Emmanuel: All right, we're back with Grace Eleyae on the Journey to an Eight Figure E-commerce Business podcast. And in the last episode, we literally were talking about how we started from the very beginning. And we talked to getting all the way up to our first year in business where we had done 60K in business. And then we finally cracked the code on marketing by finding influencers to help us sell our products and we've gotten to $600,000 in revenue. This episode is going to be we're gonna be talking about how we went from $600,000 in revenue per year to $6 million the next year in revenue. That growth was intense. It was specific. It was hard, but we have lessons to share with you. And we're gonna start though by going back a little bit. In the last episode, we talked about how I gave Grace a $10,000 credit card and said, let's go for it. And she built the business off of that. One of the things she did was sourcing manufacturers. And we're an apparel business. And so for folks listening that are in that scenario. I just started my business. I have a couple thousand dollars. I need to buy inventory. I've been making it in my sewing machine or at my kitchen at home. How do I find a manufacturer or a co-packer? So I wanna start there on this part of the journey because after we started selling, we had to start working with manufacturers quite a bit more as we grew. So what advice would you give? You know, that was 10 years ago. 10 years now, since then, how would you, if you were starting today to find a manufacturer for your new design, how would you do it?
Grace: So there's a few different ways and it depends of course on the product that you're trying to sell. But now what wasn't as prolific as it is now was Alibaba. So if it's something that you can do overseas that they probably have an idea of, that's a very good resource. But I just use Google. So let me just tell you my experience. I actually just use Google. I Googled first I think seamstresses. I assumed that was the term terminology for someone who I can give a pattern. I had the pattern, because I knew how to make a pattern at that point. I had the fabric content because I just sourced it at Joann's, but I didn't have the person who could sew it for me and cut it for me in mass. And so I looked for a seamstress. I didn't know that we needed a cutter. I didn't know that they were different. I think during that research for a seamstress, and then I looked for tailor, those are the two words that I knew when it came to this industry until I realized that there's something called contract sewer. And so let's say you wanted to start an apparel business. Um, you would probably again, I think want to source something like a contract manufacturer or contract sewer. Uh, and then usually they would require you to probably source your own fabric or source your own, um, uh, they call them trims. So anything else that you add to the fabric. So labels were the next thing. How are we going to, there are actual label manufacturers, both domestic and abroad, that can help us literally with the branding labels. And that's kind of how we started. We started with contract sewers in Los Angeles. From there, we went to, we got a better contract sewer in Los Angeles. So literally that cut the price more than half. And then, and did full service, meaning they No, they weren't full service, sorry. They just did cutting and sewing as well. And then from there, and I'm not sure how far you want me to go with this, sourcing became something that we actually needed to go. Because we had such high quantities, we were able to go abroad and it made sense. So we started to go to sourcing fairs. There's one in China called the Guangzhou, Canton Fair in Canton. Canton Fair, there's a big one there. We went to one in Hong Kong. I forget what that one's called. We went to the ones in Las Vegas. Just know that those are gonna be, anyone coming from abroad in US trade shows are the ones that are gonna be a little bit more pricey because they have the money to come all the way up to the US. But we just started sourcing. Now there's a lot more opportunities and a lot more websites to source from. Again, if you're doing plastics, you might have to go abroad right away, you know, and understand that there are things that there that you have your idea in your head. And there are a lot of manufacturers that didn't understand my idea. And like satin, you want me to put, don't you shouldn't the seam go here? And they have their way of doing things. And I would literally have to say, no, I do mean to put that seam there and no, I want the opening to be here because it was such a novel product. So, yeah, I feel like there's a lot more opportunities and a lot more places to source here now. But back then, it was slim pickings and really expensive.
Emmanuel: Yeah, and I think there's so many more people doing e-comm too that I think it becomes it's much more level playing field now before the manufacturers had all the power. But now, especially if you're small, you can negotiate even when you're just getting started. A lot of people think that the MOQ is mandatory minimum order quantity, negotiate that down. You know, I've got clients now who are like, yeah, I've got 1000 units I've been trying to sell of this product. Yeah, you know, we've changed the product now because that's what you're supposed to do when you're just getting started, is iterate based on feedback, but they bought a thousand of them and they've still got 900 burning a hole in their warehouse and they need to buy the new model. Well, don't get stuck in that situation, buy a hundred and then promise them stuff. Look, when we get more sales, then we'll come back to you. You'd be surprised, they usually will come down. Even if they don't come down to a hundred from a thousand, they may cut it in half, maybe cut it into a quarter. Has that been your experience?
Grace: Yeah. And one small thing you, yeah, definitely. And one small thing we sometimes do, and definitely you can do as well, is just to get the tiers that they offer. So it's like, if you get this amount, if you get from 150 to 300, it's gonna be, let's say $10. But if you get, if you go upwards of five, let's say you get all the way up to you know, then they show you from 500 to 1,000 and 1,000 to 1,500, and all the way upwards, 5,000 plus though is gonna be only $2 per unit. So you can actually price somewhere in between the two, you know, now that you have the cost, knowing that if this does take off, you can drive that price down, essentially. Sorry, the cost, your cost, the cost to you down, because you have that much room to work with.
