AS 74: How Steve went from Janitor to selling 750 Million on e-Commerce, Box, and Amazon
18 Nov 2016
Steve Simonson came on the show today and revealed dozens of golden nuggets. He is a serial entrepreneur (e.g. last real job was as at the age of 18) & has built a few businesses from zero to 50 Million +. Over the years Steve’s ventures have generated over 250 Million in consumer sales & 500 Million + in B2B sales.
This is definitely one of my favorite amazon podcasts interviews thus far.
In this episode you’ll learn:
- How to sell private label on Amazon
- How Steve grew his brands from zero to millions
- Dozens of golden nuggets in this action packed interview
- Steve’s insights into e-commerce
- White labeling strategies
- Big insights on scaling from 0-2million, 2million to 5 million, 5 million to 10 million and beyond
- The types of products Steve sells
- What products to sell on Amazon
- What products sell better on Amazon
- Why margin is the key to success
- Mistakes Steve made
- How he prepares for Amazon 4th quarter
- How he packages his products
And lots more!
DAVID ALADDIN: Great to have you on the show, Steve!
STEVE SIMONSON: My pleasure, glad to be here! Thank you!
DAVID ALADDIN: So, can you take us to the beginning? Before your first million, where did it begin?
STEVE SIMONSON: Sure! Well, I can tell you that… I went to college…I won’t bore you with that long story. But I went to college I dropped down after one semester. I was working as a janitor, and I was too poor to continue on frankly. And I didn’t really like it, if you want to know the truth. I thought college was annoying, and I thought it was cumbersome and I was making 3 bucks an hour working in the middle of the night.
You know, once I kind of got my first taste of business with a partnership there that kind of expanded into becoming a partner in another line of business that we had, and we expanded from, you know, kind of janitorial to carpet cleaning, into insurance restoration work. And over time we kept learning pieces of the puzzle, of how you run a business, how you hire people, how you grow, how you sell, how you market. And all of those lessons were learned the hard way in my opinion.
We generally made mistakes, we generally, you know, hit problems that were, you know, catastrophic like how do we make payroll, or how do we, you know, get this customer to be happy when we’ve really messed up in a huge way. So we learned lessons in a very old school way, which is just by doing it. And so, from there I ended up getting into some showroom businesses where we had home improvement products, window treatments, floor coverings, counters tops, things like that. And that was kind of an off shoot of the insurance restoration business and the construction businesses and at that time, and so it was out of stock, so, we e-mail the customer: hey, sorry, it’s a couple weeks delayed.
And the moment the rug came in, I sent out my best person, I said: Kathy, run down there and get that rug off to Bulgaria, and then we are going to toast again that we are international business people, this is a Friday. And so, she runs it down, we send it off, and the very next day we get a credit card notice of, you know, fraud.
DAVID ALADDIN: Oh, Jesus!
STEVE SIMONSON: Our first, very first sale, was fraudulent. And that was the first lesson we learned about the internet converse.
DAVID ALADDIN: Wow!
STEVE SIMONSON: So, can you believe that? It’s a credit card fraud, the very first one!
DAVID ALADDIN: It’s impressive!
STEVE SIMONSON: Yeah! So, not deterred because I learned very slowly. I was still excited and we continued on. And in February of 1999 we launched our first free shipping sale. Now, we… At the time we were shipping very heavy products. The average shipping weighed a 1000pounds, maybe 2000pounds, still keep up with the orders. Our suppliers were running out of stock. I mean everything just… It just was a catastrophe, honestly. But I have to say, a really excited catastrophe, because we sold I think in that time period somewhere around $60.000 or $70.000 worth of product in a two week time period. And we were so excited! I mean, you can imagine after just a few months hitting $70.000 in a couple weeks, a?
DAVID ALADDIN: Yeah! Was that you said was on the Amazon or was that just on your e-commerce site?
STEVE SIMONSON: No, that was on our own e-commerce site. At that time Amazon did not have a market place. So, after taking you know, the phone number often understanding some of the things, we really doubled down. We hired programmers and we hired people to kind of make our own e-commerce platform. At that time there was no simple shortcuts like there are today. And you know, we can talk later about platforms and fun tools that exist today, that didn’t exist then. So, we had to do it the hard way. And you know, I used that story in February ’99 about us melting down to say how our mind got forged and steal really about how you have to be a systemic operation.
If anybody who’s never read the book The e-myth or the e-myth revisited, I highly recommend it, by Michael Gerber. It’s a very, you know, good book that tell us you to think about process, think about systems, and those are really the key to scale and ultimately then to finding good people to run those systems. And later, you know, I’ll flash forward for another, you know, another several years. We are able to put together a big promotion, a big day, and the company grown substantially till then. And it that single day we were able to do… Well, the goal was we said we are going to do out first million dollar day.
And I’ll tell you, to be honest with you, my leadership team didn’t really believe me. And I can tell when I put my stamp on it in the beginning of the year, I said we are going to do a million dollar day this year. We have done, you know, half-million dollar days and you know, 6, probably 700.000 dollar days, but we’d never crossed that million dollars day threshold. And I said this is our year, we are going to do it this year. By the way, there’s no practical difference in a million dollar day versus a 900.000 dollar day, or you know, whatever. It’s just a fun milestone.
