[04:04] So for the folks who maybe aren’t yet super familiar with you…I just read your bio, and get a little bit of idea. But in your own words, who are you and what do you do?
- Yeah, that’s a great question. I mean, where do I start? I think, for me, my background actually stems in China. I used to live over there as a foreign exchange student in high school, speak near-fluent Mandarin, and started importing products from Asia over 10 years ago. That led into the creation of Sourcify, which is a B2B eCommerce Manufacturing Platform where we help hundreds of high growth eCommerce brands, and a few Fortune 500 Manufacturer Products across Asia.
Last year, I got into the boutique hospitality world and started a company called Bubble Hotels as well. And we became the most crowdfunded hotel ever. And we now have one property under development in Joshua Tree, as well as for others going into fruition this year. So a lot going on. And for me, I love outdoors. I love adventure. And I really just like building.
[05:05] Excellent commerce and successful entrepreneurs. We love building. Alright, so let’s talk about—because mine’s an eCommerce show, we’re probably not going to talk about Bubble Hotels a whole lot. But we are going to talk about Sourcify, and sourcing, and how people can become more successful with eCommerce. So just a quick snapshot of the company, when did you launch it? How many customers do you have right now?
- Yeah, we launched over four years ago. So I just started out my living room. I mean, for me originally, we were just charging companies upfront to manufacture products for them. And that’s done from my experience living in China before. Now, we’ve got small teams in China, Vietnam, India, and Pakistan. We work with over 150 mid-sized eCommerce brands, and a handful of Fortune 500s, to really handle their whole supply chain. So that means figuring out how to produce. There’s first sample to the actual production management, quality control, importation, and actually freight forwarding to get their product to the warehouse, typically here in America.
[06:03] And how much did the company [unintelligible 06:04] last year?
- Last year, over 300%. I mean, we were a low seven-figure company in 2019. And last year was really big for us. I mean, this year is going to be even bigger. So it was—I think part of it stemmed from obviously the COVID pandemic, and really pushing people to shop online and the growth of eCommerce. I mean, the vast majority of our customers are commerce-oriented. And so we grew through the eCommerce industry and continued to do so.
[06:35] And are you funded or bootstrapped?
- We are funded. So we went through Y Combinator three years ago in winter 2018. For those that don’t know YC, it’s like the go-to accelerator program for startups. I think, really, the beauty of Y Combinator is the actual community in terms of ability to connect with other founders and grow with each other. And then obviously, access to capital. So we raised about $2.5 million through Y Combinator.
[07:04] So Y Combinator starts off, you get—if you get in—you get 50 grand or something small like that, right? And then do they help you network with other investors? Like walk us through what that looks like.
- Yeah, so YC’s a three-month program. You get, when I went through, you get 1,2, 4, 7%. So they value your company at a bit over $2.2 million. And then what’s crazy is that after a three-month process, you then typically raise that anywhere from six to 15 X or $15 million valuation. So companies just get behind a lot higher after YC, which is good and bad. I mean, I think fundraising can be a double-edged sword in some sense, and it’s really attractive for a lot of founders. But I’d also caution those that are looking to fundraise, that really means you got to be on a high-growth trajectory. People that raise venture capital, they want to be hitting home runs in terms of building unicorns. If you want a lifestyle business, or if you want something that you’re going to just grow slowly, it’s not going to be a good track for you to go raise venture capital.
[08:06] So you applied to Y Combinator, because you said you started this in your living room. So I’m guessing maybe you’d been in business for a while. And before you apply…
- We’ve been in business for maybe six, eight months. And what’s crazy about our YC process is I was actually—I’m one of the only non-technical solo founders to ever go through YC. So the vast majority of companies that go through YC have co-founders, as well as, founding tech—technical talent. And for me, I didn’t. I mean, I just had expertise in manufacturing and sourcing. We were probably sourcing for maybe 20, 30 different companies a month at that point. And we were charging anywhere from $500-$1,000 per company to source different products for them, per product. So we were making some money. But the YC companies that go through, we’re at all sorts of different stages. I mean, some are already doing multimillion dollar a year in revenue. And some don’t have any revenue at all, and just have a strong team and concept they want to build.
[09:11] When you started [unintelligible 09:12–15].
- I was in San Diego stateside. And I used to go back. I mean, besides last year, I go back to China. I mean, anywhere from four to six times a year.
[09:25] And so how did you get your first customer, two, or three? You had no track record. No, nothing. This expertise. That’s—how’d that play out?
