Guillaume: Hello everyone, Guillaume Le Tual here, host of the Ecommerce Wizards Podcast where I feature leaders in ecommerce and business. Today’s guest is Mike Jackness, CEO of Terran.com. He also runs another company called EcomCrew, which is very interesting. We’ll be talking in a moment. This episode today will be very varied in discussion. We’ll be talking about entrepreneurship starting new business ventures because Mike has created many, one ran after another. How do you get traffic to those new websites? How do you make this a success? It’s easy to create a new website, but how do you transform this into a success? We’ll go to personal experience, what he’s willing to share and how he goes about it and so on. Before we get started, a shout out to John Corcoran of Rise25 Media and thank you for doing this introduction to Mike, otherwise there would be no podcast.
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Mike: Of course.
Guillaume: So, little fun fact here, I saw that your company’s called Terran your previous company was called Protoss. Obviously, you’re a big StarCraft fan for that video game. I’m also a big fan, but I didn’t go as far as naming my company after it.
Mike: It’s funny. It actually had very little to do with StarCraft, although I am a very big StarCraft fan. I knew what was happening at the time. The Protos thing is actually spelled a little different. I think Protoss in StarCraft was with two s’s and that Protos thing was with one.
Guillaume: You could get away with that if you had not named your next company Terran.
Mike: I agree but I had nothing to do with that name other than saying, let’s just use it. We had created a company called Poker Source Online, we had one business. It’s funny how this same thing ends up happening over and over again, no matter what industry I’m in. As it got successful, we started creating a bunch of different sites and buying other sites and we needed a holding company and I passed one of my employees with finding a name and I didn’t want to pay more than $8 for it. And he came back with Protos and said it was some Greek god of some sort. And I was like that sounds like something out of StarCraft which we all played at the time. maybe that’s how he thought it, I don’t know. Terran is also another StarCraft thing but I can neither confirm nor deny the StarCraft link but I am a fan.
Guillaume: Since you have a video game analogy here or a link to some degree, it opens a bit of philosophical question like the time you enjoy gaming was a time wasted. I spent so many hours on that game StarCraft and said okay, I learned a few strategy things here and there but overall if I’m honest myself, it was mostly a big waste of time. I could have learned some other skill or something like that, but it was enjoyable. It opens up that sort of debate, this time that you enjoy with entertainment, a little bit of it is just good for the mental balance but if you have too much of that video game, then you’re just not being productive with any new skills.
Mike: I definitely wasn’t productive. It’s actually the only game I’ve ever called in sick to work for.
Mike: I had the clout to do it because I had been at this company for like four or five years at this point and I never took sick days and I was just like, I’m addicted to this game and I want to stay home and play it today. I think I had found it on a Friday and it was Monday morning and I was still like give me the needle on the arm and I called in sick one day and I think I was pretty honest. I was just like “I don’t feel like coming to work today and I don’t want to tell you why” and my boss was like okay because I had built up that credibility to be able to do that at that point.
Guillaume: I prefer that, an employee that does not BS you, don’t tell me why, don’t tell me your sick if you’re not.
Mike: Yeah, I was a pretty good employee. In terms of time wasted, I have “wasted”, if you add it all up, years of my life playing video games over the years, especially when I was a kid. As a middle-aged adult now, I’m afraid to even touch them because I have a very compulsive addictive personality. So, when I get into something, I have a very hard time stopping and I can find myself lost in a game like that for a very long time, my Apple Watch is like dude you need to get up and at least move around because it happens. I also find that when I’m doing that, it’s meditative in some respect. I’m not thinking about work or my other problems and challenges in life. I think it’s a good escape if you can have a healthy balance.
Guillaume: I agree, it’s all about the healthy balance. It was a very addictive game, I agree with you, a lot of fun as a teenager and so on. It was a fun discussion, anybody who’s played a lot of games, to see their point of view, did you see that as a waste of time or not? It went by the thousands of hours as we were teenagers and young adults. Alright, let’s move on, what’s interesting here? I find that you’re creating new brands, you’re creating new companies and you seem to be creating them one after another here and you’re starting those new ecommerce stores. Of course, you do Amazon stuff as well but you do your own website. Let’s go to the process, let’s say you want to start another brand again, how do you go about it? Like selecting the next product, what goes through your mind? This might help some people who want to start a new venture even if they have a successful one right now. Most entrepreneurs keep telling me about the new website project they have in mind or just somebody starting out?
Mike: Yeah, this is obviously an evolution throughout the years. When I first got into ecommerce specifically in 2012, so it’s been nine years now. Things were very different and when I first got on Amazon in 2015, which is really where our trajectory went crazy, things were very different on Amazon as well. I often joke that you could sell a bag of poop on Amazon and be successful because it didn’t really matter, you can shoot your way to the top very easily as long as you were selling something that was at least halfway decent. I joke about the poop but as long as you had halfway decent product, you could be very successful, didn’t really have to have much of the game plan other than like, the quicker you can get more products up on Amazon, the faster you’re going to increase your sales. Fast forward to 2021, things are very different, the competition at Amazon is very intense. I think it’s going to continue to get more intense. I think you need to have some sort of differentiation before you attempt to jump into that pond. There were years where Facebook ads were like the big moneymaker for a while there, I guess that would have been like around 2017 or 2016 when we started getting really heavy on the Facebook advertising when there wasn’t a lot of people doing Facebook ads, things were quite easy.