So, we said that we are going to do it this day. But I can tell my leadership capabilities were not that awesome. And so my team, my key guys, they were not giving me the, you know, we are all in, we really believe this is going to happen. So, I made everybody go to the white board and at least put their name on it, or what they thought they were going to do, or what they thought team together was going to do. And I think maybe the marketing guy, or maybe the sales guy, they put like 1 million and seven of the other 9 guys were like no, 600.000, 800.000, 700.000, nobody believed in it. And that’s, to be honest with you, that’s a failure in leadership on my part. I didn’t rally them enough; I didn’t give them enough background.
But to cut a long story short, on that day I forgotten that I had a vacation plan with my family, so I was sitting in Mexico, on my blackberry at that time, for those who can think back that far, and we ended up doing 1.7 million dollars on that day. So, we were able, you know… The team did their jobs and everybody did what they were supposed to do and produced extraordinary results. And I use that to contrast the difference in systems. Nothing melted down, nothing broke. We were able to just kind of steady on, business as usual.
It was certainly brisk, and everybody felt excited. You know, that’s the time you can cut the electricity with a knife. But that’s the difference between, you know, kind of the old days before-systems and then the after-systems. And then ultimately I sold that business and you know, I’ve carried on to other businesses as well.
DAVID ALADDIN: Wow!
STEVE SIMONSON: Yeah! So today, just to kind of tie a ball around this for you, you know, the last few years we’ve… Myself, my partners in some of my businesses, we focused on, you know, kind of large scale things and things like that. But I’ve gotten this real affinity to Amazon, especially what I call Amazon Cornerstone Entrepreneurs. These are folks who have this very unique opportunity to build a business on Amazon as a cornerstone. In my view it can be your last piece of your foundation. But do it in a very unique way with so many beautiful advantages and really cool abilities to scale, and so on. And for the last couple of years I’ve been following it and you know, joining masterminds, and joining events, and so on.
And I’ve just had a ball with entrepreneurs who are, you know, kind of making it their own way. And so I love to help entrepreneurs. It’s a key thing to me that there are more entrepreneurs. I believe the World inherently needs more entrepreneurs. And whatever I can do to kind of, you know, help those guys along the way, that’s my mission.
DAVID ALADDIN: I feel like it’s become more trendy now to be an entrepreneur, like everybody wants to be one. Not everyone is doing well at it, but you know… There are people like you that are helping people guide the difficult road ahead, so…
STEVE SIMONSON: Yeah, I definitely think it’s cool that people are thinking: hey, being an entrepreneur, that’s a good thing. The context and the connotation has changed from you know, kind of sleazy salesman, that’s what people used to think about a business guy, into an innovator and somebody who’s doing something fun and interesting. And I hope that progression continues. Because I truly believe entrepreneurs solve problems. They don’t make problems, they solve problems.
DAVID ALADDIN: So, when you first started e-commerce, how much money did you start off with?
STEVE SIMONSON: You know, less that a 1.000 bucks, I am sure.
DAVID ALADDIN: At one point you turned it over into a million in one day. I’m guessing that was during the holidays?
STEVE SIMONSON: It was…yeah…during… The primetime for that particular business was Veterans Day which is in November, so yes, it was a queue for run and… But just to carry one, we later prepared another big event day and we did over 2 million dollars, and that was in February, so, no holiday there. But I share those to say a couple things. One is there’s a time where I was sitting with my COO in Florida, and we were stuck at 5 million dollars a year in business. And we couldn’t figure out how to get higher than that. Our growth had stalled, it wasn’t as fun, everything seemed to be problematic. And by the way, this also happen to us at about a million dollars. So, we’ve got 0 do million, we struggled there a bit, and then at that 5 we struggled a bit. And then only time we were able to kind of figure out how do you jump from you know, 0 do 2 I think is a very tough journey, 0 to 2 million dollars in annual revenue. And then I think 2 to 5 is a separate journey, unique in its own, and then 5 to 10, and 10+.
All of those kind of…your game and your dials have to change, and how you play. And it took us a while to figure that out, but here were times where we were like I don’t think we can do more that 5 million bucks in a year, and we looked at each other and said I don’t how we are going to do it. And later, by expanding our horizons and meeting with people who had done…you know, been there, done that, it really helped us go: oh, well, if this ding-don can do it, then surely I can do it! And that’s me! I am your ding-don! If I can do it, believe me, other guys can do it!
DAVID ALADDIN: Let’s go into details. From 0 to 2 million, let’s say I’m getting capped at 2 million, I don’t know how to get pass that. What happened with you, guys?
STEVE SIMONSON: Well… So, the first thing is a lot of times we get in our minds that things have to be a certain way. And it happens less I think with young entrepreneurs, but at least these days, because there’s…everything is changing so rapidly, and there’s access to more tools and resources. But, you know, just because everything’s been done a certain way, that doesn’t mean that’s the way you should continue to do it. So, you have to challenge yourself. If you are on a growth and everything’s going great, just keep doing what you are doing. But if find yourself stolen, than you got to challenge yourself, and say: alright, have I brought in a new product? Am I in the right channels, you know?
I personally, I love Amazon! I think it is a tremendous cornerstone and I think people should absolutely start there and get good and get smart there. But you can’t stop there! You have to continue to look for other channels. And it has align with your goals and your objectives. And I tell you, probably the biggest deal for me, was identifying what I call the personal WHY. You know, for me personally, what was I doing, why was I doing this. And a lot of guys don’t ever ask themselves that.