Emmanuel: Yeah, very key things. So immediately you're brand new, you've been making it out of your kitchen or your living room, you're sewing it yourself, and you wanna get a manufacturer. Make sure, remember, you can negotiate them. Everything is negotiable. You can negotiate the MOQ, you can negotiate the price, and you can find out from them, if they don't wanna negotiate right now, what are the price breaks in the future? So what if we make a thousand? What if we make 10,000? What if we make 100,000?
Grace: Mm-hmm. Everything's negotiable.
Emmanuel: and find out. And then at least what you're doing is what you'll start noticing is the price between 10,000 and 100,000 has gone, the price between 1,000 and 10,000 was like $10 to $5. But then the price from 10,000 to 100,000 is like $5 to $4.50. You know, start to notice where their minimums are. And that's what you're really trying to find. And then you're trying to just negotiate how much you need to order to get as close to that minimum as you can. So.
Grace: Exactly. Yeah, and when you're deciding to go overseas after, let's say you live near a hub or you live near somewhere where you can actually access manufacturers like Chicago, LA, New York, the big decision factor also, you have to play the fact that quality control is going to be a major, something that you're gonna have to really monitor more closely with different. And then of course the shipping of samples back and forth, making sure that they're actually meeting your requirements. You're gonna have to factor that cost into their nice, you know, low price that seems like it's nothing, but it's like, wait, don't forget, you're gonna be sending samples back and forth. You're going to have to make sure that the quality is up to par in a different way that's gonna add cost.
Emmanuel: And this goes for your 3PL as well. As much as possible, try to sneak into the process, right? Like they may not like it, but this is also why it's good to start local. It's more expensive, but it helps to start locally because you can go to the factory. Like, Hey, I want to see my product. Go pull it off the sewing machine and show me. Right. Uh, or in your manufacturer or your 3PL, get somebody local. So you can walk in and say, I want to go look at my product, put hands on my product.
Grace: Yep. 100%.
Emmanuel: They will say no on the phone if you asked them to do that. But if you show up normally they won't kick you out. Right. And also if you're persistent on the phone, they usually, all right, fine. Fine. It's my inventory. I want to see it. If you're going to take care of it, I want to see how you take care of my inventory. So great stuff. So let's dig into how we jumped on this rocket ship in our second year, full year in business and just add it utterly turned up the sales volume. What happened?
Grace: Mm-hmm. I know, I know. And that's really a question for you. You know, I see the you know, the castle at the on the other side of the forest from the tower on this side of the forest. And I'm like, oh, let's go to that castle. You see the forest in between the tower and the castle. You can see that wait, if we go this way to the castle, we're going to encounter a lot of quicksand and dangerous snakes or something. If we go this way, we're looking at, you know, having to cut a lot of brush, it's gonna be a lot of work for us. I mean, if we go this way, there's dangerous, there's a beast on that path. So, how do I build, right? And so that's where the systems come in. And I know that in this process, you were big on finding, establishing, and documenting systems and processes. So let's just start at the beginning. You know, from when I came to you with the idea to the Cloudy Apples, boom, right? Tell me a little bit about that journey. So we talked a little bit in the last one about your reaction to the product itself. Like, how is this gonna make it? All right, here, you know? But what was the journey from, where were you in that? Let's put us in your shoes in that moment and then we'll talk about launch to Cloudy Apples.
Emmanuel: Yeah. So I was working at Amazon. The first observation was, you know, this is 2012, 2013 timeframe fulfillment by Amazon wasn't a thing. And even e-commerce wasn't that popular at the time before that. If you think about it, all we really had for the previous 10 years was at most eBay that it started to popularize online purchasing. People didn't just put their credit card in and then wait three days or a week or two weeks and get product in. Like it was kind of the Wild West online. So working at Amazon, I wasn't even in the retail team. I was in the fulfillment center team. So I was on the shipping side of things. But what I noticed was there were brands that would show up. And when I say brand show up, it was their product. And it was the weirdest stuff. The ones that were successful are the weirdest stuff. When it really first started fulfillment by Amazon, people would empty their garage, put labels on everything and just send it to us and we'd get all this junk fishing poles and boats and you know, canoes and just weird books, tons of books. Just stuff they used Amazon as storage. But there were some brands that were actually successful that would sell. And the unique thing about them was, you know, it'd be a niche type of thing. It would be like bacon, bacon everything, bacon flavored lipstick, bacon flavored underpants, bacon, uh, robes, bacon nightgowns. It was, and we would laugh like that, right? Like it was a joke. But what I couldn't laugh at was the first month, it would be a couple cases. The next month it would be a pallet or two. The next month it would be a truckload. Like, wow, these people are really scaling and what are they actually having to do? Amazon is handling the storage, the fulfillment, the shipping, they're building them a little mini website and sending them customers. They're just sitting back and collecting a check. That's all they're doing. They find the products in it. I was like, I need to do that. And there's a system here where in the past, if you wanted to create a product and sell it, you had to build your own manufacturing capability. You had to build your own fulfillment and logistics capability. You had to build your own customer service and infrastructure and marketing machine. All of those things, those factors of production. You had to make yourself a light bulb moment. Not anymore. You can contract all of these. And for us, I mean, I thought that was the plan, right? To me, it was like, let me just find a product and have Amazon sell it. I thought it'd be that easy. The biggest learning there for marketing at that phase was, well, you can, that only works if people are searching for bacon flavored stuff, right? And so it was like, that was why our first year was such a struggle. And we got so fortunate finding influencers because It doesn't work if no one's searching for your product. You can't succeed that well on Amazon or on Google shopping for that matter. Right. Cause those are platforms based on demand existing. You're capturing demand that already exists. Right. And we didn't have that. We had created a brand new product that you had literally made and we're coming up with names for. So that was where we were at in that first year, trying to stumble and bumble around running Google ads and Amazon ads and just not getting anywhere, not realizing that no one was searching for it. But that was the business model that I thought. So we did do that business model in the sense that we found a contract manufacturer, we were shipping, we even found a 3PL at one point, we were using ads to sell. It just wasn't quite working. And where did you want me to get to? Did you want me to talk about influencer? Okay.
