Michael Potters is the Enterprise Partner Manager at Gorgias, a multichannel helpdesk for e-commerce brands. Gorgias empowers over 7,000 businesses with better customer service on platforms like Shopify and Magento.
Before Gorgias, Michael was the Co-founder and CEO of Parachute Coffee, a coffee subscription service that was acquired by LeJeune Brands in 2020. Outside of work, Michael volunteers at King’s University College as an Alumni Association Board Member, leading the outreach and coordination for the Toronto Alumni Chapter.
Here’s a glimpse of what you’ll learn:
- Michael Potters discusses the challenges of generating customers for a subscription model versus a single purchase
- Crafting a multichannel strategy to acquire customers
- How Michael secured funding for his business
- What are the best ways to improve the customer experience as an e-commerce brand?
- The benefits of Gorgias and how the company improves customer support for businesses
- Michael talks about SMS marketing and making the most out of your customer feedback
- Limiting your amount of SKUs for a better customer experience
- Michael shares his advice for new e-commerce brands and reveals common mistakes to avoid
- The unexpected difficulties of exiting a business
In this episode of the Ecommerce Wizards Podcast
How important is customer support for your brand? After all, many customers are able to go through the purchasing process without ever needing customer service. This has led to many smaller brands cutting corners on the backend at the cost of the customer experience. While strategies like this may work in the short term, they can leave some customers feeling frustrated and ignored. As Michael Potters says, if you want to create lifetime customers, you need better customer support.
Few people understand the importance of the customer experience like Michael. He has seen the benefit from both sides — as an entrepreneur and as the Enterprise Partner Manager at Gorgias, which offers a powerful helpdesk for e-commerce brands. Having held these different roles, Michael has a holistic view of how to acquire and keep customers. Now, he’s here to share that viewpoint with you.
On this episode of the Ecommerce Wizards Podcast, Guillaume Le Tual hosts Michael Potters, the Enterprise Partner Manager at Gorgias, to talk about improving customer service and support as an e-commerce brand. Michael talks about his startup, Parachute Coffee, and how it was able to grow in a competitive market. He also discusses topics like SMS marketing, limiting your product selection, and how to properly exit a business. Stay tuned.
Resources Mentioned in this episode
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Guillaume: Hello everyone, Guillaume Le Tual here, host of the E-commerce Wizards Podcast where I feature leaders in business and e-commerce. Today’s guest is Michael Potters. He’s an entrepreneur. He was a merchant for five years and then he sold his business. He’s going to share today his life experience on this journey, what this looked like for him, and a lot of gold nuggets of wisdom. We’ll also be talking about customer service, how to improve customer service in his new roles. Now Michael is an enterprise Partner Manager at Gorgias, and he will talk about how you transform your customer support team from a cost center to a profit center and a lot of other very interesting topics about how to get an e-commerce brand to be successful.
So before we get started, the sponsorship message, this episode is brought to you by MageMontreal. If a business wants a powerful e-commerce online store, or to increase their sales or to move out piled up dormant inventory to free up cash reserves or to automate business processes to gain efficiency and reduce human processing errors, our company MageMontreal can do that. We’ve been helping e-commerce stores for over a decade. Here’s the catch. We’re specialized in and only work on the Adobe Magento e-commerce platform. We do everything Magento. If you know someone who needs design, development, maintenance, training support, debugging, we got their back. Email our team, [email protected] or go to magemontreal.com. So Michael, welcome.
Michael: Thank you. It’s such a pleasure to be here. I really appreciate you inviting me to this podcast that said, I feel honored.
Guillaume: My pleasure. So can you please tell us a little bit about yourself and your background?
Michael: Yeah, for sure. My name is Michael Potters. I’m currently Enterprise Partner Manager at Gorgias, building out the agency partnership channel with my friend and now colleague, Rachel, who spent a great deal of time at Adobe, and Magento. I just joined Gorgias a few months ago now. In a previous life, though, I was a founder. I built a DTC brand, actually in Canada, based out of Toronto. We grew that brand over a six-year period. We specialized in subscription e-commerce and specialty coffee was the product. We shipped the specialty coffee on a subscription basis across Canada for that six-year period. And eventually had aspirations of moving into the United States before we were acquired in December of 2020. And it was an exciting journey. Lots of challenges along the way of course, as I imagine a lot of the members of the audience can relate to.
