MI286: Building an Online Business Empire w/ Jacky Chou

0:00You're listening to TIP. In this week's episode, I chat with Jackie Cho about the world of online business, including how to start an e-com business, what products to consider for an e-com company, the future of niche sites, and much, much more. Jackie is a successful entrepreneur, marketer, and podcaster. He buys, sells, and operates online businesses full-time. I found Jackie on Twitter and have learned a bunch about online businesses from him there and in his newsletter. He's also helped me out quite a bit with specific questions that I've had. If you're interested in online business and marketing, he's a great person to follow.

0:36And now, without further delay, let's get right into this week's episode with Jackie Cho. You're listening to Millennial Investing by the Investor's Podcast Network, where your hosts, Robert Leonard, Patrick Donnelly, and Kyle Greve, interview successful entrepreneurs, business leaders, and investors to help educate and inspire the millennial generation.

1:05Hey, everyone. Welcome back to Millennial Investing Podcast. I am your host, Robert Leonard. And with me today, I have Jackie Cho. Jackie, welcome to the show. Glad to be here. Thanks for having me on. I hope I don't embarrass myself on this. I know a little bit of your story. We've talked on your pod and we've talked quite a bit off air, but I don't know your whole story. I don't know exactly how you got started. Have you ever had a normal job? And what was your first foray into online business? I guess we could start from the beginning. I did electrical engineering in university, got my degree there.

1:41But in between, I hated it so much. I was actually just rummaging through my stuff because I'm back home right now. And pulled out a midterm. It was 15 out of 50. And that was a 25 % midterm on a third-year electrical engineering course. And I remember that actually very clearly because that was the moment I knew I didn't want to do electrical engineering for the rest of my life. And then I think like a week later, I found an internship in Berlin. And then a month later, I was in Berlin. So I took a year off, did a year at a marketing agency in Berlin. And I guess you could say the rest was history.

2:18eventually came back, graduated, and then decided to move back to Berlin after I graduated. Found a growth manager job, eventually became a head of marketing at another startup. And then, yeah, I think I eventually started consulting, had a couple great e-commerce businesses, I guess we'll talk about later. And then now we're here. If you were an electrical engineer, why did you choose a marketing agency? Why did that stick out to you? So the exact moment was, I knew I couldn't make money doing electrical engineering because I wasn't great at it. And so I Googled how to make money online. And then I found digital marketing.

2:57That's where I landed. What did you learn? What did that marketing agency do? What was their main business model? Marketing agency, as you know, but for the listeners is very broad. I mean, there's so many different things you could do as a marketing agency. So what did they focus on? what did you focus on for them? And what did you learn? What were the biggest things you learned there? I think in the beginning of my career, I worked at three jobs. One was a mobile marketing company. So they helped apps launch and helped them get ranked on the app stores, kind of like SEO. And then we did a lot of display ads for them as well.

3:31I think my next job was at a hardware company doing growth marketing for them. So I guess that's a bit more down my lane because I study electrical engineering. And then I think six months into that job, I applied for a director of growth position and somehow got it at a photography startup. So think like Instagram copycat, which was eventually sold. But yeah, I did a lot of SEO there as well. Is that what your main focus was at the photography startup? was it just SEO mainly? Is that how you got into SEO? Were you doing SEO at the marketing agency too? No SEO at the marketing agency, SEO at the hardware company, and lead generation in SEO at the photography company.

4:18What did you do for SEO for that startup? I know you said it's Instagram kind of copycat or competitor. So what does Instagram do for SEO? Or what did that company you do for SEO? Yeah. So I think it was a lot of stock photography keywords. And then we wanted to sell major brands on stock photography or partnerships. I think it would be more like Instagram meets Getty stock images. It's user generated and they can sell their imagery. And we helped rank for, I don't know, kids playing on playground photography or photos, you know, stuff like that. How did you learn SEO? I know you said you did it at the hardware company, but did you just learn it by doing it hands-on there?

