AS 84: This Former IBM Employee Now Pulls 8 Figures Annually In E-Commerce – Bernie Thompson CEO of Plugable
21 Apr 2017
Bernie built an 8-figure electronics business, wrote the book “Flywheels and Feedback Loops: A Guide to Success for Amazon Private-Label Sellers”, and released the tools he used to automate the building of his own brand on Amazon. These tools are available at efficientera.com
In this episode, you’ll learn:
- How Bernie grew his team
- When to add team members to your growing amazon business
- When to buy and puchase more inventory
- Critical decisions that led Bernie to where he is today
- Payroll, accounting
- Why he started his e-commerce company, and where he is taking it to
- Hiring decisions
- Inventory control and strategic advice
- Where he see’s the e-commerce space going
- How he’s up against massive corporations
- His customer support is killer
And much more!
DAVID ALADDIN: Great to have you on the show, Bernie!
BERNIE THOMPSON: Oh, thanks David! Glad to be on!
DAVID ALADDIN: Can you take us to the beginning before pluggable, before everything? Where did your journey begin?
BERNIE THOMPSON: Yeah, you know, actually, I have actually always been interested in technology, so, I got a computer science degree, worked at IBM in the 1990s, and worked at Microsoft in the 2000s, and started an electronics company in 2009 selling on Amazon. And that’s led to that being a pretty successful business and also we developed a lot of tools to make that business successful and now I’ve got a second business offering that tools to other Amazon sellers.
DAVID ALADDIN: So, why did you decide to leave IBM and Microsoft in the first place?
BERNIE THOMPSON: Yeah, yeah, you know, I think, you know, every job has its pros and cons. Actually, I love big companies. Big companies are cool. You know, you’ve got a big support structure around you. You know, at IBM I worked on OS2 which is an operating system that probably everybody’s forgotten about at this point. And at Microsoft I worked on tail end Windows NT and Windows 98, and worked on tail end Windows XP and Vista. So, you know, I was a cog in a pretty large machine, but I got…my stuff got seen by a lot of people. But I love small companies. Especially when small companies are successful there’s nothing that beats it in terms of good experience.
DAVID ALADDIN: So, in 2009 you decided to quit and you started a startup that just started launching products on Amazon, is that before FBA was launched? I believe so, right?
BERNIE THOMPSON: No, actually FBA had already kind of been opened up at that point. So, we were able to bet on FBA from day 1, which was a key part of it. You know, I really wanted to focus on the technology, on the customer support, and not have to think about the other things. You know, frankly I am terrible at sales marketing. And so, being able to, you know, kind of hand that off to Amazon and the significant part of the logistics which is something I had really no experience in physical goods. I am a software guy. So, being able to handle in most of that physical goods aspect to Amazon, you know, it was a big deal. I mean, it really enabled me to focus on what I was good at and that probably made the difference in terms of the business being successful.
DAVID ALADDIN: And when you left your job, did you just put everything behind you and you just moved forward with the startup, and how much…how much capital did you have when you started the startup?
BERNIE THOMPSON: Yeah, you know, electronics is a pretty brutal category. You know, if you are going to do anything interesting or you know, even kind of innovative a little bit, you need to have pretty high MOQs and the average price that you are paying is pretty high. So, yeah, I mean, you know, it wasn’t quite a million dollars, but basically, you know, just under that was sunk into the business with cash by the first year or two. And it actually took five years to the point where I could get cash out of the business, which is, you know, it’s a long time.
DAVID ALADDIN: Yeah, I’ve started pulling out cash mainly cause…Yeah, my main income source now and in the event I get suspended, I want to be able to have some type of bubble to like just relax on and not worry about paying the bills or anything.
BERNIE THOMPSON: Yeah, no, it is tough. I mean, you know, we started in 2009, so here we are in year 8, and I’ve paid way more to the Government in taxes, and I’ve got way more stuff sitting out in the warehouse, you know, that’s potentially unsellable if there’s an account suspension. There’s way more in either of those categories than the amount of cash I’ve taken out of the business so far.
DAVID ALADDIN: Let’s talk about the e-commerce company that you started. You started this company in 2009. Why did you go into electronics?
BERNIE THOMPSON: You know, I went into electronics because it’s my passion. So, you know, I…when I was working at IBM and working at Microsoft, what I was actually worked on, was device drivers and device technology. At IBM I worked on the graphics drivers for OS2. I worked on the original SVGA driver. In fact, as an intern I took the IBM VGA driver which was an assembly language and modified it to work with the new generation of SVGA cards, you know. And then, you know, later on in my carrier working at Microsoft I managed the USB and Bluetooth teams.
So, it actually starts with a passion for the particular technologies, the pluggable technology sales, which is basically USB and Bluetooth devices. So, you know, it’s quite different than a lot of other Amazon sellers. I didn’t do this as a money making opportunity first and then I picked what I did. I picked what products I wanted to do first and then just wanted a sustainable business that was profitable. And despite what I said about cash, cash is tough, but in terms of actual profitability, the business actually has been profitable every year since we started. Just the cash has to go back into the business because there are such heavy inventory requirements and you know the need to you continue moving new products while you are to keep up with the competition, especially, you know, the very fast moving competition from China.
