How to Scale an E-Commerce Business Past the $10M Wall | Ep 962

0:00In 2021, I sold my e-commerce company, Prestige Labs, with Jim Lange for$46.2 million. And six months ago, I broke the Guinness World Record for the fastest selling nonfiction book and generated over$106 million in a weekend just using a Shopify store. And so in this video, I'm answering your questions about how to scale your e-commerce business. And for all these questions, I've tried to do my very best to make the solutions as tactical as humanly possible so that you watching from home can immediately use them. So enjoy. Hey, Alex. Yes. My name is Max. I run Elevate Customs with my wife, who's in the front row.

0:30It's, uh, we build customs. Yep. Like a home custom solutions. No, we build and sell like luxury gaming tables, like pool tables, casino tables, manufacturing. Not what I was saying. Okay. Got it. Yeah. Um, that's cool. Like cool backlights and things like that. Yeah. Like any, anything like one off custom pieces. Sweet. We were at around two and a half million revenue a year. We want to be around 10. How do you sell? At least, uh, mostly Google ads. So e-commerce. Yeah. She sells. Yeah. Okay. so invoices, phone calls. Okay, got it. So how do we increase our leads 2x, 3x without breaking the bank?

1:06Basically. How do you increase your lead flow without breaking the bank? Yeah. Well, I'll ask you. For quality leads. Yeah. So what are you currently doing? You said Google ads? Yeah. Around 15 to 20k a month. Can you spend more? Yeah. Why don't we do that? We've tried and we weren't generating the same quality leads or necessarily getting more. So there's different keywords were not getting you more quality yeah correct this is probably a scale thing though like this is a media buying question because i can promise you that at twenty thousand dollars a month you haven't saturated the market for cool custom gaming stuff like you could probably get to like two million a month before you even get close to that it's probably just like who does your media buying we have a company okay i would this is a keyword thing like this is this is three degrees down like super tactical like we're just buying the wrong words and there's just we like Like I would be, how much are your margins right now?

1:5720%, 500K a year. So you just have to see this as like, we might burn$200 ,000 this year on bad keywords to find another six that we can scale up to$100 ,000 a month. And by doing that, we'll 5X the business. And so if you just see it like that of like, okay, we're gonna spend$200 ,000 or$300 ,000 to take us from 2 point whatever to 10. That's how I think about it. In general, we tend to be like scared to spend more money. And I'll say that the only thing that's really shifted for me is like, from entrepreneur to investor, like kind of wearing both hats, is that I look so much stuff at just like return on capital.

2:32And like, what's the point? Like, if I think we can get to 10, I would rather just get to 10 faster. And I see because I don't live off of that$500 ,000 a year, I just see all of that as my, my fodder for putting back into the thing so that I can get to the next level, which side quest for everyone. If you're a service business, and you have cash flow, Some businesses are really obvious for where you do reinvestment. If you're brick and mortar, you save up your shekels, you open another location. Very clear where your capex goes. If you're manufacturing, you buy another big machine. Very clear where the capex goes, right?

3:02If you're a service business, you do accounts, you have a law firm, you got legal people. What do you do with the extra money to, quote, reinvest in the business? So there's two primary sources. Number one is going to be talent and culture. So who am I going to hire? And how do I uplevel the team? So in service businesses in general, you can see how good you are and how advanced you are as a service provider by the price you're able to charge. And so over time, your price should always go up. Because fundamentally, you should have a virtuous cycle of we do good work. That generates more demand.

3:32More demand means more than we have supply, which means we can raise the price. With the extra cash, we can then acquire better talent, which means we do a better job, which increases our reputation, which increases our price, which allows us to charge more so that we can get better talent. And so the talent should always be going up, and so should the price. And so if you're in a marketplace where you're like, man, we can't charge more than other people, it's because you aren't better than other people. So we have to beat them in order to do better. That's point one. The second area is brand, right?

3:59It's like, how do I spend some of that extra cash to solidify the brand of me? So this is not direct response ads. This is like kind of the big aspirational moments, these brand moments, like we just did this launch, you know, two weekends ago. It's like, how do I, how do I do these big demonstrations that might cost more and might not be the normal run of business. Like why would Red Bull have a guy jump from out of space down? It doesn't make any sense, but except it makes a ton of sense because I'm talking about it right now. Right. And so you're probably more likely to drink a Red Bull at the break.

