Ehrlicher Rat für E-Commerce-Unternehmer

0:00What type of business is this business? I'd love it if you actually think about it right now. Like if if there's different types of businesses, what do you think this one really is? All right. Now that you you've thought about it, this is the shape of an e-commerce business. So, in the very beginning, you'll typically have to get some inventory, especially if you want to have a bigger business. No gigantic businesses are drop shipping. So, if you want to have a bigger business, like a brand, you're going to have to do some sort of inventory. You'll have to front a little bit of cash, right? But as soon as you start selling, because it doesn't require a lot of operational infrastructure, you can grow really quickly. But then you'll hit these breaking points that stop your growth flat. And so either of these will be um cash constraints in the business as in like you don't have enough money to buy more inventory. It could be um it could be traffic constraints like all of a sudden your ads just stop and then the the ads don't perform past a certain point. It could be that you've maxed out your distribution. Let's say if you're a retail distribution, it's like, okay, we got 7,000 more 7-Elevens. It's like, okay. And then we continue to stay at that level until we get CVS's and then we stay at that next level. And so each of these kind of unlocks typically occur when you have a supply chain unlock or you have distribution that unlocks. The distribution could be literally physical retail distribution or it can be adbased andor affiliate um based distribution.

1:17All of these different ways are promoting it so it gets it in more hands. So this is why the shape of this business looks this way. And you also can get stopped by all of a sudden you run out of stuff, right? Your supply chain dries up because your manufacturer can only do a thousand units a day and you need 10,000 units a day. And so while you find the next manufacturer, you're flat again, right? And this is the nature of the business that you're really in. And if you're curious what, you know, experience do I have with e-commerce? Well, I'll give you two. So first off, Prestige Labs was a physical products business. We sold through a brick and mortar distribution base. We also sold through an online store. So we had both those angles. I had distributors obviously our gyms and then also uh any consumers could buy directly from the store. So we had ads that were running as well. And so both those elements were e-commerce. In addition to that um the launches that we had for uh my last book, the world record-breaking Guinness world record-breaking book. Um this is literally e-commerce.

2:16a physical product that gets bought through a store and then shipped out. Like very straightforward. And so the reason that this video is so important before I dive into all the other four is that most people think that there is something inherently wrong with their business when it is in reality a feature of this business, not a bug. And so the more you can zero in on, okay, if these are the big hairy problems that exist within the shape of my business, how do I put disproportionate effort on solving these key foundational issues or problems to this model that will allow me to out compete all the other people in my space that don't know this? And I'm telling you like this is the sauce.

2:55And also sometimes you'll have to switch three PLs as you scale too. So even if you have the the inventory, somebody might not be able to ship out 10,000 orders a day. Like when we did the book launch for me, I had to find three PLs who could ship out millions in 72 hours. That's absolutely absurd, which is why we had to have multiple across different states in order to make sure that every single person got their book within days, not weeks or even months. I talked a little bit about the cons, but let's talk about the pros of this. So e-commerce, it can scale relatively fast compared to some of the other business models. And the reason for that is once you have the stuff, I mean, it's really just like how fast can you hand it to somebody in exchange for money. And if you have, you know, a Shopify store or a commerce store, any kind of online store, like they can just click and buy and then you have somebody else who's shipping it straight to them. As long as they can ship it and they can buy, you can sell a lot of them. The issues is when you run out of stuff, the guys can't produce it, you can't get raw materials, they can't ship enough of them. these become the constraints. But fundamentally, if you're within operating within all of those, as in they can ship more than you have, you've got enough inventory. As long as people keep buying, the number just goes straight up. And so, um, what's interesting about this particular business is that it also typically isn't going to be nearly as kind of keyman risk from the founder. Of course, there can always be key risk for key skills, but if you have a product that people love and people keep going to your store and buying it, it's a very sellable business. Okay? And so that's the that's maybe the upside. Let's talk about the dirty. So what sucks about having e-commerce? One of the first things that sucks about this business is that in general, most people who own e-commerce stores, they can do significantly more revenue than some of the other business models really quickly. It's one of the fastest ones you can grow revenue on.