In the back of their head they are like: well, I am doing it because I need the put food on the table for my kids, and I, you know, want to have a business, and bla-bla-bla. But to me, the personal WHY goes beyond the…you know, the financial needs exclusively. Clearly that’s a part, nobody puts on their personal WHY that they want to be poor and struggle to make living and have their kids wonder if they are going to eat that night, right? That’s not… Nobody has that in their personal WHY.
So, your WHY to each individual should be about defining what’s going to make you happy and how you want to be remembered. And for young people especially, it’s difficult to say: well, I don’t know what I want on my tombstone when I’m dead. But I am telling everybody, this is a part of… you know, life is a journey and there’s an end point, there’s a termination point. And it’s really important for people to define what is going to make them happy and what’s going to make them feel fulfilled at the end of the life. And in all things, in business, or personal, if you start with the end and you engineer it back, things work best. And we were able to break through barriers once we got our WHY aligned with our business. And I’ll tell you, to me that’s one of the most powerful pivot points that I’ve had.
DAVID ALADDIN: While you were talking I was thinking of what’s my WHY. And literally when you said that, the first thing I thought was I just, you know, I want to make more money. But you know, I want to create a stable future, so that I can start inventing stuff that I’ve always wanted to invent, you know. That’s kind of like my WHY. What was your WHY?
STEVE SIMONSON: Well, it’s changed over the years to be honest. You know, part of my WHY, of course, and everybody’s component, is: hey, I need some financial security stability to where I don’t have to worry. And so that’s okay to be a component of a WHY. But it goes beyond that. And so mine started with: hey, I want to build a company and take it public. And so I put a company on a path just to say, you know, in whatever it is, 5 years, 6 years, whatever, we want to take this thing public.
So, went through a very rigorous campaign of building a being very aggressive about, you know, hiring people and you know, ultimately, once we hit around I think at that company we hit 50 million before we raise venture capital. And then we raised venture capital. And actually, at a certain point in that company, I burned down and I was like: I do not like this! I, in fact, hate this! And that helped redefined more my WHY about: oh, I actually don’t like having HR meetings for, you know, 2 weeks out of the year and dealing with this menucians and some of this bureaucracy that goes on with the corporation.
I do not like companies after they hit 50 million. I don’t want to be involved. And so, actually, I sold out and left that company. And so, my WHY is evolved over the time, you know. Today in a short way I can tell you that my WHY centers around being a world class dad, so my kids of an age, I don’t want to be gone all the time, I want to be there in their formative years and be a part of their lives, and that’s something I’ve got the freedom to do. And really, it’s a freedom lifestyle choice for me. I want to, you know, be able to hangout with my kids. And I really, ultimately, define it as being able to do whatever I want to do, whenever I want to do it, with whomever I want to do it, wherever I want to do it. And that to me is you know, the ultimate freedom. And it doesn’t matter… You know, money is important, you know, I am not going to go to the breadlines, but I am not focused on being a billionaire, couldn’t care less!
And so, I am, you know I am happy enough to just kind of drive down that road. But everybody’s journey is different. If you WHY is “I want to build an empire” your business objectives are different than “I want to live on the beach and have a laptop lifestyle business” you know, I just want to have a business that just kicks me cash. So, everybody’s kind of got to get through those journeys and figure out what makes them tick and what makes them ultimately happy.
I have to say, your own personal happiness… I know people may think it sounds selfish, but if you are happy, and you are fulfilled and satisfied with what you are doing, everybody around you will benefit in absolutely huge ways, it magnifies in a big way. So, figure out what makes you happy, what makes you feel a sense of fulfillment. And that can be ego-driven, right? Hey, I got to bunch of employees, I am really accomplished, you know, I got to a bunch of awards, right? All of that stuff can be important to people, that’s okay. But understand it, reconcile it, get comfortable with it, and then go for it and get it done.
DAVID ALADDIN: For the people listening to the podcast version, he is pointing… He has these ink 500 picture frames in the back. And there’s about three of them, I am guessing from previous companies he launched, but… By the way, I hate when I hit 50 million too, like I just want to sell that company right away!
STEVE SIMONSON: See? You know what I am talking about, yeah!
DAVID ALADDIN: I hate it! I hate it!
STEVE SIMONSON: Hey, let me tell you!
DAVID ALADDIN: Okay, so, I was actually looking to some of your stuff. You talk a lot about fourth quarter planning. Can you go into detail on how you prepare for fourth quarter?
STEVE SIMONSON: Sure, sure! So, first of all, the fourth quarter, especially for consumer driven businesses, is the money maker, right? Retailers, you know, the big guys, the big retailers, often realize that’s actually the one time of the year when they actually start to turn a profit. And so, when you think about fourth quarter planning, it doesn’t begin in the fourth quarter. It begins, you know… Some people started, you know, in a quarter 1. But certainly, by quarter 2 you should be planning your pipeline to the extent that your consumer product is sourcing from China. You should be on the ground, or at least have assets on the ground in China finding your product and finding what you want, and getting it… you know, and optimize in getting it really well researched, thinking about the marketing, the merchandising, placement, pricing, promotion, etc.
And then, by the summertime, I think you should have absolutely your quarter four product plan in place. You should be placing orders by July/August if at all possible. That stuff should start landing August/September/October. And then you should be in, you know, prime position to capitalize on that holiday serge.
DAVID ALADDIN: I actually placed my order… This was my first fourth quarter and I placed my order in July. And it just got into Amazon now, so that’s how crazy the delays can be with the manufacture side.
