Longtime friends Ethan Frisch and Ori Zohar joined forces to create the public benefit corporation, Burlap & Barrel. Inspired by Ethan’s humanitarian and aid work in Afghanistan, Burlap & Barrel brings single-origin spices directly to consumers while providing financial sustainability to farmers. In this episode of Shopify Masters, Ori shares with us why the company remains financially independent, publishes annual social impact reports, and grows by keeping sales volumes low.
For the full transcript of this episode, click here.
- Store: Burlap & Barrel
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- Recommendations: Stamped.io, Advanced Shipping Rules (Shopify App)
Mortgage loans and spice: when two worlds collided
Felix: You and your co-founder have an interesting story about how this business was created. Tell us a little bit more about that.
Ori: We had been friends for almost a dozen years at this point, and he was always cooking incredible stuff. He was even working at a handful of restaurants around New York City. Whenever he was cooking, I just had to have a seat at the table, and we became friends over many, many shared meals. In 2010 we decided to start an ice cream business together called Guerilla Ice Cream. We had a little ice cream cart that we pushed around the streets of New York City, we donated all of our profits to a street vending Advocacy Group non-profit.
He was a pastry chef at the time and making a lot of ice cream and said, "I want to do something with ice cream” and everyone said, “That's a crazy idea but talk to Ori. He’s our business friend." I heard that, and I was like, "That's awesome, I'm in. We're doing it." We ran that for four months for the summer of 2010. It went well. We liked working with each other, we sold more ice cream than we had expected, and we got a lot of press because we donated money to charity. It was a really fun experience. After that, he ended up getting his Masters in international development in London, and then he ended up moving to Afghanistan as an aid worker. He was still cooking and still doing all kinds of stuff related to food on top of his day job, and he had come across this wild cumin that grows in northern Afghanistan that he was blown away by. Having come from some of the best kitchens in New York, he'd never encountered spices that were that good. He said, "I wonder what else is out there?" and started reaching out directly to spice farmers all over the world that were growing spices.
In the meantime, after that summer, I went to the dentist and got my teeth cleaned. My dentist was like, "What have you done?" I said, "I've had an ice cream business for the summer." I had four cavities. So I got that fixed, then I moved to San Francisco and started a mortgage company. I wanted to jump into the next thing, and I found this opportunity around creating an easier, more straightforward mortgage process because nobody has any idea what they're doing when they're getting a mortgage. I partnered up with another guy, and we ended up raising money and started this mortgage company that was like a super-broker.
You'd come to us, we worked with 45 lenders, we'd help guide you through the whole mortgage process, and I had these crazy four years of this VC-backed, grow, grow, grow mentality. We raised $32 million and had over 100 employees. We were burning cash every month that we were operating, just trying to get to this point of breakeven. After four years, we ran out of money. We had a signed term sheet, and the investors ended up trying to trick us into going bankrupt, so we ended up selling the business. Some of our investors got some of their money back, but I had this like crazy whirlwind education on what it takes to raise money, run a business, and make all these decisions regarding hiring people, building a team, what to do, what not to do. By that time, Ethan had been back and was bringing in some spices from a handful of farmers all over and said, "Come on, join me. Let's do this."
We ended up starting the company Burlap & Barrel. We source single-origin spices directly from smallholder farmers worldwide. We pay the farmers significantly more than the commodity market, and we set them up to be their direct exporter, which has never happened. We're a public benefit corporation, a social enterprise. So we work on improving our partner farmers’ livelihoods, and we get our spices into the kitchens of some of the best restaurants in the world. We used to work with 11 Madison Park and Momofuku Ko when indoor dining was still a thing that was allowed. We work with Dig In and Sweet Green, but we also work with home cooks across the country. The pandemic really changed our business’s setup, but that's how we came together, and now we're in our fifth year of doing Burlap & Barrel.
Felix: You have a lot of experience with different kinds of businesses. Tell us about what those transitions looked like.
