some point, that price becomes the main issue. You can’t charge a premium price when it’s a commodity product.
And there becomes a problem because once your product is commodity, you have to compete on price. And then now price starts dropping and a business that survives because of the high profit margin model not competing on price is not a good thing. And now you see the frozen yogurt industry and it’s completely been decimated. All the big guys are just completely losing franchises left and right and you’ve just got only the last remaining people that are either have a long-enough war chest to outlast the consolidation or they’re just in like a very, very dense or good part of town or they have territory rights or something like that. But Amazon, pretty much the same thing. It’s just going to be an amount of time before, you know, everyone starts competing on price on all the commodity products.
Mike: Yup, and the products that we’ve been developing, because they’re higher-end, we’re actually taking the opposite approach. It’s not a commodity product so it’s not selling at a commodity price but we’re selling it at a premium price and getting it because, you know, people look at it and it’s all five-star reviews. I mean the reviews for the things that we’ve been doing are like incredible. I mean, again, not being biased, but you read the reviews, I mean they make you like actually really feel good and like almost bring a tear to your eye because people are saying like such great things about your product. You know, if you’re on that end of the spectrum, you can charge a premium and it’s a differentiator product. It’s not something that, you know, there’s a competitor selling the exact same thing because we are, you know, using original designs and high-quality materials and, you know, I kind of repeated myself from earlier but I think that’s the part where I think there’s a longer term horizon of maybe five years until, you know, the competition really heats up. And even still, like to me, it’s important to be aggressive and expand as quickly as possible. You know, again, not being a venture capital of that company, being smart with cash flow and not getting in trouble but being aggressive at the same time.
Grant: Yeah, and, you know, I think one of that things that will probably wrap up this podcast a little bit is that really a lot of what this comes down to and a lot of the philosophy with Mike and I is that we don’t want you to build a business that’s on quicksand and we don’t want you to be a hustler. And, you know, we’ve been in those kind of industries before and a lot of, not ecommerce, but entrepreneurs, kind of understand the hustler or are, you know, trying to make a little niche for yourself. But the really true way of doing it right is not by doing it the easy way because the easy way is getting the drop ship business out of your garage, no overhead cost, and hoping that you can read an ebook or, you know, listen to XYZ podcasts and suddenly you’re going to make a million dollars. Like I can’t tell you how wrong that is on so many levels and we’re never going to sell that to you.
What we’re really selling is not how to, you know, flip a home or build a get-quick-rich scheme. What we’re really telling you is how to actually measure out the angles and make sure that your beams don’t collapse when, you know, the time comes. So we’re really trying to tell you guys the right way of doing it and, you know, not burn down or kill your business in the process. so really, it’s about hard work, doing it correctly, and having longevity. You don’t want to spend years of your life building a business only to have it go away when somebody else decides that it’s your time. You want to be able to be the one that calls the shots.
Mike: Yeah. Couldn’t agree more and I actually think the word “hustle” there is actually the exact – you know, almost peddler, hustler, like the negative connotation of the word “hustler” there, you know, not the person who works hard and hustles hard, but the guy that’s like selling [schlack? 34:15] on the corner and, you know, things that are in the dollar store because its’ quick, easy money, that’s the thing I think is really going to shrink quickly because it just – you know, Amazon doesn’t really want those types of products on their site anyway. They want happy customers. These are people that are buying stuff that are having a high rate of return. That’s going to have major pricing pressure, you know, and it’s not a long-term viable business. And these relationships are so difficult to establish with Chinese vendors to get good products, you know, why not take a little bit extra time and get a really good product that you can, you know, not worry about the poop hitting the fan with in six to 18 months basically.
So, all right, well, I mean I think that we’ve pretty much covered everything we wanted to talk about here unless you had any parting thoughts, Grant, on kind of expansion and in that topic.
Grant: No, I think, you know, this is a very large topic and we’re going to talk about this in various forms in the future, but yeah, just to kind of reiterate, the kind of main talking points for this show: essentially, 12 to 24 months, you know, don’t really expect to see money back into your pocket at that point, especially if you don’t put money upfront. If you put more money upfront, you should definitely expect to see money sooner but the same way is that, you know, it’s very difficult to see money in the first 12 months no matter how you work it out. The other big thing is, you know, figure out how much your time is worth and then use that as a metric when you decide when you need to reinvest into tools and to rent and to people for your company. And just kind of as a general barometer, if your sales are getting anywhere between $300,000, $500,000 range, you should really be looking at either doing a reinvestment if you haven’t already and the hardest time is getting from $0 to $100,000, so during that time, you know, if you’re really trying not to reinvest in using your time, even then think about it a little bit because that’s going to be the hardest time for you to grow, and as owner, you need to be the guy growing the business, and if you’re not growing it, who is? So that’s all I’ve got to say.
Mike: Well said. So with that, I think, you know, we’ll probably do a follow-up to this around the first of the year, after I get moved into the new space and kind of talk about just how expansion is going with that, which’ll be kind of a good follow-up. But we’ll put some stuff in the show notes about the Chris Ducker thing I mentioned, his site. He also has a service where he does virtual assistants that he finds for you. I actually used it myself and got a virtual assistant and I highly recommend that as your first employee. I mean you can get someone for just, you know, a few hundred dollars a month that will take care of all the mundane stuff and it’s a really easy way to start offloading, you know, what really comes down to like $4 an hour task and that’s about what you end up paying these guys overseas to do these tasks. So highly recommend, you know, looking to do that and offloading anything that isn’t a $50 an hour task or more. So, all right, well, I think with that, have a good rest of the week, everybody, and we’ll be back next week with another episode.
Grant: All right. See you guys.
Mike: Thanks, everyone. Bye-bye.
Michael started his first business when he was 18 and is a serial entrepreneur. He got his start in the online world way back in 2004 as an affiliate marketer. From there he grew as an SEO expert and has transitioned into ecommerce, running several sites that bring in a total of 7-figures of revenue each year.