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The 3 Pillars of E-Commerce Profitability – Return on Podcast Ep. 1

Ep. 1 - The 3 Pillars of E-Commerce Profitability

The following is a transcript of Episode 1 of Return on Podcast, the show where we help e-commerce sellers improve their ROI in business and in life. For more episodes, subscribe to our YouTube channel or listen on Podbean, Apple Podcasts, and Spotify.

Tyler Jefcoat: (00:06)
Alright. Welcome to Return on Podcast, where we talk about the experiences, the obsessions and the habits of the most successful e-commerce entrepreneurs. I’m your host Tyler Jefcoat. And in this first episode of ROP, I will lay out the three key pillars of a profitable e-commerce business, and then I’m gonna give you three hacks, three guaranteed habits or practices that will give you return on the time that you spend, right now, listening to this show. So I just wanna say thank you for joining me. I’m on podcasts all the time, but I finally succumbed to the pressure to launch my own. And it’s gonna be a little bit of an adventure here over the first couple of episodes while I get used to the tech, and, you know, at some point our audience will consume this content on YouTube and on Facebook and probably on LinkedIn. For today, I’m prerecording this one because I was scared to go live without trying one in advance.

TJ: (01:08)
And the other thing that’s a little bit different about this first episode is that often I’m gonna be bringing on experts and interviewing them about how their stories of entrepreneurship have impacted the e-commerce ecosystem, but also how they’ve just been successful. And guys, I just wanna say this up front: I’m a big believer, huge believer, that what James Clear says in his book, Atomic Habits, is 100% true, that we don’t rise to the level of our goals. We fall to the level of our habits. And so every episode is gonna have kind of this “return on podcast” moment at the end where we’re just gonna talk about actual practices, things that you could hopefully take action on each week that will give you better return on investment that will improve the value of your business, that will make you more money or give you more time, that kind of thing. And so we’re gonna talk to deeply about kind of stories, and then there’s gonna be content, and then the last section of each show is gonna be really rooted in hacks or actual action steps. And so for today, we’re gonna talk about three pillars of profitability for e-commerce business, and then I’m gonna give you three hacks. And so I hope you’re ready to go, cause I’m gonna dive in here and, you know, give you a couple of examples.

TJ: (02:27)
So when I was in college, my college roommate, his name was Ben, great guy, Ben. He was an unbelievable furniture maker, right? He could take wood and craft antique-quality furniture. I didn’t even know that was a thing. Apparently, if you really good at making furniture, even though it’s not old, the experts will continue, will consider it to be antique-quality. Well, Ben had that gift, and still does, by the way. Our apartment at the University of Georgia – even though we had zero money, we had no money – our apartment had the most amazing furniture in it. And it was because Ben as a craftsman is really, really gifted. He’s really, really good. And so our illustration today was, I would like for you to compare your business, think about it in your head, compare your business to a custom-made three-legged stool. Are you picturing that? Do you have a three-legged stool in your mind? Right? You can sit on it. It’s sturdy, it’s stable. And it’s so beautiful that the antique furniture market, the collectors, they’ll pay you top dollar to acquire your stool. Picturing this? Three legs, stool. It’s beautiful, investors buy it. Now let’s apply those three legs to what I’m gonna call the three pillars of profitability within your e-commerce business.

TJ: (03:47)
If these pillars are strong, and if they’re aligned – just think about this. If you built a three-legged stool, but one of the legs is pointed in the wrong direction, right? It’s kind of going off into nowhere. Then you don’t have a really successful stool. You’re not gonna be able to sit on it. It’s not gonna hold your weight, right? And so you gotta have all three of your pillars actually aligned. They have to be pointed the same direction. And if they’re misaligned or if they’re flimsy, you’re in trouble, it’s not gonna hold weight. You’re not gonna be sell this business. That’s the illustration. So follow me. So I’m gonna walk through these three pillars pretty quickly. And then I wanna use a couple of case studies, a couple of actual friends of mine, that own multimillion dollar versions of some e-commerce businesses. I wanna talk you through how they’ve applied parts of these three pillars to making their businesses more profitable.