I think that everything’s a little bit different. Everything’s a building block and a learning journey. But the company that we had the most fun, the most success with, was a company called Color It which we sold in 2019, started from the ground up in 2016. And I think what made it successful is the same thing that we make a new brand successful today. We didn’t invent an industry. I think that that’s very difficult to do, to go invent something from scratch, it means that people aren’t even looking for it yet necessarily. Coloring books have become a big trend and we thought we can improve upon them. We looked at all the reviews that were on Amazon and other platforms, the things that people complain about, we’re pretty consistent. The books are printed on really cheap paper and we fixed that, we used artists gray paper. People were complaining that the images were printed on the front and the back and so when they color the front it ruined the back image. And so we just started printing single sided and people complained that the book wouldn’t lay flat, you think about a traditional paperback book and it always kind of wants to close and so we made spiral bindings. We put hardback covers on it so they can lay flat and you can put them on your lap. We perforated the pages so you can rip them out and frame them which was another thing people were wishing that they could do.
I’m not an inventor, I don’t hold any patents, I barely made out of high school and not all that intelligent at the end of the day. But I was able to solve these problems in an industry and obviously there’s a leap of faith and some risk you’re taking. You don’t know if the audience is going to actually want all these things and so we kind of put out a minimal viable product which I’m a big fan of, got some initial feedback, improved upon that even and next thing we knew, we were doing seven figures coloring book sales in our first year.
Guillaume: That’s really great if you reach seven figure like from scratch without having another business backing you to do that new startup, that is a very quick growth path.
Mike: It was a lot of fun. I look back at all these rocket ships I kind of created and attached my fingernails to as they’re trying to go up. Obviously in entrepreneurship, everything always went that way. I’ve been doing it long enough that I’ve had now several successes, I’ve also had an equal number or maybe more failures but it’s fun, that’s the thing that the addicted entrepreneur yearns for. The gambler wants the crazy craps roll and the heroin addict wants the next high or whatever and us addictive entrepreneurs want that next business that goes crazy and certainly it was a ton of fun.
Guillaume: Yeah, so you channel that desire that you have for video games elsewhere.
Mike: Exactly, I look at it very much like a video game in a lot of ways. The sales, the numbers are like the way to keep scores. I’m very competitive and it certainly comes from the video game part growing up, you’re looking to get the highest scoring Galaga or win the StarCraft battle or become platinum, or the top level now, in StarCraft, but you’re keeping score somehow. And it’s very similar for me, I’ve kind of realized, because we’ve done well financially, and it’s not going to change our lives one way or the other but it keeps me kind of into it, and I enjoy it.
Guillaume: Cool. Is it still a strategy for you to just create new brands and run them? Or you’re creating them with the purpose of doing an exit, and is that part of why you’re creating multiple brands?
Mike: Yeah, I think that you kind of learn things through many years of entrepreneurship. When I created my first company, selling it was not the reason I created it. Not until I was probably 10 years into entrepreneurship that I realized that you should always begin with the end in mind. So, we’re always trying to keep ourselves in a position to sell anything at any time. You just never know when that offer is going to come through. I have found through the years that one who reaches out to you will pay way more than if you listed someplace, and just try to sell it to the masses. We always try to run our companies in a way that we’re prepared to sell them at any time. We’re not necessarily currently looking at that moment to do it but you never know when things might come up. That is one thing.
Another thing that we really discovered is that buying businesses is just as good if not a better way to go. Our most recent brand is one that we purchased with an SBA loan in the United States right now, there’s just stupid terms and money being sloshed around and I felt like it was a once in a lifetime opportunity to go out and buy an existing business and we’ve had a lot of luck doing that over the years. The other thing that I like to look for is longevity of some sort, a business that has a track record, some sort of assets and hopefully defensibility etc but is weak in certain areas that I feel like I’m good at. They’re doing really well on every aspect of the business except for 1 2 3 or 4 disciplines that I feel like are my wheelhouse. The business we just bought was that type of thing. And we have a great team that we’ve assembled now, mostly in the Philippines that was able to go through and retool all the Amazon listings and make them better. We’ve now sourced all the products from China, they were sourcing them domestically so we’ve shaved 30% off of our COGs.