Ori: I thought that I would accept a cushy job for a few years, where the business’s life wasn't at stake anymore. Where I could do my work and not have to worry about some of the bigger questions, but with the last company, my other co-founder had stayed on as transitional. We didn't need both of us transitioning to the new owners. It was nine months in between my roles. So I took some time, I was working a little bit part-time. My co-founder, Ethan from Burlap & Barrel, had already started getting things in motion and was bringing spices in. The more I dug into the opportunity, the more it sounded really interesting and compelling.
It's hard to run a company, and it can feel lonely and it can feel stressful. You're hiring people, firing people, you're trying to make payroll and all of that. One of the big things I realized at the end of the mortgage company was I wanted to take a different approach. With Burlap & Barrel instead of being a for-profit, venture-backed, high-growth company, we've been bootstrapped, and we've been profitable almost the entire life of the company. We’ve been trying to focus on how to operate in a very lean way, with limited employees, versus hiring, hiring, and hiring for some team that hopefully, we'll need to use in the future. This company's almost a mirror-image of the last company in how it's set up. Being able to do ecommerce and being able to use Shopify has been one of the key things that have allowed us to operate this company in a remote low-overhead way.
Venture-capital backed or bootstrapped? Determining what’s right for your business
Felix: With the mortgage company, you were able to raise $32 million. What are some pros and cons of raising capital versus bootstrapping?
Ori: Venture-capital can be an incredible force to help a company scale up and grow and take over the world, but it's not the right fit for most companies. So many entrepreneurs celebrate raising giant chunks of money, but it seems a little bit counterintuitive to me because you're saying, "Hey, we weren't able to do what we wanted to do profitably, so we have to sell a meaningful chunk of our company to make this work." A lot of people view raising money as an end instead of as a means to get somewhere. Most of the time, it felt like there was a plane that was taxiing down the runway, and either we were going to crash and burn at the end of the runway, or we were going to figure out and change all the parts to get it to take off and fly.
That was just so stressful, you know? The idea that we had convinced all these employees to join the company and then look them in the eye and say, "Hey guys, give us another two weeks until we can make payroll. Give us a little bit more time. We’re almost there." We were always chasing. With our investors, we were looking for a business that would grow like crazy, and they don't care that much, whether it's our business or somebody else's. They have 20 investments, 50 investments, they don't care that 80% of the companies will go out of business trying.
But we did care because we had only one company, and this was our only ride. I wish that we had a little bit less of that pressure, and we were able to take a little bit more time to figure out the engine of our company. How it worked, how we could be profitable before we built out a marketing team, an engineering team, and all these other things. Employees are really expensive, and if you're not able to deploy them in a way that helps your business fundamentally grow, increase your margin and improve the dynamics of your business, then it can be the thing that eats your business alive or forces you to make short-term decisions that end up being bad for your business.
So, “How can we spike revenue this month? It doesn’t matter that we're spending more on acquisition than we make back in revenue.”Those are the lose-lose situations that we found ourselves considering all the time as we were doing this venture-backed business due to external pressure. With Burlap & Barrel, we don't have that. We're the masters of our destiny, and we don't have these same deadlines and superficial goals. So it's been freeing to run this business in the way that we want to run it and at the pace that we want to run it without trying to hurtle towards some potential massive payday into the future.
Optimizing profitability with a high-margin, low-volume business model
Felix: Has this experience with a venture capital model inspired some safeguards to be built into Burlap & Barrel?
Ori: With the venture capital model, what motivated us were these external milestones of saying, "Hey, if we get to this number in revenue, we can then raise at some multiple of that revenue, and then we'll have enough money for the next six months, and then we get to the next revenue." We were constantly chasing these external metrics and trying to make the numbers look good. With Burlap & Barrel the largest promise we need to keep is to our customers. How do we get them what they ordered, on time, in a good way, and how do we keep bringing them fun, interesting, and surprising things. Now, we get to do what I call a high-margin low-volume, which is through direct-to-consumer, versus chasing a low-margin high-volume model where we made $10 million in revenue, but we only cleared one million in profits.
