536: He Made $450M Selling TV's for $0.01 | Ruslan Kogan [VIDEO]

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0:39Just head to omnisend.com forward slash founder without the E to get started. All right, now let's jump back into the show. Everyone said, look, online retail is never going to work for big products. Today, tonight came to me and was like, are you really selling TVs for one cent, no referrals. Yeah. The worst thing you could do is be scared to make a mistake. It's lots of mistakes. Some are small, some are huge clusterfucks. Learn from it. Make sure you're better today than you were yesterday. If you look at retail, the fundamentals over the last 50 or 100 years have barely changed. Customers ultimately want more choice, more convenience, better prices.

1:24understand those three pillars very well. Hear the stories, learn the proven methods and accelerate your growth and future through entrepreneurship. Welcome to the Founder Podcast with Nathan Chan. Today we have Ruslan Kogan. He's here in the studio. Kogan is one of the largest online retailers in Australia. He has an amazing story around how he started this business from his bedroom. You started this with the back-off credit cards, is that right? Talk us through. Welcome. First of all, welcome, Ruslan. Thank you so much for joining us. Thanks for inviting me. Pleasure to be here. But yeah, it was going back a bit over 18 years now and I'd been wheeling and dealing and selling a few things online here and there and then came across TVs as what I thought was a perfect product for e-commerce because it's an online retail.

2:34You want the most amount of value in a small box. So it's a fairly good product because you've got a pretty thin box and at that time you had a product worth thousands of dollars in a thin small box that you could easily ship around the country. There's better products for e-commerce like an iPhone or AirPods. That's as good as it gets, having a$300 product in a tiny box. But I had that idea, but I had no money. I was working at Accenture at the time. I was on a decent wicket there, but didn't really have any startup capital or ability to go to investors and say, hey, I've got this idea. Well, I did go to them, but everyone said, look, online retails for books and CDs, it's never going to work for big products.

3:19And this is in the very early days of e-commerce, almost we were the first place in Australia to sell TVs online. So it wasn't easy to get money. And it was before the whole boom of entrepreneurs and the opportunities the internet created. So yeah, to fund the business, it was went and got a credit card that were given them out to everyone back then and convinced a few friends to go get credit cards and lend me the money and then yeah started it that way and also ran a pre-sale so it was a multi-prong approach of getting credit cards getting mates to get credit cards and then also running pre-sales to to fund the operating cash flow needs of the business and that was on eBay right?

4:07You started selling TVs on eBay. Yeah. So I was selling them at one cent, no reserve. I was listing the TV saying, here's the TV. It will be delivered in 45 days and running one day auctions, knowing that as long as there's two people in Australia that want a TV, it's going to get the right price. So yeah, it was getting a lot of attention. It was getting a lot of the time the prices on eBay, even though it was a one cent, no reserve auction, were finishing for much higher than the price from directly on the website. So I was generating sales and based on that, I could control how quickly I sold the TVs, knowing that in 30 days' time I had to make the balance payment to the factory.

4:49Yeah, look, that's very clever. So I remember back in the day using eBay and then there would be these reserves and for whatever reason you would, you know, or auctions and you would keep bidding the product and then the last minute someone would bid it all the way up. Did you ever have a time where it come undone and just like someone got a TV for like$10? Yeah. People were always saying that, like, are you crazy? Why are you doing this? For someone to get a TV for$10 means that there was no one in Australia willing to pay$11. So it just doesn't happen. If you apply the principles of supply and demand and free market economics, as long as you know that eBay's got an audience, which it did.

5:33At the time, it was basically all of e-commerce in Australia was done through eBay. That was the platform. You're never going to get a mispriced product. But what you can do is if you set a high reserve price or a reserve price, you can lose the interest of a lot of people. So because I was doing, I think it was$0.01 or$0.99, no reserve auctions, letting them run for a day and the highest bidder gets a tv they were getting the right price but it also generated a lot of attention um it was getting the first today tonight story um which well today tonight's not around anymore but for those old enough to remember it in australia it was the most viewed show in the country today tonight came to me it's like are you really selling TVs for one cent, no reserve?