STEVE SIMONSON: Well, that’s it! And I tell you, cuddles to you for knowing that July is really when Christmas begins from an order standpoint. That’s the purchase order time. So, no doubt if you place your purchase order in July, then you must have done research and so forth in the, you know, Q1/Q2 for those products, yes?
DAVID ALADDIN: Yeah! I was trying to plan how many units I needed, how much I needed to spend on the fourth quarter, and… Honestly, we almost didn’t make that day, I had to air freight in, just because the ocean… It might even be smarter to place that order in June to get an ocean-free shipment and bring down the cost significantly.
STEVE SIMONSON: Certainly, it just depends on, you know, your manufacturing cycle, you know. We have some products that take, you know, sixty days through the cycle; we have some products that take fifteen days. And you know, I for example, will land containers in Seattle and in Shanghai to Seattle is two weeks, roughly fourteen to fifteen days on the water. So, if you’ve got a relatively tide production cycle and you have a tight logistics, you know, package then it’s easy enough to kind of bring that product. But, you know, getting it to the UK, or getting to other countries, takes a little longer.
It’s always about, you know, kind of planning far ahead, taking into consideration delays, customs holdups, any of those unforeseen little things. Because, you know, next week is… I think next week is Thanksgiving, I’ve been travelling, I didn’t pay attention, but I know that black Friday is coming soon, that’s what I know.
DAVID ALADDIN: Yeah! It’s right around the corner. I already see a lot of images popping up, people are doing lightening deals forty thousand and one lightening deal, or whatever. It’s incredible, you know, to see those kind of numbers just from one lightening deal. Okay. Well, that’s not incredible for you. You’ve got the million + days!
STEVE SIMONSON: You know, those are always incredible! You always have to have those components to make any big day.
DAVID ALADDIN: I want to talk about your products, let’s. Are going for higher-end premium products, or like the lower-end through?
STEVE SIMONSON: So we… You know, at the end of the day I’ll tell you, low-end doesn’t make profit. But we use low-end for you know the trade-up program, right? You bring somebody in, maybe in a lower-end product that’s less consideration, it’s more impulse buy. And if they like that, and they like the company, and then you get them on your list, then you can market them later. And are you familiar with the concept of, you know, kind of lost leader, or some people call it a trip-wire type of product?
DAVID ALADDIN: No. Oh, I think where you are going with the trip-wire. But yeah, what’s that about?
STEVE SIMONSON: Well, some people call it a lost leader, that’s what they called it in the old days; trip-wire is more of a new fancy digital term. But essentially it’s like hey, I want to get somebody on my email list, because I know the lifetime value that customer is going to be X dollars. And so, if I can get them on my list by, you know, giving them a inexpensive price, you know, maybe it’s free, maybe it’s a buck, maybe it’s five bucks, a lot of guys do free + shipping, and then over the course of time get them on my list to market more stuff to them and of course, delivering high-quality service products and so on.
Then my lifetime value that customer is going to be very meaningful to me. And you know, that’s the only placement that I use for lower-end products. In general, you need to have higher-end products with a very good margin to support aggressive marketing and topnotch customer service. Anybody who’s living on razor-thin margins, you going to find yourself struggling any time a customer has a problem, or they, you know, they want to return something.
There’s just, as humans, there’s a level of bitterness that shows up. Where if you are making money and there’s a lot of profit, then you are: hey, return it, I will refund it, we don’t care, we just want you to be happy. And profit margin is what gives you that freedom intellectually to, you know, take it from there, you know, to a positive outcome for the customer.
DAVID ALADDIN: I think you mentioned like five golden nuggets in just one sentence.
STEVE SIMONSON: I don’t know about that.
DAVID ALADDIN: Alright, so a topnotch customer support, plus a higher-end product means you got more profit coming in and you don’t have to worry about those razor-thin margins. A lot of sellers are actually…because they start off with less money, they have those lower-ends products to start off with. You’ve mentioned to be going to larger products, or not larger products, but larger premium products that produce a higher margin.
STEVE SIMONSON: At least the higher margin, right?
DAVID ALADDIN: Yeah…
STEVE SIMONSON: There’s plenty of things you can do that you can source for, you know, $2 to $5 in China, and sell for, you know, $25 to $50. But you have to really focus on, you know, again, all the details that make your product unique and interesting, high end packaging, and extraordinary customer service. So, you can make money at selling at a lower price point, although that’s going to always be more competitive and there’s going to be more people that kind of jump in there, because the barrier of entrance is lower. But if that’s where you got to start, no problem. You can get it done. I would just advice guys, especially those starting now, to think about the, you know, margins. This idea that you buy it for, you know, $2 and you sell it for, you know, $6, it’s not sustainable.
DAVID ALADDIN: This is crazy, right?
STEVE SIMONSON: Yeah!
DAVID ALADDIN: I think you’ve probably opened up a lot of people’s eyes here. And you are coming from decades of experience in doing this, so… And what you’re saying it makes sense. Like, it’s part of the plan I have set in place. And I think a lot of sellers are going to start reaching into the deeper high-end products that many sellers, when they first started, they can’t get into that product and that’s why you have a lot less competition, which could be a game-changer, I believe. So, how are you enticing people to get… You said you have these low-end products that you are getting people on your e-mail list. How have you build your e-mail list? Is it giving these products for free?