We’re launching one new product per week and we’re getting really aggressive with watching their skews and building revenue. I have an SEO background and they really hadn’t focused on the website. So, we cranked up SEO on the website and our sales have more than doubled on the website now. Altogether, we’ve put ourselves on a really crazy trajectory, growing this business that we bought and we hope to exit that one someday as well. I think there’s two ways to go about it. It’s either something that’s stuck from scratch or you can… When you buy a business, you’re eliminating all the mistakes that you might make. When you start a business as an entrepreneur, you got a one in five, one in three, no matter how good you are, it’s always a one in something chances of being successful. You buy an existing business, all the people that fail, those aren’t the ones on the business broker list. These are the successful ones that are leftover that you’re getting track record with. I’m actually a fan of both strategies, which are very different, obviously.
Guillaume: Yeah, but then there’s a question that you did not personally have the learning. So, it’s important that you’re familiar to some degree with the industry when you’re buying. There are so many examples in history that, a very successful company buys another one in a different industry. And because it did not do all the learning curve, then… the person needs to be qualified to run it. But of course, if you’re doing another ecommerce website, well, that is your field of specialization.
Mike: But it’s just as though it’s another ecommerce website or another Amazon property or whatever. The products were very different, the business we bought was not coloring books or ice packs. You kind of take for granted what you’re talking about. You think, Oh, it’s just ecommerce. But there was a huge learning curve, learning the products themselves. My number one goal, as we walked in the door on December 30th last year, when we bought the business officially, was let’s not eff it up. Let’s keep sales the same at least for the first quarter and at least learn the ropes and understand what it is that we bought, and why one product does well, and why one product’s different than the other? We got very fortunate, the owner that we bought it from was the best you could ever hope for in terms of transition. I hope that we knew them ahead of time. But no matter what, there’s always going to be a learning curve.
Guillaume: That’s for sure. And the target market, the audience may behave very differently from what you’re used to. We’ve seen this also in some other historical cases. You have those great turnaround, the CEO took overnight Chrysler, but then he takes over another business and the mindset is different, he’s not able to turn around that second business because it’s a completely different mindset for that different product there as to what the consumers are looking for. And if you miss that mark, that’s not going to work.
Mike: One of the things I’ve learned the hard way in entrepreneurship and life in general, when you have a success, you think it’s easy to duplicate it, no matter what it is. I think back to the first business that I started and was really successful and made life changing amounts of money. And that makes you think I can just go do that again, I’ll just replicate it all. But you take for granted a lot of things. Number one, a lot of times, there’s a luck factor and just being at the right place at the right time. With the poker business, for instance, I just happened to be 2004 when I got into this and everybody wanted to start playing online poker. I think back to the computer consulting business, I was just in a very fortunate spot in time where everybody wanted a computer but no one had one. This is back when I was just getting out of high school. Same thing with some of the other affiliate marketing stuff that I had done. Same with the ecommerce stuff like Color It. What ends up happening in the future as you’re thinking you can just cut corners or replicate it by doing something differently, but take for granted all the other factors that contributed to that success. And I think that’s where arrogance or ego kicks in. What you’re just talking about, you might have a CEO who was really successful running a car company, maybe jump ship and goes to another car company or another Fortune 500 company or whatever and fails miserably at it and doesn’t think back that maybe there was just being at the right place at the right time and a bunch of other outside factors also contribute to your success.
Guillaume: Yeah, do you have the right mindset to do that other job? CEO Greg Brenneman wrote a book ‘Right Away and All At Once’, he’s a super successful CEO and is another one to turn around stuff. He’s saying that, before he accepts any mandate, he does that checklist. Can I actually help this company? Am I able to identify the levers that you need to pull to make this business successful? And if not, actually, I don’t take it. Sometimes they’re surprised if I turn down the offer because it seems like such a golden offer and I’m like yeah but I’m not the right guy for the job. I don’t see how I can pull the right levers to make that business grow in the right way.
So, there’s that question and it’s back to your point that you’re saying, we were way better in SEO than these guys were, their weakness is my strength. So as an investor, I can buy this company and I can grow it, it’s typically how people buy companies because either they believe they can take your company to the next level, or your strategic acquisition and maybe you become their internal department of whatever, like a web agency. They need a web agency department in house, they’re very large corporation. So, it’s either a strategic acquisition or an acquisition because I believe I can grow this business if you have your way higher than you can without the help of the investor.
Guillaume: Back to my first question, we talked about all kinds of stuff and I like it, it’s fun. What’s your thought process about what’s going to be the next venture? Is it like an inspiration? Do you have some parameters and criteria? Help me decide on how to start my next venture for an ecommerce business.
Mike: For me, sometimes it’s not that smart. It takes doing a bunch of stupid things to figure things out. Our first ecommerce business was treadmill.com, we had bought the domain name treadmill.com, and the domainer as well on the side. So, we run treadmill.com for a while and decided we wanted to get an ecommerce and we would just jump right into it, not knowing anything about ecommerce. The lessons learned there were, drop shipping is really frustrating because you don’t control the shipping process. Shipping big heavy pieces of equipment on the backs of non-commercial UPS type and FedEx type trucks, when you start shipping common carrier, it gets crazy, missed appointments, damaged goods, all these other things. You’re competing against map pricing, and don’t really have any differentiation of any kind. We just kind of learned the hard way those types of things.
