The Growing Pains of two 10m Per Year Amazon Sellers


Nick and Fernando join to talk through Growing Pains of two 10m Per Year Amazon Sellers.

Met in college, started four years ago in ecommerce and stumbled along until hitting FBA and in first month made a lot more in first month than in six months with previous ecommerce solutions. Hit the 8 figure mark this year.

Fernando has always been into entrepreneurship, out of college worked in Finance for a bit and then into tech and then startup and building business. Just hit the three year mark selling on Amazon.

Fernando was employee number two at a Ycombinator startup. Both have eaten broken glass and baptism of fire through the startup scene ups and downs.

How did you start on Amazon?

  • Friends were in ecommerce and so wanted to build a standalone site
  • Similar to Tim Ferriss niche on health etc
  • Working with partners but 75% were a pain in the ass
  • Wasn’t growing as fast as they wanted
  • Started looking at creating products so they could control their destiny on where they were sold
  • Selling on eBay was the backup plan
  • But why sell on eBay if we bought everything on amazon
  • Then they stumbled across FBA and the Amazing Selling Machine
  • Seemed simple enough and they did it
  • Started in March and sold more in a month than in six months doing it on their own shopping cart

Problems from Success

  • First year was so much success in $2.5m revenue
  • Have a tech background so
  • Increase top line revenue was the aim and so just added product after product to achieve that
  • BUT..margins were shrinking across the portfolio
  • Finance report card would come 4-6 weeks after and so a time lag in what was happening becoming visible
  • Dreaded the report card showing margins shrinking
  • This was the 2nd year and looking to triple the revenue
  • Why were margins so poor – had excuses for it (hiring more staff, etc)
  • Ended up with the position of only 4 months of cashflow left!!

Cashflow Headache

  • Had raised several rounds of finance with banks, promisary notes (a customisable way of structuring debt – interest only for 2 yrs)
  • Really favourable approach for inventory businesses
  • Had just 4 months left of cashflow
  • Knew we were in trouble but a big challenge was expensing the freight up front
  • Some months were super profitable as the freight was low and other months freight was high and we were negative
  • Working late in the office and going through the profitability of the products over time
  • We saw that one of our best performing SKUs doing $50k profit per month had dropped to $15k profit over 60 days
  • At the same time hiring people and adding profitable SKUs as well – so this was hiding the problem until the end of the 60 days
  • Had to cut costs and people – so what were the ‘essential functions’
  • Really focussed the company on 80/20 to get it fixed
  • Did a per-SKU ROI to understand which were core SKUs and which were eating cash

The Layoffs

  • Had to layoff great people and difficult
  • Did it all in one-shot
  • Specifically for FBA businesses, your margins are a lot slimmer and a huge payroll of people in LA didn’t make sense
  • Really needed to get better at the analytics and reporting
  • Kept more people with analytics background
  • Each person had a single major task to focus on for the next 90 days
  • We had also ;just’ given offers a week before to two people
  • Brought everyone that was going into a room and explained where the company was and it was sad and difficult
  • Then the next group that was staying were brought into a room and buy-in was sought to ensure stability in the company

The Turnaround

  • After the 90 days focus period
  • Losing the headcount brought us back to breakeven
  • Had a huge backlog of products that carried us through the year end
  • A big thing was clearing out inventory that was slow moving or dead inventory
  • Needed to be 100 or 150% cash efficiency
  • Everyone was gung-ho in making this happen
  • And one of the guys that stayed on said it was the best experience of his life going through this rollercoaster

Rapid Growth

  • How did the stacking of SKUs come so quickly
  • First few products were decent with $20k / month and decent margins
  • In month 5 hit a category that was on fire – every dollar invested brought $5 back
  • These were doing $100k / month revenue
  • The cash we needed was to keep those in stock
  • With the loans from family and friends really helped finance the company in the early days
  • We were aggressive with approach and debt to expand that category really well – a huge advantage over competitors
  • This kind of led us not to be so disciplined because we were so lucky in the beginning

Changed Strategy

  • Still stacking SKUs but changed strategy
  • We realised from that lesson that we were expanding into a new category just after we’d find one that was successful
  • The downfall was moving to ew categories too quickly
  • We now go as deep as possible into our category that’s winning – because Amazon is so competitive
  • We cannibalize ourselves before someone else does
  • Lengthen the product life cycle when we find a winner
  • Launching as many as possible, minimising the number of factories working with and maximizing our economies of scale
  • Operate with 10-20 products out of the same factory to help with negotiating costs down through bulk purchase

Shipping Optimization

  • We didn’t optimize our shipping
  • Now we have dedicated people on Inventory Planning and Logistics
  • At the time we got in trouble as the same person handled inventory planning and supply-chain
  • Spent $270k in air shipments
  • Q4 storage was $80k / month within Amazon
  • Now use a 3PL on East and another on West Coast
  • All shipments from China go to the West Coast
  • We have someone looking at sales and arranging drip-feed shipments into FBA as needed

Marketing

  • Amazon give favour to new products – 14 days window of love
  • Aggressive with PPC out of the gate
  • Product Selection is key, if you get it right and are adding value then it’s a lot easier
  • Not as competitive products and ones we can add to on value to and dominate
  • Cannibalising ourselves or others
  • We do major keyword research
  • And target those aggressively with PPC
  • Using Sean Smith (friend of the Seller Sessions show)
  • And a specific launch strategy
  • If you choose the right products you don’t have to do much more than PPC

Scaling and Maturity

  • Systems are key as well as People
  • Working with 30 manufacturers with 200 SKUs
  • Amazon US, Canada, Europe
  • Really need processes and people follow them to be able to manage it all
  • The people we were hiring was just to fill roles – was rushed
  • We are now more proactive
  • Got a HR recruiting person who has joined the team bringing structure and quality
  • Bring people with experience – cheaper and enthusiastic younger is good but maturity of the business needs more experienced people
  • Marines > Army > Military Police – levels of maturity

Future Plans

  • Selling or Building the business
  • Considering both
  • Target of $2m EBITDA
  • Options are ahead of us – might not want to sell yet
  • Make it well built and have options later

Contact

 

 

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