7 Shortcuts for Building an E-Commerce Startup to $1M in 12 Months
A little over two years ago on Valentines Day my co-founders and I sold our very first Diamond Candle. A minimum viable product launch to test our concept, we sold about a dozen in the first 24 hours and were through the roof, someone would pay us money for our eco friendly soy candles with a twist!
Each candle has a ring inside worth at least $10 but up to $100, $1,000, or even $5,000. Given the understanding that 98% of all home fragrance dollars are spent by females we had found a natural fit. A new element of excitement to a product category where $10 is spent on average in each home in the US monthly.
I wish someone would have told us these shortcuts that first day. Some shortcuts we stumbled into by accident, some we learned from the wisdom of those that had gone before us, and some we learned the hard way.
1. Fight A Downhill Battle
No one brand has really attempted ‘cracking’ our industry using best of breed tech and experimenting with different models. Innovation is rampant in verticals like menswear for example.
- Flint and Tinder
- Den.m Bar
- Frank and Oak
You get the point: big industry, lots of innovative players trying new things.
What are other smaller but still large billion dollar industries with little innovation at all?
Playing the game in the home fragrance sandbox compared to menswear just statistically means we are up against a smaller number of tech savvy innovators trying to do things different in a big way.
2. Don’t Become A Product Expert
How many years did my partners and I spend working in the home fragrance and candle industries before we sold our first candle? Hint: it was less than 3 months.
How many combined years of experience did we have at our disposal when we were rapidly getting up to speed on the entire industry in that less than 3 month period? 50+ years.
While we do manufacture the majority of our product line ourselves in Durham, NC currently where we are located, I would submit that we are the exception and not the rule.
Making candles doesn’t require a multi million dollar automated line. We made our first candles using a 5 qt stock pot and a used electric kitchen stove purchased off of craigslist.
Contract manufacturers, even ones in the North America, are increasingly interested in working on new product ideas in relatively small initial order quantities for new brands.
Use them and leverage their industry expertise to learn about their capabilities and challenger their sometimes tunnel vision of their industry with new ways to experiment with things.
Boom, that’s how the magic happens.
3. Growth Hack your Consumer Packaged Good
The father of the term Sean Ellis details several different elements of the term but at it’s core it is:
Examples like Facebook where utility of the tool grows as you have more of your personal network on platform, Farmville by Zynga where users are incentivized to invite friends to play with them to earn certain rewards, and Hotmail adding a ‘Sign up for Hotmal’ link in the signature of each and every email all point towards building in ‘viral’ in the native product experience.
What if you product is a physical product and not a web app or mobile game?
- People tend to burn candles around other people.
- The ‘Ring Reveal’ experience of pulling a ring out of a candle is not normal and invokes curiosity and anticipation.
- Complementing friends, coworkers, and even strangers on their jewelry is a cultural norm and occurs more often than your average ‘guy’ might notice. Ladies you know what I am talking about.
Think viral coefficients for offline product experience.
I know how many people our average customer tells about our brand that had not been exposed to us before who from having heard from our customer end up making a purchasing decision.
Product growth hacked. Done.
What physical product leans social in it’s experience that you can expound or build upon?
4. Be Different. Really, Really Different.
When evaluating an industry vertical or product category look at doing things different in that industry that haven’t been done before.
- Supply Chain
- Cash Flow and Financial Management
- Customer Service
- Social Media
- Paid Scalable Acquisition Channels
- Content Marketing
- Communication of Brand Story
- Business Model
Shortcut? Look at other industries and verticals with lots of innovation.
Look to the outliers who are the poster boys for Manufacturing, Supply Chain, Content Marketing, etc. Don’t learn from the averages, even of more innovative industries and verticals.
Copy. Adapt. Paste. Innovate
5. Focus on One
Choose one channel that is both ‘free’ and ‘paid’.
Diamond Candles grew so quickly because in the early months I literally spent several hours a day on facebook engaging and growing. Facebook was a better social channel for us compared to twitter because our unique selling position and brand story is best communicated through photos. Twitter is not as photo friendly and more of our target market exists on Facebook.
As of date of writing here Diamond Candles has 286,270 fans. 99% of which we have not used any facebook ads to acquire.
Scaling paid facebook advertising to drive new revenue is something that we have not fully exploited to date.
Didn’t I tell you learn from my mistakes?
With the advances in the ads api partners who work with direct response focused advertisers and the interest graph targeting capabilities, if you are say a speciaity rabbit feed brand you are in a great place.