It’s not easy being a founder. We were bootstrapped for quite a while until we raised a pre seed. Well, what began as a family and friends and quickly sort of snowballed into a pre seed round back in 2018, 2019. And as you know, fundraising is also a big challenge, it’s especially challenging in Canada. Canada’s not the easiest country or environment or market, so to speak, to be raising capital in. We were lucky, one of the lucky e-commerce brands in Canada to raise funding and we grew the brands, the brand was acquired, and the rest is history. And it’s just a pleasure to be here Guillaume. I hope I can answer some questions or provide some value to your audience. I know as you said, there’re a lot of founders in the audience that probably share similar struggles that I did as a founder. And hopefully, there’s some nuggets there that I can help them find a way.
Guillaume: Sure. And we’ll get to our main topic soon. But you just said something that piqued my interest here, because you’re a subscription based, well you were, now you sold the company. But how challenging did you find it to acquire customers on a subscription model versus the one off? And have you tested both systems?
Michael: It’s really interesting. So that’s a great question. I should begin by saying, in our particular category, it’s in specialty coffee and subscription. CPG, let’s call it, our product was particularly popular as a gift. So there was really a split 50/50 down the middle between gifting sort of one offs, and then subscription for personal use. And as I said, that was a 50/50 split. In terms of acquiring customers for a subscription, yes of course it’s challenging, but there are ways to incentivize a new customer or prospect into trying the product before they commit to a subscription, whether it be through a discount, or whether it be through some other type of strategy. There are ways to actually do that. But as you said, it can be challenging.
CPG is unique, though I should say, when it comes to subscription and that there is an opportunity to sample the product. I use it when a consumer samples a product that they can consume, whether it be a beverage or a food product. If they liked the product, generally they’ll subscribe to the product to have it on a more consistent basis. It was interesting with coffee too, in that it’s a commodity that’s regularly consumed, it’s perishable, so you need to replenish it. And number three, there are infinite varietals of specialty coffee. I’m not just talking between the robusta coffees versus the more sort of classic coffees that you might expect to find in a specialty or hipster cafe. There are Arabica varietals, there are 1000s of varietals of specialty coffee and they’re grown in very different places across the globe. So if it’s February in Belize you may have a very different coffee available to you than what’s available in February in Ethiopia, and so on.
There’s all kinds of different varietals that are available to a specialty coffee consumer. So for those three reasons, it was actually a very, how should I put it, perfect product to build a subscription brand around. And at the time when we were considering what type of businesses we wanted to build. We wanted to build one that sort of hit those three marks, and coffee was a commodity that hit it.
Guillaume: I agree it’s a great choice of a product for a subscription business. So let’s dig a little bit more in this though, what was the strategy to acquire customers?
Michael: So we had a few different channels. And I should preface this by saying we never really, I don’t think cracked a particular channel that really was a goldmine. For us, we did have multiple different channels that worked for different reasons. Performance marketing was a channel for us, of course, we had pretty aggressive performance marketing campaigns seasonally on Facebook, and Instagram. Email was a very important channel for us. As you can imagine, once you acquire a customer as you know Guillaume, it’s very important to nurture that customer and to build and to improve or increase that lifetime value of that customer through regular communications and nurturing opportunities for cross selling opportunities for cross promotion. This was done for us through email and it was a very effective channel for us. In fact, our open rates on our email and conversion rates through that channel, the open rates were in and around 30%, for our email campaigns, which were well above the industry standard.