6:25I was like, yeah, and explain to them how it worked. And that helped the business to get attention and fame. There were blogs and forums online going, have a look, this TV is currently at$4 because it had just listed 10 minutes ago. So it was getting a lot of attention for the business, but knowing economics, it was never really a risk. It's the same as a house. You see a house auction start at$700 ,000 and then they're bidding, bidding bidding bidding you think it's nearly sold and then it's not and then it ends for 850 000. if that auction had started at one dollar it would still end at 850 000 but i can guarantee you one thing there would be a lot more people at the auction that's interesting okay so you grew up in housing commissions is that right yeah in here in melbourne in elstonwick so the housing commission flats near Salisbury Street, New Street.

7:25They've just recently been knocked down. They're building some apartment complex there. Yeah. So where did the inspiration come to start a business online? Like, you know, talk me through like what life was like. Well, a bit of it is being in the right place at the right time and having the right interests. So I'd been into tech from a very early age. You know, my parents did it pretty tough and they were always working two or three jobs each. And I remember they used all their savings for my ninth birthday. I really wanted a computer and I convinced them that I could put it together much cheaper.

8:07I was reading the green guide, which had all the, yeah, that all the different retailers and how much is a motherboard and how much is the RAM and what are the different CPUs and cases. And I used to go to the computer to swap meets and look at all the different parts. Yeah, I should get a swap meets. And they used all their savings, let me put a computer together, and, you know, I never looked back. I'd always been into tech and gadgets since then. All through high school, I was into technology. so had always really wanted to had always really wanted to you know have the latest the latest and greatest gadgets and you know what what gadgets are up and coming and so on so in the very early days it was led tvs i i really wanted one and wanted uh i wanted to get it for a for a cheaper price and that that is how that that is how the idea for the business came about and so you said that you were borrowing credit cards off friends and doing all sorts of things how much did it cost to actually post ebay like launch the first version of kogan how much did it cost it was around eighty thousand dollars was was the first container yep okay so just tvs yeah but there's you know it was just tvs but it's very at the time that was like that shouldn't have happened like i contacted all these factories got all these quotes and i said look i'm planning to start a business i saw the i was just experimenting the market and um in reality what i wanted was just like the latest gadget i i thought well i want a tv i couldn't afford one if i contact all these factories then they'll give me their pricing maybe I'll be able to just buy a sample and I'll save a lot of money compared to the stores but when I saw the prices that were coming through I saw all right well there's a business model here so I then thought all right I'm gonna I'm gonna give this business a go made the listings made the eBay listing saw the sales were coming through so did a pretty efficient proof of concept um and and saw that there's demand but when i contacted the factory i've chosen to work with and said hey i know you gave me these quotes and i know you said these minimum order sizes which were in the millions of dollars um but i only want to place one order for one container um to get going as a proof of concept they laughed me off they they're basically that yeah they're not they don't deal with small orders they run massive production runs and production lines so i then i had this business that i knew it worked i had very little capital i can't go and order millions of dollars of tvs so i um i went and thought how can i make it into a win-win scenario like the best negotiations i in both parts of the equation when you want everyone involved in the deal to be better after the deal than they were for the deal.

11:26And then I thought, all right, well, you've got this factory, they're pretty big, their documentation's not great, their pricing spreadsheets are horrible, their PowerPoint presentations about their factory, about the product, the user manuals, it was all horrendous. So I stayed up for a few days and redid all of that for them, sent her back to them and said, look, I may be placing a small order. There's not much commercial benefit for you from just my small order, but there's other ways in which I can add value to this relationship. So by redoing all of that to them, I sent it to them. They replied almost straight away, accepting my order, thanking me for what I'd done.