- Yeah, it’s a really good question. I mean, for me, both in sales and marketing, it’s always been inbound driven. I mean, that’s kind of a bit of my background is content marketing. And so from day one, we started to really build our content marketing program in terms of putting valuable content out there to the world. So there’s a lot of very active eCommerce oriented Facebook groups. I became friends with a few of the admins of those groups and told them, “Hey, I want to share my expertise on manufacturing and sourcing. I’m not going to pitch anything. I just want to walk through 10 key steps to sourcing a manufacturer through Alibaba or these other marketplaces”. And by putting valuable content out there, people started to DM me on Facebook saying, “Hey, can I just hire you to source for me?” “Hey, I checked out Sourcify. This looks cool. Can we work with you?” And so I always say, when it comes to marketing, put value out there before selling.
So many people go straight to the pitch. And that’s not how you should approach it at all. Always, always focus on value. And we went deeper with that. I mean, we saw just a huge gap in the content space, in the eCommerce world, in terms of not many people at the time writing about sourcing and manufacturing. And so literally, within the first few months of business, I was writing on the Shopify blog. I was writing on a better lemonade stand. I was writing on every major eCommerce blog about sourcing and manufacturing because there wasn’t any no subject matter expert at the time that was really diving in deep to those topics. And so I just saw this gap in the content that these companies were producing. And obviously, sourcing and manufacturing is a huge, huge component to any eCommerce business. And for whatever reason, there just wasn’t a lot of content about that at the time.
[11:22] How did you get the [unintelligible 11:22–25]?
- Network. I mean, I originally would reach out to the owners of these blogs or writers of these blogs, and just try to network. I said, “Hey, I really love your writing. I want to share it. I want to talk to you.” And I wouldn’t ask anything right off the bat. I would just try to build a relationship with them. And I think that’s the key is too many people ask before building that relationship. And for me, it’s always: first provide value, and then provide value more. And then, hopefully, you get to a point where you can ask for something from the other person.
[11:57] Well, let’s use Shopify as an example to dive into that a little bit deeper. And by the way, are you getting any feedback on your end or is it clear?
[12:05] So let’s use Shopify as an example. You didn’t—you didn’t know anybody at the company. And you looked at their content, and you thought I can add value. What’d you do?
- So there was a editor-in-chief at Shopify, Aaron Orendorff—I think—his last name. And Aaron is this incredible writer online. I’d seen his work pretty much all across different eCommerce blogs. I had a mutual friend, Benji Hyam. And I asked Benji, “Hey, I’m interested in writing about Shopify, and Aaron’s work is everywhere. Do you think you could make an introduction?”. And he made an introduction, and I kind of approached Aaron as a young writer. At the time, I was 22 years old. And so I was a young writer. I’d written before, though, for other media outlets, like Entrepreneur Magazine, and The Next Web, and The Huffington Post. And so I had a bit of a portfolio online when it came to writing but didn’t have a technical writing expertise.
And so I just chatted with Aaron and said, “Hey, I want to learn how to write more technical content. What’s the best way to learn to do so?” And as I started drafting and writing different pieces, Aaron realized, “Hey, this content would be pretty good for Shopify, these other blogs I’m connected to. Let’s give Nathan a shot. I’m fortunate he gave me a shot after some time, and enabled me to publish on those blogs.
[13:25] So you leverage to make a connection to ask for some advice, which you then cleverly turned into a writing opportunity. To sum that up, that’s basically what it was?
- Totally. And I think that’s true of anything. I mean, if you’re trying to access a new customer, if you’re trying to access a new investor, if you’re trying to access anyone—it’s so much better to find someone and spend the time trying to find someone that has a mutual connection that can make that introduction, especially a strong introduction, than trying to reach out cold. I mean, yes, you might get 5, 10% shot, or sometimes maybe higher, reaching out cold and getting a response. But if you can make a mutual introduction, or getting mutual introduction made, there’s just so much higher of a response rate.
[14:09] How did you know that you had a friend between you, and a fellow, and Aaron at Shopify? Did you go on LinkedIn and see, “Oh, he knows him?”. Or how did you do this?
- LinkedIn and Facebook. I mean, right now, LinkedIn is just so crowded, where so many people are connected to others that they don’t know. And it’s just a whole mess. I mean, honestly, I think that people should be more diligent on who they connect with on LinkedIn because if you can’t make an introduction to someone in your network, is that really a valuable network? And so at the time, I saw that my buddy Benji was connected across these different social media platforms to Aaron and thought, “Hey Benji, are you willing to make an introduction to Aaron, and do you know him well enough that it’s going to be a good introduction?”