Targeting fans of rabbits, bunnies, etc. at any given time running multivariate tests on 20+ ad photos, subject lines, and descriptions for 60! potential combinations across 25-28 yr old’s, 29-32 yr old’s, etc., your cost to acquire a customer (CPA) is going to hit the floor.
Throw in facebook login to gather insight and lifetime customer value (LFCV) data on existing customers to further hone your targeting and you are golden.
You only need $2,976.19 per day to hit your $1M run rate between your unpaid activity on facebook and your paid acquisition activity.
Assuming your market isn’t super huge but still sizable then facebook can scale to driving that amount of revenue or at least half where the other half is made up by ‘free’ or ‘earned’ social or word of mouth. Not taking into account any follow up orders from customers who have already made their first purchase.
For arguments sake if your average order value is $100, your cost of goods sold (COGS) and fixed is let’s say $40, that leaves you with up to $60 to pay to acquire a customer and break even day one. You only have to be able to acquire that customer for an average for a comfortable $54 to give you a 10% return on ad spend (ROAS).
Essentially would you give me $10 today if you knew with 100% certainty I would hand you back $11 this time tomorrow?
What if I told you I would loan you $300 today spread out over the course of a month and you wouldn’t have to actually pay me that $300 for 30 days. Since you are making $11 a day on the loan I gave you and on day 30 when you have to hand me the cash for $300 I have already put $330 in your pocket.
It is called net 30 payments terms and you can get them with facebook, google, and just about any paid traffic source out there.
Don’t want to mislead and say that you can get that going day one if you are spending $10 a day, but as you grow how much you are spending as things are profitable you can work to get it switched over as fast as possible.
- Facebook + Facebook Ads (ie. AlphaBoost, Nanigans and Curebit)
- Content/Blog Marketing + Paid Advertising Options for Publishers (ie. Outbrain)
- Video Content on Youtube + Youtube Ads
6. Find a Big Brother or Sister
You need someone that has made lots of really dumb mistakes before so you don’t have too this time around. Someone who is as excited if not more about the challenge you are undertaking than you are.
I have had the priveledge of meeting other founders via Clarity.fm and other sources who are doing some things that I am very excitd about. I get the humbling priveldge to let them know some of the bumbling mistakes I have made so far, what I have learned, and my recommendation as to how they can avoid those similar mistakes.
How do you find them?
Be helpful more than you look to be helped.
It doesn’t have to be a formal advisory role although that wouldn’t hurt. As someone naturally shows a repeated interest and effort to help let them know that you really value what they have contributed so far and that you would love to be able to have them on tap to run ideas by once and awhile.
I have a group of 3-5 people who on average once every 1-2 months I will have a quick phone call or email back or forth at a minimum running something by them and what their thoughts are on the problem I am currently working on.
p.s.-that photo is actually me and my little sister; cute kids huh?
7. Build the Best Funnel
That offline word of mouth factor is crucial here as your foundation to drive highly converting traffic.
What type of visitor converts to a sale more often, someone hearing about you from a random but relevant to them ad on facebook or one of your friends showed you the product face to face and you were able to see, touch, feel, smell, and use the product for yourself? No brainer.
How is paid acquisition effected by your overall e-commerce conversion rate?
From the example above if you can afford to spend $54 to acquire a customer, if 5% of every visitor who came to your site from a paid source made a purchase where you profited $60 leaving room for a 10% ROAS then you could afford to pay $2.70 per visitor that comes to your site.
Same scenario but only 1% of people converted? If you were paying that same market rate of $2.70 for each visitor then it would cost 5x at $270 to make a profit on that one transaction of $60. Your just lost $210. Kind of a big deal.
Step #1 is honing that on-site experience to quickly and poignantly provide the unique selling position, compelling brand/product story, display social proof through reviews and press mentions, lower perceived risk of the transaction with security seals, trials, money back guarantees, etc., clearly drive people to your primary calls to action (CTA’s) while minimizing superfluous distractions and clutter.
Dive into conversion rate optimization and take not from the people already doing this right. No reinvention, just adaption and iteration will get you there.
Once you’re converting traffic really well, you can slowly test paid traffic. You know things are looking good when you are immediately profitable on highly targeted traffic.
While building a business of any kind to $1M in revenue is difficult for most people, doing so in only 12 months is even more difficult. Difficult but I would say not complicated.
People have and are doing it. I know several who have done it without any angel or venture funding.
What less vogue vertical than whatever the buzzword is today; mobile, local, big data, etc. can you go after and do something really different and substantial for that category?
If you are in mobile, local, big data, etc. I love you too. Let me know what you are working on, would love to get into your alpha and you can help us innovate the product experience and sell more candles.