12:07And they gave me even better prices than they had previously quoted. So they saw from the relationship straight away that, yes, I can pay for the order, but I've got something much more valuable for the relationship than the money that I had at the time. So it enabled the business to start. Like had that not happened, the business may not have started because they weren't willing to accept my order. They said it's a tiny order. They don't want it. Now, you know, we work with much bigger factories placing much bigger orders and none of that's ever an issue. But at the time, yeah, it nearly didn't get off the ground for that.

12:50Are you hesitating to take the next step in your e-commerce journey? Founder Plus has you covered. With proven frameworks tailored to your business needs for fast results, a supportive community of over 30 ,000 like-minded entrepreneurs and weekly live mentorship sessions, Founder Plus is your key to success. Try Founder Plus today for just$1 for seven days and start building your dream business with confidence. You can visit founder.com forward slash start dollar trial or click the link in the description to claim your trial. Yeah, what a great story. So did Alibaba exist back then? Were you using like, how did you find factories back then?

13:26Because now you can just go on Alibaba, right? Alibaba, I think, was just starting, was not the dominant one. Yeah. Global Sources was. Oh, Global Sources. That's GlobalSources.com. They ran all the sourcing fairs, the websites. Yeah. Got you. Okay. So that was the primary channel to get in contact with them then. Yeah. Okay. So you started with TVs. Eventually you got off eBay and you launched Kogan.com. When was that? Well, the site was always there. It just had no traffic. so there was you know i had kogan.com with a bit of adwords around it and selling the tvs through the site as well because you know ebay charges um what they charge which is a fair you know like marketplaces they charge a fee because they bring you the traffic um so we're still on ebay in a limited capacity for a certain part of our product range and we're great partners with them but But yeah, the website was there all the time.

14:33But as the brand grew and grew and there was more and more feedback and there was more and more about Kogan in the media and more people had visited their friend and saw a Kogan TV, it started to grow. And our own website started to get a lot of traffic. And then our own website started to sell more than we were doing through eBay. And then our own website started to sell 10 times more than we were doing through eBay. and then 100 times more than we were doing through eBay and it became our primary channel through building the brand and more and more people having experienced a Kogan product. So you would have got to experience, I never got to experience this, the glory days of AdWords one cent a click?

15:21Yeah. Like was that just extreme arbitrage for you guys back then? It was very efficient. and obviously AdWords gets more and more competitive. So yeah, at the time we were doing it, if you would search LED TV or LCD TV at the time, most of the ads you see, well, they didn't have PLAs. They didn't have the product listing ads. It was all the search ads. But yeah, we would be the primary ad showing there. So it was in the very early days. Look, I remember a gift that I would get a lot of friends for their birthday used to be, or one of the gifts I'd get them would be, call them in the morning, mate, happy birthday, you know, wishing all the best, wishing my happy birthday and go, open your computer, Google your name.

16:19You know, and then Google their name and it'd be like a happy birthday message for them in Google and all that. They're like, that's amazing. That was, you know, such an amazing, thoughtful present. Thank you so much. I was like, yeah, it cost me four cents. There you go.

16:39It was, yeah, it was very cheap. They're like, oh, this is that cheap. I'm like, well, it's cheap, but also, believe it or not, there's not that many people Googling your name this morning. So, yeah, it was a lot, you know, now to be. It's become a box, yeah, at least, at least. Yeah, it's become completely different. But you tackle it in other ways. Like back then our product range was three products. Now our product range is 50 million products. Massive long tail. The long tail can be extremely efficient in the marketing channels where a lot of intent is shown, like Google AdWords. So even though back then was a lot cheaper per clip, we're making way more money from our direct attribution to search ads now than we were back then.

17:37Interesting. So how did the business evolve? When did you start moving away from just TVs, getting into other products? Talk me through that. And then, of course, you started creating your own manufactured branded products as well. So you effectively started white labeling. So it was from the start. Our first TVs were Kogan TVs. Oh, okay. It was all our own private label from the start. Okay. Okay. It was, I wouldn't say it was moving away from TVs. It was more, business was doing really well, but we're growing. We had a, you know, we started with two TVs. It was a 40-inch TV and a 32-inch TV.