The next step was okay, let’s go do another business. I bought this business called IceWraps, which we still own today and has done very well. It sold other people’s products, but we physically bought them, put them in our warehouse and did the inventory shipping ourselves. Eventually start doing private labeling and realized that at the end of the day, we wanted to be as close to the source as possible to control our destiny, which is when we started creating other brands. A lot of the things that we were thinking about at the time were things that were easy to ship that could fit in a shoe box thing that a lot of people talk about, but then it’s like everyone’s racing to that spot. So, I often try to be racing someplace where people aren’t the old Wayne Gretzky quote of skate to where the puck is going, not where it is. I think about a lot of things now, the successful products that we have, and things that we’re looking at are things that are maybe oversized and things that people want to stay away from are things that are not the homerun products on Amazon because the homerun products kind of give you…
No matter how good you are at building a brand and having good products etc. if you have a product that does $100,000 a month or more on Amazon, you now have a bull’s eye on you because every tool out there, Jungle Scout, Helium 10, Elite Seller etc. make it very easy to find these opportunities and these products. There’s a joke that I love that I often mention in this example where there’s two deer talking to each other and one deer has this bullseye on his chest and the other deer to him, that’s a heck of a birthmark, isn’t it? So, I feel like I’m that deer with the bullseye on my chest or my back when you have the big homerun product. We’re looking at getting a lot of singles now and just staying under the radar. A lot of things you really just got to adapt, learn from previous things that you’ve done.
Another one of my favorite books is on the shelf here. It’s called Who Moved My Cheese. And so I feel like the cheese is constantly moving. It’s like a children’s book but it was handed to me 25 years ago at my old job. The message really resonated with me. I think through the years of e commerce, the cheese is constantly moving. So, I think a lot of what’s working today might not work tomorrow. The thing that we’re really focused on today, is to kind of really answer the question, is something that’s really comes full circle, which is really starting with content first. We’ve been building a lot of content type blog sites that start way at the top of the funnel and we rank really well for a lot of organic search terms and a niche that we want to be eventually selling product in and getting people on our email list and pixeling them and taking the very long road approach. Because a lot of things that people want to do these days are all How can I cut corners? Or what magic pixie dust can I sprinkle on something and just snap my fingers and make a million dollars overnight?
We take the long road. We’ve been over the last three years now building some pretty big content properties that rank for tens of thousands now of terms related to the niche that we want to be selling products in and driving that traffic to our Amazon listing store, Shopify stores, getting people on our email list and communicating with them, having a Facebook group and communicating with them, having a pixel so we can run really targeted ads to people. And we’ve found a lot of success with that. That really kind of goes back to the first thing I did online back in 2003, with affiliate marketing, and SEO. I’m just realizing that that source of organic traffic just really pays for itself over time, and it’s definitely worth the effort put into it.
Guillaume: So, you’re creating blog sites and content sites at the top of the funnel, which indeed is really the long path, most people who would choose that would at least go down the funnel. You’re going very high at the funnel and then you try to capture emails, and maybe SMS and you try to build a list so that you can contact these people, and then you funnel the traffic to your Amazon listing and Shopify.
Mike: Exactly. We also have articles on the site that are middle funnel, and the end of the funnel. We sell tactical gloves, for instance and if someone’s searching tactical gloves, they search in Google, What are the best tactical gloves? That’s a search that’s really at the end of the funnel, someone’s looking to buy, if we can rank for that and circumvent the whole process and just have them go buy, we love those searches. But we also love something more at the top of the funnel. What should you have in your bag out bag? Or what should you do in case of an emergency? Whatever the top of funnel type things are, that get people on the list, that’s equally as good.
Guillaume: Okay, and do you do any kind of tracking in terms of… because when you go at the top of the funnel, you can invest a lot of effort, energy and money, and you’re not necessarily sure that will actually generate the return on investment? Or how much of it will work? Do you just throw a lot of effort at it? Or do you have some more techniques on it?
Mike: It’s a little more sophisticated than that, and then just kind of throwing darts at the board. I agree, first of all, anybody doing a very top of funnel search, there is a very low chance, statistically that they’re going to ever buy something from us. But there is a chance nonetheless and over time, in terms of just sheer volume, it does happen. But for every person we can get in our email list, that increases the likelihood that they will purchase. We also have ad revenue by just having sure traffic. But what it really comes down to is if you have a site, that’s all 100% affiliate based at that end of funnel stuff that’s very hard to rank. Google’s kind of given pure affiliate sites the boot. So, we really look at our very top of funnel content as a way to increase traffic and awareness and broadness of our site, to attract links, a lot of top of the funnel content gets a lot of a lot of inbound links. Again, there’s a small percent chance we can get them on our email list. And eventually, they’ll do one of our free plus shipping offers or some type of our deep discount, but we have a whole funnel that kind of tries to get them ended up. But really, at the end of the day, the real thing that we’re trying to do is rank for the real money terms, but a lot of the real money terms are kind of also in that affiliate realm that Google doesn’t quite love. So, you got to kind of play this dance of making sure Google doesn’t think you’re a scammy affiliate property and that you’re more legitimate.