Grace: So, so I actually want to go before the ads, before, before the influence, we found the influencers. So right now let's just start at the beginning. Um, we launched in September of that year and you had to figure out shipping. You had to figure out, um, how to list the inventory and where, and how to draw it down, um, what were you using to do things like print labels, ship orders? What packaging, like in those lower moments where we were rejoicing at one sale a day, what was that like?
Emmanuel: Mm-hmm. Yeah, I think then we were dealing with different tools. We were still on WooCommerce, which is a nightmare scenario. Sure.
Grace: Mm-hmm. Explain that. Explain why is it such a nightmare? Because you've said it a couple times now.
Emmanuel: Yeah, so first of all, it didn't integrate with everything. So like what we actually use is things like ShipStation. And then we needed inventory management systems like Stitch Labs, I think we used at the time. There was Deere, there was Sin7, a couple of different things. But WooCommerce itself, it's a free tool. And that's how they get you. It's free, it's on WordPress. And that's great if you're a developer. Right because you're supporting all of that yourself. You have to create your own server or get your own server and you know you can use Bluehost and all these things but you're basically signing up to become a developer in a way or to be at least a webmaster or someone who manages websites and that's not why we got into business to get good at maintaining a WordPress website. That's the last thing I want to think about and that's the thing. Don't get me wrong I don't think WooCommerce is bad. If you understand coding and you enjoy that, then WooCommerce is the thing to choose, or if you have a developer that's going to be with you the whole way and maintain it, then great, use it. But if your goal is to be in business or to create products and serve customers, it's going to get in the way. I'll give you an example. There was, this happened at least once where the whole website shut down. And I was trying, it took me a week to figure out why is it. It wasn't that it's a website shut down. It was like people couldn't pay when we're getting all these messages. Hey, I can't pay. I can't pay. I was like, what the heck? Well, there was a plugin that was on the website that was for the tabbed view. So like, if you go to a website product page and you look at there's tabs there, they're like FAQ or sizing guide, and you can click through to the different tab that needed to be updated. And It wasn't updated. Well, guess what? That line of code was above the add to cart button, which meant that the ad, all that other code, which is the add to cart button, a couple of other things didn't show, doesn't seem like that big a deal, but people couldn't add to cart, meaning they couldn't get to the cart, meaning they couldn't get to the checkout, meaning they couldn't buy it was like, Whoa, the fact that this even exists or is possible that my entire store payment mechanism, basically the cash register could just disappear. This is foolish. This is just dumb. And it took me, and by the way, I'm saying it to you, like I solved it quickly. It took me a week and every person that I knew who knew code to finally find that. And at that point, this had happened a couple of different times, I'd gone through these. I spent all my time reading blog posts about WooCommerce and how to make it work. I was not running my business. And so I said, you know what, that's it. I went to Shopify and three days later, we had completely migrated over. And it was just like, and I've never had to worry about the checkout since then. So that's why I'm so adamantly against WooCommerce because I don't wanna be a developer. I just want my cash register to work. And that's, yeah.
Grace: Mm-hmm. Yeah. I don't want the line to use the same analogy. I don't want the line out the door because literally they can't finish the purchase. Yeah, I get it. Yeah.
Emmanuel: Cause again, they're standing there at checkout ready to pay and they can't and I can't see it because it's not a retail store. So I would might not even notice it. People are just abandoning carts, you know, and I don't even realize it all because of some silly plugin. And that's why people give Shopify things like Shopify, a bad rap or big commerce to the rest. I say use a hosted platform because even though it can give you all the features that WooCommerce can or WordPress can your cash register will always work. I like that they'd lock that off. I would, I've, we've not had an issue. Maybe once or twice where it was down for a little while, but then they fix it.
Grace: Yeah, or we had, I mean, we did have one person make a mistake, I think, in the last year, and like, delete, deleted all the, it was our error.
Emmanuel: Right, it was our issue. Yeah.
Grace: And it was like, wait, why can't customers put anything in their cart? It's like, oh, we're only selling to Canadian customers. You know, that day. Anyways, that's a that's beside the point.