I'd rather do 1.6 million and clear that one million in profits by doing the direct-to-consumer model. We get to chart our own destiny, decide how much we want to grow, decide when we want to grow. And because we're well resourced now, we don't have to make some of those decisions, we don't have to bet the company anymore. Now we're investing in parts of the company that we hope will help us grow in the next six months, but there isn't that same existential stress that can put blinders on you. You end up doing a lot of things that are urgent and not important, instead of things that are not urgent but important to building up the company. To build a long-term sustainable company, you decide things in a different way than if you're like, "I'm going to exit in four years, let's spike revenue no matter what, and then it'll be somebody else's problem once we sell this company."
Felix: Can you explain more about why a low-margin, high-volume business might be more attractive to you than a high-margin, low-volume business?
Ori: Since we're a food company, let me just give you a food example. We hear so many entrepreneurs that are saying, "If only I can get into Whole Foods, that will be the day. That will be the best thing I can possibly do." The reality is that when you work with any massive grocery store, any big seller, they end up taking somewhere between 55 and 70 cents on the dollar. You're a small company, so your cost of goods sold is still relatively high, you're margin is still relatively thin, and now to work with this company, what you're doing is saying, "Okay, I'll do millions and millions of dollars in sales through Whole Foods, and then hopefully through that I'll be able to scale up, I'll be able to build margin later." You're betting the company on the idea that this will all pan out, and then you also have this crazy concentrated risk because if Whole Foods says, "You know what? It didn't sell well." Then what do you do? Then where do you go?
You don't have other channel partners because you're dominated by this one big, big player. Let’s say that’s what I’m going to do. I want to drive $10 million of revenue and ideally leak out a million dollars in profit through that. If I make a misstep, if I don't pack my products right, if they get rejected for whatever reason. If the container holding all my products gets delayed or destroyed, or there are bugs in it or whatever the millions of things that can happen along the way, then that could take my profit from $1 million to half a million, to zero, or even to negative.
You're playing this game where you're teetering on this edge of profitability. If that doesn't go well for you, then you need to raise money and sell meaningful chunks of your business, or that was your shot. You bet the business, and you lost. That's what we were doing all day long with the venture-backed company. We were constantly betting our business again and again, and that's a stressful position to be as an entrepreneur and as a founder. What I wished we had done is spent our first few years setting up really strong fundamentals of our business. We could have been a lot smaller, but we would have been profitable, and once we knew the fundamentals, we could have thought about whether we want to scale or not.
Let us get to base camp at Mount Everest, not try to go from the bottom to the top. Then you can either say, "Great, organic growth is doing well, let me keep doing this, let me try to double and triple," or you can say, "Great, now I understand how this works, I understand what my profit margin is, I understand the business, the dynamics, and what the risks are. Now let me raise money and make sure that I can grow by 10X or 20X in the next 12 months." You preserve the optionality when you go in that way.
That's what we've been doing with Burlap & Barrel is to say, "How do we import spices? How do we pack them? What do customers want? What are they interested in?" We email a lot of our customers and say, "Thanks for buying. What could we have done better? What would you have preferred?" We're learning, and we're figuring out how the model works better and better. We've decided we don't need to raise money, we don't need to have a massive warehouse that we own, we don't need to have a massive packing facility or any of that. We can keep growing, keep reinvesting the profits in our business, and still maintain that. The differences between, “do you want to do a lot of sales at a 10% margin?” or “do you want to do fewer sales at a 60 or 70% margin” where you end up with the same revenue but the one that's bootstrapped and powered by your customers means that we have a lot more loyal customers, a lot less concentration risk, and we can control our destiny in a much different way.
"I'd come into the last business thinking if I want it, then I should build it. Now we're saying, if we can do it better and it's core to the business, we should be doing it, everything else let somebody else do."
Felix: What are some fundamentals specific to ecommerce businesses that you would recommend other entrepreneurs focus on incorporating before they scale?