4:36And it's also because people are willing to spend more money for stuff than they are for the other three categories because there's inherent value because everyone knows there's an inherent cost to creating it and sending it. So people are just more willing to spend money on it because that's t it's tangible. Um and it's the reason if you look at like gross sales, what are the what are the some of the top companies in the world? Walmart, huge amount of sales. Amazon, huge amount of sales. It's stuff, right?

5:01And people love stuff. And as somebody who came to selling physical products much later in my career, I was amazed at how easy they were to sell compared to some of these other things. Which then brings the the next question, which is like, okay, well, sometimes they're easier to sell. people are easy to take their wallet out. Um, but what makes it harder? So, this is very capital intensive because people know costs money. You also have to have the money to buy the And so, it is capital intensive in that this thing might make profit on paper, but as soon as you make some profit, what are you going to do with that money? You got to go buy more inventory. And so unless you have a flat e-commerce business, if you want to grow, the extra growth requires the profit from the earlier part of your growth path to fund the next level of inventory so you can sell through more in a shorter period of time. And so you can have you can be very asset rich in this business. You can have lots of inventory. You can have maybe a lot of enterprise value. But it's very common that entrepreneurs will get I mean I'm saying unbelievable numbers. They'll go to hundreds of millions a year and pretty much only live on their salaries, which there's nothing wrong with that.

6:09It's just different than some of the other models that are out there. In terms of the things that can also be difficult about this is that you have to rely very heavily on your partners. And so it's very rare for an e-commerce business to be vertically integrated. It it sometimes happens, but it's super super uncommon. Uh that means that are you the one who's manufacturing the stuff? Are you the one who's actually shi, you know, pickp pack shipping of all the things both locally and internationally? Are you sourcing raw materials or do you have a a raw material mine that you're, you know, you're collecting milk from cows and turning that into protein? Probably not.

6:41And so you have core dependencies on other businesses. And if those businesses fail, you fail like very real. And so having many redundancies within each element of the business. Okay. How do we get raw materials? How do what about manufacturing? What about uh logistics in terms of pickp pack ship? Um and then on the capital side, it's like, do we have lending partners because we might run out of of capital if we're scaling really quickly because there can literally be nothing wrong with your business. But think about this. If you have 10 units of something and you make $10 of profit on each unit and you sell all of them in a day and the next day 10 more people want to buy, there's nothing you can do. And so that might mean that you might have 300 units worth of demand and you only have 10 units worth of profit. What do you have to do next month? You can only buy 10 more, right? And so your growth rate will be dictated by the amount of free cash flow that the business kicks off.

7:35And then that will be the growth rate that you'll be able to sustain or only growth rate that you'll be able to have in the business. And you'll be you'll be constrained by that capital. There are lending partners because this is a clearly a capital constraint business if you're growing quickly. Um, but those are some of the some of the negatives or some of the downsides. Now, if you own one of these businesses, what's the big hairy problem? What's the big problem that you have to solve? Number one is managing cash flow. So, you have to be able to forecast cash flow. You have to look at inventory cycles. How long is it? You know, if it's a 12-week lead time for you to buy stuff, you have to predict how much you're going to be selling in 12 weeks. That can be difficult, especially if it's your first time. Um, number one. Number two, your distribution. You're going to live and die by your distribution. know ad accounts um brick and mortar distribution partners that you can have affiliates or influencers who have kind of I would call it synthetic distribution through their audiences all three of those are your they're partners of yours right product like great product will always find great distribution great distribution will always find great product right but the problem the big problem that you'll have to manage is going to be supply chain how can you have enough stuff to sell right logistics isn't that hard because there's a lot of there's some decent um you know pickpack ship that are out there everybody always has complaints because it's not their business, they would do it differently, blah blah blah blah blah. You wish they they they didn't charge you as much, etc., etc.