Emmanuel: Mm, yeah. Human error.
Grace: Human error, exactly. And so and so that was in the beginning, when you when we got to the influencer and it blew up. What then did you start realizing, because we always liken our journey to driving a race car, in a race, with trying to change the tires at the same time. It was so much happening at once. We feel if we're on a boat, and there's holes coming in, we're literally plugging holes as we're trying to row. So, Cloudy Apples comes in and take us all the way, and basically now this is a journey from Cloudy Apples and our first influencer all the way up to our Facebook ads and that year of influencer, because there's so many things that we had to figure out between the four or so of us. Inventory management, inventory planning, shipping, inbound, marketing, budgeting, cash management. Especially with the inventory planning, we started to have to have pre-sales. And you discovered that and all of these are part of the journey through the forest, right? You know, we've tried this way and it's like, wait, no, we run out of inventory if we have too much marketing, okay? Then when we have too much inventory, we don't have the money for marketing. And so you had to create systems and use different tactics to make sure that we still could grow. And again, we went from just $600,000 to $5-ish million in just a year, you know, and what did that look like?
Emmanuel: Yeah. So obviously I wouldn't be able to get into all of it, but I definitely did talk, you know, season one that season one of this podcast, especially episodes four, five and six, I go in depth with all of it, but broad stroke short answer is simply, um, nailing down what worked. So influencer worked building a system around that. Uh, I talked with my mentor who had said, just focus on what works. You're doing all these things. Influencer worked. You had a pop make that work. So we found, I think we ended up working with like over a hundred influencers over the next year. We built a machine. We hired VA's to literally help us do outreach. Then we hired VA's to help us with managing the conversation back and forth. I built a spreadsheet around the basically a sales pipeline. I didn't know that that's what something like that was called at the time, but we built a pipeline to work all these influencers through the different stages of working with us from outreach to yes, agreement to sending product to scripting the videos, if we script a video, some wouldn't let us do that. Most wouldn't, and most we didn't want to, we just let them do it, and then getting the video back, and then distributing it, right, and getting the sales.
Grace: And you even had it down to a science you knew by like follower count, you know, average views, type of video, almost exactly the range, a small, you know, you got it down to a small little range of what we knew we could make based on the video that they were going to make.
Emmanuel: Yeah, we figured out very quickly that the way to make influencer work was first of all, get a video, not an image. Do you think Instagram influencers posting does not work? I don't care what anyone says. You will not get a return on that because it's just not as much information, uh, getting too many video. And then the video itself cannot be an unboxing. It cannot be a get ready with me. It needs to be a tutorial or some kind of a skit, something funny where you're basically taking people on a journey of transformation where I had this problem, this solved it, let me show you how. It's gotta be informative, it's gotta allow people to put themselves in their life in the shoes of what this problem is and then what the solution is and be like, oh yeah, that's me, I have that problem and I would love to have that solution, I should go check that out. It's gotta be that. And then at that point at the time, I had priced it out, it was half a penny per subscriber, basically like 0.5 cents per subscriber is what I would pay. So I think if that's, if you had a 100,000 people audience, I'm doing math on the fly. I think that was like 500 bucks would make it worth paying, right? So that was the system that we built because we saw the metrics, we saw people showing up. And then obviously we had softer metrics like what do they look like? Does a person fit our demographic? And that worked. But the overarching, when the people can carry over to their business, because that doesn't work anymore. Half a penny per subscriber. Those numbers, I mean, the game has changed. So many people are doing YouTube influencers, like customers are wise to that now. They're wise to this is a sponsored video. I mean, the FCC got involved in, like made them say sponsored posts, sponsored, even YouTube puts there sponsored. So it doesn't, it's not as authentic or organic anymore. But the key to that was what we talked about a little bit in the last episode, working with all these influencers helped us figure out what messages resonated with certain people. Because when you have a spokesperson, you can see what they look like. And usually their audience is a reflection of them. And then you can hear what they're saying and how they're describing it. You could literally take quotes from what they're saying and use that as your ads, use that as emails, use that as packaging copy, use that as all kinds of different copy and figure out what's resonating. They were basically those hundred or so influencers we worked with that year were basically our focus group. And that was what was really powerful. That was what, to me, I learned the most about marketing from was people whose job it is to be interesting and to influence are the best people to ask how to promote your product or to talk about it.
Grace: Mm-hmm. Because it becomes a compass, basically. Like in that, in that journey, like it literally is like, oh wait, we're going in the right direction and our messaging is correct. We're targeting the right audience, etc. Is that kind of...
Emmanuel: Yeah, if in the forest analogy, if there's like different paths, right, we're charting a path to that castle, we can't see where the castle is. But there's different pockets over here. There's a little bit of an island over here. There's oasis, there's you know, there's different routes we can take. Well, if you hire guides from each of the different paths and say, hey, talk about my product. And you can see how those guides talk about it. Like, oh, that's the path I want to take. Yeah, this person is closer to the castle than, than these others. Okay, let me follow this guide and move that way because they're going to lead me to the direction I want to go, right? To the customers that I'm looking for.