Ori: What ends up happening a lot of time when you raise money or go for a big loan is you do these five year projections. The person you're presenting to knows that you're making it up and that they're going to be wrong in one month from now. You know you've made a ton of guesses because you had to build this. Everyone tends to say, "By year five, we take over the world. We own 10% of the total market." It's this funny lie that both sides uphold to be like, "Maybe. That would be great."
Instead, what you have to do is say, "Okay, how much do spices cost? How much does transporting them cost? What about a warehouse? What about packing and shipping them? What about boxes? When do they break?" All these hands-on operational questions of how all this works we got to answer first in a pretty small way. For the first year, my co-founder registered his living room as a spice processing facility, had over 1000 kilograms of spices, and was packing things by hand himself. What ends up killing a lot of businesses is you end up investing in your business in a lot of hypotheses that you don’t have proven.
A lot of companies will hire people way too early for a role that ends up either not being a good fit or not being the right role for the company. Companies will hire salespeople too early and say, "You sell my product. I don't know how to sell it. You sell it." At my last company, we had a 15 person marketing team, we had a 20 person engineering team, and employees are so expensive. If you look at the books of any company, the number one expense is salaries and staff-related costs. There’s nothing wrong with hiring people, and you should hire them as you need them, but just know what the expense is, and say, "Hey do I need to pay somebody five or ten thousand dollars a month to solve this, or can I find a more clever way to solve it for $1000 a month?" Maybe it's a part-time employee, maybe it's an outsourced expert. But that's where a lot of companies end up running into real cash problems. They're too big of a team than what their business can support, and that ends up being challenging.
Earlier in the business, we could have either set up our own packing facility and warehouse. We would have had to sign a 10 year lease and spend hundreds of thousands of dollars on machinery and equipment, and then we would have probably outgrown it six months to a year later. Instead, we work with a co-packing facility in a fulfillment center, and we have eight people at each place working full-time on our business, but they're not on our payroll. We pay them every month for their services, but we don't have to have that overhead. If somebody calls in sick, I don't need to worry about their shifts. If somebody quits, I don't need to worry about that. They have all the paperwork and insurance and everything else they need to support not just our business but all of the other businesses they service. We get a much better level of service, access to much bigger facilities, and better equipment than if we would have done it ourselves.
I'd come into the last business thinking if I want it, then I should build it. Now we're saying, if we can do it better and it's core to the business, we should be doing it, everything else let somebody else do. We don't need to be the ones putting jars of spices inside boxes and taping them closed. We can have somebody with a fully optimized warehouse and a team trained to do it. When we scale, they can assign 20 more people to our account and move stuff in a way that we would never be able to do if we were doing it ourselves.
Identify high-value areas of focus to achieve success as an entrepreneur
Felix: In that first year starting a business from scratch, what are some key areas of focus for you?
Ori: When you have money, and when you fundraise and investors expect you to spend it, they expect you to scale quickly. In the venture capital model at the mortgage company, we ended up hiring a full team before we even knew. We think we should sell in this way to these people, so let's hire somebody full-time to do that. Having more limited resources ends up being a forcing function, you end up focusing a lot more on what the business needs versus the things that you think that it might need in the future.
A lot of the first year was trying to understand the fundamentals of the business, of saying, "Where are we getting our product from? How do we work with our suppliers?” Which, in our case, are our partners’ farmers. It was validating all these core hypotheses over saying, "What's an average order for us? Okay, let's say an average order is $65, let's say shipping on that order is about $15. Okay, what are our ingredients? Well, our COGS (Cost of Goods Sold) are around 30%." You slowly start breaking this apart, and all these conceptual hypotheses end up being validated hypotheses. Then I say, "Okay, well, how much are we paying for our packaging today? If we order 10 times more, we could save 30% on it."
"We're no longer doing these hypothetical exercises and business modeling. We're instead talking directly to our customers."
