Friday, June 15, 2012

E-Commerce for Dummies Part 1 Q&A

Did you miss me last week? No, I did not fall to the zombie apocalypse. I was busy answering student questions about my “E-Commerce for Dummies” e-lecture. Justice demands that I milk that work for my next few posts. Regular readers will notice that I’m covering a lot of old ground, but perhaps from a different perspective.

Here are the student questions and my answers from Part 1

Q: The utilization of dropshippers seemed to hinder a start up's will to carry what they want, their quality control, and all of their revenue. Toward's the end of your discussion, on how investing several thousands of dollars and your own personal space is much more plausible and efficient then using dropshippers, you mentioned your "strategies for kicking it out". Could you expand on those strategies, and what exactly you mean by kicking it out? Are you referring to the hopes of producing so much inventory that eventually you would have to find warehouse space?
A: The short answer is that there are physical limits to how much inventory I can store and how many orders I can process and ship. At some point, it will outgrow my house. The seasonal nature of retail means that I only approach my limits about eight weeks out of the year, making it hard to justify the expense of outsourcing fulfillment during the 44 slow weeks. My posts “Kicking It Out” and “The Zombie Store” go into a lot more detail, but I’ve grappled with this is a topic many times over the years. 

Q: You have mentioned that rent, loan, payments and payroll consume all the revenue in brick-and-mortar stores. It is true that brick-and-mortar stores don't make money compared to online business. Could you please tell me that what were the challenges you faced in the initial stages of your online business and in how many years did you break-even and how did you manage to do it?
A: You might have noticed that most online shops are very specialized, and there’s a reason for that: It’s easier to market a specific product or category to a narrow audience. As a matter of fact, one of the possible futures for Kraken Enterprises that I ultimately rejected (Tentacles of the Kraken) involved setting up a series of highly specialized stores, rather than one general store. But I wanted Curio City to be a general-interest shop, so figuring out who my customers are and what they’ll buy was a huge challenge. My wife had one idea (“nice things”) and I had a different idea (“high-end toys for adults”.) Neither of those individual approaches ever really found an audience and trying to mash them up didn’t work at all. After years of trial and error I figured out that the ideal Curio City product has some of the following characteristics: Unusual or clever, useful, easy to understand, fun or funny, modestly priced, good quality, lightweight, and easy to ship. Panther Visionlighted caps meet all of those criteria to some degree…and it’s no coincidence that they’ve been my #1 product for years.

I opened for business in October 2005 and my first profitable year was 2007. Homing in on successful products and mastering Google AdWords, while controlling expenses carefully, was what tipped the balance. 
One specific challenge that comes to mind was finding an affordable, reliable web developer who would implement and customize my shopping cart, and who would be available on short notice for troubleshooting when I needed him. After I finally found such a person, he quit after two years, and I had to start that search all over again. 

Finding a reliable web host was harder than you might think, too. Curio City is currently on its fourth host. Fortunately this one (MDD Hosting) is awesome. The earlier ones? Not so much.

Q: This may be a really basic question, but I have experience only in the non-profit world, so I don't know a whole lot about the nuts and bolts of a small business.

How do you find suppliers, both ones that drop-ship and ones that don't? Do you just decide what you want to sell, and Google "[widget] manufacturers?" How does the pricing work? Do you get to negotiate prices with them, or do they set firm prices? How do you find out about new products?
A: Initially, I just googled “gift wholesalers” and some related terms. Since 90% of everything is crap, that involved a LOT of shopping. Almost all of those early products were duds, but a few are still with me today (you can tell them by their low SKU numbers). Bird kites (the Canada Goose is SKU 1) gradually developed into one of my top lines. I’ve sold nearly 1,000 Mini Briefcases  (SKU 16, the only survivor of a larger selection of business card holders). Basically, I started with a wide array of product types aimed at the demographic that I thought would become my customer, then looked for things that were similar to the most successful ones. 

Pricing is fixed unless you’re a very large customer. When trying new products, I generally order the minimum six or eight or 12 pieces. Before deciding to carry it, I check to see how many other stores are carrying it and whether it’s selling for “full price” (meaning double its cost). If there’s a ton of competition and they’re discounting, I’ll pass. 

Two of my best products – Panther Vision caps and Whisky Stones – were recommended to me by friends. Not being much of a consumer myself, I pay attention to what my online friends are interested in.

Every spring I endure the Boston Gift Show, or Cavalcade of Crap, where I sift through the tons of mass-market kitsch that fill your typical tourist gift shop. Novelty golf balls and Switchables night lights both came from the Gift Show. So did Pursehooks, which were a huge seller for about a year. 

Sometimes I find decent stuff in trade publications like Web Wholesaler. That’s where keyboard stickers came from. 

Of course, once you have some history with particular vendors, you can simply browse their new catalogs twice a year. 

The world is awash in merchandise. Affording it is a much bigger challenge than finding it.
Q: After reading your first lecture I decided to do some further exploration of your website to get a better understanding of your inventory. Being such a non-specific e-tailer how do you choose the products you list? Do you research online retail trends for "gift" type items in order to see what consumers are purchasing or are your inventory decisions more based on profit margin and supply availability. Being so non-specific must lead to a lot of risk in bringing in inventory that you are not certain will sell. I imagine this is another reason why maintaining your own inventory is the most feasible option rather than relying on drop shippers.

A: I just look for products that fit Curio City’s profile of being useful, reasonably priced, high quality, good value, and (above all) unusual and/or fun, and if the pricing measures up I order the minimum allowable quantity to test it. What gets it in the door, though, is my hunch that I can sell six or eight or a dozen of them. 

After you get some experience and history, new products become a better gamble. But the truism that 80% of your sales come from 20% of your products always seems to hold up, so even though I’m always trying to zero in on the magic 20%, I know that most of my bets will dribble out slowly, never to be reordered, and I’ll have to mark many of them down to cost (or even lower) just to liberate the inventory dollars.

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