5:01Or did you take courses, read books, listen to people? Like what did you do even before doing it at the hardware agency and then at the photography startup? Like what did you do to learn SEO? I learned everything by just Googling and trial and erroring. I don't think I had any formal training ever. Actually, even till this day, I'm pretty against courses. But yeah, I think my mind can still be changed. Why are you against courses? I kind of am too. Not completely, but a little bit. So I'm curious why you are. Mostly because I think courses is good for accountability. And if you're a self-starter like I am, I guess, you can learn just about anything you want on the internet.

5:45So look at Harvard with their coding classes or courses online. You have Khan Academy nowadays, you have Duolingo. If you want to learn something, you can just get out there and do it. A course won't help you do that unless you feel like spending money will get you there. But then again, you have like a mindset issue at that point. It's not so much an education problem. And I mean, there's YouTube too. I mean, You need to learn literally anything you want on YouTube, like anything. Exactly. Yeah. And I actually, for example, I also learned like finances through YouTube. So I learned how to navigate all that through, I think, yeah, just multiple YouTubers.

6:24Shout out to them, but can't think of any. Who did you watch? I think during the last couple of years, it was mainly podcasts. but yeah they're mostly like they're not very not they're not very educational but i would pick up terms they use and then just google them so it would be mostly like my first million all in podcasts and then just doing deep dives off of like things they mentioned but i don't have any knowledge in and uh it's just a way of sparking interest for me and i just do go down the rabbit hole so today i know you have indexy and which does a couple different things and then you also have Far and Away.

7:04You might have some other stuff that I'm not aware of. So what's everything that you have going on right now in terms of business? Business. So I have a portfolio of content sites. We call them niche sites. And I have a newsletter, like a marketing newsletter. And all that falls under Indexy, which is the holding company for that. And also I have a productized SEO service. And all that combined is probably my largest revenue source. And then I have Far and Away as well, which is like a direct-to-consumer dinnerware brand. Is that the only e-com you're doing right now? Yeah. I think we got burned in the past with a couple FBA businesses, mostly because of our lack of knowledge, not so much of the platform issue.

7:50But as of now, I have a couple smaller brands, like an online interior design company, if you count that as Ecom. Yeah, I think that's about it. For Far and Away, I want to talk a little bit about Ecom. So for that brand, Far and Away, how did you get your very first customer? You have this idea for an Ecom business. How did you out and get your first customer? Yeah. So we had to prove out a product market fit first and foremost. And we did that actually through dropshipping. So we had a seven-figure dropshipping store. Between my last job and now, a lot of it actually is because of the success we found in dropshipping.

8:32We did that via Shopify and we sold dinnerware from China. And we quickly scaled. It was crazy. I remember our first 10k day and my co-founder and I were jumping up and down, cursing out Warren Buffett saying we're coming after him. Immature stuff like that. We were ready to take on the world. But then Facebook algorithm destroyed us. So we got banned on several Facebook accounts because we were dropshipping. So shipping times were long. And iOS update happened. So what that means is you're unable to track across different devices. For example, if you see on mobile and purchase on desktop, Facebook used to be able to track that.

9:16But now it's not the case anymore. So you lose conversion data, which disables their ability to... Or hinders their ability to optimize. So we scaled up to 300k a month. We did 2 million a year or something like that. And eventually tanked down to 100k a month. We were sad and down in the dumps and eventually exited to private equity for a crappy multiple. But we did do one thing, which was prove out the business model saying there is a demand for luxury dinnerware goods. So we took that cash. My co-founder and I decided we're going to do things right with Far and Away. So we went straight to Portugal, where there's a long standing history of ceramics.

10:01Visited like went across the country for like two weeks, went to like 14 different factories and ended up with a family-owned factory. And we've been partnered with them. And it's been a lot of ups and downs. I will say that. Yeah, it's a lot of work. COVID destroyed us with logistical issues. Shipping prices went up during that time. We were questioning if this was even a viable business anymore. But now that things have settled down, we're at a solid profitability and we've opened up new channels of revenue. So that's pretty exciting. So you already had product market fit, but what did you do to get your customers?