18:21They were doing really well. We then expanded the range and added a 46-inch TV, added TVs with built-in DVD players. And I had a range that was doing really well. And then people were wanting sound bars and HDMI cables and started to expand the range. And then we saw, well, we're not really a TV business here. What we've created is a very efficient direct-to-consumer supply chain because it is the most efficient way to get a product from point of manufacture into the customer's hands. and yes we just happened to stumble across tvs as our first product but then we started doing it with gps units back when people didn't have gps on their phone and had a separate gps in their car and yeah and doing it with digital photo frames and then blu-ray players and then before we knew it the range kept growing and growing and growing started doing monitors more and more consumer electronics was our first and then it's like hey we've got this really popular direct to consumer consumer electronics business really building a brand lots of great feedback online around our brand lots of people buying but we're still like yes we're good at consumer electronics yes I'm a bit of a tech geek and that's the stuff that I love but we've got a business model here that's far greater than any category and then we started the the other beauty of it was that what we had built a profitable and fast growing business in is probably the lowest margin category in retail so as we started expanding it only got easier for us because if you can make money selling low margin tvs and monitors and laptops and digital photo frames it's going to be very easy for you to sell kitchen knives and bed sheets and pillows and a whole heap of other stuff so as we started expanding into more and more categories it started to be a very the flywheel started spinning because you know we we started selling more on our site so people started to come to our site for more and more things which meant people were doing more and more searches on our site, which meant that we could then see what are people searching for that we don't yet have and what are lots of people searching for that we don't yet have.

20:59So then we were able to very efficiently allocate capital to go like, hey, look what people really want here. They're searching for suitcases, people looking to buy luggage. Let's go and use the exact same methodology that we use to have the best value TVs in the world to make luggage and bedsheets and everything for the kitchen and things like that. So that's how it started to expand through monitoring the consumer demand. It was also interesting that it's having that really valuable insights from your customers is the best market research you can possibly do I remember it was around the time of 3D TVs and everybody anything you watch on TV was all about how great 3D TVs are all these 3D titles 3D TV is going to take over it's amazing it's so good and I was the only person in the media talking it down I'm like hey guys when people sit around the tv it's a social event nobody's going to want to put goggles on because eye contact and being around people is one of the most important things socially so yes it's pretty fun maybe you watch one movie with these glasses on but people aren't going to be doing that it's going to ruin their viewing experience and the social element of watching TV.

22:36And a few people at the time said, I'm wrong, I'm crazy. There were even the TV manufacturers were coming out with statistics like 80 % of TVs we sold this year are 3D TVs, 3D TVs the future. I'm like, yeah, well, that's because you've now made every one of your TVs a 3D TV. It's not because people were buying it because it's a 3D TV. It just happened that all of them were. And the reason I was able to make these comments is because I could see on our end what people on our side are doing. Nobody was searching for 3D TV. But they were searching for TVs with a built-in PVR, which is a personal video recorder.

23:15People wanted to pause live TV and rewind TV and have a digital guide on the TV and things like that. That's the features people were after. So we spent very little time losing focus on pursuing the 3D TV stuff. We were making TVs that can pause live TV that had built-in ability to record things and so on. So it's this being consumer-led based on the information your business has and the connection and relationship with your customers is a very good thing. And it guided that expansion. yeah look the closer you can get to the customer it that you can't look like you can still lose but it it just pays its weight in gold 100 there's oh well any business if it loses its customers it's out of business so uh there is nothing more important uh than um than that like before there was internet on flights i would before i went to board a flight i would get our team to download a whole heap of random customer service calls and I'd put all the mp3s onto onto my laptop and I would sit there for the whole flight listening to calls because it's the best thing you can do you get first-hand experience of what customers are saying what are the happy customers saying what are the unhappy customers saying I used to before that that was a very time efficient way to do it prior to that i'd actually sit in the call center myself and take some calls and listen to the customers but then yeah when i learned that you could very efficiently i could listen to 50 calls on a flight um it gives you great insight into what your customers are thinking because without them your business doesn't exist i agree 110 so i have a friend from melbourne You know, he started my age.

