This is the fifth article in ShelfTrend's Entrepreneur Series contributed by our Entrepreneur of the Moment, Heather Potter.
When I started designing shoes, I never expected to end up barking down a phone line at a shady figure, threatening to turn up with a police escort if he didn't hand over my goods. But a lot can happen in business...
It was at the peak of one of the biggest debacles of my business experience – when I tried to scale up too soon and it all came crashing down around my ears. More on that later.
If you’re joining us for the first time fresh, I’m Heather and I started my own online store, Shoe Envy, after being teased by friends and family about my epic shoe collection. Six weeks later I was in China. And just over six months later, I had set up a full supply chain and was designing, manufacturing, importing and selling my own shoe label online.
At its peak, Shoe Envy was turning over in excess of $20,000 a month from my lounge room while I upheld my regular day job. I’m here to tell you, I’m not special. The only difference between me and anyone else is I’m willing to give anything a crack. Most things, once you get into them, are really not that hard.
I am working with ShelfTrend on this Entrepreneur Series because there is opportunity out there to sell online and to make a good go of it. If I can do it, so can you. This is literally the end of the series, but go back to the first article and follow along – I’m sure you’ll learn a thing or two from my crazy journey!
If there is ever a time in the life of your business to really take a deep breath, step back and do things the smart way, scaling up is it. You may have come this far with a “Just do it” and “Fail fast” attitude but once you start doing things at scale, your decisions – and the implications of those decisions – also happen at scale. Which means a bad decision can cost you enough money to sink your operation completely.
When people talk to me about scaling up, they generally tell me it’s because they want to make more money – of course it is. But before you get to the growing income bit, scaling up usually costs you more money because almost inevitably, you’re going to start paying someone else to do some of the things you’re doing now. This means getting the timing right is absolutely critical.
Importantly, you shouldn’t scale up because you want to make more sales. You should scale up because you’re already making more sales and your current processes are inadequate to manage the volume.
But when that moment comes, you need to be ready to make the transition, so that means planning ahead, preparing your processes and making smart decisions that take some of the risk out of scaling up.
Here are my top three tips for scaling up the smart way (and yes, I’ll come back to that drug cartel guy further down…)
1. White-label as a transition tool
One of the most obvious hurdles to overcome when scaling your business is the need to bring down your unit costs. Cutting out the middle man and manufacturing your own products is a great way to manage costs in your supply chain. It also makes your products stand out because they are unique to your business, giving you more power to control your price point. But it’s a huge step and brings with it a whole new level of risk and expense.
One way to ease towards it is white labeling. When I started my own shoe label, I had dreams of being a designer and producing my own fully customized products – but it just wasn’t practical at the start-up stage. The Minimum Order Quantities (MOQs) were too high, which pushed my minimum order costs through the roof. I couldn’t afford it. So I did the smart thing and white labeled.
I curated a range from existing designs I loved and had them manufactured with my logo. This made the process affordable and gave me experience at designing a range using the expertise of established designers with knowledge of what was likely to sell. It also meant that when I did finally design my own fully customized range, I had learnings about what materials and styles were popular with my audience and I was able to make good commercial decisions that resonated with my tribe.
If you’re starting from scratch and don’t have any sales or survey data from your own customers, ShelfTrend can provide insights gleaned from the buying behavior of millions of shoppers, so you don’t need to fly blind. Have a look through the Top 500 report and scan the 50 top ranked products to see what has received the most buyer interest. Niche down into your space to identify best-sellers. This greatly reduces the risk when you finally commit to that big order.
2. Too big, too soon
Have you ever impulse-bought something really expensive and immediately regretted it but you couldn’t return it because it was on clearance?
That’s exactly how it feels to scale up too early because once you commit to it, it’s hard to reverse out of that decision. Believe me, I know because one of the biggest mistakes I ever made in my business was trying to scale up too early.
I knew I would never be able to compete with the big guys on price, so I decided to differentiate on service and give one heck of a “box experience” that would blow my customers’ minds when they received their package in the mail. My boxes were bright green so to help them make an instant statement on arrival, they were shrink-wrapped in clear plastic for delivery – time-consuming but awesome. We also inserted personalized items into the package, such as hand-written notes and small gifts. This made customers feel connected to the brand and built strong loyalty.
We didn’t have the volume to justify outsourcing yet but my business partner grew tired of packing boxes. He made a case that we would sell more if we outsourced the grunt work and he invested all his time in marketing. And so we embarked on a quest that became the single biggest debacle of the Shoe Envy journey.
Shifting to a pick-and-pack warehouse too soon caused several issues:
We lost our point of difference. All the personalized elements that went into our “box experience” came at an extra charge and chewed up our profit margin. Hand-written notes were out of the question – Bob, from the warehouse, wasn’t willing to write cute greetings to our customers. We had to reconsider our entire process and overnight, our point of difference evaporated.