[14:52] Okay. So the things that you were doing in the beginning, when you first launched Sourcify versus what you’re doing now—did you luck out and get really solid product market fit back then? Or have you iterated steadily?
- Now we’ve iterated. I mean, it definitely was a process. I mean, going from 2017 where we’re just charging companies up front, it felt like every single month we’re back on the treadmill. How do we continue to increase our top of funnel to get more customers in every single month because there was no kind of recurring revenue there. Whereas going through Y Combinator, obviously, SaaS is so big when it comes to B2B businesses. And so we’re really kind of pushed to figure out well, what is our SaaS model? How do we have more recurring relationships and business with the companies we manufacture for?
And so that’s really where we started building software around product management for sourcing teams and in manufacturing. And that’s what Sourcify has become today, where companies rely on us to manage their production to work with factories. And then we have our sourcing teams in Asia that actually do the work in the background. Because for anyone that’s manufacturing a product, there’s a lot of moving parts to it and it can’t be all automated.
[16:09] So it sounds like you’re really a managed service with some software wraps around it. Is that about right?
- Totally right. Yeah. I mean, the software empowers our team and our customers to perform better and have more visibility. But at the end of the day, I mean, there’s still people in the background communicating, managing production, handling quality control, handling the freight. Now, there’s a lot of moving parts to going from, “I’ve got an idea to produce this type of product” to actually having that product land at your warehouse.
[16:41] So I completely understand why the managed service provides a whole bunch of value, but the rest of it is just project management. Why did you build your own software tool instead of just using an existing tool?
- It was more so for that SaaS component. I mean, we could use an existing tool, I think. But at the end of the day, we wanted to make a project management tool that was very specific for the industry in terms of going through each step of the process of manufacturing a product and importing it. And we also, of course, wanted to sell that project management system under our Sourcify brand.
[17:14] So company valuation perspective was really a heavy influence in why you built your own software as it because then you could call yourself a SaaS company. And then you can raise money at far more favorable valuations?
- Yeah, totally. I mean, when it comes to valuations, and comes to building businesses, I mean, I think that’s something that should be looked at. I mean, software is a bit of a cheat code. I mean, you see the valuations of these companies in terms of 10, 20X revenue. I mean, it’s really eye opening. It’s nuts compared to an eCommerce company, where maybe it’s three to five EBITDA. Now, it’s maybe grown a bit, and kind of the Amazon FBA world. There’s so many big buyers coming into the space. But, I think, that’s something you should also consider when building a business. There’s kind of two questions I asked myself in doing anything is: number one, am I gonna regret not doing this in the future? And number two, is it going to be fun and enjoyable? Is it something that I want to learn? And so those two questions kind of guide my journey through entrepreneurship. And also both, personally, if I’m invited to a dinner, or an event, whatever it may be, I kind of asked myself those two questions. And that will push my decision one way or the other.
[18:24] You mentioned you basically tripled last year—the company size. So what you did in the beginning, hanging around in Facebook groups, and providing valuable content…that only scales so far. So where’s all the growth coming from now? Is it the more traditional ads, and SEO, and maybe some email outreach? Or what does that look like?
- Yeah, right now it’s still all inbound and referral base. So if you Google, China manufacturing, manufacturing in Vietnam, all of that—Sourcify comes up as one of the top search results. And honestly, most of our business right now is referral or word of mouth. It’s pretty incredible. I mean, I think we’re become pretty well-known in the eCommerce world. But for us, I mean typically, we like to work with that mid-market customer range. And so once we prove success with one customer and start working with them for six, eight months, a year, and we’ll ask them, “Hey, is there other eCommerce founders that you know that you think could use our help?” And that’s really how we’ve grown.
[19:26] Okay, so there’s ask for the referrals. They didn’t just fall out of the sky and land in your lap?
- Totally. We asked. We asked 100%.
[19:35] Okay. Tell me a little bit about customer onboarding. Because if you’re getting high levels of customer satisfaction, and you’re succeeding in asking for referrals, your customer experience must be pretty compelling.
- Yeah, it is. I mean, for us, customer onboarding is a longer process than most software companies because we’re actually producing physical goods. And so what will typically happen is a company Y they’ll send their specs, whether that be a tech pack or CAD. And if they have samples, we’ll send that as well to our main sourcing office in Guangzhou, and then we’ll go and bet out a handful of factories for them, and see which one’s gonna be best fit to produce samples. Sometimes we’ll sample at two or three factories as well, and then go forward with the process of sending those samples to the customer seeing if those samples match their expectations.