STEVE SIMONSON: Not necessarily, but certainly doesn’t exclude that. So, you know, we have different types of businesses. We don’t do things exclusively on one platform. And so, you know, for example: if we are selling stuff through a Big Box, we’ll have, you know, the little fliers, or the little inserts in the package of the product to try to help the customer come back, register for their warrant key, and so forth. So, it’s still good service for the Big Box customer. But over time, we want that customer to be loyal to our brand. And really, we don’t care if they order from the Big Box, or on our e-commerce, or Amazon, or you know, wherever. We just want them to stay, you know, brand loyal. And so, no matter how we get it, whether it’s through you know, them opting into a warranty process, or maybe they bought something else and we are re-engaging them to encourage them to buy something that we think will match up with their interest.
But it absolutely can be, you know, giving things away, you know, free plus shipping is not an uncommon concept. And you know, those types of customers you know, the guys who comes in and buys your $99 product, you know, sight unseen and without a headache, is a more valuable customer typically than the guy who, you know, starts out with a free plus shipping item.
But over time you can measure the lifetime value between different customer segments. And then you have to engage them or market them in different ways. And it takes time. But honestly, the number 1 thing that people should think about is how are you engaging your customers, assuming they are coming from Amazon, in a meaningful way, and to get them to be brand-loyal, and to get them to have relationship with you. You know, over time, I think that’s a very important thing for people to consider.
DAVID ALADDIN: Let’s talk about you packaging. I noticed, when I was looking at one of your videos, you talked about product packaging, that you send extra-packaging so you can take returns and re-package it as brand new. Can you go more into detail about that?
STEVE SIMONSON: Sure, sure! So, in certain product categories, you know, home and kitchen, and maybe consumer accessories, things like that, people will, you know, open the product, they’ll look at it, and they go: yeah, I don’t like it, or you know, it doesn’t fit my thing, or you know, whatever it is, it doesn’t really matter. But then they just… You know, with Amazon it’s like: ah, just throw it all in a box, you know, it’s all… the packaging is all ripped up, but the product has never been used, then return it. And so, our strategy is to, depending on the rate of return for the product, to have, you know, anywhere from, you know, 4%-10% extra-packaging made, we’ll keep that at the warehouse, and when we get the return, the product is inspected, made sure it’s still good quality and really is new, and then we slide a new box over it. And instead of having to throw that away, or dispose of it, or sell it as a you know, seconds, or you know, what have you used, we sell it as new. And it’s awesome. And it’s perfectly acceptable to the customers, because they got something new, and it was in a new box. So, it’s new.
DAVID ALADDIN: This was the first time I’ve heard of this strategy and I was like: wow, you can actually do that. You mentioned warehouse, what are doing in that regard?
STEVE SIMONSON: Well, at this moment we use all third-party warehouses. So, I… You know, at the point…you know, part of my wise, I don’t want to have so many employees and forklift leases, and this and that, that I have to deal with myself. So, I use third-party warehouses, but they range from the smaller, very custom guys, to the middle guys, maybe the regional guys that I need in the certain region of the country, or you know, depending on which country we are in, or they can be global guys.
And the fit for each person out there should be based on you know, kind of analysis what makes sense: is it the smaller custom guy who’s really capable of kind of pivoting and helping them in a customized way, or is it the global guys who’s more expensive, but can scale, you know, beyond your imagination. And once you kind of define, you know, do you need the you know, the size of the guys, you can define, you know, what’s best for you.
DAVID ALADDIN: I want to talk about brand and expanding the brand. I get a lot of wholesalers and retail companies approaching me, to sell products for my brand. And I’m sure you get a ton of them, because it looks like you’ve built a bunch of brand type businesses rather than wholesale businesses. How have you leveraged retailers contacting you and what do you do there?
STEVE SIMONSON: Well, we have a sales force that are outside sales agents that are dedicated to various, you know, Big Box companies, or regions, or what have you, depends on where in the world they are. But you know, we want to engage those people in a real and meaningful way. And I’ll tell you; this is a big key to margin. If you don’t have the margin in your product, when you try to go to a retailer and they are like: well, we need at least 50%-60%, plus we’re going to give all of these little I can them “deal-sweeteners”, like return allowance, and you know, warranty claims, and this, and that, you know, they’ll add another, you know, 5%-20% that they want on top of that, and they want to 50% margin, and the price can’t be any higher that the Amazon retail price, you realize: oh, I am going to have some margin in there.
And so, if you are prepared and if you are capable of delivering that, I think it’s a prudent thing to consider. But definitely not before you’ve hit a certain level of scale. The way you do business with wholesale guys is very, very different. And it can be challenging from a logistical standpoint, from a financial standpoint. But, of course, everyone needs to remember that e-commerce is still around 8% of the pie. And 92% of business is done at retail still.
So, everybody talk about: oh, look at the internet last year, it grew, whatever, 15%-18%, whatever it was. And that’s great, and it’s amazing, and we should all, you know, jump for joy and high-five each other. But retail which only grew a maybe 2%, that 2% of retail was still bigger than all of e-commerce. All of it! Not just the growth! So, you know, when you really start thinking about it, if you really want to be a brand, and this is one of those choices that has to lineup with your WHY, if you are really into this to build a world class brand, then at some point you are not a brand, in you know, one marketing channel, you have to be a brand in multiple channels. So, you have to devise a way to get there, if that’s important
DAVID ALADDIN: At what point do you think people should start expanding outside? You know, like talked about the 0 to 2 million level, 2 to5… Where did you do that?
