BI 214: 2016 Year in Review and My Plan for 2017 - Bright Ideas for eCommerce Entrepreneurs

2016 Year in Review and My Plan for 2017

2016 was a year filled with challenges, new opportunities, mistakes, and ultimately the creation of the foundation for what has become the fastest growing company that I have ever started.

In today’s post, which I’m writing as much for me as I am for you, I’m going to break down my results and then dive into the lessons I learned along the way. My hope is that, aside from providing me a diagnosis that I can look back on in the future, today’s post will help you to avoid some of the mistakes that I made in 2016!

So, with that said, let’s get into it, shall we?

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Groove Digital Marketing

For the last few years, Groove has been our primary source of income; largely on the back of just one large client.

Obviously, relying on one client for 90% of our revenue was not ideal; however, I really had no interest in attracting more clients – largely because I have already built (and sold) a 7 figure service company and I had no desire to build yet another service business.

In October of this year, we gave this client notice that we’d be terminating the contract and Groove is now essentially nothing more than a pretty website.

I should add that I still think service businesses are terrific vehicles if you don’t have much startup capital and you really want to start your own business.

Key Takeaway: If you do have some capital; however, a service business is not my first choice. Instead, if you are set on building an online business with relatively passive income, I would suggest you start an eCommerce business on Amazon as I have done.

Private Label

When I first got started on Amazon in April of 2016, I didn’t know anything about building an Amazon business, so I took the advice of a friend and got my start with private label products.

In case you aren’t familiar with the lingo, a private label product is something that you don’t actually manufacture yourself. Instead, you find a factory in China who makes it, and then you slap your label on it.

As you might guess, the barriers to entry are pretty low, and you don’t need a huge pile of money to get started.

My first products were for sale in April, and over the 5 months that private label was my sole focus, the results were pretty disappointing. As you can see below, I made a small profit, but the business was really difficult to scale quickly.

Biggest Lesson: Unlike wholesale, with private label, the time to market for a new product is measured in months, and you are responsible for:

Creating the product listings
Shooting the images
Trademarks
Getting reviews (which is now MUCH harder than it was when I started)
Getting the product to start selling

With wholesale, as I’ll discuss in a bit, you don’t have to do any of this!

Key Takeaway: I do not recommend using private label as your sole focus. It is a ton of work and you can lose a significant amount of capital if you invest in the wrong product. (I speak from experience!)

Wholesale

In August, after interviewing Dan Meadors and Eddie Levin, I decided to pivot from having private label as my focus, to having wholesale as my focus, and since then, my business has exploded! (in a good way, of course)

My first wholesale product went up for sale around the beginning of September, and since then we have added over 50 products to our catalog.

Here’s a snapshot of my results from the first four months, and as you can easily conclude, the numbers are just a wee bit better than the results from my five months in private label!

As a side note, my very first service business, which I ultimately sold for $1.2M, did just $187,000 in its first year; whereas this business did $167,979 in just its first four months!

Results from Sept 1, 2016 to Dec 31, 2016

While the chart above looks great, it doesn’t actually tell the whole story because it doesn’t show you just how fast revenue has grown over this first four months. To get an appreciation of how fast revenue has grown, check out my monthly income reports, as well as the chart below, which shows our results for the month of December 2016.

To reach this level of revenue and profit in just our fourth month has been a pleasant surprise, to say the least! And in case you are thinking we got a Q4 lift in sales, almost none of our products are the types of things people would buy as gifts.

Results for December 2016

There are a few other important factors that the chart above doesn’t cover, so let’s take a quick dive into those now.

With the wholesale business model:

You do need capital to grow
You don’t need to trademark anything
You only source products that are already selling
You don’t need to generate product reviews
The risk of losing a large chunk of your money is almost zero
The margins are thinner than private label, but the volume is much higher

The wholesale business is a very low-risk business that requires you to do a couple things really well in order to succeed.

Product Sourcing: The speed at which we’ve been able to source new products is the #1 reason why my company has grown so quickly. With more products for sale, revenue and profits will increase. In order to source a lot of products quickly, you need to build a product sourcing system like I have explained here.