We had no control. Previously, customer service was on point because we knew all our styles by name and had a strong quality control process. Suddenly customers were receiving the wrong shoes, wrong sizes, exchanges were taking longer and customers were getting frustrated as the quality of service fell off a cliff.
The price kept creeping up. We’d already lost a lot of our profit margin by outsourcing, but once the warehouse had all our product, they also had all the power. They gradually put the prices up. We’d negotiate one component down and the price would go up somewhere else. It was like playing a losing game of whack-a-mole.
They tried to take advantage. When I finally told them I’d had enough and was pulling my stock out of their warehouse due to poor performance and rising costs, they hit me with a $15,000 “exit fee”. I refused to pay it, since it wasn’t in the terms of my contract. We had a telephone stand-off in which I mentioned I would be turning up with a truck and a police escort. The transformation in the conversation was electric. The back down was a thing of beauty. I got my stuff back without further incident.
My key take-outs are, if you’re considering outsourcing your warehousing and fulfilment:
Get references. Always meet your warehouse team, thoroughly inspect their operation, interview current and previous clients before committing and tap your network for information. Once they have your entire stock, they effectively own your business and you lose all your power. Getting it back can be expensive.
Location, location location. If you are able, choose a warehouse you can physically visit whenever you want. Proximity assists with accountability.
Get it in writing. Ensure the full details of every aspect of what the warehouse is responsible for and what it will cost are fully documented in your contract. Anything you don’t include up-front will cost extra and will come at a premium once you’re already locked in.
If you can do it yourself, DO IT YOURSELF. Committing to a pick and pack warehouse is something you should only do when you have genuinely outgrown the capacity of your current space and human resources. Doesn’t fit in your garage? Rent a storage unit – they are thoroughly geared up to support small businesses. Don’t have time to pack yourself? Hire someone. There are plenty of local stay-at-home mums and dads who would love some flexible work during school hours, or students looking for an after school job and if you find the right person, they can be amazing – and a LOT cheaper than a fully serviced warehouse.
3. Get your house in order
One of the biggest failures small businesses have is clean, well-documented processes that can run smoothly in your absence. Mostly, the processes look something like:
Helper: “How do I do the thing?”
You: “It’s written on the scrap of paper stuck to the back of the beer fridge in the garage.”
Helper: “I looked at that but it doesn’t make any sense.”
You: “No, it wouldn’t. It’s three years old. We don’t do it that way anymore.”
Bad processes will cost you money and hold your business back. And when you scale up, bad process problems will just expand and become bigger bad process problems.
At one point, my business partner identified an issue with the exchange process. The warehouse was refusing to quality-check exchanged and returned shoes and return them into stock on the basis that their team couldn’t determine on our behalf if the shoes had been worn. Consequently, returned shoes were gradually piling up in a corner.
This led to a domino effect of problems:
The computer didn’t know the shoes hadn’t been returned to the shelves and continued returning them to stock on the website once they were marked “returned”, even though they weren’t technically available because they were sitting in a stockpile in the corner.
This created another problem – Customers kept buying the stockpiled shoes and started getting angry because the style they’d bought and paid for was technically out of stock.
Which created yet another problem – I had thousands of dollars worth of stock out of circulation and losing fashion currency as it sat uselessly on the floor, unable to be sold.
One small process failure with returns at the beginning ended up costing me thousands and thousands of dollars. If you think you’re ready to scale up, I always say be bold and go for it but ask yourself this first: Can a monkey with a crayon follow your process manual?
One small process failure with returns at the beginning ended up costing me thousands and thousands of dollars. If you think you’re ready to scale up, I always say be bold and go for it but ask yourself this first: Can a monkey with a crayon follow your process manual? If not, then you’re not ready yet.
This is the final chapter in ShelfTrend’s Entrepreneur series. Thank you so much for joining us. The road to building an online brand and store is marked with blood, sweat and tears but anything worth pursuing always is.
Looking back on my journey, I’m actually gutted that I didn’t know about ShelfTrend’s amazing live data when I was running my business. It would have laid a really solid foundation for my business and saved me from so many expensive and time-consuming mistakes. Who knows – it could have paved the way to faster and more sustained success as an online business? But hey, at least I have some good stories to tell!
Now get on out there and have a good go. The ecommerce world is there for the taking and it’s waiting for you!
Heather Potter
Heather is a journalist-turned-Public Relations extrordinaire to digital communications specialist. Having worked around the world for big brands in the commercial and NGO sectors, she decided to try her hand at building her own ecommerce business - and it worked! Although she had to close Shoe Envy for family reasons, she remains passionate about ecommerce and small business, especially enabling others with the same entrepreneurial spirit toward online success with engaging content and communications. Find her at Chilli Dog Consulting - she'd love to have a chat.
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