And then the conversion rates were certainly higher on that channel than what they were on our performance channels like Facebook and Instagram. We did direct mail as well, which was a challenging channel for us, one that we didn’t find a whole lot of success on. It was one that we experimented with, we did also have partnerships with some meal delivery kits, where there was some cross promotion that was achieved there. Again, the conversion rate on those more sort of like direct mail initiatives, and sort of like the tactile, you know, the inserts that you would receive in those meal kits, and so on are the ones that those coupon codes that you might receive in the mail. These are sort of two examples, or at least tactics that we tried with direct, were less effective certainly than the digital channels that we were spending on.
Guillaume: Very interesting. And were you precisely measuring that to your lifetime value of customers? And how far did you go when you were spending to acquire a customer like, I can go all in on the value of the first order because I know and trust my data about what’s the lifetime value and I’ll make my money on the second order?
Michael: It’s a good question. So we were able to achieve that. Our lifetime value was around eight months of the subscription. Between six and eight months was the average for the subscription lifetime value. So we could acquire a customer for a percentage of that lifetime value as long as we were breaking even. In most cases it was a breakeven type of acquisition. That was the name of the game for us. It was really how we can acquire as many customers at a breakeven to drive our growth as quickly as possible. And we achieved that, of course it wasn’t a perfect mix. It wasn’t a perfect setup. I mean Facebook and Instagram became more expensive as our brand grew that channel. So we were constantly trying to add new channels into the mix to drive our cost back down as the company grew, and of course, there’s always Facebook and Instagram, in particular, those channels. When you launch a brand, especially a DTC brand in our case, there’s a lot of low hanging fruit in the newsfeed or sorry, I should say, there’s a lot of low hanging fruit customers that are available to you on those channels when you start spending there, but that low hanging fruit eventually starts to be eaten up, and that low hanging fruit becomes a more expensive fruit.
So as you mature in those channels, typically, at least in our case as a brand, as our brand matured in those channels and we began spending more money it became more expensive. And there was a need to add additional channels or optimize in those channels in order to have a breakeven or a positive ROI acquisition.
Guillaume: And when you’re selling a commodity like coffee, at least you’re selling like a specialized subgroup, did you still have a little bit of leverage to pricing like you’re saying if my cost of acquisition is going up, are you able to raise the pricing a little bit without starting to lose too much sales?
Michael: Not as much, unfortunately, what we did learn with our brand is that consumers are particularly price sensitive to commodities. And even though we did have a specialty commodity, there was still price sensitivity because naturally, consumers like you and I, those that drink coffee, have an understanding of what that price range is. You certainly can’t exceed the top end of that price range unless you’re delivering a tremendous amount of value. So there was sort of like a ceiling for how much we could price per unit, and we couldn’t really breach beyond that. So we were really playing in this sort of like range where you might expect higher end specialty coffee to be priced, but we couldn’t go beyond that.
Guillaume: Okay. Yeah, it makes a lot of sense. And I’m curious about your journey there, getting some investments, you said you started with friends and family, then got through either pre seed or seed round. At what point did you get this funding trouble journey, and what’s your experience with it, the drawbacks and positives? How did it accelerate the business, or create other kinds of tension with accountability to investors and what not?
Michael: For sure, there was a bit of both. I mean, of course, naturally, when you’re accepting money from friends and family first, and then investors, strangers, really, that becomes a big intimate part of your business, there’s naturally going to be tensions there. And expectations, I wouldn’t say tensions, there was never any tension. In our case, it was really those expectations and the involvement as investors. It’s a delicate balance that you have to play, we were very fortunate that we had very good, very dependable, and involved but not too involved investors in our pre seed round. So we were fortunate that that was our experience.
When we decided to raise capital, it was a tough decision because you do have to keep in mind that now you have a much bigger group of people that are now involved in the business and have an expectation of a liquidation or an exit, and that is certainly a consideration. But all in all I think it was a good decision. It’s very challenging in Canada to raise capital, especially a pre seed and especially in e-commerce, there’s less of an appetite for risk in Canada. If I were to do it again, and for those in the audience that are considering raising capital, I would strongly advise them to look south of the border. I mean, it doesn’t hurt you to seek capital or seek a raise in Canada, and there are opportunities to do that. But the appetite for risk is much greater in the United States. And it’s a bit frothier, there’s more capital to go around. And for that reason I would say, consider going south as you start to plan out your race.