DAVID ALADDIN: I came like from a software background as well and you know, switching to this e-commerce side of the business, take so much money to run these e-commerce businesses. I’m guessing going drivers to physical products must have been kind of like an eye-opening. It’s like: ah, I just sold a lot, but now I need to refill this inventory.
BERNIE THOMPSON: Yeah! No, it really was. I did realize how tough it would be on cashflow, you know. And Amazon, you know, has their landing programs which is not huge amounts of money, but basically, you know, I think out of the eight years we’ve been in existence, probably four of those years we took advantage of the Amazon landing to get over the holiday sales bubble on sale side and the Chinese New Year supply disruption that occurs every year. So, you know, that’s how we got through this. But, yeah, absolutely! I mean, I’ve been fortunate enough to do a lot of different things in my life.
You know, I had worked in number of chip companies; I worked at S3, the graphic ship companies in the 90s and DisplayLink, another USB graphic ship company in the 2000s. You know, and I’d seen…I mean, that’s perhaps an even more brutal business. In those businesses you have to sink a few million dollars into taping out a chip, you know, before you even get your first dollar of revenue. So, I’d seen a couple different businesses in terms of cash requirements. So, while I didn’t quite know what I was getting into, I had at least a little bit of inkling.
DAVID ALADDIN: I actually remember reading that in your book that you signed me, in the “Flywheels and Feedback Loops” with the Amazon loans that you are talking about just slightly earlier. You mentioned that you shouldn’t take out the Amazon loans due to the high percentage that they charge you?
BERNIE THOMPSON: Yeah, the rate isn’t super favorable. It’s the ease of the landing which is why you might take them and why we took them frankly. You know, if you go with the traditional bank lender, you are going to, you know, have a long process with a lot of paperwork and having to expose, you know, all of your financials to them, and they’ll have them all. But if you get them to say yes, you know, your rate is going to be lower than the Amazon rate. With Amazon it’s just, you know, they have a perfect inside into your…at least the Amazon part of your business. And they’ll just offer you a loan. They’ll just say: hey, we are willing to land you $200.000 and you just click okay, and click this agreement and boom-the money drops in your bank account. And it’s a short-term loan too. So, you know, once you choose your term, three months or six months, and pay it off, you don’t need to worry about it after that, where’s the bank it’s more kind of complicated long-term relationship.
DAVID ALADDIN: For me like the loan amounts are not like very large amount, but you are an eight figure salary, like how big of a loan did they offer you?
BERNIE THOMPSON: They have… The loans have not been too useful for us in recent years because they are just not big enough to move the needle.
DAVID ALADDIN: Exactly, yeah, it’s not worth it. But okay, cool. So, for five years you didn’t take a single dollar out of the business?
BERNIE THOMPSON: No, no.
DAVID ALADDIN: What is your thought process there?
BERNIE THOMPSON: I couldn’t. I mean, if I was going to grow… Basically you get trapped if you are growing. And if you are profitable and growing, you know, you are paying a high percent of your earning to the Government each year in taxes, at least if you are a US company. You know, anywhere between…you know, if you are very profitable, between 30 and 40%. And then basically that other 60 to 65%, that of those profits are inventory often grew by at least that much each year. So, yeah, it really went into inventory growth. And you know, we’ve never been very aggressive about the various strategies there are out there to move your cash up, you know, in terms of, you know, getting terms from your suppliers, getting other things. But ultimately those things are loans too, just in a different form. So, we’ve been conservative in a sense that we don’t want to ever, you know, like have an account suspension or some sort of a negative event and then get caught owing people a bunch of money. So, we haven’t tried to be aggressive about, you know, shifting things with supplier loans around. A lot of other people are though, and it could be a good idea for people.
DAVID ALADDIN: Have you experienced an account suspension since 2009?
BERNIE THOMPSON: We have not. We have not experienced an account suspension.
DAVID ALADDIN: It’s impressive!
BERNIE THOMPSON: But it’s interesting, you know, we… You know, part of what we do is these tools that we market to other sellers and that’s cost us to really be well-networked with the selling community. And account suspensions are happening all the time, and the reasons, you know, it’s not just happening to people who are really, you know, doing bad things. There’s… Account suspensions are serious risk that every seller, no matter how, you know, kind of good and diligent they are, do need to take seriously and, you know, it’s a huge issue.
DAVID ALADDIN: So, let’s go back. When you started your Amazon business, did you, guys, start with a few employers? Did you… Was it just you?
BERNIE THOMPSON: Yeah, when we started in 2009 it was just me. I mean, one of the… I enjoy doing all aspects of the business, including even… I mean, it was novel for me at first, working with physical goods. You know, I loved kind of coming up with creative solutions for things. I was importing container load shipments into the port of Seattle, which I mean the Seattle area, and would have them delivered to a customs warehouse, and I would rent a YouHold truck for the day and drive down there, and load those boxes into the YouHold truck and then have pre-printed all my Amazon labels to send to the Amazon warehouse, and I’d, you know, label all those boxes up and, you know, park into a hole inside the road, label those boxes and then drive them straight to UPS the same day. So, yeah, that was really the first few years.
DAVID ALADDIN: That’s scary! No, I mean, I thought about doing that! Like, when I first started, I was like: maybe I could save some money picking up inventory from like the warehouse that gets it from the ocean fairy. And it just seemed like a lot of work!