4:25Real talk. And so anyways, it's like, how does this ladder back to selling more pool tables for you though? You're not in a service-based business per se, but I thought it was a good offshoot for other people. See all of the profit that you have, whatever you don't need to live on as your experimentation budget. And that budget is really like, do not see it as I lost money. Like you can't think with that perspective, you will just lose. You have to think of that. This is like, I'm going to rigorously test keywords until I find more keywords that win. And these are just investments in finding money printing machines, because keywords, especially once you really find them, they kind of just print for you, which you guys are experiencing right now, right?

5:04You guys spend$250 ,000 a year to make 2.2, right? You're getting 10 to one on it. Now, obviously, you have cost of goods for sure, but like profitable, right? And I'm sure when you found your first keyword and it started working, you were like, holy shit. It's like, great. We just need to find like another hundred. And they're there. They're there. And you might need bridge pages. So you've, you may have heard of Eugene Schwartz. So famous marketer. And so when you really want to scale ads to colder markets, for those of you who went through the hooks and the goaded ads, anyone go through goaded ads playbook?

5:35Okay. So this, this will sound a little bit more familiar. So you have these levels of awareness that correspond with size of market. And so you've got your most aware customers here. And the reason that these levels are important is that it changes what the hook is and what the kind of click journey is for the customer. So at the very top, you've got unaware, then you've got problem aware, you've got solution aware, you've got product aware, and then you've got most aware, which is usually your existing customers, right? And so if you want to expand. So right now, I'll bet you most of your keywords are targeting these people.

6:09If you want to go up market, which might have 10 times more clicks, we might have to have a bridge page after you have like the keyword might be more like home, home projects or like, access, like I'd have to think of that. I'd use a keyword finder. Would you have like the same team work on that or hire a completely different marketing team? Kind of a really good media buyer would know this, but you'll likely just need to have keywords that a little bit broader. So you start competing against more people. But as long as you bring them to kind of like an advertorial type page, and then they take the next step.

6:42And then it basically mimics the same path as this. It's like you take them from product aware to then advertorial, then to your sales page, that bridge, the clicks here might also be like one 10th the price, and there's an ocean of them. And then when you go from there, it's like, okay, what's what's above that problem aware? Is your house boring? Right? Like, do you have an extra room that you don't know what to do with, right? These are problem where they have a problem. They have no idea that you're going to sell them a pool table, but we have to start with where they're at and then lead them through the journey.

7:10Thank you. Yeah. Appreciate it. Real quick. I'm going to show you the exact 10 stage roadmap from zero to a hundred million plus that less than 1 % of companies finish. I've now done multiple times. And so I can say with a lot of confidence that these are the stages as headcount increases that you need to get through. And I broke each of these down by eight different functions of the business, what the constraint feels like, like what are the symptoms of it when you're going through it, and then what steps we actually took to graduate. And we've done this across software, physical products, service businesses, brick and mortar, all of this, and it works.

7:42And it's my gift to you. It's absolutely free. And so the link's in the description, but you just go acquisition.com forward slash roadmap, just enter info, and it'll spit it right back to you all free. My name is Ethan. We sell direct response e-commerce products. We're all paid media. We do about$3 million a year in revenue. Direct response? E-commerce products. Okay. Okay. Like drop shipping stuff? Pretty much. Yeah. It's more branded than that, but essentially is. Yeah. So you have customers who are doing that or you're doing that? We're doing that. Okay. Got it. And so you have a handful.

8:11How many SKUs do you have? Like four. Okay. Is it all the same brand? No. Okay. Yep. So we have, we're doing, it's like four months old. So we're doing a run rate of like a 3 million a year. We have, you know, background in like paid traffic affiliate. So it's not the first rodeo with that we're trying to get to like 15 million a year run rate okay um what's stopping us right now you know not entirely sure but um basically like we have each step for everything that has to be done we built out teams and systems for the main priorities and those things are working pretty well i'm happy with uh our talent what they're producing but so far what i'm experiencing is that you know i'm left with this you know list of like random chores that somehow only i can do the junk drawer but i'm not sure how to approach hiring for this because it ends up being like a very niche specific task but i may i might only need them for like you know 20 minutes a week or something so it ends up being me but with a million things and your founder yeah okay so let's start here you want to get to 15 million what stops you from spending more money uh nothing right now.

9:23I mean, so we just hired a pretty robust funnel team and an operations guy, like a strategist. So kind of just waiting on those things to kick in really. But I'm fairly confident at least do it. Okay. So this is more a complaint than a constraint, right? No, I'm just being, this is me asking for clarity. So we think we can double if we just spend more money. I'm not spending more money because I'm waiting for this thing to happen. Once this thing happens, then I'm going to spend as much money as I can. Sure. Right. And in the meantime, I have stuff I don't feel like doing. You know, I'm like, this is me trying to translate back.