Guillaume: And if it is not confidential, like roughly which five of a chunk of your business that you have to give away in order to raise capital?
Michael: I would say it was about 20% percent when we raised our pre seed. It usually goes like that. As you probably know Guillaume, it’s about 20% every raise and we only raised a pre seed and it’s difficult to qualify whether it was a pre seed or a seed. But we considered it a pre-seed because we were on our way to a seed and it was about 20% of the business.
Guillaume: Okay, yeah. Interesting. And the name of the game is, raise money but keep some percentage for yourself.
Michael: Yeah, exactly.
Guillaume: Otherwise you end up like the founder of Netscape. That thing becomes a billionaire company, but he has almost nothing.
Michael: Exactly. Those are the horror stories.
Guillaume: Yeah, exactly. So this is a very interesting journey, we might circle back to it. Now, let’s talk a bit about your experience on how to improve customer service for an e-commerce website. Let’s say, what did you put in place, what challenges did you live?
Michael: I think it’s actually a good [Inaudible-00:15:38] into Gorgias as well, but I’ll begin with my own experience, parachute. So we were fixated from the very beginning on improving the post purchase experience because as a subscription brand, it was hugely important that we retain the customers that we acquired. Naturally, that’s the name of the game of subscription, its retention. So the lion’s share of attrition or churn that we were experiencing as a brand was actually coming from the dashboard experience or the post purchase management of the subscription. So if you imagine you’re subscribed to a copy, subscription service, or a subscription service for any consumable for that matter. In a lot of cases, our customers would want to increase the frequency, decrease the frequency, increase the volume, decrease the volume, pause the subscription. Re-engage the subscription, maybe they want to send it to a friend that month, maybe they wanted to change the skew. So we had three different skews, we had a medium roast, a dark roast, and a what we call the limited edition or something that changed every month. So maybe you wanted to switch it up that month.
Now, with a lot of the subscription solutions available today, especially the ones that are plugged into an e-commerce site on Shopify, for example, there are limitations to what you can actually do for subscription functionality. So we ended up actually going completely custom. And that’s where we actually found a huge lift in our LTV. It was when we actually improved that subscription management experience. That post purchase UI, that post purchase user experience. It was all baked together in a custom built that we developed internally. And it really moved the needle for us in a pretty significant way. And a lot of those customer support inquiries that we were seeing as it related to subscription management, disappeared virtually overnight. Like if you give the tools to a user to manage their own subscription, and you educate them to manage the subscription along the way, they will perform that action. And you can reduce the load on support in a pretty significant way. At least in our experience, it’s really subscription management that was important for us, in our particular case.
Guillaume: It’s subscription management. So the ability to pause, resume, forward, changes skew, that feature, once you had that down customer support volume decreased drastically. And it’s easier for you to reduce churn and to have more happy customers.
Michael: Exactly, it’s perfectly summarized. And as I said, it’s a good segue into gorgeous as well, because while we were managing this load of support inquiries as they related to subscription management, we were also simultaneously trying to grow the other channels where our customers were trying to communicate with us. So, if you imagine we were spending at the same time quite a bit of money on performance marketing, whether it be on Facebook, or Instagram, we were attempting to grow our SMS channel. We had a phone number that customers could call us at.
All these different channels that our customers were trying to communicate with us, there was no single integrated way for us to have number one, all of that data available in front of us have the customer inside the agent console, but also no way for the customer to have a really uniquely personalized experience because we couldn’t see where those customers were on the different channels when they were trying to communicate with us or at the very least, we might be able to see them, but there was no context and there was no sequential sort of omnichannel view of the customer over the lifecycle of that customer with the company.
Guillaume: Yeah, I understand that. You’re talking about Gorgias, maybe you can quickly describe what this product is?
Michael: Sure. So Gorgias is an omnichannel help desk for brands that are looking to grow. And the way I usually try to describe it and the reason I describe it this way is because it was a challenge that we had as a brand, Parachute Coffee. We were using Klaviyo, are you familiar with Klaviyo Guillaume?