BERNIE THOMPSON: Oh, yeah, well, you know, it was a lot of work. And do what you have to do. And so by the spring of 2011, I mean, I was basically working flat out. I was doing all the customer support on the product, I was doing all the sourcing, all the accounting, all the logistics. And so, we got into the point where the revenue could support a few employees. And so, I hired the first employees, I hired three all at once in the spring of 2011.
DAVID ALADDIN: Oh! I am actually been debating when to hire my first few employees, not the virtual assistants, but actual employees. What number where you at like revenue-wise…maybe profit-wise would be better?
BERNIE THOMPSON: Yeah, profit-wise, profit-wise I was at enough to just pay their salaries.
DAVID ALADDIN: Right, so… I kind of want to ask you the number, but is that too personal?
BERNIE THOMPSON: Yeah, it’s probably too personal…
DAVID ALADDIN: Okay…
BERNIE THOMPSON: But you can do that math.
DAVID ALADDIN: Yeah, yeah!
BERNIE THOMPSON: I mean, I think it’s, you know… Every time you… I mean, the other alternative is that you wait until… You do it sooner and you are losing money. You know, but I think that’s dangerous, because in at least my view of the World, you know, I like to grow organically and I don’t like to get ahead of myself, because that’s how you can, you know… If your expectations turn out to be not true, you are dead. You know, if you are not prepared, you know, you are kind of betting on a certain amount of growth and then it doesn’t happen… So, you know, I’ve really tried with all the businesses I’ve done, and there’s…you know, there’s others that I’ve done, you know, to try to make sure that the growth is organic and that we have the revenue and the profitability to support, you know, new cost structures before we take them on. You know, that’s a pretty conservative approach. I think there’s, you know, there’s some businesses where you, you know, want to invest and kind of take that larger risk.
You know, but this is also a self-funded business, you know, I don’t have any outside investors. So, you know, we’ve really kind of built this business a different way, you know, where we are focused on stability and organic growth. And you know, despite all the risks on Amazon, you know, through diversification and through being conscious about things like this, we’ve actually been able to, you know, pull off eight years of, you know, of growth even though, you know…probably other people would look at the business and go: well, you know, you had a lot of opportunities along the way to really accelerate that growth by taking on…you know, doing things sooner, or taking on more debt, other things. And in most of those decision points we chose the more conservative route.
DAVID ALADDIN:I love this conversation cause I’ve been trying to increase the stability, regardless of what happens on the Amazon. So, why you are building this business? You just keep putting all the money into inventory, or did you hold like 20% into the bank? How did that look like?
BERNIE THOMPSON: Yeah, I mean, trying to keep cash cushion in the bank. But I don’t think if I would think about it in terms of overall percentage of assets. It was just making sure that we had several months of working capital at any point, you know, so for example if you get a, you know, a temporary listing or account suspension and your revenue is disrupted for a few weeks, that that isn’t the end of your business. You know, and so I think at any given point we could survive, you know, a few weeks, possibly a few months of complete revenue disruption and it wouldn’t put the business under. But that about the only goal! I mean, I probably didn’t keep much more cash than that.
DAVID ALADDIN: That’s interesting! It is like… It reminds me of like Apple, you know, like they keep billions of dollars just as a cushion, you know, for those rainy years.
BERNIE THOMPSON: They’ve got, you know, these advanced strategies that only the large companies have where they’ve had that money be taxed overseas often at extremely low rates, like they negotiated a ridiculously low rate with the Irish government and as long as they don’t bring the money back to the US, they don’t get further taxed. As soon as they bring it back to the US, they have to pay US rates. So, Apple and other big companies like that, have paid very little in taxes, but they’ve got billions trapped overseas that they can’t bring back home, you know, to invest in US.
DAVID ALADDIN: Let’s trump back a little bit. Like what was the decision with hiring three employees all at once?
BERNIE THOMPSON: I think, there’s a simplicity when a business is a one person business. You know, there are a lot of things that you don’t need to think about yet because, you know, the processes of the business, the structure of business only has to serve your needs. And so, you know, I think that… You know, I’ve been through hiring employees before and I just knew there was a certain amount of complexity I would have to absorb as soon as I had employees. Complexities for me in terms of I go from being, you know, just I do stuff every to where I need to manage people and make sure that I’m doing right by them and paying attention to their needs, and processes like accounting and payroll.
So, basically I waited a little longer than I otherwise would have, you know, and then at that point, you know, could afford to and really needed to hire several people. And then that also gives the team a little bit of stability, you know, that… You know, one of the scariest things when you are sitting there with a company with three employees, or six employees, is…and everyone is really busy, is one employee leaving means that you are workload by double, you know, cause you got to cover for them until you, you know, get that position covered.
So, you know, probably also left a little bit of slack in the business in the early years for the early employee such that, you know, if we lost somebody…and we did, we like all businesses, we lose people from time to time, you know, that it didn’t kill us, you know, and specifically, that it didn’t me because very often it’s the boss is next guy up the chain who has to take the load, you know, when somebody suddenly disappears.
DAVID ALADDIN:I was actually…I was watching some your guys YouTube videos. There are super elaborate! Like, you guys are not just put a slap in a label on a product! You are going into the electronic components and figuring out what are the best components to put in and the technology is almost…it is proprietary.