STEVE SIMONSON: Well, again, at different times, there are different opportunities. You know, right know I think the context of Amazon being as powerful as it is, I would probably recommend that people start on Amazon, and get that 0 to 2 journey, you know, clicked of the bucket. It’s risky in some ways, because as we all know at times Amazon appears to be arbitrary about suspending accounts and so on. And if all of your eggs are in one basket, and you, you know, 1.5 of that 2 million journey and then you click it off, you are back to 0. So . . .
DAVID ALADDIN: It is crazy!
STEVE SIMONSON: It is crazy, but, you know, I would say, in general I think Amazon probably does the right thing. There’s always exception to the rule, I have no doubt. But if you are whitehead guy, and you do the right thing as well, then you’ll probably be okay. And particularly if you are your own brand, and selling your own product, which I think is an absolute essential thing that people need to look to, you know, drop shipping.
I probably have one company that we were doing 30 or 35 million dollars worth of drop shipping, and it was cumbersome, it was complex, and we did no always deliver the best consumer experience, because we relied on this chain of drop shipping and logistics, and so on. And when we were able to… And by the way, the margin was lower on drop shipped items. So, when we were able to get into private label, not only did the margin expand, we were able to really control the customer’s experience that, you know, our objective was to like them, and have them be surprised and happy about how well things went. And only through your own brand I think you can ultimately do that. And that’s what creates brand equity. And for all of those people who say: well, part of my personal WHY is I want to make money, I would challenge them to think: no, I want to create wealth; I want to create the ability, you know, to freedom. And you know, making money means I can go to the grocery store and buy a sandwich, or you know, buy dinner, by having wealth means you can make strategic decisions about your future and about you business, and your family, and so on, and so forth.
So, if you can create wealth, you are going to do that through a long-term picture and having your own brand, is having equity in your wealth building. And so, I highly recommend if people aren’t doing private labeling, they really consider how to do that and put that on their journey, if it sounds right for them.
DAVID ALADDIN: I love the inside say. You mentioned it, and you know, lot of us… What you’ve mentioned is when you have a lot of money, you make different decisions, and that’s the type of wealth that you’ve given yourself, and you’ve given your mind to relax on some of the pressures that a lot of sellers face every day. You know, they are facing: I have all of my money and inventory, what would I do? You know, how do I pay for…you know, not for food, but day to day expenses, rent, whatever. But by having wealth, you’ve allowed your mind to focus on strategic long-term vision plans. And it could mean all the difference in 2 million business set, a 50 million business, or you mentioned 500 million B2B sales, how did that happen? Is that a different business?
STEVE SIMONSON: It is, yeah. There are, you know, over time the wholesale part of the businesses, they just have a way of, you know, kind of creeping into it, and typically they end up being separate units, or separate enterprises. But yeah, I mean, B2B is just a different animal than you know, B2C e-commerce. But it is a huge opportunity and really goes to the topic we were just talking about selling to Big Box and so on, that’s B2B sales. And you know, a good example: you know, most people in the US would know CVS, it is a pharmacy. And I don’t remember the number off top my head, but it is somewhere around 9500 stores. And you know, they sent us an invitation recently to participate in what they call a white space program, which is where they’ve got gaps in their assortment of products and they want to have those gapes filled obviously.
And I don’t know, if we’re going to get this deal or not, but if you start doing the math and go: well, they kind of have almost 10.000 stores, you know, what if they order 10 units per store per month? Or what if they order 100 units per store per month? What does that look like? And you know, your mind immediately explodes. It’s like an opening orchid! It could be 100.000 units. And to be honest with you, a lot of guys weren’t ready for volume like that, they can put you right out of business.
You know, the capital that’s necessary, the financing that goes on with this. It can be extraordinarily painful to be successful. And so, that’s why it is important to kind of do these things at the right time. And I know many people, including present day people that are successful and they are making sales, and they are selling Casco, you know, a guy has a huge order and they are selling, you know, WalMart a huge order, Sam’s Club have a huge order, and then they have to look around and go: oh, Gosh, how am I going to finance this? You know? How am I going to make all of this come together? Because those Big Boxes don’t just give you a credit card, right? They pay over time, they hold reserves, they charge you back for you know, a thousand million things. And so, as attractive as the volume sounds, I say a guy should be very methodical, start on Amazon, maybe get some of the Amazon regents after that, you know, expand in some of the international regions, do some other online market place that are…there’s plenty of them around the World.
And you know, from there, your own e-commerce, and really start to build your brand in a meaningful way. And by the time you’ve got all of the foundation set, those retail opportunities will come to you, and to the acceptance that your margins are prepared, and you are prepared, and the technology and finances are on, you’ll be ready to take them on in a sustainable way.
DAVID ALADDIN: Yeah, so there’s a lot of ducks in a row before you are ready to go into retail. What is the biggest retail that you’ve landed?
STEVE SIMONSON: We’ve sold many, many big boxes. Particularly, you know, in the home-improvement space, every Big Box you can think of WalMart. Many things we have done are OEM type things, where we’ll do things in their own brand. So, you know, that’s not brand centric for me, but I feel the need for them and…so those have worked. But you know, many other things we’ve done through our own brands and around the World, you know, from, you know, Australia, England, and on, and on.
DAVID ALADDIN: Zack Shock from our Facebook group wants to ask you – what would you do if you are first starting your business right now?
STEVE SIMONSON: Well, number one is I would pick a private label product, I will put it on Amazon US; the minute I got a sense that it had some legs, I would put it on other US market places as well; by the way – that is one thing I should know and Zack asked a fine question which is, you know, if you are just starting out now, you know, how do you get from here to there.