Michael: We were using Klaviyo and complete kudos to Klaviyo for building really what is the email layer of the merchants growth stack. And when I say merchant, I don’t mean merchants that are still stuck in 1995. I mean the merchants that are like in 2021 looking to grow. Klaviyo built the email layer of the growth stack. Okay, on top of that you have, at least in my experience, the loyalty and the points and the sort of like, how would you call it? Retention layer of the growth stack. So that’s on top, what was missing for us was that engagement layer of the growth stack, it was nonexistent. We had all these different channels where we were trying to reach our customers or our customers were trying to reach us. But there was no coherent way of measuring performance of the channel, or performance of our agents, where there was no coherent way of really driving the revenue through our support. It was all sort of disparate, siloed systems, and it was a real challenge for us.
So when we discovered Gorgias, it was really like a light bulb went off. And what we did with Gorgias was really turn what was a cost center for us. And something that we really viewed as an afterthought, you know you think as a brand you’re like, and this was us for a long time we were guilty of this. We thought, you know what a pain in the butt customer support is. Like, I don’t want to have to think about this, it’s so annoying. But when you have a platform that basically integrates all of your channels into one coherent dashboard environment, and suddenly you have all of this rich customer data right in front of you. And you can see in a sequential omnichannel view the entire history of that customer interaction with your brand, and you can respond to them very quickly, suddenly, you’re like, this could now be a profit center. This is now your revenue center, I could actually derive revenue through my support center, I can derive revenue through my customer support. And that’s precisely what we did.
Guillaume: And I’m curious if you can tell us more about that. Precisely because I heard, I don’t know if I heard you correctly, you said you had three skews. So you had three products, right?
Guillaume: So how did you drive, let’s say, additional sales and so on? Because then you can influence the quantity and the frequency that they buy in, because that’s about it, or do you get them to upgrade to the specialty one if it’s more expensive?
Michael: Well, you also have to consider that, you’re looking at the full funnel, right? So you have access to customers that are pre-purchase. You’re plugged into your Facebook ads, you’re plugged into Instagram DM. These are pre-purchase opportunities for support to actually engage with prospects. Offer them a code, for example, drive them right through the funnel, drive them closer to the checkout. So there are those pre-purchase opportunities for maximizing conversion. And then there are also those post purchase nurturing opportunities to upsell and cross sell and so on. Once you have a full 360-degree view of the customer, there’s really no limit on what you can do to move the needle in terms of revenue through your help desk or through support. And there are other tactics as well, and I can offer you one that’s popular with one of the larger merchants on the Gorgias platform.
So we sort of dug in and we were like, what are the merchants on the Gorgias platform that are driving a lot of revenue through their support and they helped us? What are they doing? What are the tactics that they’re using to do that? And one that I can offer you in particular was around offering and empowering all of their agents with a coupon code to utilize at their discretion or under certain circumstances to move the prospect closer towards the checkout. It’s as simple as that. Offer every single one of the agents a unique coupon code. And when there is a particular circumstance where that coupon code might be useful and move the user to close or move the prospect, the customer closer to a checkout, then deploy the coupon. And this is something that can easily be attributed number one to that particular agent. Beyond the simple fact that Gorgias has advanced reporting, and you can already view the support agent’s performance, but you know offering the coupon code, being able to attribute it to that agent, and now you’ve actually succeeded and moving that user closer towards the checkout, through the checkout and into a successful conversion.
Guillaume: Makes a lot of sense. So you’re not just working on the existing customer support base, you’re working pre-purchase.
Guillaume: Of course post purchase is becoming more and more standard with the abandoned cart email reminders that are not yet standard, but getting there more and more standard. So the pre-purchase I believe, is a big deal to have access in one place to every channel that you have, and then your support staff don’t just do support, they actually turn to entry level salesmen.
Michael: It’s really like creating a salesforce out of your support team.
Guillaume: Exactly. So yeah, that’s very interesting. Okay, and were you doing SMS marketing?