Obviously, sometimes there’s multiple sample iterations that we need to go through. And once approved, we go into production. And our team does the production management, as well as the quality control. We actually do third-party inspections on every single production before they’re shipped. I always tell this to eCommerce founders and sourcing team members. It doesn’t matter if you’re working with us or someone else, that third-party inspection is like your insurance. You need to have a third-party inspection before your goods are shipped. And typically, before you pay the remaining balance in production.
[20:58] Because once you…
- I mean once you pay, it’s extremely hard to get your money back. And it’s like why not? You can even inspect. Let’s say it’s a big, big production and you inspect 2% of the goods. And if 50% of the 2% of goods that are inspected are bad…well then, you’re in a tricky situation with your factory. And you should probably spend more money inspecting a higher percentage of those goods.
[21:23] So let’s dive a little bit into the science of sourcing products, for the folks that are listening. In terms of product research, are you involved in that at all? Or do your customers come to you and say, “Hey, I want to make this widget. Help me find a factory to make this widget.”
- So most of the time companies come to us with their specs and designs ready to go. Sometimes it’s a matter of improving production for an existing product line. And that’s actually the vast majority of our customers say, “Hey, I actually want to try to figure out if I can improve my margin, improve my quality, improve my lead time. I’m just ready for a new factory relationship.” And that’s typically whether they’ll engage us to utilize our sourcing team to really ensure that they’re getting the best products at the best price and meeting their lead time expectations as well.
[22:17] So what is an advice you have for an entrepreneur who’s already got their idea then? And maybe for whatever reason, they’re not going to be your customer. They’re going to try and do this on their own in terms of vetting the factory, and looking at samples, and so forth. What are some of the best practices and some of the gotchas?
- Totally. So the main approach is going to be going mostly probably on Alibaba or global sources. You’re going to go onto the search bar, it’s going to say products or suppliers. You’re going to put it into suppliers, and search for suppliers that are already in your industry. You then want to find suppliers based on similar products that they’ve produced and start communicating with them. I think a lot of times, first-time entrepreneurs or people going out and sourcing a product for the first time, they kind of get scared to communicate with these different suppliers and factories. And at the end of the day, communication is so crucial when it comes to manufacturing and sourcing. That I always say reach out to 10, 20+ factories to these marketplaces. See their response, and just get an initial feel for the reaction. We actually have a program in product sourcing school that helps people dive into that, and it really helps them understand the process of manufacturing their product.
[23:28] Alright, so once you’ve narrowed down the factories, you’ve gone through a vetting process. You’ve got a shortlist of maybe three, four, or five factories. Actually, how many with factories—when you get to the sampling phase for a typical product that is—doesn’t cost a fortune for each individual product? Like we’re not talking about multi thousands of price per unit. Let’s talk about 10, 20, 50 bucks, 100 bucks, whatever per unit. Something in that neighborhood.
[23:56] How many different factories are you going to get samples from?
- Yeah, I would say typically, you’re gonna get samples from two to three factories. That’s good. I mean, sometimes just one. If there’s one that really you think is the best one, just go with that one. It also depends how fast you’re trying to move. I mean, sampling is probably one of the hardest parts to get going because you have to get so many aspects, right? When people produce a product, a lot of times people come to me and say, “Hey, I’ve got an idea for a new t-shirt brand.” And I say, “Okay, I could ask you 100 questions about that T-shirt. What’s the cut? What’s the trim?” Like, there’s so many different questions you can ask about a product. So until you actually go out and manufacture a product yourself, you don’t realize you can really customize anything you want. And so you might get your sample, let’s say of jackets, and you think, “Oh, I want the zipper to zip like this instead of like that”. And a lot of times you don’t actually think of those possibilities until you get a sample.
And so that’s why we always say the best bet when starting a new eCommerce brand is order 3, 5, 10 products from other companies in your industry and analyze them. See what you can do to improve those products. I think one of the best ways to even, let’s say research new product categories, is looking at bad reviews. There’s got to be some bad reviews, whether it be on Amazon or you know someone Shopify of their products. And see how you can improve because there’s always ways to improve a product. I think, nowadays in the Shopify world, brand is so important. But you know, when it comes to Amazon, a lot of times obviously, you aren’t necessarily selling the brand on Amazon. You’re, moreso selling the ranking, and the reviews, and the search, and how you’re really able to become a result for those search terms when people are searching for your product on Amazon.
[25:48] So once you’ve got your sampling dialed in, you’ve made your factory selection. I guess the next logical thing to do is you’re going to place your—you’re gonna have your place your order. And then before it ship, you’re going to get it inspected. And then once it passes inspection, it’s going to get shipped?