10:01Is that true? Is that like accurate? Yeah. But eventually there's going to be enough of that stuff that like, I will have to find some way to hire out for these things. Yeah. And then there'll be more stuff that you'll still do. You'll just do the more important valuable stuff and give the other stuff to somebody else. Yeah. But a lot of it ends up being fairly tedious. Like it doesn't feel like high leverage or high value at all. I mean, this is where like VAs and product project work can come really in handy. Yeah. Like, I'll give you an example. So when we made all the ads for the launch, right?

10:30I don't I didn't need the amount of editors that I had to spin up in order to because I'm not going to be making 300 ads a week, you know, ongoing, I don't need to. But for the launch, I did and I wasn't going to hire an extra 15 editors full time because it's It's like, I don't need that. And so we spun up 15 editors that were contractors who would then just clip. And then we had one person just did QA on it to make sure that it was good. And then we'd ship them, right? And so if we have something that's like one time-ish work or it's sporadic, then I'm fine just having a suite or a bench of contractors that I can turn on and off.

11:06Sure. As long as they do decent work. We do similar things like with our video editors as well. But some of the tasks are fairly specialized. No, I understand. I was just using as an example for editors, but I'm saying like, if you have tedious work, like this is where the fivers of the world like can come in handy. And worst case, you train a contractor or VA on how to do it and then they do it. Yeah. Just like someone that's high level enough in like Shopify work, but we only use them for a few hours. There's tons of Shopify contractors, like a boatload of them. And they're not that expensive and some of them are really good.

11:38Yeah, I would just look at my list. What are the things I'm doing on a regular basis? Can I ship out most of these to a contractor who does a piecemeal, probably. And now you're trading 20 hours for two. And that's just you just keep making that trade until eventually you're managing a ton of people. And then it's like, great, one person is managing all of these. And you just trade all that time for you getting more. Because hopefully, if you're doing that much work, then you should have the revenue support that role. Have you have you scaled ecommerce like this before? Yeah. Okay. Are you are you just running paid ads?

12:08Yes. Okay. Do you have influencers who are doing stuff? No influencers. We were looking to hire for that, but we have three or four channels for paid at least. Yeah. I'll say this. How big do you want this to be? I mean, ultimately, the goal is we'd like to have a portfolio of, call it four or five brands that we can then exit in a couple of years. So I have this conversation every week with somebody who's doing e-commerce. And it's almost always the same. I would like to have a portfolio of a handful of products that I could eventually sell someday. I have really yet to see anyone do that. And it's I think for two reasons.

12:45One is that as you continue to scale, your CAC will continue to go up, and your gross margins will shrink. And that will get frustrating, you will then also have supply chain issues, which would become a burden. You also have dupes, if you start becoming really good, that will undercut you in price and list on Amazon and all that stuff. Do you have patent protect and like for any of these products? and so like you right now run a media arbitrage business and it works really well up to about 10 million okay and then it will quickly stop working very well and so i think to your point of like you can see a double that's probably true you might have a triple that's sitting there with a little optimization more email follow-up blah blah blah but you'll you'll probably get close to capping in that neighborhood 10 maybe 12 and then you're gonna be like well we're doing a million dollars a month, but we have like, almost no margin in our cash flows fucked.

13:34And so what I think you want is that you want to build a brand that has a product that you really believe in, that will allow you to recruit affiliates to your cause. When I say affiliates, I mean, influencers, not traditional direct response affiliates that are just mercenaries, but like people actually believe in it. And when you do that, you will actually be able to build a brand because fundamentally like any one of the products can be big enough on their own to sell. And so rather than saying like, why don't we try and build four totally different products and totally different brands at the same time?

14:08It's like, why don't we just try to build one that we really like that we think has a chance at actually like really helping people for whatever the problem that the product solves. That's what will build what I think you want. It's just that most people come from the direct response world, just are pure performance marketers. And I say this being someone who comes from that world. And I had to learn the hard way that you will run into the wall that there's a, there's a great article you can recall the direct response doom loop, which you might've read, but basically you just do this. Revenue goes up, margins compressed, margins compressed until you're eventually here.

14:41And then you have to keep selling in order to maintain your team. And then you just run a very large, very high, high liability nonprofit. And it sucks. And cashflow is a huge constraint and you've got all the supply chain bullshit. And then you're like, this sucks. And then you'd have another conversation, come back here and we're like, Hey, we're doing 12 million with 7 % margins. And I would say, okay, of the four products you have, which one is the one that's the clear winner? That's the one that's carrying all the other losers. And you'd be like, well, it's this one. And then I'd say, okay, cool.