25:12I'm 37. So he started selling TVs online. Even maybe before you, he got out of that business. He ended up getting crushed by you. And he said it was a very, very hard business, especially around, I guess, I haven't gone into the details, but it's a crazy story. But it's a big product, right? And shipping, manufacturing, moving big products generally can be a challenge. Like if you want to start a sauna business or an ice bath business as your first business, very challenging. Like, you know, high MOQ order prices. Like how did you navigate that? Well, look, it is a very competitive environment and that's wonderful.

25:59We love competitive environments because that's what makes us jump out of bed in the morning. that's when business is most fun to run and that's when customers benefit the most as well so it's like you know it's never been a better time to be a customer because you've got so much choice you've got so many businesses competing across absolutely everything there are challenges in it but every challenge is an opportunity that's a you know if it's challenging it means other people are going to struggle with it it means if you do it better then you're going to succeed as a business so one one of the philosophies internally at kogan.com is there is always a better way like one thing i learned from the corporate world of what not to do is to have these strict processes and procedures and they're not even up for discussion and if you need to do something this is how you do it don't talk to me just follow the operating manual which can be very disheartening for for exceptional talent because exceptional talent wants to spread their wings and wants to think outside the box so I remember back in the corporate world coming up with ideas of doing things better or more efficiently and managers just not even wanting to listen to it.

27:28I sort of understand it now because it's a consultancy and it's all about billable hours. So if you actually find a better way to do something, your employer makes less money, which is a crazy type of business model. But yeah, having this internal philosophy of there is always a better way, meaning that absolutely everything in our business is up for grabs. Every single process, every single way we do things. And there's no such thing as, why do we do that? Oh, that's just how we've always done it. So every team member, no matter how junior they are, is allowed to question absolutely every process, is encouraged to question it and say, why are we doing it this way?

28:11Why don't we change the way we do it? and we want to breed that innovation culture. So it's, oh, we've got these TV boxes. Well, how do we make the boxes smaller? How do we make the boxes more efficient? If you make a box 10 % smaller, it would save you a whole heap in shipping costs. What if we change the sort of materials we use? What if we change the weight of the box, the weight of the product? What if we change the courier companies we use? Like one of the early inventions in our business was an engine that automatically decided which freight provider to use and which courier company based on the dimensions of the item, where the customer is located and the previous shipping times and NPS being the net promoter score, the satisfaction of those customers.

29:02So taking all those three into account on the fly, the box, this one's going with this provider, this one's gone with this provider, this one's gone with this provider, and you can significantly drive down costs. And then the freight companies would come in and say, hey, we want to win more of your volume. And we'd say, sure, happy for you to win 100 % of our volume. Here's the matrix of every single shipment that we've sent in the last month. Here's the ones you guys got because you've got a good price there. Here's the ones you didn't get. Feel free to provide better prices on these routes or these lanes and then so on.

29:44So they'd come back and do slightly better prices than the ones they won market share from would come to you and say, hey, we want to win more of your business. We'd say the same thing. Sure, we're happy for you to win 100 % of our business. Here's where you're not providing the best rates. And just driving costs down for our customers like that by questioning every single process in the business. A less innovative organization would say, oh, well, one of our big managers got invited to the tennis by this company and he had a really good time there and had a few bevvies with their management team and it all went really, really well and that's who we do our freight with, this one company.

30:27So it's not the best outcome for the customer. So you've got to have that there's always a better way mentality. The way we do things now is just the best way we've come up with until now. And everything's up for grabs. Yeah, I love that philosophy. So talk to me about China. You spent quite a bit of time in the early years building relationships over there, getting supply chain right. Was there a specific moment where I guess you kind of really defined your confidence in working with overseas partners? Well, for us, it was for every single product, it was based on where is the most efficient and professional manufacturer of that product.