10:40Did you just get the customers through... Did you just throw up Facebook ads and wait for them to convert? What did that process look like? How'd you get your first customer? First customer, we did a Kickstarter campaign, actually. The beauty of Kickstarter is you don't need to fork up much cash. You don't have to hit the MOQs for the factory. All you have to do is go to the factory, shoot some beautiful videos and imagery, and launch on Kickstarter. And we were able to get, I think it was something about 100k US dollars all in from our Kickstarter campaign. And we use that to launch, pay for a first batch of inventory, make sure everything worked.

11:20And yeah, I guess the rest was history. How'd you get the people to the Kickstarter campaign? We use various agencies and also like a Kickstarter is a different beast, right? So you would use a lot of Facebook ads and also organic Kickstarter is extremely powerful. So it's almost like SEO. So if you rank at the front page of Kickstarter, it's like a guaranteed six-figure campaign. So you just have to use Facebook ads and various agencies' email lists and they'll push it upwards. And that's what we did. We also built our own list with our own Facebook ads. But it turns out the agencies, because they have a very mature pixel of Kickstarter backers, so they just simply do a retargeting and they take a fat fee.

12:04You mentioned that the Facebook algorithm went away for you guys with the dropshipping business. What happened there? Did you guys get banned? What changed with the algorithm other than just the iOS update? What happened? So exactly what happened is, if Facebook knows you purchased something from their ad, if you fired a Facebook conversion pixel on their ad, they'll pretty much show... They'll ask you in a couple of weeks how you found the brand? What did you think of it? And if you're dropshipping, in a couple of weeks, no one has received their products. So they're giving you negative reviews.

12:41And if you get too many of those, Facebook just bans you. So your ad ratings are low and you get completely clapped. Let's take a quick break and hear from today's sponsors. Even Einstein had blind spots. That's why modern science is built on the idea of peer review. Investing may be more art than science, but that doesn't make pure feedback any less valuable. The tricky thing is finding qualified people who are interested and willing to help vet your investment ideas. That's why we built the Intrinsic Value Community. It's a place to connect, share ideas, learn, and get feedback. Nobody ever wishes they'd spent more time buried in spreadsheets, but connecting and building relationships with others who may be smarter on a topic than you, but who are also schooled in value investing, that's valuable.

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15:26To begin getting smarter about investing, just visit theinvestorspodcast.com slash get started with stocks. That's theinvestorspodcast.com slash get started with stocks. And for a limited time, you can use code stocks15 for a 15 % discount at checkout. All right, back to the show. How did you learn about Facebook ads? I know you said you don't have any formal training in SEO. Is it the same with Facebook ads? And if so, what did you use for informal training? I know you're probably Googling, but what things were you Googling? What resources did you find? Were you watching YouTube videos? What websites were good?

16:03How did you become a Facebook ads expert? I'm actually not an expert. My business partner runs the Facebook ads. But I do now for a couple other brands. It's pretty easy, actually. They make it pretty dumbed down for you. I think the key to Facebook ads is one, test a lot of different creatives to the proper targeting. And three is maturing your pixel. So what that means is in the beginning, you have to burn a lot of money to get purchase data onto Facebook. So in the beginning, you're pretty much shooting from the hip or firing in the dark. And after you get a couple of signups or a couple of purchases, then Facebook knows how to optimize.

16:43and after then it's just all gravy. And eventually, if you have enough purchasers, you create lookalike audiences from that. And Facebook is so good at finding lookalike audiences. When you say burn a lot of money, how much are you talking? Like 1 ,000, 5 ,000, 10 ,000, 100 ,000? What is the lot in that case? I think I can only speak on the dropshipping side. Albert and I, so Albert is my co-founder, we both decided to put in 5 grand each of just like burn money. And I remember it like it was yesterday. I think we burned$8 ,000 in total. We're about to pull the plug. And then suddenly an ad just takes off.