TJ: (04:37)
Okay. Pillar number one. The most important pillar is the marketing pillar. You read any business book, and what they all say is that the most important challenge or opportunity for a business is the ability to solve enough of a problem for your customer that they will pay you a profitable price. Now let’s pause for a second. I don’t know if you caught that. I’m going to say it again because it really is important. Business is not – it’s actually pretty simple. It’s not easy. It’s extremely hard, but it’s actually pretty simple, and here’s what it is. The most important pillar of having a profitable e-commerce business is having products that people care about, and they care about it enough that they’re willing to pay you a profitable price for it, right? This is really about generating value for your customer that they will pay for. Now, there is a lot of ways to construct your marketing pillar, this first leg of your stool, in a way that makes it sturdy and makes it beautiful. But the key, and this is what’s gonna be the thread through this entire episode is, the key is to have that leg be aligned with your other two legs. And so I’m gonna share the other two legs and then we’ll dive into some case studies.

TJ: (05:47)
Pillar number two, the second leg of your three-legged stool is sourcing. This is in any business, by the way. I own an accounting firm, Seller Accountant, we do bookkeeping, we do CFO. If I’m really good at selling our services, but I can’t hire people to actually deliver the service, I’m out of business. I do not have a profitable business. Same thing for you. If your business model addresses a customer need, you have a super cool product, you’re really good at advertising it, but you can’t source the product. You don’t have a business, or if you do, it’s not a very profitable business, right? And so the second pillar is to make sure that we can actually grab product that’s of high quality, that’s reliably – they’re gonna show up when we’re ready to sell it. And that’s pretty self explanatory.

TJ: (06:31)
Let me go to the third pillar. So again, first pillar: marketing. Do I have that kind of fit where people care about my product? Second pillar: sourcing. Can I secure the actual stuff that I’m trying to sell? And then my third pillar is cash or finance. It’s called the financial pillar. And listen guys, I’m a CFO for a huge pile of e-commerce sellers. And so if you choose to follow this show in the future, I’m gonna get into the weeds about measuring profitability, about Return on Working Capital, about what is good debt versus bad debt. You know, how to have your books in order if you’re gonna exit or whether you’re gonna scale and how to manage cashflow. I’m not gonna get into the weeds here today in this first episode, but suffice it to say, if you drive a car with mud on the windshield, it’s suicide. And so what I need you to do is start managing the financial parts of your business. That pillar matters. How can I manage the finances of my business? How can I wipe the mud off the windshield so that I have visibility and actually manage my business on purpose? Right? So if we can just agree that that’s a thing, we’ll discuss the kind of detailed topics in future episodes. Finance matters, and frankly, running outta cash is one of biggest problems that our clients face when they’re trying to scale these e-commerce businesses. Okay?

TJ: (07:44)
So we’ve got our three pillars, marketing, sourcing, finance. Let’s apply them to a couple of brand owner stories so that you can see how this works and see how important it is to align the strategies between the three. Cause again, remember: if I am not aligned, right, then I’m gonna have a stool that’ll fall down, it’ll be flimsy. I’m not gonna get top price for it when I go to market. So first I wanna think about my friend, Brian. Now Brian is a private label marketplace brand. This is probably a lot of you guys out there. And I just wanna make sure, you know what I mean. Do you know what I mean when I say private label marketplace? It means that we source from a direct supply chain. You know, we’re not buying our products just through an arbitrage play. It means that we own our labels. We have a trademark normally. We have brand registry, often within Amazon. But we’re primarily selling our products through the market place, through Amazon.com.

TJ: (08:42)
Now obviously we’re going to use our listings to move products. We’re gonna optimize for the A9 algorithm, and PPC has become incredibly important for us over the last few years. Alright? That’s that private label, marketplace business model. Resonate with you guys? And so if I were gonna build a strategy, if I’m the one building a private label brand, things like keyword research, studying my competitor listings and reviews, and making sure that I can execute my PPC strategy better than my competitor, that’s actually gonna be some of the keys to being successful. Right? What’s really, really great about this first model, about Brian’s business, this private label marketplace-dependent brand, is that it’s incredibly simple. It’s very focused. I understand that I’m co-branding with Amazon., Bezos is my business partner and I’m kind of okay with it because what Amazon has done is they’ve spent the money and acquired the customer already. And because their brand is great, we have the opportunity to provide the products that those Amazon customers are looking for.

TJ: (09:50)
And if this is us, what I wanna say to you is know who you are and be great at what you’re great at, because sometimes when we get distracted or get unfocused, we can actually cause a lot of headache and lose a lot of money. And so if you are a private label, marketplace-dependent brand, celebrate, cause that’s a great business model to be in, but be really careful not to waste your resources in the kinds of activities that don’t align with this strategy. So think about this: if your marketing strategy was to address customers using the algorithm, using PPC, it might actually be a mistake to launch a Shopify site. Now, maybe it isn’t, but it might be a mistake.