15:05Why don't we just get rid of these three and then put all of your effort on this? Do you think you'd be able to win that? We'd be like, Oh my God, sure. It was like, great. So like, why don't we do that? And then actually invest in building the brand around it. We definitely have, uh, you know, we're, we're paid traffic affiliates. So like we're data people like, uh, but so one of the things that I've thought about is like, you know, our, our biggest skew it's good, but it's not like, it's not that good. Like I know a good campaign when I see it. So like part of the purpose of building out like, uh, you know, our research and funnel teams is like, well, eventually we're going to find something where the market is just like 10 times better, you know?

15:38So it's like, do we keep chugging along with like the one that's like a six out of 10 or do we find, go find the nine and then go on on that. The skillset that you guys are deficient in is going to be brand. and that's what you have to learn how to do. And the brand is also completed with the product. So like that's what completes the brand loop. Like we make this amazing promise. We have all these great associations. People then make the purchase and then the product either reinforces the brand or destroys the brand. And if it reinforces the brand, then the loop continues and becomes a virtuous cycle.

16:06And that's how you go from an e-commerce store that does media arbitrage into a household name that you can sell for not just 50 million, but maybe 500 million. And so it's just that like, I have this conversation literally every week. And so I know that you're coming at this from a math perspective. It's just that it will not work at scale. And so I would rather you spend as little as you can on all of these different things to find a product that you guys really think is legit and has some level of defensibility if you can. Because if you don't have a defensible product, the only thing that you have is the brand to differentiate you.

16:39That's the only differentiator. And so if you're competing, because like, just play it out the next step, right? Like, let's you find your nine out of 10. No one's buying that. Like private equity investor, not buying it because they know the game. They buy brands. They don't buy products. And so you get your nine out of 10 and then the dupes flood because they see that you're killing it. And then they undercut you on all this stuff. And then your ROAS goes down and then you leak everything to your competitors. So either you have some sort of patent that you can actually protect and you have a legal team that can enforce it, or you build a brand.

17:10So like that's the long-term play. The rest of this is just making money until you figure that out. I'm being super real with you. I'd just rather save you a couple of years. But like, that is where this leads. Okay. I mean, so... How do you build a brand? Yeah, right. Yeah, how do I do that? But, you know, we are working on like the legal defensibility of it. You know, I didn't mean to say like... I would lead with brand rather than legal. I would lead with brand rather than legal. Yeah. Because legal, you have to like... It's still tough to like... It's better to be big and then win with legal then try and be small and win with legal because you'll just get drowned in fees.

17:46And it's, it's, it's better to just have the coolest brand and have the coolest people promoting the thing. And then people just want to buy from you, even though they see the cheaper knockoffs. But that's like, that's what you have to do. If you really want to go where you want to go, otherwise you're just going to be cycling through SKUs and you're going to say you have a portfolio and it'll sound impressive to people who don't know what you're talking about. But like margins will do this cashflow get fucked and you have co-founders and it'll be like, this is so much work this sucks i wish we just had one product that we all really believed in that we could like build a business around yeah and that's what you want to do thank you yeah you bet hi my name is samantha harrison i own a hair extension company in australia amazing i have a salon and an e-commerce business a what an e-commerce sorry sorry i wholesale wholesale and e-commerce so direct to consumer and wholesale yeah okay got it sorry i'm like so nervous i have a terrible fear of public speaking.

18:39Have a panic attack and then just ask the question. You're good. I forgot what my question was. It's fine. We can pick another one. I'm just going to read what I wrote down, if that's okay. Okay. So to make either business truly sellable at high valuation, it would take me years of operational restructuring, recruitment, reducing owner dependence and building systems. And even then the multiple would be low because service-based product businesses don't scale without heavy ongoing input i want to move into sass you think you think this is hard and so you're like you know what i could do something harder and so i guess that was the point of me coming to this seminar because i know you talk a lot about like the woman in the red dress yeah or man in the tuxedo you know whatever works obviously i'm fearful because it's not my niche and it's not what i specialize in but i obviously being in the industry i definitely see a lack in the market and educating what is the sass that you're trying to build or that you want to online booking system for well the niche is for salons but it can be used for service-based businesses there's so many of those it's got ai built into it and the the difference between mine and say everybody else's is it's essentially bridging the gap between revenue and profit so giving like more of like a pull data rather than push um having the ai built in as more as like a motivational business coach which will give you the real-time analytics on your team on your services on your numbers on your margins like everything like that like for me personally i spend every week calculating every single team member's revenue cost of product you want a salon too yeah okay but the sound so the salon and the wholesale run without me okay the salon does about so the salon does about say 900 000 with 50 margin and i'm happy with like what like i don't really want to scale the salon the wholesale year or this year has grown 100 but it's about 30 month on month what was the revenue of the wholesale i think i'm just at 2.6 okay so far and you have 30 margins on that yeah great so So the financial overview for this SaaS, it's$500 ,000 build, $120 ,000 a year to maintain, but it's serving my same audience, right?