You just start slowly planning and scaling up. What you end up seeing is that you have a much more organic way of growing and that we feel that whenever we grow and introduce new spices and add new sizes, there's a lot less risk to it, so for example, in the first year we had only 12 spices when we started, and we ended up growing it to about 20. Now we have 45. The idea is that in the first year, customers are buying stuff, and we'd email them and say, "Hey, how'd you find us?" They'd tell us how they would find us, and that gave us insight into marketing.
We'd say, "What other spices would you like?" If 20 people say that they want garlic, then we know that if we get garlic, it will sell. We're no longer doing these hypothetical exercises and business modeling. We're instead talking directly to our customers. So often, they tell us what they want, and they tell us what they would prefer. In 2020, customers told us that they wanted a sifter cap in the spices. We'd never had that request before, but because of the pandemic, we had a lot more people that were cooking at home and going online and buying spices that way. We wouldn't have thought of this ourselves.
We changed the mold of our jars at our jar manufacturing, and now we're slowly rolling out sifter caps across our line, and people are so happy about it. It's creating loyalty, and the customers are thrilled that we listened to them, it's reflecting itself in sales, and our product is getting even better. For all the new customers experiencing our products for the first time, we have a product that's much better thought out and much better serves their needs. Time and time again, just through having conversations with our customers, seeing what they like, seeing what they don't like, seeing what they wish we had, we’re improving. While not a scalable approach, if I can have 10 conversations with customers every week, it will make me smarter. We make it easy for customers to reach out to us and tell us what's broken, what's lost, what's not working, and to see what delighted them. Every time we launch something new, a new feature, a new product, a new way of doing business, it will be pretty low-risk because we know from all the customer feedback that it's something that they would be excited about.
Felix: What are some of the most critical areas you invested in early on that helped you grow the business and gain that room for error?
Ori: People have an obsession with scalability, especially in the bay area, in Silicon Valley because of the idea that that's where your margin is, that's where the business starts working. Our idea's a little bit different. Instead, we want to have more one-on-one conversations, we prefer depth over quantity. If you get an email survey saying, "Please give us your time for a $15 gift card." Nobody fills that out. If you just get an email from a co-founder of a company that says, "Hey, thank you so much. You grew up in Baltimore? I grew up in Baltimore. How did ..." you know? You start getting such valuable insights.
Whenever you scale, yes, you may be doing things more efficiently, but you may be doing the wrong things. It's hard to pivot and change when you're scaling, and you're creating things to go down a narrow pathway. To do it a lot and efficiently is normally the exact opposite of what an early business should do. You're coming out and saying, "I don't know what's going to work. I don't know what's going to resonate yet, but I'm going to put some stuff out there, and I'm going to respond and react quickly to the feedback and keep changing things."
The thing that we did invest in once we had a better sense of where things were going was inventory. We were growing, and our customers kept saying, "Great, this is great, stop selling out. Bring in more stuff.” So we invested heavily in inventory. We moved from my co-founder's living room into a professional co-packing facility, we moved to a fulfillment center. Our philosophy for investing in our business was differentiating between what's high value and what's low value. High value is things that only me and my co-founder are uniquely positioned to do. Oftentimes that was around sales, product development, overseeing the high-level operations and flow of the business. How are things moving from one into the other and where are we spending more, and when are we not? What's low value is we don't need to be the ones putting spices in boxes, and we didn't need to be the ones that were shipping and putting shipping labels on or having a massive warehouse or a storage facility.
A lot of early-stage entrepreneurs think that there are these massive minimums for fulfillment centers and packing facilities, but you'd be surprised, especially in the age of Amazon. With the massive growth of ecommerce in the past few years, there are a lot of warehouses and fulfillment centers that are just waiting for small companies so that they can come in, get in there when they're small, and be able to grow with them. Getting that stuff off our plate opened up much more of our time to focus on the other parts of the business' growth, including sales, partnerships, PR, and high-level procurement. All those things that only we could do, we can't have somebody else negotiate a deal with us, we can't have somebody else give an interview to food and wine. That has to be the founders, that has to be us.