BERNIE THOMPSON: Well, you know, and some of the products are…you know, we know all the underlying technology, all the underling chips and we kind of start from that level. And that’s where I come from. I mean, I worked, you know, being a device developer and having worked in a couple chips companies, you know, that’s my background. But then very often, we’ll just kind of go look across the industry and find somebody who’s doing the product we would have done, you know, factory. And then we’ll just go with that product. And then we are good. In other cases we actually find that there’s nobody doing the product that we would want to do. And then we have to find the closest factory and begin working with them to improve their product to have it be the product we would have done.
So, it’s certainly a lot of work that goes in there. And you know, I often say we are an electronics company first and an Amazon seller second, and you know, kind of how we do product development and how we communicate about the products kind of is, you know, indicative of that.
DAVID ALADDIN: With electronics I feel like there’s a lot of customer support involved in terms of glitches and especially with drivers and this is incompatible with that… How do you guys optimize on your customer support?
BERNIE THOMPSON: We just spend a huge amount of money on it. You know, I have at this point fifteen employees, you know, so a huge co-structure that’s just supporting the products.
DAVID ALADDIN: Wow!
BERNIE THOMPSON: So, yeah, I mean… If we had the same sales with a product that didn’t have such intensive customer support requirements, we’d have…well, at least twice the profitability. At least half of what would have been our profitability is sunk back into customer support…actually a little over half.
DAVID ALADDIN: Yeah, it’s almost scary in a sense that you have that much dedicated customer support.
BERNIE THOMPSON: Yeah, but it’s essential in electronics, because, you know, I mean that’s one of the, in a sense, good things about Amazon. Is that if you try to launch an electronics product and you don’t have good customer support, you just going to see your review rating deteriorate and that product won’t sell! You know, there are a few years where, you know, there’s this massive gaming of the review system going on where people are basically just buying reviews. And for us, that was pretty devastating actually, because, you know, it meant that, you know, companies actually making customers happy mattered less because people could just buy reviews. And we actually never did that.
So, I was actually really happy last year when Amazon began cracking down on that. And I know there’s still a lot of rig-gaming going on out there, you know, when I get a chance with Amazon, you know, I encourage them to, you know, kind of maintain the integrity of the review system. Because, you know, at least for us it’s what enables us to invest that much back into customer support and have that make sense, because, you know, if we are investing that huge amount back in customer support and we are getting rewarded with a higher average review rating, well then, that’s a business that works. If, you know, if it doesn’t work that way and reviews are fake, or there is no feedback loop like that, well, then we can’t afford to invest that much in customer support.
DAVID ALADDIN: Let’s talk about like some of the biggest mistakes that you’ve made. We’ve all make massive… I’ve made tons of mistakes. But you’ve been in it a lot longer. So, what kind of mistakes have you made?
BERNIE THOMPSON: So, all kinds of mistakes, obviously. You know, we see a product going up like a rocket ship and we say: man, we got to be aggressive in placing purchase orders to stay ahead of this guy. I almost hate products that take off in late summer, because what would end up happening is because of the holiday bubble we need to stock up anyway at that time and so then if we’ve got a rocket, we’ve really got to stock up on that.
Well, in several cases, you know, we’ve got products that those early signals were in a sense false signals and whether it was because of reviews deteriorating, or just, you know, just general competition, or we got luck in the early days, you know, the products sales deteriorated and then we were stuck, you know, sitting on hundreds and thousands of dollars of inventory. And that’s happened, you know, quite a few times. You know, and… But it’s a hard problem to avoid. I mean, I guess, you know, I have the other problem happened too which is, you know, there’s rocket happening, products that’s really ramping up and you know, the… You don’t get a lot of rockets. You don’t get a lot of products that just get fire. And so the most important thing to do when you do is to stay in stock. And so we’ve also had correspondence circumstances where, you know, we think we are being aggressive in placing large and early purchase orders and it’s just not enough stock, and we run out of stock, and the momentum gets killed, and the product is, you know, not nearly as big as it could have been if we were able to stay in stock.
So, it’s a really tough challenge. And you know, with electronics the lead times are really long. You know a lot of our components… It is because not only do you have the ocean time because, you know, some of these products, their power adapters are pretty heavy, you know, and not only do you have the factory time which has gone up since the economic downturn and factories tend to be a little busier. But with electronics you also have a lot of component time issues. You know, work the individual components within the product, and have a month or two delay on them, so… We have… It’s not at all uncommon for us to see from the time we place a purchase order to when we get the goods, that we are looking at four months or, you know, or maybe five months.
DAVID ALADDIN: Yeah, honestly I hate the four to five months delay time too because it really holds up a lot of capital. It could be bad if it’s a large volume order that you put in and it actually forces you to put more, you know, bigger purchase order because of delay time.
BERNIE THOMPSON: Yes.
DAVID ALADDIN: I think especially if you are starting, that’s a massive problem, because you are tied on capital.
BERNIE THOMPSON: Yeah, and Amazon is such a dynamic market. I mean, you make that decision, the whole World could change in four months as far as the competitive picture for that product.
DAVID ALADDIN: So sure!
BERNIE THOMPSON: Yeah!