TJ: (10:29)
And so sometimes we go to these conferences, I’m at them all the time, and a guru will stand up on stage and say, “you must launch a Shopify site or you don’t really have a successful e-commerce business.” And my response to that is, well, hold on guys, let’s wait a second. If my product is not really oriented towards that kind of an audience on Shopify, I’m actually gonna burn a lot of resources and be really sad at my business because I’ve chosen to expand when I shouldn’t have. And so this doesn’t mean that every Amazon seller shouldn’t open a Shopify site or go to the EU or Canada, that’s not what I’m saying. What I’m saying is, if you’re having to learn something new that is not your core competency, it’s either gonna take time or it’s gonna take money or it’s gonna take both. Right?

TJ: (11:12)
And so if I don’t have a lot of time, meaning I might want to exit in the next six to 12 months, I probably ought keep my business simple. Or if I don’t have a lot of money, meaning I couldn’t afford to absorb the losses of a few months of building my own direct to consumer funnel, if I don’t have that cash in the bank, well then guess what? I, again, need to stay focused on what’s core for me, what I’m great at. And as an FBA seller, a private label, kind of marketplace-dependent seller, what I’m great at is using the algorithm in addressing Amazon’s customers with great products. If that’s me, I need to keep doing it.

TJ: (11:50)
Now my sourcing strategy, if that is my business model needs to include some pretty careful cultivating of my relationships with my suppliers. In other words, I can’t just go to Alibaba, get the first product that pops up and try to grow a multimillion dollar business as a private label seller. No, no, no, I’m gonna have to do some work. And in fact, Brian, who I’m thinking about with this illustration, again, he’s a rich guy, eight-figure business, really, really nice business, but he doesn’t have a Shopify site. And he works really hard. In fact, he travels when he can to actually visit his suppliers out of the country because those relationships are core. And so his sourcing leg is aligned with his marketing leg and his finance leg. He has this financing setup so that he can absorb, be ready to handle six month time, lead time on his product sometimes, right? That kind of thing. So let me compare this first, this private label business model, with the other kind of brand model that we hear about a lot online is the true direct to consumer brand.

TJ: (12:52)
Now listen guys, the direct consumer brand, oh, by the way, I’m thinking to my friend Adam here, I’ve got a guy in my head. He’s got a great business. These guys both have great businesses, by the way. But with a direct to consumer model, it’s really fundamentally different in one crucial way from this private label model. And here it is: a brand is a D2C brand if it can sell its products profitably without co-branding with Amazon or another marketplace. I wanna say that again in the negative so that you can catch it. A brand is not a direct to consumer brand unless it can use independent digital marketing efforts to drive not just traffic, but profitable traffic to a sales channel. Now, the interesting thing is that you could be a direct to consumer business and drive that traffic to Amazon. A lot of the guys do that’s fine, but the key is can I convert traffic? Can I develop a deep enough relationship with my customer that I’m be able to capture that relationship without the relationship having to start with Amazon? That’s the key.

TJ: (14:02)
And so if you think about it, let’s say that you wanna try to build a direct to consumer brand or you want to try to pivot in that direction. What are some things that you might wanna focus on on the marketing pillar of your business? Well, I believe this 100% starts with, and it’s not even close, 100% starts with understanding your customer. I wanna recommend a book to you. Donald Miller wrote a great book called Building a Story Brand. Donald Miller, Building a Story Brand, is a really, really, really good book about how to understand the psyche of your customer, how to make he, or she, the center of your, your story, and then how to build great products that actually meet the needs of that customer better than anybody else does, right?

TJ: (14:43)
So if I’m gonna be a true direct consumer brand, I actually need to take some time to understand who my customer is, and then I need to make sure that I build my products around my customer. The second thing, once I understand who my customer is, what does she look like? Now I’ve gotta build an audience. Now, this sounds really simple, but this is something that actually gets undervalued sometimes. Like Amazon has actually built the audiences for us for most of our FBA-related businesses, right? And because Amazon is not building this audience for us, if we’re gonna be D2C, we gotta build it on our own. So this could be social media, influencer, email marketing, lead magnets, and the like. These could all be the tactics. It just depends on what our core competency is and how it is that we can address and attract those customers.