Michael: That’s a really good question Guillaume, we did it. And I think it’s because, frankly, SMS has blown up as a channel in like 12 months. And we were just sort of like, we just missed that explosion of interest in SMS. It probably happened, and correct me if I’m wrong, and you’re on the ground with this as well, but my hunch is that this SMS and conversational commerce really took off in like mid 2020, like maybe early 2020. And that was really when we were in the weeds with having the company acquired and so on. So we kind of missed that wave of interest in SMS. But now we know, like Gorgias even, how huge of an opportunity that is for merchants. And we do have integrations with SMS solutions. attentive, for example, that plugged right into Gorgias, and so you can actually view and engage with your customers and have that whole conversation history right out of the support dashboard, right under support or right out of the agent console for your brand.
Guillaume: You’re right, also there’s COVID factor in there, statistics shows that in the first three months of COVID, in March 2020, there was 10 years of industry progress in three months.
Guillaume: A lot happened there and for a lot of businesses, it was do or die. There are stores that were closed by law, by governments and everybody shifted to e-commerce, everybody stepping up their game. SMS was already sort of there but it got accelerated and now it’s everywhere. It should be part of every strategy.
Michael: I agree 100% and we missed it. It’s too bad. Actually, I wish we had SMS set up with our brand before we were acquired, but for those merchants that have it as part of their growth strategy, kudos to them, because it’s almost a prerequisite to growth at this point.
Guillaume: Would that have changed anything for you, perhaps like company valuation or did you have an earn out or something like that?
Michael: It might have, jeez, if we had tacked on an additional growth channel, in those final stages of the company it may have, but no, I don’t think in any meaningful way. But certainly, it would have made an impact on our growth, no doubt, adding an additional channel 100%.
Guillaume: We could come back to the structure of the deal of the exit, but is there anything else that you have top of mind, or any other stories or things you’d like to share about improving customer support and customer experience?
Michael: I think for us, one of the things, and this is something that I learned as I built the business. It may seem obvious in hindsight, but it’s the importance of asking your customers what they want, and talking to them on a frequent basis. It’s almost like, it has to be part of your monthly to do list, talking to your customers, asking them what you can do to improve measuring your net promoter score, doing things to improve the overall customer experience in meaningful ways that the customer is asking for. This is so important in 2021, because it’s so competitive in e-commerce and if you’re not listening to your customers, frankly, you could spend a lot of money doing something that they don’t need.
Guillaume: That’s right, and it’s a very high frequency monthly. Which tactics were you putting in an application for this to happen? I heard net promoter scores or you’re sending out a survey?
Michael: Yeah, we did qualitative and quantitative surveying while we were developing the product and the first iteration of our sites, but what I learned that we didn’t do, and this is what I would do differently as a merchant on my second go around, would be to do that qualitative and quantitative focus groups and surveying on a more consistent, frequent basis, if it’s monthly or quarterly, I don’t care. It has to happen more often than an annual survey that you send out to your customers, it has to happen at least once a month.
Guillaume: Was that part of your choices of, let’s say, having three skews? Because this is rare, three skews and was there demand for more from an operational point of view, the fewer product the happier?
Michael: It’s interesting you asked that question. We did this deliberately, we wanted to create an experience that was very simple. From the very beginning, during the purchasing experience, we wanted the purchasing experience to happen within like two to three clicks, we didn’t want a whole lot of browsing or decision-making paralysis to happen during the shopping experience. We wanted to engineer the site in a way that made it super simple and accessible, and delivered an outcome to the user to the buyer within three clicks and we achieved that with having only three skews. There was very little buyer’s paralysis. If there was an interest in the product, it was a quick path to the checkout. I don’t think we would have added more skews even if our customers asked for them, frankly.
Guillaume: It is very interesting, because you have a successful business there, you exited and this is the fewest skew that I’ve seen.
Guillaume: Which is a good thing, you only add more skew because typically you do your math, like how many sales per month can I get out of this skew? And then see if I want to generate x revenue, I need that many skews because each product will just generate a few 100 or a few 1000 a month, typically. That’s why you need a lot of skews or because they customers want the offer and the selection and whatnot.