Guillaume: Okay. Do you have any kind of guideline you would give someone who’s starting their store like this? Let’s say they go with that approach content generation, well top of the funnel that can look overwhelming, how much content do you generate for these? Do you have a cadency? Do you post three blog posts a week or one a week, or how big of a funnel are you’re trying to build when you go top of the funnel?
Mike: Right now, we’re doing 20 articles a month so we’ve really scaled things up and we have a whole team now in the Philippines, that’s really just cranking out content nonstop. I always say to people, Don’t try to start at my step 1000 if you’re in step one, because you would go bankrupt. We’ve been able to build a team like this for a number of years. I think at the beginning is, just get an article a month up or you can do an article a week, certainly that’s even better. The actual cadence isn’t the issue. Google doesn’t favor a site that posts once a day or twice a day versus one that posts once a month. But there’s a lot of really great examples of some sites that have 10 to 15 maybe 20 pieces of content on a website that ranked number one for a lot of really good terms. The reason they’ll rank number one is because they have the best article about that subject. Google’s really good at getting the article to the top that’s really authoritative and is well written, answers people’s questions.
So, yes we’re doing things that are at a big volume now but the quality has never dropped. In fact our quality continues to increase. My team has basically been told if you’re going to write an article, it needs to be the best article that’s ever been written about this subject in the history of the internet. The internet’s been around for a long time now, there’s a lot of things out there. They’re looking at what will be our future competitors articles and stuff before we start writing an article and we’re looking for lanes right now, there’s still plenty of them where there just isn’t really great content about the subject out there yet and we want to be that article that really is the best.
Guillaume: And you’re trying that with a Filipina that’s difficult because most of them are not native English speakers, neither am I, but still the quality of content that you’re putting the bar extremely high, the best content that was ever written for the internet. So, you’re still able to find that level of quality of labor and writers in the Philippines for this?
Mike: The writing position specifically is the hardest one might hire for. I think we have 27 total employees now in the Philippines and I think either four or five of them maybe six now are full time writers. But we always have an open requisition for writers, at the end of the day we have unlimited want for more writers, we’re constantly trying to find them but it is quite difficult. We do have a full time HR person Hiring Manager now, that’s all they do. They’re not looking just for writers, but they’re looking to fill all of our positions. But they’re there, the people are certainly there. You’re right, English is not necessarily their first language but there are a lot of people there who English, either is their first language or they learned it right alongside of the Gallo or local language that they know. There’s lots of well-educated people in the Philippines. The United States occupied the Philippines for a very long time, I’ve spent a lot of time in the Philippines personally, I’ve never had a problem communicating in English to anybody there, everyone knows English. Just how good are they? Are they able to get to that native English writing level, which is certainly a higher bar.
A lot of people that we’re hiring have been newspaper writers or magazine writers or they’re doing marketing for some other company previously. My favorite people that we’ve hired are usually people that have their own blog about themselves or their journeys, or whatever they write as a hobby. It is trying to find the haystack, there’s no doubt about it but they’re definitely there and our team does a great job.
Guillaume: All right. In that decision to the next product, are there any specific criteria that you’re looking for? Now I’m hearing that you started more like drop shipping like most people do, and then you moved up and now you’re a brand owner, you get your own product produced. I’m pretty sure that you have a little teddy bear stuff there, probably a unique design that nobody else has that exact design. Is there any metrics if you want to give us ballpark? What should you look for in terms of margins or market or whatever, to decide that yeah, this product makes sense from a business entrepreneurship point of view to be a choice?
Mike: From a margin perspective, absolute bottom line is you got to buy it for $1 and sell it for $3, buy for $10 and sell for $30, 3x markup basically that’s the absolute lowest you can ever do and have a successful ecommerce business. But realistically we’re looking at the four to one ratio as our bottom line these days. Especially now the tariffs are kind of creeped down and a bunch of other fees shippings going to expensive. Amazon fees keep getting more, we’re trying to see if we can buy it for $10 and sell it for $40 range is where we want to be on the margin question.
The teddy bear question you mentioned, we own a brand called Wallbaby and yeah, they’re unique designs. We found some unique designs through a manufacturer and then we had another engineer, kind of change them up in a way that made them so we put a hot and cold pack inside the animal. We use someone else’s stuffed animal. We found this manufacturer, they had a style that we really liked, we asked them to create different animals just for us that are our unique design so they’re differentiated, and we have this hot and cold pack thing which most stuffed animals don’t have. So, we have something that’s different.