TJ: (15:27)
So I need to have an honest moment with you for a second. Some of us think that we need to be a direct to consumer brand because I guess everyone’s doing it, and everyone says we need to be a direct to consumer brand, but your product will dictate whether this is a good fit. And lemme give you an example still using my two guys. Brian, is that kind of private label model that I mentioned first. Brian sells paper bags. Paper bags, even if they’re manufactured to the T, they’re the best bags in the world, are not going to be good direct to consumer products because they are viewed by the customers as being largely a reliable commodity. That does not mean that Brian is not a very rich man. He is. What it does mean is that at his business needs an algorithm with ready buyers. And that’s why Amazon’s a great marketplace for him to sell on.

TJ: (16:20)
Whereas Adam, who is engineering these products with patents, they’re very, he has a very kind of differentiated story where he has a huge social media following. Every time Adam launches a product, he has thousands of people buy it, sometime even before he has to place his first order. Now for Adam’s business, he can really do direct to consumer because he has an affinity relationship with his customers. His design is so much superior or he has a lifestyle connection with his customers that she will come back and buy from him every time he launches something new. And so the reason I mentioned this is, again, it’s okay to be who you are. There, by the way, are pros and cons to both. It’s actually a little bit harder to build a direct to consumer brand.

TJ: (17:08)
And so if I have a more private label-oriented product, it’s a little bit more private label kind of ready, then don’t feel bad if you don’t go direct to consumer. It’s okay. So again, if I’m direct to consumer, my supply chain is gonna be a little bit more challenging. So thinking about that second pillar here, I’m probably gonna have to have a 3PL or a warehouse a little bit earlier in my evolution. I may have patented molds and stuff that I need to have an agent or a sourcing team in China that can protect my IP. But ultimately sourcing pillar’s kind of similar between these two business models. I’ve gotta be able to reliably source the product. I want it to be aligned with my marketing strategy. And then again, finance is a little bit different for direct to consumer, and the reason it’s a little bit different is I’m gonna have to hire more bodies.

TJ: (17:53)
Unless I happen to be a social media influencer and already can drive traffic, I’m gonna need a more robust marketing team if I’m not just using the A9 algorithm within Amazon. As a result, I need to have a lot of working capital available, I have cash available, if I’m gonna go direct to consumer so that I can learn, make mistakes, build my funnel, rebuild my funnel, have email campaigns, hire influencers, do YouTube videos, that kind of thing. Okay. So again, my financing strategy, there’s no wrong or right answer here. It’s just to making sure that the financing and sourcing strategies align with the reality of your marketing strategy. It’s okay to be a private label seller. It’s okay to be a direct to consumer seller. There are pros and cons to both. Know who you are and do your thing.

TJ: (18:41)
And so let’s summarize this really quickly. Every business has three core functions, marketing pillar, sourcing, pillar, finance pillar. The key again is to know who you are, focus on your strengths, be great at something. If you’re not already good at whatever it is that you think you’re supposed to be doing, don’t do it unless you have time and money. If you’ve got time and money, you can pivot your business pretty much anywhere where you want to, but if you don’t have time and money, staying focused, staying clear, staying simple is generally the best strategy. And just to look at our illustration one more time, kind of before we pivot to our hacks for the day, remember our three legged stool. Ben, my buddy, my roommate in college, makes beautiful furniture. And if he made a three legged stool, it would be great because the three pillars, the three pillars of that stool would be sturdy. They’d be aligned in the same direction.

TJ: (19:30)
But if he didn’t, it wouldn’t be very good. Right? And so your job is to align your business the way that Ben aligns his stools. And now it’s time – I wanna pivot here. This is kind of a, kind of a clunky pivot here, but I wanna pivot to the return on podcast, the ROP, the portion of each show where we’re gonna give you guaranteed hacks. So guaranteed, in fact, that if you apply at least one of these for a few months, and it doesn’t give you what you feel like is a return on the time you spent listening, shoot me an email. I’ll send you a bottle of your favorite beverage as an apology for wasting your time, alright? This is important because you’re investing precious seconds of your life in listening to this show, and I want to give you hard, concrete ways to make more money and to be better in your life.

TJ: (20:11)
Two ways I feel like I can do that is to make really practical action items. I’m about to give you three of them. And the second thing is to plead with you, I’m gonna beg with you, pick one. I almost wanna forbid you from picking more than one. Pick one and take action on it this week. Ready? Let’s dive into some hacks. I got two business and one personal.