We went through and tried to identify the things that were the most high value for our business that we could have the biggest impact on. Anything that fell below the line, we said, "Okay, how can we bring in somebody else to do it?" I don't need to do our bookkeeping. We can bring on a bookkeeper that would be way better than me at doing our books. We started figuring out who are the people, what is the support network that we need around us, to be able to manage the day-to-day of these things so that we can still oversee it, but also put most of our time into the things that are behind helping the business grow as quickly as we can.
Felix: You’ve switched industries with each business. How were you able to catch up with the industry in each transition?
Ori: I've always been an entrepreneur that has a partner. I've never been a solo founder. Some people can do it, and that's incredible. It’s not something I would ever learn how to do. My expertise is in thinking about the operations and around the business building side of entrepreneurship. I've always had partners that are incredible subject matter experts. Whether it's a mortgage company, an ice cream company, a spice company, a legal firm, anything that you want to do, where somebody's a subject matter expert that goes in deep and really knows the industry and the information inside and out, and there's the person that can be the business builder and can think about the overall operations for it.
Things like, how do we hire employees? How do we compensate? How do we price our services? How do we prioritize? These are all things that we struggled with in every single iteration of every single business. There are some things in entrepreneurship that are closer to like a muscle in the sense that the more you exercise it, the better you get at it. You'll do it again and again. That was what helped me from time to time. I was like a kid. I was still learning a brand new thing.
"There are some things in entrepreneurship that are closer to like a muscle in the sense that the more you exercise it, the better you get at it."
I love learning about spices, and I'm learning more about it, and my cooking's getting better every day, but that was not the high value. My knowledge of spices was not the thing that I was bringing to this business, it was around looking at our pricing, looking at our margins, looking at our how we're paying, how we're structured, how we're strategizing, and how we're taking advantage of having limited resources and prioritizing. That was what I was able to bring to the table. That was the secret sauce for me while my co-founder was making magic with PR and sourcing incredible spices and traveling around the world and meeting farmers, and setting up that side of the business.
We were like two sides of the same coin, we complimented each other well. We also represent very different expertise that was valuable for our company to have both of those expertise present in spades.
Customer engagement: the key to competing with Amazon
Felix: When you’re talking about the business building side of things, what do you tend to focus on in that first year?
Ori: A lot of entrepreneurs under-price their product. They're looking at it as like, "Oh, I buy this, I put it together here, all this, it should be $5." In reality, you need to look at it and be like, "Okay, we're going to have some packages that get lost, we're going to have some returns, we're going to have some unhappy customers. What we need to do is price it in a way that we can be generous to our customers and be able to say yes, help them, and thank them for taking the risk on a small and goofy company.” Too often, entrepreneurs end up underpricing themselves, and then when things go wrong, shipments get lost, or stuff breaks, they're like, "Well, I can't cover that. That wasn't part of the deal. I'm not Amazon."
One of the big things is to be able to build in just enough margins so that you can say yes to your customers, delight them, surprise them, and throw in an extra goodie and constantly help them feel excited that they're working with a small company and helping it grow. We always try to think about what are things that a small company can do in ways that are way better than a big company can do? One of those things is having a co-founder reach out to that customer. We spent a lot of the time in the first year talking to our customers. Too many people sit and hypothesize and think big thoughts, and what we do instead is we email our customers and talk to them. You might see this is a recurring theme, but communication with our customers has been really important.
What that ends up doing from a business side is the customer is delighted to hear from a co-founder, we get really valuable feedback, and then the business is able to get better and better over time. We're able to hear directly from them, we don't need to think about something, we now know because the customer’s told us what they want and what they like. Too many entrepreneurs think that to get started, there's this huge bar, there's this high hurdle for doing it perfectly and designing your packaging perfectly when instead our packaging is my co-founder putting spices into a little pouch, in some cases hand-writing the label on it, and you know what?