8:49But like by and large that I would say that problem has been has been solved relatively well. Um the next issue um is going to be making sure that the product you have has a brand behind it. And this is the real nasty one because if you just have a pure I call them smash and grab businesses which is just you're a media arbitrage business. You know you can buy eyeballs at $10 and you can sell them something where you make $11 in gross profit. That's just a smash and grab business. And if somebody else sees you smashing and grabbing, guess what they do? The downside of physical products is that because anybody can own it, anybody can also sell it. And so if you've got a widget, somebody else can go to China and make the same widget as you. And that's where patents come important.

9:33That's where if you actually do own your manufacturing, have some special sauce in terms of how you make your stuff, these become the competitive moes for the business. But the largest of all of them by far is brand, right? Why? Like Nike shirts are inherently the same shirts that other shirts, you know, shirt companies make. They literally buy the same raw materials. But why are you willing to pay so much more for a Nike shirt versus, you know, an unnamed shirt? Because of the brand. And so even if someone can copy every single thing down to the threat count of your business, they still can't copy the brand. And so some of the best uh brands are in e-commerce because you have to be in order to get big. And so we think if we translate what brand does, and this applies to all of them, it's it's super important with e-commerce because it's so easy to commoditize. Um is that the value that brand delivers is that you have higher click-through rates, as in more people show interest because they have a history of good experiences with you or good word of mouth. Number two is that you'll have higher repurchase rates. People will buy once and they'll continue to buy again. And number three, you'll able you'll be able to charge higher premiums for the same thing. So that means lower cost of acquisition, higher LTV because they're buying more, and higher gross profits because they're buying at premium prices. Those are very real benefits of building the big brand.

10:45And so when you have these types of businesses and they are kicking off cash, that means that that is somewhere you have to continually invest to expand and reinforce the associations that you want your products to stand for. which also means what affiliates or influencers you're not going to associate with, even if they can drive quick sales, what discounts you're going to choose to make or not choose to do because of what kind of brand you want to um uh demonstrate for your target audience. There's some brands that never do discounts and there's some that live and die on discounts. And so, it really depends on what kind of brand you're trying to build, but you got to be specific about it and you want to be as deliberate about as you can day one. And so, if this is you, I think probably the most important question is how do you win? Right? The per I I'll just do this by describing the perfect e-commerce company and then you can reverse engineer what you were missing. So the perfect e-commerce company would have its own manufacturing that it makes. It would have a very trusted third party or be able to ship directly out of their manufacturing facility to you know all the markets that they have. Now if they're international more likely they'll have to have international partners that do the logistics. Um but even more likely if that becomes bigger markets, they'll start creating decentralized manufacturing uh in each of those markets. So they have lower shipping costs and faster uh turnaround times and faster cycles for um returning inventory. So that's we're going back to front. They make the stuff right. They have some trade secrets or unique partners that they get their ingredients from or and or they have unique way of combining unique ingredients which makes them incredibly difficult to copy. They have uh great logistics in terms of pickp pack ship. On top of that, they have uh a very lean team on the paid ad side that uh is a performance marketing team that is done in tandem with a team that understands brand first approach.

12:34And so what does that mean? The most successful companies that persist over a long period of time in e-commerce tend to have a 7030 split in terms of how they spend their money. 70 going towards top of funnelunnel and brand awareness and associations and only 30% going to direct to purchase. And most companies that are starting out and the vast majority of the ones that I talked to, it's basically 100% just straight to purchase. You are building a drop ship company that has no competitive moat and you will always complain about the dupes and the the Chinese companies that are going to come in and undercut you because they they're in China and they have some of these other other competitive edges that you don't have, right? And so you have to know the game you're playing because if you know the game you're playing, you'll know how to win.