21:08The stockists are already salon owners. They already buy from me. They already trust me. It's something that they want used, have already subscribed to like the founders. Don't look at me like that. Believe in me. I do. I do. I'm just trying to figure out which you to believe it. I'd only need 150 subscribers to maintain costs, which I've already got. So if I had 2 ,000 of my weekly stockists that already buy from me subscribe, there's 2 million a year. It's fine, right? Tell me it's a good idea, please. So much pain. You sound like Ed. I've been sulking all day. Right. So one of the difficulties that I have, like, this is a perfect scenario of telling someone what they want to hear versus telling them what I think.

22:02And I, Moise, it's a very fine line because like, I always want everyone to leave happy. But I also feel like I have integrity. Tough, right? And so what I will do is I will give you a sorting question. You can pick what side you want. I can assume your position and then tell you what I would do, although I disagree with it. Or I can tell you what I think you should do. Okay. Which one would you like? Tell me what I should do. Okay, great. I think that... I'm going. I think you getting into SaaS as somebody who has never built a software product and doing it where you're going to self-fund it.

22:39And just because you have a distribution base does not mean that you should sell every single thing that that distribution base can buy. What if I've already paid for it? That's called sunk cost fallacy. Okay. So I just give up. I don't try. It's okay. Some of the best money you ever spend is deciding to stop spending bad money. Okay. And I say this only having done it myself. So I'm going to hit from a couple angles. So the first one is who here is organic as their primary method of getting customers, like making content, et cetera. And it gets bigger and bigger every time. It's just the way it's, it's the way the world's moving.

23:09So one of the big mistakes that people who have organic audiences make is that you grow an audience and then you sell a product and then people buy the product and you make money. And that's a very reinforcing event. And so then, but they already bought the product. So then you think, well, shit, I should make another product. And so you make another product. And then within two or three years, all of a sudden you have four mini businesses that serve the same pool of customers. When the real constraint of the business is you needed to grow your audience. And so the extensions, whatever it is that you sell, right?

23:35The hair extensions that you sell, you're doing 2.6. And what's the e-commerce side doing in revenue? Yeah, it's like 900. 900? That's what it's doing. Sorry, sorry. The salon is 900. The online is 2.6. so okay so there is no you said e-commerce at some point yeah so e-commerce i'm selling is the wholesale online is the wholesaling okay got it it's b2b on that side i also sell to retail wholesale and retail so anyone can buy but i do have stockists the vast majority is other stylists buying yeah right so layla can buy from me but also hair extension salon owners can register for a trade account and how many of the sales are trade accounts it's about 50 it is interesting Okay.

24:15So anyways, back to this point, which is that that business is not not sellable. I just want to be like, you said like ready started. You're like, it's not sellable. It's operation bubble. It's like, that's, I mean, not necessarily true kind of at all. You just need to get more customers and extensions are a reoccurring product. Like people buy them every eight, 16, whatever the weeks are, you know, whatever the, you know, better than I do, but I know I've seen one time. I'm sure about that. So, so all that to say, like, all we have to do is just like, you have now encountered the big hairy problem that I talked about at the beginning of today, which is that you encountered something that you didn't know how to solve and then are thinking, okay, well, there's greener pasture over here.

24:57There's a girl in a redder dress. And if I go here, surely this grass will not be fertilized with shit. But it is indeed full of shit and significantly more shit than what your current business is. The current business is actually way more chill than the business that you're trying to get into. and the business you currently have is way more cashflow positive than the one you want to get into the business that you want to get into you will not make money from for many years if you ever make money from it so if you want to win at software you have to commit to making no money for basically seven years zero and the people you're competing against don't have two other businesses i guess like my limiting belief around like i've got a very lean business so i build a property a couple years ago i ended up moving out and i run the wholesale and the salon from that house So my expense for this salon and the wholesale is 500 bucks a week.