DAVID ALADDIN: And you know, the price could be 1/3 the cost of what you are selling at the time, you know, that you put the order in.
BERNIE THOMPSON: Yeah!
DAVID ALADDIN: At least the market price could be, you know. What other mistakes have you made? Oh, by the way, let’s talk about the logistics that you’ve… Do you tend to manufacture all your goods, ship it to Chinese warehouse and then ship it to the US, or how does that look?
BERNIE THOMPSON: Yeah, we do not have a Chinese corporation, so we can’t ship to Chinese warehouse. I mean, we can’t hold the goods in China in our name. So, basically the goods have to leave China once we’ve purchased them from the contract supplier that we are using, and we use a bunch of them, so, that’s difficult. And you know, there’s a whole bunch of structural advantages that our Chinese selling competitors have. And that’s one of them, you know, they can, you know, just hold their goods there in China and then just more trickle them out to the US, you know, and that’s a big deal. And not just to the US, you know, globally.
DAVID ALADDIN: Yeah, I think you’d save more if you would like get everything into one container and fill it fully rather than sending multiple shipments, LCLs.
BERNIE THOMPSON: Not too much though, I mean, there’s some saving there, but we don’t… There you are talking often about, you know, high hundreds, or thousand, or two thousand dollars on that whole shipment difference between, you know, whole container and going LCL. And compared to other optimization opportunities, that particular one is not one I worry about too much.
DAVID ALADDIN: And I am guessing you don’t go to that warehouse by the port now with the UPS truck, or…?
BERNIE THOMPSON: No, never! Haven’t actually seen any of the custom bonded warehouses in a few years luckily!
DAVID ALADDIN: Yeah, I you notice you actually store some of your goods at your office, it’s like a warehouse office, is that correct?
BERNIE THOMPSON: Yeah, yeah!
DAVID ALADDIN: Do you guys still do that? Or is that an old photo?
BERNIE THOMPSON: Yeah, we do.
DAVID ALADDIN: Or is that an old photo?
BERNIE THOMPSON: No, that’s not an old photo… You know, basically the, you know, the early years of Pluggable, we had a warehouse less -a 100% of what we did we would sent in FBA warehouses and then everything that we sent to other places came from FBA. But basically the long-term storage fees changed all that. You know, the long-term storages fees which were imposed between six to twelve months, when inventory sits there six to twelve months, means that we can’t, you know, take a large purchase order and you know, that might…You know, it’s a new product. WE don’t know how long it’s going to take to sell. And we can’t just send that all to the Amazon warehouses now. So, basically once Amazon started imposing those punitive long-term storage fees that we were at a scale at that point anyway where it caused us to, you know, take a lease on a warehouse and now we use that warehouse as our primary hub.
DAVID ALADDIN: It is cool! I don’t know, it’s something that’s cool about having warehouses. Especially, if you are like used to using FBA only and then you have these warehouses. It’s kind of like a nice cushion that you have, this inventory that you can continue to fill.
BERNIE THOMPSON: Yeah, absolutely! Yeah, I love the smell of cardboard!
DAVID ALADDIN: Okay, so, going back to the three employees, did you have an office before that, or did you get the office and the three employees all at once?
BERNIE THOMPSON: Yeah, that was another thing, there was another reason to hire the people all at once as we did not have an office, we worked out of the … the whole business was out of the house but at that moment where we got the three employees, we also got a lease; we are here at a pretty expensive area – Bellevue, Washington – actually just a mile or so … so the first Pluggable office was about a mile away from the house that Jeff Bezos started Amazon in. We could actually almost see the house that Jeff … because we are kind of up on a hill by some railroad tracks, we are kind of on the wrong side of the tracks, on a hill, overlooking Bellevue and I don’t know if I could quite see it but almost in the distance was the house that Jeff Bezos started Amazon in. And it was an ugly, green, converted house, really a terrible thing and so we kind of squeezed the three of us in a section of the house, they had kind of broken the house into pieces and were leasing it to different companies and we were kind of tucked in the back corner.
DAVID ALADDIN: I was actually thinking about buying a house near Jeff Bezos too; that is for like a ranking boost.
BERNIE THOMPSON: Well, this was, you know, this was … the house I am talking about, the Jeff Bezos house was a rented house that Jeff basically ripped out the mailbox and stuck in this new, gigantic mailbox that he could get all of these book catalogues and this is in the mid-90s and he actually … this was back when Amazon was just a book-selling company. And then after that phase, I don’t know how long that phase lasted for Amazon but certainly, as soon as he started having enough employees, they left that house and they crossed the lake and they are over in Seattle now and a little way is the way.
DAVID ALADDIN: I feel like you had a very pivotal moment, I mean, there are three employees plus office, all at the same time. What was going through your head? Were you nervous about doing that or …?
BERNIE THOMPSON: Yeah, absolutely! Because you feel a sense of responsibility to those people. Yeah!
DAVID ALADDIN: And … I mean, it did increase the overhead tremendously too into the business.
BERNIE THOMPSON: Yeah, I mean, the business … actually, right, no, I really debated that, I asked myself the question “Do I want this to be a one person business which is kind of a beautiful thing or do I want it to be bigger” and I actually probably delayed a few months, you know, pondering that question because at the moment I hired those three employees basically I took a highly profitable business and made it a lot less profitable. It was still, you know, again, I was conservative and so it was still profitable but I had eliminated … I am pretty sure at least well over half of the profitability by making those three hires so I was betting on growth at that point and it was really going to become a very different, larger business at that point.