I think that’s really another thing you got to be focused on, some sort of differentiation and it can’t be the same product that everybody else sells. If you have a successful product, it’s going to pop up on the radar, but you got to kind of think again, begin with the end in mind. So, you have something that’s successful, Helium 10, Jungle Scout, Elite Seller, boom like that’s going to come up in someone’s search. They’re going to see that the easier it is for someone to then source your exact product and start selling it, the less time you’re going to have at the top and that’s just the bottom line. Can someone copy our stuffed animals? 100% they can but it’s going to be harder than a lot of the other products out there and a lot of people will just give up because of the differentiation. You can go make another stuffed animal but there’s more to the process, we use multiple manufacturers for that particular product because the hot and cold pack that goes inside of it is manufactured by someone else and we have another relationship in China that does the assembling and kind of packages the whole thing for us.
We make the complication the bar to entry and make it more difficult to copy. Our most successful product ever was our gel pen set. It’s been copied now, you go look at this on Amazon. It’s kind of a shame and makes me sick every time I look at it when I do the search like gel pens for adult coloring books. I don’t want an award for any of this I’m just trying to illustrate the things the little differences you can make to have a really successful product. We were the first ones to ever take a set of gel pens, print names on them so people knew what color they were going back to. You want crimson red, or brick red or neon red or whatever, you want to use the same thing when you’re coloring, if you go back the next day to use the same color. Most people weren’t doing that, they weren’t printing the names on them. In our set we bundled a set of refills in because when you’re coloring you suck up the ink really quickly. And so for an extra like 80 cents or whatever it cost us to put the refills in there, we created this huge perception of value with this product compared to all the other competitors out there.
Another thing we realized is that people that were into coloring didn’t want to necessarily just throw their pens in a drawer or leave them in the cheap crappy plastic thingy they came in. So, we put them in a case they made it very easy for people to travel with and/or store them nicely. We packaged it in this like Apple quality box, where even an adult could have like this great experience, unpacking the product. And we sold it for a premium. We sold it for $2999 when all the other gel pens are selling for $6999 so people were willing to pay for this better product. And we had a clear lane for this for 12 to 18 months before someone finally figured out how to do this. Because even though what I explained sounds quite easy, it isn’t because in order for us to do that, we had to find a gel pen manufacturer that was even willing to print on the pens. The MOQ to do that was like a million pens or something crazy. So, we had to buy an astronomical amount of pens, we had to pay for a tooling to have all the nameplates made.
Then we had to have another manufacturer make the case and another manufacturer make the box and find someone to put all that together. Eventually between people finding the opportunity on Helium 10 and Jungle Scout etc. and factories becoming aware of it, some trading company or factory just duplicated it, made it super simple, threw it on Alibaba, made it super simple to copy that, which is fine. We’re trying to develop the next product and stay the next step ahead but you want to keep yourself a clear lane for as long as you possibly can. For us, that product was about 18 months and we sold like over a million dollars with that product alone during that time.
Guillaume: Very nice and especially at that price point, $29 is still very affordable for any adult that wants to buy a nice pack of pens and yeah, if they were not printing color names on, it totally makes sense to add that. I remember even Prisma color in elementary school had names printed on them, so this is kind of missing. That’s very interesting story, thanks for sharing.
Mike: That existed in the colored pencil world but just didn’t exist in the gel pen world. Again, I’m not that brilliant, you look around the room, you think about your customers and what they might want and that was an easy thing to figure out. Like you said, you were a kid and understood you want the names on it, but shockingly, no one had done it to that point. So, if you can just make that little modification, there’s tons of opportunity like this out there still, tons of it. You just got to stop being the guy that just like looking to find the thing off Alibaba, send it in Amazon with no differentiation hope to be successful, that isn’t going to work. You need to take a few minutes, do some extra thinking, put your thinking cap on, maybe smoke a little weed or something, I don’t know, get creative and figure out a way to differentiate in some way that makes it hard for the next guy to just snap copy of it. It will happen and that’s the only thing you got to just deal with I think as an entrepreneur, they always say imitation is the sincerest form of flattery, it doesn’t really ever feel that way. But the reality is that once you are successful with something, someone else was going to copy it. It’s happened to me every single thing I’ve ever done and so the better you are at dealing with that, the more successful you’ll be.
Guillaume: For sure and this is a product where you cannot just say like a lawyer is offering services for 30 years and that’s that. There are some differentiation factors but it’s limited or you could say it’s unique, it’s personal to that person, the relationship and all that. But in your product world, somebody just comes up and copies your product and that’s that so that’s difficult especially if you are the brand and you’re the maker of course you have a manufacturer preparing this for you but you’re still the maker of this thing. Unlike let’s say if you start selling tools and the world is always making the new version of that tool for you or Apple is always making the latest version of the device for you, that burden is on you to always stay competent to have the latest and greatest version and all this.
So, from what I’m hearing, I’m guessing that your game level will just go up and up so next time you start another company for sure you’re going to be a brand owner, you’re going to have modifications to it, you’re going to ask the factories to piece together some different parts that are more difficult for people to put that together and you’re going to have a clean lane for a longer time to hope to have a year and a half of profits. And that is assuming, of course always a gamble, that this will be a successful product.