Michael: Yeah, we engineered the experience to resemble something like Dollar Shave Club. If you’re familiar with Dollar Shave Club, they only had 3 skews a couple of years ago. They had like, the basic offering, let’s call it medium or mid-market offering, and then they had like a premium option. We sort of reverse engineered that experience in a way that only have those three skews. And it also allowed for our customers to switch in between the skews on a monthly basis, as I explained earlier, in that subscription dashboard, that subscription management experience. If we had 100 skews, not only would that put a tremendous amount of pressure operational on us operationally, but it would also add complexity to that post purchase subscription management experience that we just didn’t want to add for the customer. It was like, keep it simple, three skews and that’s the promise that we made to our customers.
Guillaume: Is there any other website we’re looking at as an inspirational example about a successful subscription business?
Michael: Yeah, there were a few, one that comes to mind would be Blue Bottle Coffee out of the United States. You may be familiar, they’re sort of the 800-pound gorilla in subscription coffee, especially subscription specialty coffee. They had a very limited skew selection. I think at the time, it was between three and five skews that they had available on their site and they were branded, medium dark, and maybe a specialty rose. That was how they presented their offering and it was something that we were keen to achieve as well. There are some consumable beard products. There are also some consumable oral care, like toothbrushes and so on, that have a very limited number of skews through the subscription. Consumable hair products also have a limited number of skews. I can’t think of the brands top of mind but those are some sort of categories where some brands have achieved success by actually offering a limited number of skews and not over complicating the skew count. If I can think of some I’ll send them to you.
Guillaume: Okay, and I’m curious to hear, you mentioned Blue Bottle being the 800-pound gorilla in the room. How did you compete with these guys online, was it like a me too offering and you hope they pick you or did you have something specific?
Michael: Well, we were nicely insulated in Canada, because Blue Bottle wasn’t actually able to enter into Canada in a meaningful way through subscription e-commerce. There was like a defensible border, so to speak. We captured market share in Canada, and basically held that market share simply by virtue of the fact that we were insulated by that border, there was very little pressure north of the border into Canada, it would be very different and it would require an entirely different strategy to go to market in the United States. It very likely would be a sort of me too offering. But in Canada, as I said, we were fortunate that we were sort of one of the only players in town, and we were able to take advantage of that.
Guillaume: All right, congratulations on this. Do you have any tips, advice or life story to share with any entrepreneur who wants to start a new e-commerce store?
Michael: Very good question. The first thing I would say is choose your team very carefully.
Make sure to build a team where your co-founders have competencies that you don’t have and they’re committed equally to the success of the business. This is hugely important for a startup and an up and coming brand. Choose those co-founders very carefully, we were fortunate that we had co-founders that did have unique competencies that we were able to build the brand through. That will be number one.
Number two, and I would circle back to my earlier point. Talk to your customers all the time, talk to your customers, get on the phone with them, call them, email them, do focus groups, ask them what they want, build a Slack channel, invite them into your Slack channel, ask them what they’re looking for. This is the fastest way to add rocket fuel to your brand, it’s simply by keeping your ear on the ground, and constantly asking how can we improve and what can we build for you? This was huge for us. Finally, and I guess this is in some way, a shameless plug for Gorgias but I’m going to say it anyway, is look at support as a critical layer of your growth stack. Look at the post-purchase and even pre-purchase experience and the engagement with your customer along the entire lifecycle as a critical layer of your growth stack. Because if you pour money into performance marketing, and you spend all kinds of resources building out your email strategy, and you even have an SMS and a loyalty layer on top of that, and you don’t have that fundamental engagement layer sorted out, you’re leaving money on the table.
Guillaume: Was there any kind of major operational hurdle that you face? Perhaps product sourcing or anything else?
Michael: Oh, yeah. That’s a great question. We decided in 2018 or 2019, that it was important for us to do a full overhaul of our packaging and we hooked up with an agency in Hamburg, Germany because of course, we couldn’t find an agency in Canada or maybe somewhere cheaper.