E-commerce makes things so easy and so every place that you can list your product on e-commerce, why not do it, right? If it is compatible newegg.com, series.com, rakuten.com, there are other places in the US as well and now Walmart.com has become much easier to get listings on. By the way, just because you have something on these sites doesn’t mean your sales are going to blow up, you still have to think and be methodical about, you know, product launch and listing optimization and promotion and so on and so forth.
But start with one thing and I don’t know where Zack is in his journey but honestly, the number 1 problem I think people face is picking a product and kind of be willing to fail fast, you know, be willing to fail, I say fail as fast as you can and fail as often as you can and get as smart as you can as fast as you can. Recently, the Amazon AWS, this is their cloud services, CEO/President whatever the division head, he said something I thought it was very, very insightful, he said “there is no compression algorithm for experience” so as much as myself or others like me, you know, love to provide insights and advice and I believe and I feel strongly that we can help you avoid some of the bruises that we have experienced along the way. Your own experience, being in the trenches, ordering the product, figuring out how to get it from point A to point B, going through all of those little things as frustrating as it can be sometimes – that is real value, you are putting … it is like you are building your mental warehouse and the more inventory in your mental warehouse, the smarter you are going to be and the more prepared you are to take on the world.
DAVID ALADDIN: Solid answer for Zack.
STEVE SIMONSON: It is a good question.
DAVID ALADDIN: So like … I have noticed a lot of crazy things happening on Amazon lately with Chinese sellers going in at manufacturing price plus the Amazon FBA fees so pretty much right at Amazon or manufacturing price. Reviews have gotten removed, you know, by the thousands per product listing. How has this affected your business on this huge scale that you have?
STEVE SIMONSON: Well, myself and I have met with dozens of other guys that sensed some of these major changes have happened, including this past week I literally landed yesterday from another conference with a bunch of world-class sellers, they are far smarter and better than me honestly. In the big picture, these things aren’t going to affect us; you know, item has lost a thousand reviews or five hundred reviews or whatever, but to be honest with you, Amazon is long overdue on getting the reviews to the system fixed up and they have made it harder to manipulate which in many ways that’s like oh well, the easy button of just, you know, blowing out a couple hundred items a day for a week, you know, now I have got a great VSR, got a bunch of reviews.
That method of essentially cheating their system is out the window and they didn’t like it and they are not going to tolerate it going forward so ultimately, it makes it a little harder for everybody but once the playing field is leveled and I think it has been observed recently that a lot of the guys who have participated in these really aggressive incentivized promotions are being the hardest hit. And so my suspicion is over time people will focus on, you know, the right ways to get reviews and the right ways to build customers instead of the, you know, as I say the shortcut and if that is important to Amazon or more importantly, they measure everything by what is important to their customer.
If the customers respond positively, then the business will follow, Amazon will be happy and I think Amazon is taking steps to protect brands in a more meaningful way from all the hijackers. And I will just tell you, it doesn’t matter that China sellers are selling at basic cost because they are never going to be able to fulfill, they are never going to be able to provide an excellent experience, they will always cut the cost and there always will be a compromise that goes along with it. And I am not saying that it doesn’t muddy the water – it does, but at the end of the day, the more you could focus on bringing your products to a proper position in terms of quality and I mean real quality; we can all say “oh, my products are high quality” but so does every other guy including the Chinese guys, they can all write those words, you have to demonstrate it.
Your product has to be meaningful and it has to be an iteration better than the next guy and your customers should be able to see it and understand it and be excited to share it with other people to the extent that is possible. So it is always about differentiation and that is never going to change; most customers are not interested in buying the $4 item when everybody else is at $10 because they know they are giving up something. And if I may, I will give you a quick story.
So we had a product we launched a number of years back and I decided, because my brain is a lot like anybody else’s, I was like well, the lower the price, the higher the volume, this is smart, let’s really go after it. So I priced it at a very aggressive price point, probably about half of the major brand competition and we still had a decent margin. And it just would not sell, so one day the contact center was really busy so I picked up the phone, I talked to a customer and they were looking at our product, let’s just call it a dollar for the sake of discussion, versus the branded product which was two dollars. And I took them through in a very fair way, product A vs. product B, and I didn’t slam towards my end or slam the other guys’ or anything because I sold them both, at the end of the day it didn’t matter which they bought.
And at the end of the conversation, she says “okay, I am going to take the 2 dollar product” and she placed her order and did everything and at the very end I said “hey, just out of curiosity, when I explained everything and more or less told you that this dollar product it as good as the 2 dollar product, it is just less money” and she is like “meh, how good could it be, it is 50% less”. And she ordered the expensive one and went on with their life and so we raised that product price and sales multiplied in a huge way. So don’t always think being the low-cost guy is the right thing to do.
DAVID ALADDIN: It is a good story.
STEVE SIMONSON: Unfortunately, it has happened to me more than one time so please take a lesson and try a higher price.
DAVID ALADDIN: Yeah, I am constantly reviewing my price in comparison to my competitors. The thing is I am in a very broad niche so there are a lot of competitors in it, it is just something that I am always revisiting and trying to see am I pricing it the right way, should I price at the top end, you know, with some of these premium guys or should I price at the low end and get the higher velocity which is usually the end result of pricing low. And I am guessing a lot of people have this conversation going in their head “do I want more sales and velocity” … the battle.