DAVID ALADDIN: That is awesome and it obviously worked because you have been scaling up the employees and your productivity must be a lot higher now.
BERNIE THOMPSON: Yeah, I think so. Some days it feels like not, right, you are dealing with people issues, you know, you get a bunch of business owners together and I think the one thing they would all agree on is the hardest part of their job is people. People are … especially, you know, engineer-types, you know, people are just not as compliant as code.
DAVID ALADDIN: Very true!
BERNIE THOMPSON: Which maybe gets (inaudible) era, I don’t know.
DAVID ALADDIN: I was actually, you know, I was looking at your e-commerce site; it is set up differently than most e-commerce sites. You guys are content-first driven … when I went to the front page, there are a bunch of blogs listed and then you guys have your shop. Let’s talk about the strategy there. What is the mindset there?
BERNIE THOMPSON: Well so, you know, our e-commerce site www.efficientera.com is … one of the things I haven’t said is really starting even when it was just me. I was developing automation to help do a lot of different things like even before I hired those first three employees, we were sending out emails for every order. Well, obviously I wasn’t going to be doing that personally because I was doing everything and so I am a software developer so I wrote some code to send out those post-order emails, you know, I had a lot of spreadsheet automation for accounting, for keeping track of inventory, pulling in Amazon reports and pushing them to Google Docs, things like that.
So, over the years the software kept evolving, getting bigger and bigger and I started having other employees, you know, developing and maintaining this and it kind of got to the point where “Holy Moly”, you know, we are investing a huge amount of money in this software and it is really just for the benefit of one selling business, you know, this doesn’t make sense. We should either drop this or adopt some other software or we have to really invest in this in which case, you know, we got to offer it to other sellers.
So, you know, about two years ago we started the process of taking these years’ worth of software that had helped make Plugable successful and refining it to where we could offer it to other sellers and that is www.efficientera.com. And yeah, we definitely have focused on, you know, communicate and help sellers through a lot of content so we have got, you know, a really rich set of blog posts and of course, the tools themselves awesome, it is just all of this stuff is focused on private label because that is what we were, you know, so all of the feedback loops with the customer, everything with encouraging positive reviews and mitigating negative reviews, we have all kinds of white-hat strategies but ones that require doing things really consistently and doing things in a timely manner.
And then all that kind of reporting to stay in stock and for private labels, sellers, one of the big issues nowadays is it is so hard to keep the content on your listing stable because everyone is constantly trying to overwrite your content even if you are in the brand registry. So we have got a lot of monitoring and so we are sending a lot of emails to you as a seller, letting you know of things happening on Amazon that Amazon doesn’t let you know about it and some of those things can be the key to keeping a product in stock or heading off a listing problem before it starts hurting sales and things like that.
DAVID ALADDIN: But even with your e-commerce site Pluggable, you guys have blog posts there on the front page and it is not about trying to sell the customer first, it is actually … it is teach you guys what this product is about.
BERNIE THOMPSON: Yes.
DAVID ALADDIN: Which I thought was really cool, you know, I actually don’t do the … mine is more like images and kind of trendy but yours is very content-driven, very focused … do you guys thrive a lot of organic traffic that way?
BERNIE THOMPSON: We do, yeah, it is definitely a content-management strategy and the content is not marketing content, it is support content and education content. The good thing for Pluggable with USB and Bluetooth devices is, you know, they are interesting and there are a lot of different things you can do with them that people don’t realize and there are also a lot of problems frankly. And so we try to communicate about all that, you know, we try to highlight the problems so that people will know about them and not buy the product rather than the alternative which is that they, you know, we haven’t communicated about the problems, they buy the product and they are pissed off and they give us a 1-star review. So yeah, a lot of … it is also nice, you know, coming from the software world selling physical goods because they are really visual, you know, we can do these videos where we really kind of show “wow, you know, you can have seven monitors connected to Windows PC”.
DAVID ALADDIN: That is really cool! I think you don’t give yourself enough credit, I mean, for those listening – some of his videos have over half a million views on it and he is like an influencer and like the monitor scene – I would literally just keep pushing on videos at that rate, I mean … half a million views per video – that could equate to tens of thousands of sales.
BERNIE THOMPSON: Absolutely! It is, you know, and we are trying to do that I just … I have to get in front of the camera more like you say.
DAVID ALADDIN: You need to split yourself into two people.
BERNIE THOMPSON: Yes!
DAVID ALADDIN: I was surprised because like you are doing the videos, even though you have like ten employees, you still haven’t found someone to go on … well, actually there was someone else on the YouTube video I remember seeing.
BERNIE THOMPSON: Absolutely, yeah! We have bunch of people here doing videos. No, absolutely! We have tried to, you know, say we are going to have a couple of different kinds of videos that are really aligned with our people and what they are comfortable doing, you know, I tend to do the more tech-y videos just because that is me but I have a bunch of other people who are also tech-y and some that are, you know, less and yes. So, there are a lot of different videos up there and we even … each year we do April Fools’ Day video where we just kind of get really wacky …
DAVID ALADDIN: “None of our devices work”!