Mike: It’s always a gamble but if you’re a good entrepreneur, you can stack the odds in your favor and that’s all I’m ever looking for. I feel like if I can be right even just 60% of the time, that’s a good ratio and we’ve definitely been more successful than 60% over the years. We never tried to be 100% successful, we take some chances but we try to stack the deck in our favor ethically and in a white hat way because I don’t want to be tossing and turning all night worrying about Google or Amazon or some multi-billion dollar trillion dollar company shutting my account down and you can’t even get the time of day from them. So, we try to do all this in a way that keeps me from having to lose sleep over that.
Guillaume: Right, is there anything else that you’d give as a tip from your own personal experience to people starting a new business venture like this in terms of a new product that they want to bring to market?
Mike: Specific to my products and venture, the first thing that comes to mind is just cash flow. You got to really understand your cash needs. One of the things that was interesting for me as I was learning ecommerce and we came into ecommerce really good place financially. We had been running a successful affiliate business which has like zero expenses for over a decade that we had just sold and had a nice cash out and had divided. By my terms the way that I grew up, we had lots of money, we were doing really well. You get into ecommerce, it’ll bankrupt anybody, it’ll make anybody look like they’re poor, basically not necessarily bankrupt, but make anybody look like you’re poor. Because when you have a successful product, you can actually go bankrupt from that because you’re just trying to keep inventory and stock.
When you’re planning out how much cash you need to have for that successful product, don’t just think about the first order. You need to kind of extrapolate out the second, third, maybe even fourth order and understand that there’s a trajectory of success when you finally do get a payback. You’re going to be paying taxes, showing your profit on paper but then have no cash in the bank. You’re going to be in this weird dilemma. And understanding that ahead of time, I think can be quite useful. Using a smaller example, let’s use these gel pens as an instance. That was about $100,000 order, our first order, that’s a lot of money, was a big risk but we thought that there was a need for it. So we took the chance, and we were obviously quite right. We had planned for the future cash needs, but just to show you, what ends up happening is that container comes in, you start selling them, you start realizing, oh, I’m selling 100 of these a day, I only have 60 days of inventory left, now I need to order more gel pens. We haven’t even finished selling the first batch of gel pens, now you need to come up with another $100,000 to buy another container of gel pens. If it’s really successful, you start selling even more, you’re going to need another $100,000.
So, you keep wanting to like buy more and more inventory to get yourself at a point where you’re chasing the growth. And you will need more money than organically the product is putting off even a good margin. Because again, you’re having to order when you’re ordering from China from Asia, really 120 days in advance of when you’re going to get the product, 90 days at your best-case scenario. It takes 30 days to manufacture it at absolute minimum, 30 days on the water, that’s the absolute quickest you can do it. But that also doesn’t include the week the stuff waits at the port before it gets picked up. And like three to five days or seven days it takes to clear customs on this and then it’s got to get truck from there over to Amazon or two or three Pl. And realistically it’s three months. So, you’re having to buy inventory way in advance. Understanding the cash needs of all this is really important and having good accounting and good forecasting, super important before you hop into this.
Guillaume: And I see right away a huge risk in what you’re saying. Because what if the demand is just like a temporary spike that you did not understand maybe there was something obvious, like back to school and you didn’t think about it? Or maybe there’s some other factor going on? Like why are the gel pen saying that much? Will it keep up at that pace? Or will you actually be stuck with $100,000 of pen reorder that will not even sell, what do you do with that?
Mike: It’s a really good point. That’s the thing that can make or break you when your first, let’s say dozen products or something, you got it and it’s so stressful. I think back to exactly what you’re talking about. Because we certainly fell into that out a couple of times. It’s inevitable, there’s just the unknown, you see the success, you don’t think Oh crap. I remember one year we started selling a whole bunch of bunny rabbits and didn’t quite understand that it was Easter, or the back to school thing with the gel pens. It’s funny, you mentioned that specifically. We didn’t anticipate that, you just see sales go up. But in October, they’re back down. There’s all kinds of things like this that have happened to us over the years. When you’re in your first year, you don’t have any historical information. It’s awesome, we’re in year seven with some of this stuff now, like our ice pack stuff. It’s like so predictable, now we have seven years of data, we’ve been through every season. Our peak season is in the spring and summer which people are more active, we know that people slow down in the winter. We know exactly what months what products are going to do what. And we can reorder with almost surgical precision, and have the exact right amount of stuff we need.
But in year one, when we just launched some new products for that same brand right now, we’re having a hell of a time trying to figure out what the proper amount of inventory is even years into this, it’s still quite tricky. It’s only a matter of time, not a matter of if but when exactly what you’re talking about is going to happen. How do you deal with that? How do you deal emotionally with a container full of gel pens sitting in a warehouse that you can’t sell? And everybody kind of deals with it differently. I’ve learned to just cut my losses, we donate them and move on. Just get rid of them and stop paying storage fee, stop paying all the other fees or even talking about it. In the range that we’re at, which is like 70% to 80% successful launching products, the ones that aren’t successful, you just cut your losses and move on. The most important thing is adding incremental revenue and profit.