STEVE SIMONSON: I will tell you, it is a true … this is something that is very common and I will give you one other little, I don’t know, advance strategy, I don’t know how advanced it is, it is something we have done for many, many years. We call it the white box strategy; so we might make a box or a carton of the product and it is going to brand and it has got a lot of beautiful imagery and language and so forth; it tells about the product inside but it doesn’t list the name of the item or the collection of the item, it doesn’t really get into the specifics and that “white box” we may sell under 3 different brands at 3 different price points and because there are customers at each different price point.
So one inventory item that we have put 3 different UPCs on, we will market very differently, maybe it has got different warranties, maybe it has got different features or benefits and then we will just test and usually it is not a test to see which one does best, it is just a way of spreading out the risk yet keeping one inventory SKU. And you know, at the core that you may end up sending three SKUs to Amazon with different UPC codes, or FN SKUs however we decided to do it, but it is still one inventory item that’s just marketed differently. And this is not something that I invented, this is … I have stolen it from much smarter guys.
DAVID ALADDIN: I have actually never really heard of that but it sounds awesome … taking one SKU and splitting it into three that are different marketed products. I am assuming you also tested it into slightly different categories as well to see how it will perform in an alternate category or a more niche category because they rant differently. And … that’s cool, that is really cool, I like that … like a nugget … how many golden nuggets can you fit in an episode. Okay, we have got about 8 minutes left … I have … a very interesting thing that popped up, have you ever gotten suspended?
STEVE SIMONSON: Yes …
DAVID ALADDIN: Okay because I have already …
STEVE SIMONSON: On one of our accounts, yeah. Sold too much stuff too fast.
DAVID ALADDIN: I see and it sounds like you have only gotten suspended once because I have gotten suspended once in the year and a half that I have been selling. So you have been around on the block for about … I want to say 10-15 years on Amazon?
STEVE SIMONSON: Yeah, Amazon came out in … I think it was around 2002 or 2003 with what they called Z-shop at that time and I think we put 15000 items from a hardware company I had at the time and it didn’t do very well. Really, only the last 5 years have we really started to pay attention to Amazon and really only the last couple see that there is really a significant potential here so yeah. We have had accounts but we don’t get suspended very often because we don’t really do anything that warns suspension.
Now, we have had products that get suspended from time to time based on negative customer feedback or who knows of its competitors or customers or whatever, and you have to just kind of do that dance but you know, these things are what we call lightning bolts and those are going to happen, lightning bolts are going to hit you and you just have to get up, dust yourself of and figure out a way to deal with it.
The difference between kind of an average person, somebody that I call a “normie”, you know, a “normie” is somebody, they are great, they are wonderful, we need “normies” but they are just a regular person, they don’t understand the risks that go with being an entrepreneur. Entrepreneurs, I generally feel … and not just entrepreneurs, there are other folks that get into that category; they are called “awesomers” in my vernacular. And “awesomeres” are willing to just take as many beat downs as necessary and will get up, dust themselves up and carry on. And a “normie” will get beat down and go the other way, it ain’t worth it.
There are plenty of “normies” out there and I love them, I need “normies” to handle the tolls at the toll booth and you know, do all the things that need to be done to keep the world going around but “awesomeres” are the guys who make the world go around. And so, you know, if you are not willing to take the challenges and adversities and dust yourself up and get back up, you might not be an “awesomer” or an entrepreneur.
DAVID ALADDIN: Oh, I hope I am an “awesomer”.
STEVE SIMONSON: The fact that you have your own podcast, you are very young, you are selling stuff, that is already … you are well on your way for sure.
DAVID ALADDIN: Well, today has been an awesome conversation; I would love to get you back on the show. How can people reach you?
STEVE SIMONSON: You know, the easiest way for people to kind of touch base is … I have a Facebook group that, you know, we hang out and I will generally answer questions when I have time; it is the Amazon Professional Sellers Group and that is linked to a free entrepreneurial kind of help site that I have called startsolid.com and these are not money-making enterprises, I don’t sell stuff, I don’t take affiliate commissions on stuff I recommend, they are just things we find along the way and we help guys try to, you know, stay out of trouble and overcome challenges and so on. And you know, plenty of people helped me, in fact, any level of success or achievement that I have reached has always been with the help of others and I have no problem helping entrepreneurs as I can, although my time is very limited, we do what we can. I would love for people to, you know, ask questions or you know, engage in a discussion and I am happy to support you at any time you need as well David.
DAVID ALADDIN: He has a mastermind group … what was the link for that?
STEVE SIMONSON: www.Catalyst88.com is the link for my mastermind and I will just tell the folks out there, it is a very, very tough vetting process; there are very strict requirements, you know, if you are not doing, you know, several million dollars and have your sight set to go much higher, you know, you can check it out, there is plenty of free content there and things to learn about but we are very rigid about it because everybody’s journey is different and it is unique and only at the right time, if you put the right formula in place, can be beneficial to you. But we have some amazing, amazing entrepreneurs in that group and they are “awesomers” for sure.
DAVID ALADDIN: Well, I wanted to include it in the show notes because you threw so many gold nuggets in and I had to give back to it.
STEVE SIMONSON: Thank you and again, we love entrepreneurs of any kind and no matter where you are in your journey, if you plug in some of those resources we just talked about, we will do what we can to help you.
DAVID ALADDIN: Awesome. Thanks for coming on. David Aladdin, Steve Simonson out
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