- Yeah, and I know placing a first order is, it’s a lot for people because you’re doing so much. It’s the first time you’re typically sending a wire to China, or Vietnam, or wherever it may be. And so it takes a lot of kind of confidence in something to say, “Okay, I’m wiring this money. Let’s see what happens.” And know that typically, when you’re starting out, you’re gonna have like, 30-70 payment terms. So 30%, you got to put down. 70% is typically due upon shipment or upon delivery. And before you pay that remaining balance, that’s where you have that third-party inspection come in.
So now let’s say you’re a new eCommerce brand. Typically, your production budget’s going to be, let’s say, $5,000-$20,000, $30,000. You’re going to be risking anywhere from a few $1,000 to $10,000 with that 30%. But you’ve got that safeguard in place. And you know, that third-party inspection’s really your insurance. And then through production—and production is gonna last anywhere from 30 to 60 days, typically, depending on your product. And it’s not that it actually takes the factory 30 to 60 days to produce your product itself, but instead the factory has their own supply chain. You gotta wonder, where do they get the raw materials to actually put this product together? Factories themselves have a lot of sub-suppliers. I think that’s something people overlook. Do they know why it has taken so long to produce my coffee table? Well, your coffee table, that factory that produces your coffee table probably has 10, 15, 20 different sub-suppliers they’re working with just to produce that coffee table.
[27:33] Yeah. Funding aside, the very first thing I bought off of Alibaba, I got completely fleeced. 2800 bucks gone.
Alibaba was pretty young back then. And they didn’t have good quality control in place. And I was not very happy, I gotta tell you.
- Yeah, yeah. Well, I think too, a lot of times, here’s that what people don’t realize about Alibaba itself, is that when you search for a supplier on Alibaba, the one that comes up the highest doesn’t mean it’s the best factory. It’s just the one that’s kind of paying Alibaba the most to rank for that keyword. Similar to how you can advertise on Google or Amazon based on search results, based on keywords. The same with Alibaba, they have their own internal advertising platform for the suppliers that, “Hey, when I search ‘flip flop factories’, well all this flip flop factory came out first result on Alibaba, they must be the best!” That is not the case. That is not the case. What actually happens is that flip flop supply that came up first result on Alibaba paying Alibaba the most for that to get that position.
[28:40] Yeah, ‘cuz it’s worth a lot of money.
[28:44] All right. So before we wrap up, Nathan, what on the topic we’ve been talking about for the last 20 minutes or so—what’s the one thing or a thing that I haven’t asked you about? That we would be remiss if we didn’t discuss, if you can think of one?
- I love thinking outside the box when it comes to building and getting attention. And so I’ve done that twice in big ways in the past three, four years. One—people might have heard of—it was the Conor McGregor fight that he did with Floyd Mayweather. It was a huge, huge fight. And during one of the press conferences, Conor McGregor wore a pinstripe suit with the letters F, U, F, U going down the sides and pinstripes in this thing went viral. I mean, it was all over the internet. And literally, I saw that that night. We put up a website. I don’t know if I can cuss on here or not. But it was f—yousuits.com. And we sampled—we got samples of suits made saying F, U, F, U going down the pinstripes. We got wallets. We got ties. We literally got all these different products to produce these suits and get these samples. Within a week we had the samples. We have the site up. It went viral. I mean, we were on Brobible, Hypebeast, like every major media you could think of. It was like, “Oh, you can now buy Conor Mcgregor’s FU suit.” And we were covered all over the web. And on that webpage, f—yousuits.com, we had a link built by Sourcify if you want to source to manufacture your own product to click here. And we got more leads from that kind of marketing stunt, as you’ll call it, than being on TechCrunch, to being on CNBC than being on CNN. I mean, we’ve been on every major media outlet. But those marketing stunts, I tell you, they just drive so much virality. And that’s what I love. I mean, I think it’s not always a long-term, sustainable growth play. But especially in the B2B space, we can get a huge surge, and potential customers. If you win some of those customers, your ARR is gonna grow substantially.
[30:56] Salesforce is famous for those marketing stunts early on. If you read, Marc Benioff spoke about how he launched Salesforce. It’s just marketing stunt, after stunt, after stunt, and mostly worked exceedingly well. So Nathan, it’s been a pleasure to have you on. For folks who might like to work with you, just go to sourcify.com. I’m sure it’s pretty obvious once they get there, how they can figure it out. So thank you very much for making some time to be on the Bright Ideas podcast.