Guillaume: Those are some of the most expensive designers in the world.
Michael: We decided that it was worth our while to work with this agency, and they built us, frankly, one of the most spectacular bag designs that was available on the market and it won an award in the Dieline, which is a world class design and product development magazine. Anyway, we hooked up at this agency, they built us this beautiful brand, and they built us this beautiful packaging. It actually resembled a parachute bag and it had a functioning ripcord. The bag would actually open with the ripcord and it was actually originally intended to have straps on the coffee bag and it was beautiful, it was stunning. When we went to go have it produced, you can imagine how much it costs. This was something that when we actually found out what the price tag was, for the final product, we realized that number one, to have this thing produced for an actual reasonable amount of money, the minimum order quantity on that would be in the hundreds of thousands of units. So that was certainly off the table for a brand of our size. And number two, we certainly couldn’t have it produced anywhere in Canada, it would have to be outsourced to China or elsewhere, somewhere with that type of offering. For those two reasons, we ended up having to, over time, remove some of the fundamental elements of this beautifully designed package until it basically it just became a bag.
Michael: Which is an interesting and expensive experience, and probably a mistake that we wouldn’t make again. But going through the packaging design was very challenging, and complex, operational initiative that we undertook, as a small team, and kudos to our team for actually succeeding and getting it to the finish line, even though it was very expensive but worthwhile nonetheless.
Guillaume: How many were you when you started this project?
Michael: There were two of us and over time, there were ebbs and flows. At one point, the team was between 8 and 10. Not a huge team, we were small but mighty operational and kudos to them.
Guillaume: Because you’re a subscription based, you have so few skews, you don’t need a lot of customer service, you automate most of the answers for questions, and so on. The number of employees that you have does not in any way represent the business volumes that this business can generate. It’s a truly scalable business.
Guillaume: Maybe if we can just wrap up with this, any tips about the exit phase of this deal? And what kind of deal did you take, was it like a share sales, was it anything else?
Michael: What I can tell you is that how we managed to sell the business, we went through two different phases. The first phase was trying to do it ourselves and that was an uphill battle. Because it requires a lot more than you expect to sell a business a lot. When I talk about a lot more, what I mean is, there are there are legal complexities, there are financial complexities, and there are simply better resourced groups that can help you do that available, if you look. When we realized that we couldn’t do it on our own, we found a broker and that was the best decision that we ever could have made. Because this broker basically took what was a very sort of novice effort, and puts a structural rocket onto the back of it. We managed to get it over the finish line. It’s simply a matter of having the network and the buyer portfolio available, these brokers do. All it took really was one email into their buyer list, and we had 100 different parties that were interested in seeing the deck. It is expensive to hire a broker, I’m not going to claim that it was the cheapest option. But in hindsight, definitely worth it for a brand of our size. It may be different for larger brands, of course but in our particular case, having a broker support us through that journey was the best thing that we could have done.
Guillaume: What about the structure of the deal, you can say as much or as little as you want, are you happy with the structure of the deal that you have? Was that a typical multiplier or something else for the valuation?
Michael: That’s interesting. What I can tell you is that in our particular case, we were still very early and it wasn’t a particularly profitable operation. We were on a path to profitability, and that’s what made it an interesting acquisition. What was acquired was the brand really, and the growth systems that we had established. What I can say is that with a little bit more capital, the acquirers were confident that they could take what we had already built, we had sort of built the engine, and all it needed was a little bit more fuel. That was sort of why the suitors acquired us, to put fuel into the rocket and take it to the next level.
Guillaume: Which is classic from a VC approach or for that kind of investment approach. Profitability is not necessarily always the way that it’s acquired, could be a strategic decision or like you say, they see that every piece is in place, all you need is more capital. Let’s blow this up with the acquisition and now it’s time to scale up because all the foundation is in place.
Michael, thank you for being here today. It was a great session.
Michael: Yeah, I hope it was and thanks for having me. It’s a pleasure to be here and be on this podcast. It’s a bit of an honor, I have to say.
Guillaume: Thank you