17:22You just need one, right? You just need one and it pays for everything and more. And from that moment on, yeah, we just cranked it. And then yeah, the rest was history. It's funny because I saw a brand that was for sale on a online business marketplace. I don't remember which one. And I looked at what they were doing. Their numbers were pretty strong. I mean, their margins weren't great. Their gross margins were decent. Their net margins weren't great. But overall, they were doing decent. And I was like, okay, they have no real margin of safety. They have no competitive advantage. This is something I could easily do.

17:58I'm not going to buy this business. It's for sale, but I'm not going to buy it. I can see all their financials. I can see exactly what they're doing. I could just replicate this business. So I tried to work on that. I gave it a couple of weeks and I spent some money on Facebook ads. And I was surprised because this company's website was horrible. I could see their Facebook ads to the Facebook ad library. Their ads were horrible. I had better ads. I had better creative. I had a better website. Everything was a lot cleaner than what they had. And I didn't spend a lot of money. I think I spent maybe$1 ,000 or so on Facebook ads.

18:28And I didn't get a single customer. Tons of visitors, but not a single customer. And so I just put that project on pause for now. But it's interesting to me because I know it works. I know they've proven the market. I've seen verified ads... Sorry, reviews for them. I know what they're selling works. I know it can happen. I just was really confused as to why what I was doing wasn't working. And maybe I didn't give the pixel enough time to mature. Maybe I didn't spend enough money or burn enough money to teach the pixel. I'm not really sure. Yeah. I think we can go deeper into this just live. A lot of the times, there's two points where you can have where you mess up.

19:05And one is the ad. You have to look at cost per click. If your cost per click is low, that means your ad is good. Full stop. We have to check your cost per click. I don't know what you were at. If it's... I think it was less than 50 cents, you have a pretty good ad. But if you want to... And then you can talk about the website. I think nine times out of 10, the websites of the businesses I've taken a look at are absolute garbage. And they don't have proper CRO in place, which means conversion rate optimization. there's like a lot of e-commerce common practices for example a sticky add to cart button or one click purchase there's a a lot of common practices that people most of the time don't follow or site speed people take like five five seconds to load then it's it's over so it's a a certain percentage people will always convert and that percentage of people depends on your website i think you can always work backwards from there.

20:04Most of the time it's a website. I'm happy to take a look at it afterwards if you want. Yeah, I definitely would like to chat with you a bit more about it. And the site is definitely not perfect. This was the first Shopify site I've ever built. I've built actually quite a few content sites. And you and I have talked about that. So I would say that the Shopify site itself is nothing super special. It's definitely not CRO optimized. It's not optimized for that. But I mean, I think it's decent, it's clean, it's organized, etc. compared to what I saw this competitor have. And what was interesting too is it might have been my expectations because I could see their whole P &L for the last three or four years.

20:40So I could see what they're spending on marketing. I could estimate roughly their AOV. So I could say, okay, this is roughly probably their AOV given their prices of their products, their revenue. This is how much they're spending on marketing. I could kind of ballpark a customer acquisition cost. I could roughly ballpark that. So I'm like, okay, it was like 40 or 50 bucks. So I was like, okay, if I can spend, I should be able to get my first few customers around $40,$50 a piece. And yeah, I have my Facebook ad account up here. And I spent some money on it. And it is like$1 ,000 and zero customers.

21:13And I'm looking at that, I'd have to check. But you mentioned the cost per click. So the ones that had a lot more impressions were a little bit higher, but I had some that were$0.40,$0.51,$0.55. So these are all different ads under different ad sets, but I had$0.40,$0.51,$0.55,$0.65,$0.71,$0.93,$1.10,$1.12,$1.19, and$1.41. Not super high, but also not super low either. Yeah. I mean, those cost per clicks seem decent. Are you only targeting US, by the way? Yeah, that was US only. Okay. So another thing with Facebook ads is you absolutely need to target conversion campaigns. So conversion optimized campaigns with purchase.