Compelling Value Propositions for Suppliers: In the market we are in today, most Amazon 3rd party sellers don’t do anything to add value to the brand’s who’s products they sell and as a result, brands have becoming increasingly reluctant to allow additional 3rd party sellers to sell their products on Amazon. If you are going to succeed, you need to have a very clear understanding of the problems a brand is experiencing on Amazon, and you must have a company website that very effectively communicates how you intend to help them to solve these problems.

Checklists for Everything: Running an eCommerce business requires that you are extremely efficient with every aspect of logistics (because margins are thin) and in order for us to do that, we’ve created a checklist for every recurring task we have. That way, we can hire low-cost labor from overseas and know that the work is going to be done exactly as we want it done. If you don’t take the time to create Standard Operating Procedures (SOPs) and put them into checklists, your ability to scale profitably will be seriously impaired.

Hire Staff: This is not a business you can run by yourself – unless you don’t need sleep and never want to have a social life. In our case, our team currently consists of my wife, myself, and one full-time local employee. We also have a part-time local employee who does work in the warehouse. In addition to the local staff, we also have four virtual assistants; all of whom are full time. Without all these people my wife and I could probably (barely) maintain what we’ve built, but we’d never be able to continue to grow at the pace we have during the first four months.

Key Takeaway: If you have capital to invest, the wholesale business model will allow you to build a (profitable) multi-million dollar business in a very short period of time.

Plans for 2017

When I launched my Amazon business, I wrote a goal that I wanted to sell $100,000 worth of products in a 30 day period with a 15% gross profit margin by 3/4/17, and I’m happy to say that we are definitely on track to achieve that goal.

Until I achieve that goal, I intend to keep doing exactly what I’ve been doing for the last four months.

Once we are at the $100K/mo mark, plans for our core business include:

Creating a plan to get to $200K/mo as fast as we can
Hiring another local full-time employee who will be trained to replace me in the area of product sourcing so I have some time to devote to some special projects.

Special Projects

There are two special projects that I intend to devote some time to in 2017:

Examining the feasibility of selling products to the US Government as they have a mandate to procure a significant amount of products from small-businesses owned by women. (speaking of selling to the Gov’t, if you haven’t yet seen the movie War Dogs, I highly recommend you do so you can see just how crazy selling to Uncle Sam can get).
Examining the feasibility of starting a private equity fund to buy at least one company that actually manufactures its own products.

Each of these two special projects could generate some spectacular results if we are able to execute. When it comes to selling to Uncle Sam, I think we could generate a lot of cash flow and build some “exit value” for our company.

However, to build real wealth, I think we need to morph into something more than just a middle man, and that is where the private equity fund comes into play.

Consider that many of the brands we purchase products from are small privately owned companies and many of these companies are owned by entrepreneurs who are within 5 – 10 years of retirement. Consider also that as one of their 3rd party sellers, we are getting a first-hand look at how well their company is run (product quality, communications, delivery on time, etc…) while we are simultaneously building a relationship with them in a way that most of their other 3rd party sellers are not.

The way I see it, this puts us in a terrific position to start a conversation with each company about their owner’s exit plan. Do they have one? What does it look like?

I imagine that, at some point this year, we’ll find a few interested sellers if we keep asking the right questions.

The Private Equity Fund Business Model

Buying companies doesn’t always generate gobs of immediate cash flow, but what it does do is give us the chance to consolidate several of these companies into one larger company that we can either hold for cash flow, or resell for a large profit.

For example, if we can buy three companies, each doing $5M in revenue, for 3x earnings, and then we combine them into one company, we’d now have a $15M company with a higher profit margin than any of the individual companies had prior to our combining them.

We could then resell this larger company at a higher multiple, say 4x earnings, to another larger company, or another PE fund, and generate a fair amount of shareholder wealth in the process.

Obviously, I’ve made all sorts of assumptions here and this isn’t something that I’ve done before, but I know people who have, and you can bet I’m going to ask for their guidance. I’ve also noticed that the Wharton business school offers a 3-day executive course on exactly how to do this, so perhaps that might be a good use of my time and money.

Conclusion

At a minimum, I expect our core business to grow significantly in 2017 simply by doing more of what is already working for us. If either of the special projects pays dividends, it’s going to be an amazing year – to say the least.

I can hardly wait to get started!

If you liked this episode, you might also enjoy:

Last Week’s Whiteboard Friday Video

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