BERNIE THOMPSON: Right, yeah!
DAVID ALADDIN: On April Fools’ …
BERNIE THOMPSON: Yeah, I would encourage you to go back and look at the Pluggable videos from April 1st … not this year, we didn’t … I was too busy this year, I didn’t do one but all the past years and we have got some god ones.
DAVID ALADDIN: What keeps you up at night?
BERNIE THOMPSON: There is a lot, there is a lot, you know, I think … our number 1 … so I started this business in 2009, Anchor started in 2009, Amazon Basics started in 2009, so I think it is tough right now for somebody if they want to go into electronics because this is, you know, a lot has played out and a lot of this is a momentum game and if I worry about two companies, it is probably those two. And out of the two, I worry a lot more about Amazon Basics, you know, when Amazon comes into our products with their own brand, it absolutely kills off the top … whatever spots they take which is usually the top spots for that category or for those keywords.
And we have had that happen over and over again, we were the number 1 seller of USB hubs in 2011, 2012, I think part of 2013 and then Amazon Basics basically identified our supplier probably because they looked at who was the top hub and where they are sourcing those hubs from and they came out with a line of Amazon Basics hubs from the exact same supplier we use and it basically killed off that market for us. So Amazon Basics keeps me up at night, the wave of sellers coming from China keeps me up at night, I mean there is absolutely, you cannot believe what is happening in China right now, I mean, there are massive business parks with significant government funding, they are just launching hundreds or thousands of e-commerce companies that are very Amazon-focused. Five years ago when we would talk to a factory about Amazon, they would go “Oh, we have got a couple of customers selling on Amazon too”.
Today, that same factory almost always has a house brand that the factory owner also has some brands either out in the open or secretly that they are selling directly on Amazon. So we are competing with the same Chinese factories that we are sourcing from. That keeps me up at night and then Amazon. Amazon has this flood of sellers hitting a platform, they have a philosophy at Amazon of “shoot first, ask questions later” when it comes to listings’ suspensions and accounts’ suspensions and they are shooting for the bad guys but, you know, good guys get hit in the cross-fire all the time. And, you know, at times it can feel like, you know, selling on Amazon is a short-term proposition just because so many …
DAVID ALADDIN: Variables …
BERNIE THOMPSON: Yeah, so many variables and so many other sellers just getting knocked out entirely. So, you know, we don’t just sell on Amazon, we sell on Wal-Mart, on eBay, on Newegg; we distribute through Standard Electronics Distribution. When we get a listing suspension, you know, very often there are other people selling our products who can come in – they are often at a higher price but at least they are offering the products – but still, you know, it really feels like the Amazon part of our business is unstoppable because Amazon, you know, has just been eating market share from everybody and yet so fragile because the way Amazon’s processes work is …
DAVID ALADDIN: It is cut throat.
BERNIE THOMPSON: It is cut throat and then in the end sellers are expendable. Amazon has a maniacal focus on customers and sellers are not customers.
DAVID ALADDIN: Is there a solution to this? I don’t know.
BERNIE THOMPSON: Yeah, I don’t know, I mean I think that, you know, I wish that, you know, at this point, you know, we bet on Amazon and I love Amazon, I mean I think there are a lot of good things about Amazon and what they have done, they have innovated in huge ways, you know, but at this point, sitting here in 2017, you know, I wish there was more competition in the e-commerce marketplace world. I hope Wal-Mart is able to become competitive because they haven’t been, you know, so I think that that is one potential answer as that we don’t keep trending towards a monopoly in e-commerce owned by a single company – Amazon.
DAVID ALADDIN: I think you hit a point that has been on my mind for a long time. It is almost … if you are not on Amazon, you are in trouble in a sense or if you have been on Amazon and then you get knocked off of Amazon, you are in big trouble because you have got all this inventory, you know – what do you do. It almost shouldn’t be a privilege unless you go to jail or something, you know.
BERNIE THOMPSON: Right, yeah.
DAVID ALADDIN: Because they have dominated the entire Internet in terms of buying stuff so for one person that is outside of, you know, it is kind of like the gatekeeper to e-commerce, everyone just shops there and … it is kind of weird.
BERNIE THOMPSON: In the United States today, that is a true statement …
DAVID ALADDIN: I think it is 55% of all online goes to Amazon so …
BERNIE THOMPSON: Yeah. Now, outside of the US it is a little different, it is a little bit more competitive but in the US – absolutely. I mean, Amazon has just been eating market shares for years and if you can’t find some way … if you are a manufacturer, private label, seller, if you cannot reach Amazon, I mean, like you say – you can’t probably, you know, be successful and then if you have had run raids that assume the Amazon market and then even if you are perfectly reaching all the other markets, which is hard to do because the other markets are very fractured. Yeah, there is another 45% out there but that are markets that are hard to reach because a lot of them are old markets where you need armies of sales people to reach those markets and things like that. Even if you are reaching all those, you know, if you suddenly have half your sales go away, it is very unlikely that your business is going to survive.
DAVID ALADDIN: The other 45% it could be like, you know, Pluggable, you know, your website. I can’t list my products on your website so it is not really a channel that is available to everybody. So it is just pure dominance, it is scary at the same time but … if you are listening Jeff Bezos – you have got to ease up a little bit, you know, we have got your neighbor on the line.