22:05Never anything down the funnel. Facebook's so good at that already. So for example, even if you have zero purchase data, you always click optimize for purchase because then Facebook finds lookalikes from other campaigns and tries to match it for you. I don't know what you're optimizing for though. Some people optimize for click? No, I think it was optimized. I'm pretty sure it was optimized for the sale, not clicks. Okay. Yeah. Then you'd have to look down the funnel. For example, cost per view product, cost per add to cart, cost per initiate checkout and see where they're falling off. You can look up industry norms in terms of the rate at which they do these actions, and you'll see where they fall off.

22:49But typically, it's add to cart. Yeah, I got to dig into that data a bit more. You mentioned that when you sold your brand, your econ brand that was doing the dropshipping, you got a bad multiple when you sold it to private equity. Why was that? Was it just because it was a dropshipping business and there's no real defendable moat, like I said, with this other company that I was looking at? Or was it something else? Also, it was on the decline. So declining sites get awful multiple, if any. So I think it it was under 2x EBITDA, way under. And we had to get a nasty earn out as well, which we only saw, I think, we only got 70-80 % of it because the PE firm just ran away and declared bankruptcy.

23:34But it's sketchy because they're still active. Is Far and Away built on Shopify? Yep. Do you just basically only use Shopify for your e-com businesses? Is there any other alternative that might be worth considering? Yeah. I think anyone who suggests otherwise are probably idiots. You need to stick with Shopify. There's no other platforms like Viable. There's nothing else. I also noticed on the Farnaway website that you have quite a few blogs, blog posts. How do you translate that SEO traffic and the blog posts into product sales? So that is primarily for display and affiliate ads and revenue. I tweeted about this before, but I believe all e-commerce stores should open up different channels of revenue or revenue streams.

24:24And that would include display ads and affiliate revenue as well. And the reason being e-commerce is very competitive nowadays. Most of them operate at 5 % to 10 % net margins. And with affiliate and display ads, you're able to bump that up much, much higher. And I've shown that with Far and Away. I think if any of your listeners are an SEO, throw that into Ahrefs or SEMrush, and you'll see what I'm talking about. I did that. Yeah, I did that. I took the URL and I put it into SEMrush. I looked at him like, he's getting a ton of traffic for an e-com site. And then I went in and I saw like, oh, he's got affiliate.

25:04I didn't see your tweet about this, but I was like, oh, he's got affiliate sections here, CTAs in these blog posts, and they're not even for his brand. And he's got some display. I was like, wow, this is really interesting. I've never seen this from an e-commerce platform or company. I think not many people do this. I think some examples of companies who do this well would probably be Epic Gardening on the display ad side. But I don't think they have a very strong affiliate side. So affiliate actually takes out most of our revenue in terms of the non-ecommerce sales. Yeah, my tweet was about like, if we want to break down the math, far and away, maybe...

25:40I'm giving example numbers out there. It's not my place to reveal it because I have a business partner. But let's give an example. It's about their 50k a month. And at 10 % net margins, you're only at 5k a month. And that's very hard to grow with 5k a month in free cash flow. Or even if you say 10k a month, right? But far and away right now, I can speak on this is doing probably 4.5k in affiliate sales. And we're about to turn on display ads next month, which will get probably$2 ,000 a month. So that's 6.5k in just... Or no, that's 7.5k, 6k, 6 to 7k, never do public math, 67k a month in free cash flow, just right there.

26:25And if you add that to the 5k a month in free cash flow from the e-commerce site, think about it. It's just like it adds to the multiple of the e-commerce site. It relieves pressure off of the core business to have to grow at a sustainable amount and we're able to reinvest quicker. Are you passionate about the products that you sell for Far and Away? And if you're not, which my guess is you're probably not, but correct me if I'm wrong, how do you stay motivated to work on it? Funny enough, I'm actually pretty passionate about home goods. I'm a lover of interior design and architecture. So if I laid out all my content sites for you, you'll see that a lot of them aren't actually in the home space.