31:20So a lot of it happened to be in China. Like there's, you know, it's impossible to buy a non-Chinese made TV. maybe 20 years ago it was possible because you had a few german brands and things like that all those german brands are now coming out of china but for different products like we had a range of shaving products and razor blades that were coming out of germany a lot of our super high-tech stuff comes out of taiwan and south korea our ugg boots would come from australia So, you know, you go for wherever in the world is the best manufacturing capabilities for that product. And then it's all about finding those win-win solutions.

32:03Like we were chatting about the use of manuals and pricing documentation that I helped the factory with. You know, that factory actually, a few weeks after I placed that initial order to start the business with them, contacted me and said, hey, we've just won a massive customer in the US. that said we were by far the most professional factory they had encountered. So really built that win-win relationship with the factory. Yeah, they got to do our first small order, but because of it, they want some massive customers in the US. And then every relationship and every manufacturer we've encountered, it's from that approach.

32:39We know what they want. They want to manufacture more product. They want to export more product. They want bigger orders. They want to make more money. And every discussion starts with, well, we know what they want. How can we do it? How can we create a better product? How can we do it more efficiently? How can we drive the price down? Hey, if we drive the price down a bit here, you might make less per unit, but you're going to sell way more units. Or, you know, all of these dynamics. And that's with every relationship. We're looking for how do we create that win-win environment in the transaction?

33:19Because what's not sustainable cannot be sustained. So unless a relationship isn't a win-win, it's going to end badly. So it's very hard to work towards that win-win. And now we've got an office in Shenzhen. We're an incredible team there. Our team here locally travels to China quite frequently. We're working with the highest tier of factories there is. And as a result, lots of customers are very happy. So it's very, very important for us to have that philosophy in our sourcing. Look, you guys have been sourcing for a long time, right? What advice would you give to anybody that's looking to work with future manufacturers specifically to produce products out of China?

34:11overseas? Would you use something like, yeah, how would you recommend for people to approach if they want to start selling a physical product online? Well, you know, firstly, I'd say the most important part is have the right product. Make sure that all your processes around what you're trying to source are fairly tight, that you know that there's demand, you know you're getting the right features, you know how to do quality control around that product, you know how to quality assess the various factories you know it can be a bit of a minefield for someone in in china for the first time because there's a lot of layers to to their business environment like i remember the very early days where you know just even something simple like i'd be sourcing a certain product and And you want to make sure you cut out as many of the middlemen as possible because you can have the factory, but then you can also have the agents.

35:15And if you're sourcing through an agent, they're obviously making a margin on top of the factory making a margin. And so I'd be meeting up with someone that'd come pick me up from the hotel room to take me for a tour of the factory. And I can't read Chinese, but I can tell if two squiggles look similar. and I'd be like what it says on your business card is very different to what it says on the factory building and then trying to be like, dude, is this really your factory? He's like, yeah, yeah, yeah. And then he's like, all right, well, can you open that door? And he has to make a few phone calls and then it takes 20 minutes.

35:55All right, time for us to go back to the hotel room because you realise you're dealing with a middle man. So the advice would be, like I was saying, know your product, know how to do quality control for your product, but then also make sure you get as close to the source as possible because that's how you're going to drive prices down. That's how you're going to do things most efficiently and your customers will benefit. That's great advice. Thank you. So you end up listing Kogan.com. When was that? So you IPO'd and talk to me through the challenges there and that transition. Yeah, we IPO'd in 2016.

36:36Yep. So the business at that stage was 10 years old. Yep. A bit over 10 years old.

36:49So it was we knew we wanted to do it because at that point, David Chafer, my business partner, and I own the entire company. But we had this incredible team that were helping us build a business. We want to share a portion of this with them. Yes, you can do it in a private company, but it's got very little liquidity for the team members. so they can't renovate their houses or enjoy nicer holidays or things like that if they have equity in an unlisted company. They can, but it makes it very difficult. So we knew that we want to share some of that with the incredible team. We also knew we'd never raised any money.