Guillaume: Try to liquidate them like near cost or something like that?
Mike: We’ve tried, I haven’t found a good solution for that. Typically, the things that aren’t selling well at retail, even when we start dumping the price way down or things that people just aren’t interested in buying even at liquidation prices in the US realistically, you get the same tax rate by just donating them. If you have $100,000 of the goods, especially when I was in California and we were close to a 50% tax bracket, you just donate it, move on, you get 50k back in taxes. So, you really only lost 50k net, which is still obviously a lot of money if you’re talking about $100,000 order. But if you were to recover 10 cents on the dollar, it looks very similar, you’re going to get $10,000 back on you’re $100,000. You’ve now lost $90,000, the tax write off is still $45,000 it’s very little difference but the amount of time and energy it takes to try to find somebody to liquidate that too… At least when we donate, I know it ends up in a better spot, a lot of times we donated some of the coloring stuff, but we never had a problem with gel pens, we had some problem with one of our books that didn’t sell well. So. we donated that to a children’s organization that actually handed them out and gave them to kids and they actually got to use them. We also found a seniors’ organization. A lot of seniors like to color and so they were passed out to old folks homes and people that actually could use them rather than giving them somebody at 10 cents on the dollar that’s just going to re-sell them and make money themselves which I don’t begrudge them for doing that, we all have to make money but the difference was so slim that it’s just easier to just get rid of it and cut your losses.
Guillaume: It could be good PR as well. Your company’s making donation, you can do both press release and all that kind of stuff if it’s big enough.
Mike: You can, I actually agree with that, you certainly could do that. I chose specifically on those particular things not to do that because I don’t really want to come off as that guy. A lot of times it’s like if a tree falls in the forest, does it still make any noise? I don’t need to broadcast out some of these things, I’m weird like this in person. Yes, we definitely missed a PR opportunity for sure and this is one thing I would not recommend follow me on but those types of things that I do, I don’t necessarily need the attention.
Guillaume: Yeah, that cash flow advice is really a wonderful gold nugget. We’re coming on top of the hour, again just shove your question, is there any last tip that comes up in mind that you’d like to share?
Mike: I would say that there’s a really good book. I just had Gino Wickman on our podcast and he wrote a new book. His first book was Traction, I’m just in love with it, it’s changed our business but he has another book about Entrepreneurial Leap. I would recommend reading that. If you are kind of just getting started, it’s a good way to know if you’re really an entrepreneur or a wantapreneur. You got to be kind of sick and twisted in the head to do it. A lot of people get 1,2,3,4 years down the pike, realize that they’re not making any money because they were just better at being an entrepreneur and/or realize they’re not cut out for it.
It seems so alluring. It’s like Oh, you’re going to be your own boss and you can set your own hours and work from anywhere and all these really cool things and even if you are pushing yourself into this as a square peg in a round hole, you’re doing it anyway because all these cool catchy things get your attention but the reality is that being an entrepreneur is really freaking tough. Again, you got to be kind of sick and twisted to want to do it. It makes no sense when you start laying out what you have to do in order to do it. Entrepreneurial Leap is a really great book that puts you through some tests. If you answer the questions honestly, grade you on a scale of 0 to 100. I think you got to be above a 90 to really go do it. You can save yourself a bunch of time money and aggravation by reading that book, I highly recommend it. It was funny as someone who scored a 97 on this test who would have been a 99 if I answered it 20 years ago when I was younger. I definitely dropped a couple points because you start losing some energy unfortunately as you get older and it’s not as fun as it was the first time around. But as I was reading through some of the stuff he had in there, I am like mental. It made me feel like there’s something wrong with me, I feel like I’m having a session with a therapist who’s like, you’re a psycho. It’s just a good book to read.
Guillaume: I did not read that one yet but the other one by Gino Wickman, Attraction, Get a Grip on Your Business is an amazing book and is becoming really popular in the community to run on EOS, Entrepreneurship Operating System. We’ve partially run on that and it really helps the business definitely, especially if a company for 10 to 250 employees, EOS is really amazing. Above 250 employees can go to the Scaling Up System from Verne Harnish Rockefeller Habits. EOS is a spin-off of Scaling Up but adapted to smaller companies. It’s really amazing. So Mike, if people want to find you, what’s the best way to find you and your podcast?
Mike: Yeah, EcomCrew. Anywhere you get your podcasts, Spotify, iTunes, all that good stuff. Also ecomcrew.com or EcomCrew on all the social media handles. If you want to email, [email protected] will find its way to me.
Guillaume: Alright, thank you Mike for being here today.
Mike: Thank you, appreciate it was fun shot.