Grace: Yeah. What did you find didn't work? You could talk marketing, you can talk ops. Yeah.
Emmanuel: Sure, on both sides. So on the marketing side, what didn't work was trying to do ads that are demand based. So Google ads, Amazon ads, Etsy ads, things where people are searching and looking for something specific because nobody was searching for our stuff. They didn't know about our stuff. So we needed to do social media based advertising where we got in front of people who are, you know, like social media ads or even like Taboola Outbrain native type of advertising or TV ads where you're, you're literally like, hey, whatever you're doing, stop and pay attention to this advertisement. That's how you got to get in front of people when no one's searching for your stuff. That was, that was the first thing I think, um, worked and didn't work. On the ops side of things, I think to me, the lesson learned was the huge lesson learned was our prices were too low. We had a whole thing around being $20 versus $30. And even though we wanted it to be affordable, it was an operational nightmare. And I think we do that all the time because what we do is, all right, how much should we pay? We pay $8, $10 for our product. Let's sell it for 20 keystone markup. Cause that's what retail expects. And then they sell it for whatever they sell it for. Well, if you do it that way and don't take the full margin a retailer would take, right? So something you buy it for 20, you sell it for, buy it for 10, sell it to them for 20. They sell it for 40. You need to sell it for 40. Right. Cause the lesson I learned was we're selling it for 20 and we're just selling like crazy and we were, I spent all my time, uh, running back to the manufacturer to get more product and shipping nonstop. Like we were literally, and we weren't shipping effectively then. So we would get an order in, it would come into the computer. We'd find it. We'd go to the printer, print out a piece of paper, drive to the post office, stand in line, grab an envelope as we went through the line with our product, get to the counter, stuff the envelope, pay for postage, tape it onto the package, give it to the person, drive back home, ding, another order came in. So it was very inefficient how we were shipping at first. And so having to do that constantly was like, wait, why don't we just raise the price? Because here's what raising the price did. We got less orders coming in. But surprisingly, even though we raised the price by 50%, our volume of orders only dropped by 30%. So we actually made more money and did less work. So that was a huge lesson learned on the marketing side that affected the op side as well. Huge lesson. So what didn't work was having prices too low. Gotta have high prices.
Grace: Mm-hmm. Yeah. And one of the big things I feel like that we had to figure out too, in one of the systems was even just how to keep sourcing as we grew. Right. Like as soon as the as soon as our inventory started going out, because we actually put out a I don't know if you remember in June of 2015, the Craigslist listing that we just put out for additional sewers, like contract sewers. And then we literally our parents back house just brought everyone in and just had them sew us an example. And that's how we found Wendy. I don't know if you remember, she came and she sewed one and she was the one giving us feedback like, oh, what if you did this? And, oh, I could probably do that. You know, she clearly had an established operation. And it was what kind of led us, you know, into the next thing, which to me would be the figuring out how to maintain inventory levels. I feel like that was one of the biggest challenges was scarcity of resources. So if we think of inventory as a resource and cash as a resource, right? Those are two big resources that would go up and down because we were so bootstrapped, right? How did we kind of navigate that from your side, you know, especially as we were in that 2016 growth trajectory.
Emmanuel: Yeah. So the way to think about inventory, the way to solve for inventory is to think about inventory as cash. Right. And that was the hard lesson learned was basically every single piece of product that you have on the shelf is money that's tied up in inventory. And so where we would get stuck all the time was maybe we ordered too much or we ordered the wrong mix. Back to the idea of minimum order quantities and negotiating with the manufacturers is if you have a 100 unit MOQ for all your products and you're like, all right, we have 10 colorways or 10 colors that we need to make. Well, ordering peanut butter spread, 100 of each is gonna be problematic. For us, most of our sales came from black and gray. So we would order 100 of each, we have 1,000, now there's 1,000 sitting on the shelf. Well, guess what happens as soon as we go back in stock a week later, all the black and gray is gone, and we have all the other colors that weren't selling. And we don't have 80% of our cash because it's sitting on the shelf. And so now we can only buy a fraction, 20% more, basically just replace the black and gray. That was it. So what we really needed to learn how to do was to skew the numbers. Instead of buying 100 of each, we needed to buy 500 black and gray, and then 500 of all the rest. And that alone allowed us now to sell what actually was selling and not be overstocked in what's underselling. And the other thing too with that is that 80% that was sitting there that we didn't sell when we were buying a hundred of each and the other eight that weren't selling, we were too proud to lower the prices on those and discount them. Cause like we don't want to sell it cheaper, you know, liquidate it. If I had looking back now, and I always recommend this to clients, even if you sell it at 50% off, which is a huge sale. If you look at it as cash, that's 50% off the retail price. That is not 50% off the price you pay your manufacturer. So you can convert that inventory that was just sitting on the shelf into cash in your bank account so that you can buy the product that actually will move at cost and sell it at retail price. And that's the biggest win, the biggest game and the biggest learning to me about inventory when it comes to, um, yeah, inventory based businesses, like e-commerce businesses.