TJ: (20:29)
The first one, first hack I wanna share with you is take 30 minutes per week, 30 minutes per week, to study and understand your profitability. You’re probably thinking “I already do this,” but sometimes you don’t. I talk to so many CEOs within this ecosystem that are not doing this, and they outsource it to their VA, or they try to have their CPA, or maybe it’s me, maybe it’s their CFOs they’re wanting to do it. No, no, no. I’m talking about you. The CEO, the brand manager of your company, needs to take 30 minutes per week to do an ASIN by ASIN or SKU by SKU analysis. Now week one, you might do like every SKU. How did it perform last month versus the prior. Maybe week two, you do a channel. How did Shopify perform versus Amazon? Or how did the UK perform versus Canada? That kind of thing. And then I wanna really think about how my performance is year over year. Thirty minutes per week, not somebody else, but you. I guarantee you, if you applied that for six weeks, you would make more money. You would find the bad guys, the SKUs that are killing you, and you could take action on them.

TJ: (21:36)
Second hack: invest one hour, I’m talking about one hour per week, cultivating your supply chain and your banker relationships. I don’t know if you’ve ever heard this adage, but it’s been so true of my life. You know the time to have great relationships or to have worked to cultivate great relationships is not when you’re in an emergency, right? I mean, think about it. If you needed to call someone at two o’clock in the morning to come rescue you or help you out, that’s not the time to meet a brand new friend. That’s the time to have had a friend for years. That’s the time to have somebody who trusts you, that has investment in you so that when you call ’em at two o’clock in the morning, they pick up the phone. In your business, especially with that second and third pillar, you gotta do the same thing. You gotta cultivate the relationships with your supply chain before it’s an emergency so that when you ask them for relief on your payment terms, when you’re asking them for preferential treatment, because things are jammed up and they gotta pick which order to place first, you’re more likely to get preferential treatment because you have done the work.

TJ: (22:41)
And so this is something that, for instance, it could look like on the first week, let’s send an email to each of the key players in my supply chain and just thank them. I’m not gonna ask them for anything. I’m just gonna thank him. “Hey, you guys are making a big difference in my business. Really love being your partner. Thank you so much.. That’s week one, probably won’t even take you an hour. Week two: maybe I’m gonna set up a call with my 3PL partner and see how I can make the process better, see how I can make their business better. Maybe in the third week, I’m gonna interview a new factory or a new sourcing agent or a new sourcing partner. And then in the fourth week of a month, you know, what I might do is I might call my lender. I might call my banker. I was a banker for five years. People don’t always like talking to bankers. I totally get it. But the time to cultivate that relationship, have a lunch with your banker, have him or her believe in your business, is before you desperately need the cash. And so the second hack for the week, and I highly encourage you to try this, invest one hour per week, one hour, cultivating your supply chain and your banker relationship so that when you need their help you’ve got ’em.

TJ: (23:48)
The third one I wanna mention to you, more of a personal hack that’s been really useful for me recently. It’s actually been a game changer, I would say, in terms of just my productivity, is there’s a free app out there called the HabitShare app. Get it on your iPhone, get it on your Android. It’s free. It allows you to, like, have friends and create accountability around habits. Just to kinda get back to what I said at the beginning of the episode, I’m a big fan of James Clear. The Atomic Habits book has really been life changing for me and even my team here at Seller Accountant. I encourage you – this is the habit, if you’re gonna pick this one. Download the HabitShare app, put three daily habits in there. Don’t put 12. Twelve’s too many. Put three. For me, I like to journal every day because it helps me clear my mind. I wanna exercise five days a week, that helps me stay healthy. Whatever your things are, put them in your own habit tracker. Now you can use a piece of paper for habit tracking, but if you’re looking for a free kind of social way to do it, you don’t have to share habits, you can choose to or not to, this app called HabitShare is a great way to do it.

TJ: (24:51)
And those are the three hacks. So again, I’m gonna make you a guarantee here. If you apply one of those three hacks – first one, invest 30 minutes in understanding your profitability. The second one, invest an hour a week in cultivating your relationships with your suppliers and your bankers. And number three, download a free app and track a couple of a of habits that you’re wanting to cultivate. I’m wanting to buy into the mantra that I don’t rise to the level of my goals, I fall to the level of my habits. How can I cultivate better habits, better rhythm, better routine? If you pick one of those three hacks, I guarantee you, you will have return on the time you’ve spent listening to this first episode of Return on Podcast. And so with that, let me go ahead and pivot and close for the day. I wanna respect your time. Thank you so much for listening to Return on Podcast with me, Tyler, Jefcoat. If this content has served you, it would actually really help me if you would consider sharing it, liking it, subscribing to the channel. I would really appreciate it if you would. And with that, let me let you go. Have a great day.

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