BERNIE THOMPSON: Hey, don’t get me in trouble with Jeff!
DAVID ALADDIN: You know, you could always like … he probably goes to the coffee shops around there, you know.
BERNIE THOMPSON: I have been in a restaurant where Jeff was in … just happened to be in the restaurant so …
DAVID ALADDIN: Really? Very awesome! And you actually … you have connections with Amazon Corporate as well, I mean, you have a video that … your main video on YouTube is produced by Amazon. Correct?
BERNIE THOMPSON: Yeah! Amazon … let’s see, it was a year and a half ago, did a really nice video series called Day One. It was done by the marketplace team interviewing a bunch of sellers and I think they probably interviewed 30 sellers maybe and ours was one of them; a really nice video series and actually a good one if you have time to go watch those because those are some of the top Amazon selling companies. They knew exactly who the top sellers were and they invited them all to have a two or three minute interview and there are some good insights in there.
DAVID ALADDIN: Where do you see yourself in five years?
BERNIE THOMPSON: Well, you know, again, this all started with “I love devices”, it is actually I am not a seller, I am a device maker and a technologist so I hope that five years from now, we are still on the bleeding edge. You know, we have just had a transition in the USB space – the USBC – and it is a really exciting technology with a ton of birthing pains, you know, just a huge amount of kind of incompatibility issues and other technical issues right know. And so, you know, my focus has been for the last two years and probably will be for another year or two yet of getting all those technical issues ironed out. I mean, we are constantly working with TI and with Intel and all of these kind of big companies saying “hey, we are seeing these problems with customers and working on firmware and working on getting repros of hardware problems to them” and yeah.
We are deeply involved with all these stuff and five years from now, I hope we are doing the same thing, I hope we are, you know, a leading technology company on the cutting edge and that gives us an advantage because we are getting products to market which are better, sooner than our competition and so the customers who are buying Pluggable products are getting a better experience than if they are going to buy something that is months behind in the technology from somebody else.
DAVID ALADDIN: It is very interesting like someone leaves you a 1 star review, you guys go in and call Intel and you are like “this device is not working accordingly”. It is a lot different than most of Amazon sellers have to deal with, I mean, it could be just a design flaw but yours is actually something with another manufacturer tied into it.
BERNIE THOMPSON: Yeah, I mean so we get that one star review, our tools at www.efficientera.com will send us an email and say “hey, there is a one star review, here is what they said” and here is the Amazon order number that that goes with so that we can actually reach out and contact that customer. We send that right into our ticketing system and treat that as a customer service request like any other one and we start working on it, we go “sorry for your bad experience, I see from what you said and I think this might be what is going wrong, might be a hardware problem, let’s go ahead and send you a replacement unit or it might be some sort of problem pattern that we are seeing”.
Right now, there is a huge problem with the MacBook Pros triggering USB over current on any kind of power, charger or doc, you know, we will know “hey, you are falling into a problem pattern that is just a characteristic of the MacBook Pro, you know, so we will just get you a refund”. So yeah, we are really operating at a hopefully very knowledgeable kind of deep technical level and then that enables us to turn around, you know, much higher percentage of those one star reviews, you know, certainly than a seller who doesn’t know or maybe even worse – doesn’t care, you know, kind of about the technology.
DAVID ALADDIN: Yeah. Are you guys able to figure out every single review or is it kind of like a percentage of the reviews like who left that review?
BERNIE THOMPSON: We are able to … if they ordered from you, we are able to figure it out 100% of the time.
DAVID ALADDIN: Aw, that is awesome!
BERNIE THOMPSON: Yeah!
DAVID ALADDIN: Yeah because sometimes, you know, it says like “Amazon seller left this review” or “Amazon customer left this review” and you click on the profile, you can’t figure out who it is.
BERNIE THOMPSON: If it is an Amazon verified purchase and you are the only seller, we will figure that one out.
DAVID ALADDIN: Sweet! Alright, cool! I might have to check out that software.
BERNIE THOMPSON: Yeah, you have got to sign up. www.efficientera.com and we make it easy because these sorts of things, it is hard to believe it until you see it so we have a really long trial – we have a 60-day free trial.
DAVID ALADDIN: Very cool!
BERNIE THOMPSON: And the intent there is that, you know, because the tools do a lot of different things and we want to give you the time free to decide is this worth it or not. And we try to also make the pricing really work for small sellers in the hopes that our tools will help them grow into bigger sellers. So if you want to go beyond the 60-day free trial, it is just one cent per order and eight cents per aces per month so take your aces and multiply by 8 – that is how many cents and then take your orders. And so it is pretty easy to calculate the pricing so for all small sellers it works out to be a few bucks a month.
DAVID ALADDIN: Yeah. You guys have grown to 40-50 listings. Is it more than that?
BERNIE THOMPSON: Yeah, more than that. We have over a hundred listings.
DAVID ALADDIN: That is awesome! Very cool! Bernie, it has been great to have you on the show. Thanks for coming on. Is there a way for someone to contact you? What is the best way?
BERNIE THOMPSON: Yeah, just email me at email@example.com. I would love to hear from you.
DAVID ALADDIN: Alright! Dave Aladdin, Bernie Thompson – out!
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