Grace: Yep. And one of the big things, yeah, yeah. And one of the things that just to add to that, I know that we did and in abundance, especially in the beginning, was presale because then we got the cash before. And of course, it creates huge headaches in terms of sometimes customer service, even if you no matter how much you prepare a customer for the fact that they won't be getting their order for three or four weeks, they're still going to reach out
Emmanuel: Treat your inventory like cash.
Grace: you know, a week later, like, where's my order? And then, of course, just on the inventory side in general, I remember the nights going down to our manufacturer and she's up with her kids, you know, needing to, just like running around her because she had she had a few young kids and we were all there trying to pack while she finished out an order, you know, late night to this 10 p.m., 11 p.m.
Emmanuel: Mm-hmm. Yeah. We gotta ship. I remember the same thing with our manufacturer. Sorry. Go ahead.
Grace: And, and, yep. And then the same thing, like we had to ship, literally ship, there were a couple of moments we had to ship from her manufacturing facility. We brought down the printer, we brought down our computer, and we shipped from her, as she was finishing, it was going into the bag and it was getting shipped out. You know, so, so go ahead, what were you gonna say?
Emmanuel: Now that's what I was gonna say. Yeah, sitting at the manufacturer's facility and it came off the sewing machine. They were like, really? You guys are gonna stay here the whole time? I'm like, yeah, finish, get it done. Cause I remember there was one time, it was right before Black Friday, Cyber Monday. And we were like, we need this before Black Friday, Cyber Monday. They were like, yeah, we think we can get it done. They told us that at the beginning of November. And then it kept getting closer, it kept getting closer. And they were like, yeah, we're gonna be late. We're like, no, you're not. You're not gonna give it to us December 1st. That's dumb. If you can get it to us December 1st, you can get it to us November 25th. This the weekend before the weekend. Really what you're saying is you want to wait till next week. We can't. So was like look, we'll be down there. Even when, if we can just get the oldest order shipped out first, we go down there set up our shipping station in their offices and yeah, they moved faster. It moved a lot faster. Yeah. To get us out of there.
Grace: Mm-hmm. Yeah. Now there's of course, like, yeah, right. Just to get us out there, the the downfall of that was like some of the customer service issues that we had with like holes in the seams and the things that they're rushing ended up taking, you know, like there's the little things also, I would say the bumps along the road that are kind of like, oh, my gosh, is this going to even work out things like the dark linings that caused major issues with, with bleeding, you know, um, things like the quality control, the little holes in the seams. You're like, that's not a problem.
Emmanuel: Hmm. No, I know. And we argued about that. Like, there's no big deal.
Grace: I'm like, yeah, no big deal. We were like replacing people's sheets.
Emmanuel: Yeah, I know. But here's the thing. I mean, here's how I always looked at it. It was like, we had what, 1000 orders. And even if 10% of them are an issue, right, like we're selling this product for 30, 40 bucks a pop was our average order value per that's $30, $40,000 worth. So, so we had to give $3000 back. If that's 10%, I don't even think it was 10%. I'd much rather take the $27,000 than be frustrated by the $3000.
Grace: Yeah, true, and that is a good point. It helps to start getting specific, right? At first, we would really start with, oh my gosh, so many people are complaining about the sizing, or so many products are coming back with XYZ. And once we started saying, but how many is so many? And it might be 20, and so that sounds high, until you ask, okay, but how many orders do we ship out in the last 30 days?
Emmanuel: Yeah, what is so many?
Grace: Uh 4,000, oh, so 1%, or like 0.5% of customers are, and so I think that getting specific definitely helped along the journey. But let's talk a little bit about just growth in general. You talk a lot about how growth is a choice, but our growing was definitely a choice, especially in that 2016 year, but it didn't, you can't completely grow with just profit. Right, like, because you're only making so much, especially as quickly as we did. So how did we secure the funding to grow? Because really what we had to do was, we could have done it all on pre-sale maybe, we could have done it all on, you know, but we bootstrapped in other ways. And so if you wanna just help the listeners know how we did that.
Emmanuel: Sure, the key word is leverage here. And that's what I call debt when it's used properly. When it's used improperly, it is bondage is what debt is. So the problem with inventory-based businesses, which are e-commerce brands, you have to have that product before you sell it. Which means you have to pay for the manufacturing completely and then have it stored somewhere, which you're paying for, before you can sell it and then get the cash from the customer. That's a huge cash flow hit because you're putting cash out in advance. Well, that's gonna come from somewhere, either your savings or debt or an equity partner. That is the problem, okay? And worse, when you sell the product, let's say we have a product for $10. We take $10, we go buy it and we sell it for $30. Yay, we made a profit. But we're like, you know what? I want a triple. I want to buy three this time because I want to make $90 or $30, $90 when I sell this next time. I want to buy three of them. Well, guess what? I only made $30 on the sale of that first one. So even just buying those three, they're $10 a piece. I just took all of my revenue that I made from the sale of that one to put into this product. You just, you can magnify that into 30,000, 30 million. And you can see now growth, fueling growth or funding growth is extremely expensive because all the money you made from your organic sales, your business's sales has to go back in just to the inventory a lot of times. And then obviously you need to hire more staff, you need to do more shipping, but funding the business is expensive. So the more you grow, the more you have to bring outside cash into the business. That's the problem with it. And so what we had to do is when we decided, all right, let's go for six mil, let's do it, we had to first know that the marketing is going to work. That was the first thing we had to know that we could sell $6 million worth it, that there was enough demand. And I'll get back to how we marketed in a second, because that's getting into the ad side of things, but we had to first know that and be confident. Then we had to go get the product. And that's where it was like, we, if we're going to sell $6 million worth of, of revenue, wow, we're going to need like one, $2 million worth of cash to pay for the inventory. So we need to go get that. Well, when we confirmed that, yeah, we can market this much. Well, it's just a matter of finding people to give us that much money. And now we're dealing with, do we have the personal credit? Do we have the guarantees, all those kinds of things. So we went to every bank we could find, Opus bank, Chase bank, Wells Fargo, Chino Commerce bank, and we just started asking for money. Right.