13:17And the last piece of this kind of competitive advantage that I would have in this perfect e-commerce business, assuming they have invested that extra money to have these premium brand associations, they have strong performance marketing. Um, we then have two more components to it. One is we want strong brickandmortar retail partnerships so that you have 50,000 retail stores that are pushing your stuff out or you choose to long-term create your own pop-up stores that actually are your own. There is what's interesting is that nowadays the model has reversed. It used to be build a you know huge brickandmortar presence across many many states and then start an online store. The last kind of version of that was like Lululemon that I would say that was more popular and that I can think of at least and more recently it's kind of the reverse of that. You look at like the the Gym Sharks, right? They they're almost all e-commerce and then they choose to open up these flagship stores in key locations that are brand additive. Now, on a on a long enough time horizon, once brand awareness has been completely saturated for an e-commerce brand, then you actually open up stores all over the place because you remove the cost of shipping um each of those markets because people actually go straight to the store and it increases their average order when they're in person. And so, the actual cost of acquiring the customer becomes rent divided by sales per month.

14:34Kind of cool. And so uh that's what happens at the ultimate scale level that many brands don't get to and some of them just choose not to do that uh because they don't want to because it's super capital intensive right but at some point when everybody already knows who you are you just want to make it even easier for them to buy and so that is the ultimate version of an e-commerce brand um and how you do it right and it takes years to build that level of brand but you can scale revenue incredibly quickly and I'll add one last caveat which is that you have to be an absolute savage uh email marketer into the amount of backend the iceberg underneath of here that exists in terms of messaging different process flows the campaigns that you're running attribution so that you can see your true metrics like these are some of the like I think some of the best marketers in the world are here and it's because to be fair once you have a killer product it's you know backend dweebs that we're going to you know they're going to be working on making sure that we have enough product you can you can hire the people who can make sure the cash flow is there all that kind of stuff but like the best I think some of the best marketers in the world are e-commerce marketers Oh, last thing.

15:35The product's got to be exceptional because no matter what you do, you can have all the best marketing in the entire world. If you get someone to buy it and then it sucks, doesn't matter. And as you scale these businesses, the cost of acquiring customers continues to rise. And so, the only thing that you have that's a compounding vehicle that can scale proportionally to increasing cost of acquisition is a referral word of mouth chain that does two things. One is repeat visitors. like how many what percentage of your sales are customers that are coming back because they really like the product and then number two what percentage of those customers are bringing more customers and if you're like well what percentage is right it depends on the growth rate of the business. So if you're growing by a th000% you're always going to have you know more new customers in the beginning. What matters more in terms of if you want to make this thing sellable is you want to be able to demonstrate that you look at this new cohort how many of them are going to come by again.

16:26If you can get 60% 70% uh to buy again after the first purchase, you likely have a product that's pretty strong. Real quick, I have a gift for you. This is the hund00 million scaling roadmap. It's something that my team and I put 200 plus hours into building and breaking the stages of scaling into 10 steps. All right? And so what we did is we broke down everything that got us basically got us stuck and what we did to break free at each level of the business. And if you'd like to know what product, marketing, sales, customer service, IT, recruiting, human uh resources, and finance look like at the stage that you're currently at, this is a free gift. So all you have to do is go to aquis.com/romap. You can plug in your business information. And if you want our help, you want my help to help you break through whatever level of scaling you're at. This is not a promise. I'm just saying I'd love to help. Um on the thank you page, you can book a call. Uh every month we have a workshop out here at my headquarters. She actually talked to my real team that does does our marketing, does our emails, does our ads, does our copy, does our does our does our sales, does our finance, does our recruiting. The real people are doing this at a very high level. And what's really cool about that is that they can typically find and spot what the constraints are in a business like that. And so it's one of the most valuable things that I could possibly do. Obviously, you know, space is limited based on our actual headquarters. Um, but if that's interesting, on the thank you page, you can book a call. No pressure. This is a gift either way. It's absolutely free.