Grace: And they all said no. Ha ha ha. Yeah.
Emmanuel: And people are, and a lot said no, a lot, but there were enough to where we could at least get the down payments for a million dollars worth of inventory.
Grace: Yes, yeah, true. Yeah.
Emmanuel: That was all we needed, right? Cause if you think about it, look what we did, this is very hacky. I don't recommend it to everyone. We were extremely aggressive and it's very stressful and very risky for several reasons. One, banks don't like you having multiple loans out from lots of different people. Cause what we did was, so what we did was we just filled out the applications before they could find out from each other that we were applying. So we had like 12 different applications out there to the banks and it would be like, do you have another loan from anyone else? We're like, no, we don't.
Grace: Not technically. Yeah.
Emmanuel: We don't currently, you didn't ask if we applied to another one, you asked if we had a loan and we don't. And so we got a bunch of loans from people for the same amount, because they were like,
Grace: Well, the end of. What was that? They were like what?
Emmanuel: because they were like, we won't give you $100,000, but we'll give you $10,000. So we did that for 10 people and that's how we got $100,000.
Grace: Yeah. Or we would do the high interest ones that you don't want to. The ugly stuff that is just daylight robbery. But not advisable.
Emmanuel: Yeah, the ugly stuff. But yeah, so the marketing side, how did I know that we could market enough to get it? The way I knew was we had done the hard work of figuring out from our spokespeople, our influencers, what do people want to buy? What resonates with them? What's working? And we had all this content with all these people who looked like our perfect customer. In that we could use and had tested and seen, Oh, this influencers video did better than that influencers video. This copy that she talked about did better than that copy she talked about. So we took all that and we just needed to get it in front of thousands and millions of people. Well, what's the best way to do that? Digital ads. And all of a sudden the ads, I mean, even they, we used agencies, like everything we used worked. Every agency we used, they're all like, wow, your stuff just worked so well. That's what clued me into ads are easy when the content and creative is done well. Ads are difficult when the content and creative is not done well. And therein lies a secret to success when it comes to advertising and even marketing to some extent. We had a high value problem that we solved. We had vetted our solution with lots of focus groups and customers in the form of influencers and people purchasing our product. And then we just needed to get that message out to people. That's why I like to use the analogy of a megaphone. What marketing is, is a megaphone and the message is your message. That's what you're pushing through the megaphone for marketing. And so every ad that we had was performing at six, 10 return on ad spend. They were just crushing. So all we had to do is put in an extra dollar. So I knew if I put in a hundred thousand dollars into ads, I would get five, $600,000 out. So it was like, let me just go get a hundred thousand dollars. And then it was like, well, wait, if we have five or $600,000 with the sales, do we have that much inventory? No, I'm going to need another $200,000 worth of inventory. Okay. So I need to get $300,000 worth of capital before I sell the product. And that's what we went out to go get loans for. And we just kept flipping it like that.
Grace: Yeah. And then would you say in terms of so you just mentioned how creative, good creative is necessary for successful advertising. How did we end up balancing between the branding that Angel and I used to fight for and the bootstrapping and what do we pay for? Do we pay for these high dollar photo shoots or do we pay use, get do a scrappy version of that and then use all that money for the advertising.
Emmanuel: I don't think we ever did solve it. I think we still debate this and argue about this to this day. What works better? I think we just went to our corners, separate corners, and on timeout. But I fully believe there's the idea between we need to be like Apple and brand and have all this gorgeous imagery and if anyone goes to our site now, graceeleyae.com, you'll see there's a ton of gorgeous imagery. I lost that battle.
Grace: I mean, you also got you came to the same conclusion that you do need some gorgeous imagery but,
Emmanuel:
Oh, yeah, I see how you went straight there immediately. I was coming to that, but you're like, let's get there now. You came in. So I will concede the point. Yeah.
Grace: Let's just admit, please, I can see that, and I can see the point that there is some level of, we don't always have to do the huge photo shoot that has huge costs associated in order to get those beautiful images, yeah.
Emmanuel: That's all, that's all you will concede. That's as much as your budget. No, you needed a direct response, hardcore buy now focus for at least a year or two.
Grace: Yeah, true. That is true. Yeah.
Emmanuel: That's what we were doing, you know, because even with the influencer, another thing I forgot to mention that we figured out was all the influencers would have this big push of sales out of nowhere and then for a month or a week, and then it would die off. So instead of pushing people to the website, we started giving them trackable links that we could track and we would give them a link to a landing page for their people to sign up. Yeah, we'd only get 30% of people to sign up, but we had them on their email list and we grew our email list. This was back before the building email list was cool. So getting folks into your platform from someone else's platform is another cheat code to unlock to build your audience, right? And so that is what to me really built the foundation to where now you can have that gorgeous imagery and bring people in. So where branding, what I will concede, is branding helps with trust, right? Which makes it a little bit easier to get people to convert, right? Because if I have all these influencers saying how amazing this product is, and they're ready to buy, they'll come buy even if you're just some person with a trench coat like, ah, buy these watches, right? Well, that, you know. Yeah. You know.
Grace: Okay. They literally would get to the website with the guy with his coat open and be like, uh, am I going to get my product?
Emmanuel: Yeah, this is shady. Exactly. But a lot of times they'll still buy why not because of the branding or the way the site looks, but because that other person told them this will solve their high value problem. To me, that's all I was ever really saying was like, that matters more. However, it is much harder to sell product out of your trench coat than it is to sell product out of Apple's an Apple store. Right? Like people just walk in and they feel like this is, wow, this is a great place to spend time. I feel safe. This is gorgeous. Like, so doing it that way, that's what I will concede is that yes, as long as we have done our job of finding the right target market, hitting them with the emotional and identity messaging that gets them to believe that we understand their problem and have a solution, as long as we've done that, then yes, the branding just doesn't get in, we just need the branding to not get in the way of closing that deal. That's what I will concede. I will not concede that branding is amazing and it's awesome. And we need to invest 10 grand a month on photo shoot. I will not concede that, but I will concede that it helps avoid losing the sale once we've done all the work to get the sale.
Grace: I'll concede that you, yep, I will concede that you don't need to pay 10 grand a month, but every three months.
Emmanuel: Man, that's so much money. $40,000 on some pretty pictures. Come on.
Grace: But that you can use for years to come.
Emmanuel: Okay, okay. It's an investment.
Grace: But it's an investment, exactly, you nailed it. So in all of it, what was some of the biggest takeaways during the growth journey that you would say?
Emmanuel: The huge ones were obviously build your audience, right? If you're using a lumpy type of marketing events like influencer where it pops up and down, try to get people onto an email list, build your audience. Cash flow, cash is king. Things like pre-selling to avoid that whole issue of you have to pay first and then you get the revenue later. Get cash, oh, I forgot to mention that when I was explaining that process. The other place we got funding was not just the banks and loans and lenders, but from our customers. That's what pre-selling is. You're asking them to pay you now at retail price so that you can buy the product for them at cost. That's another form of financing. And that's to me the best because they're paying with their dollars and they want the product. They don't want an interest, a percent of interest. So it's cheap money. So that was another big takeaway. The ads were easy. Easy when we already knew what our people wanted to hear in order to buy. Not just to hear in order to like a lot of social media influencers. Yeah, just say, hey, check us out, get attention and like people post like 10 times a day on social and you know, that's just getting attention. But there's a difference between getting attention and getting people to buy, to take action. Attention versus action, there's a difference. And working with influencers really helps narrow that messaging down to figure out what is it that will get people to take action and go buy. Right. Product market fit, right? This crucial systems and then processes, getting shipping and fulfillment and all of that in a way that is not overwhelming, right? Like having your pricing set up. And again, all this stuff is in the first season of the podcast, but pricing to me, I feel is the thing that is usually what stresses most founders out. If they're stressed out and they're struggling in their first year of business, doing six figures or so and just can't quite break out, it's usually because their prices are too low. They're just too low. You know, you need to be pricing six to 10 times what you pay for your product at a minimum. And yes, you can, if you're absolutely adamant, like, no, I don't wanna charge that much, then get your manufacturer to charge you less, right? I don't wanna charge my customers. Well, you'd be surprised. Most customers are paying you instead of your competitors because they like you. So they're willing to pay more specifically for you. So get that margin, because otherwise you won't be able to test, run ads, hire people, you need that margin in order to build the business at the beginning and to make mistakes and try things. It's a lot of takeaways, but hopefully it's what you're looking for.
Grace: Yeah, no, that's good. I think, I mean, I think, I don't know how much time we have left. We can cut this part, but.
Emmanuel: Uh we're at 49.
Grace: Oh, okay, perfect. I was trying to hit 45, 50. Okay, so you wanna close it out or do you want me to close this one out? I feel like you should close it out. All right, okay. All right, so then on this episode, we were able to discuss how we grew from $60,000 to $600,000 all the way up to the $5 million a year. So 10x year over year for our first three years. And on the next one, we'll talk about our how we plateaued at that $5 million mark and the conflicts that we had to kind of iron out just being a family business and everything and kind of where we ended up our resolution over the last 10 years. So stay tuned for that one.
Emmanuel: Great. Thank you.