On one hand, no, that doesn't mean the product’s at Whole Foods, but on the other hand, this was packed by hand by the founder of the company. How cool is that? These things that, on the surface, feel like competitive disadvantages could be competitive advantages that tell a story of how close you are to your customers and to the product. That was a lot of what the business was built on in the early days. It was how can we as a small company make it even more special? Look at how cool stuff is on Etsy where everybody's like, "Wait, I guess that that's handmade." That becomes a product that's worth a premium, versus so many founders talk about their products as being the opposite and needing to discount them because they don't look flashy and shiny. It's something worth leaning into that can feel a lot more like a competitive advantage.
Felix: When you are having these conversations with customers, what is the key feedback or most important question you’re trying to answer for your business?
Ori: A lot of it ends up being almost like conversational format. You send somebody a survey, and you're going to get superficial answers. Oftentimes the most important information ends up getting exposed in a second or third email. What we want to get overall is to hear from them what we could do better or what delighted them that we shouldn't stop doing. Oftentimes it'll just be a personal note, seeing what they ordered from you, so if it was the first order, thanking them for it, if it was their second order, seeing what brought them back. Think about it like how you would talk to a friend, more so than how you want to talk to a faceless person.
We initially thought that our customers would be probably in their 30s, in cities, Instagramming all their food, you know. People care about where their food comes from, and what we found out is that our customers are primarily women, primarily in their 50s and 60s, and primarily outside of major cities. This was in our first couple of years that we saw this, and our audience has expanded since then, but then it made sense. They're cooking three square meals a day for themselves and their families, they're knowledgeable cooks, they have some disposable income, and they're not anywhere near a local grocery store or a high-end specialty store.
"So many companies don't have that connection to their customers. They assume that that connection to their customers is impossible."
They're used to buying the things they love online, we don't have to convince them to not go to their Whole Foods. They're already buying great ingredients online, and we wouldn't have known that if we didn't email our customers. We also noticed that we had a higher percentage of @aol.com email addresses, so we were like, "What's going on here?" We realized that our customer base was a little bit older, but there was so much gold in those interactions. We made our website higher contrast, we increased the size of the text, we made bigger bolder images, we added a lot more text on the page because it seemed like our customers liked to read about the products and would read every word on our website and ask us even more detailed questions.
So many companies don't have that connection to their customers. They assume that that connection to their customers is impossible. We try to automate things like how do we catch incorrect addresses, right? We added address verification. Say somebody doesn't know where their order is, we should make it a lot easier to track your order and be better about proactive emails. Now have a team of customer support people that were existing customers that said, "Hey, I love your business, can I help out?" They look and cook like our audience. They’re super thoughtful, and when somebody says, "Hey, there's this new spice that I've been thinking about, what do I do with it?" I want somebody that's a cook to come in and talk to them about it. I don't want somebody that's outsourced or in another country that maybe never even tried our spices, that's going to be a much different conversation.
I want to maximize face-to-face time, but in these high value moments. In these moments where somebody's coming in and would love to talk to somebody who's an expert, versus doing the exact opposite like every airline and cable company has done, which is just outsourced to the lowest cost possible. Then you have these high friction and frustrating interactions with your customers. Instead, there's a moment there where the customer is upset or confused or has a question, we can either win them over, or we can lose them forever. By having thoughtful, expert, professional customer support people that know the spices well, we're able to turn those from questions into lifelong customers. That's worked again, and again, and again. In the beginning, my co-founder and I were doing that, so we got to do the template for that, for what customer support should look like.
When we brought people on, we were like, "Hey, shadow us. Let us show you how we do this." They jumped right in and figured it out immediately, and it's been wonderful ever since.
Developing content based on customer feedback
Felix: You mentioned you had a lot of text on the website. How did you know that was what your customers wanted, to read more about the products themselves?
Ori: At the beginning, we said we don't know what our customers are going to want. Maybe they'll want social proof, so we added reviews. Maybe they'll want photography, maybe they want to read. We got a lot of emails asking about the spices and asking for more information, and so we ended up saying, "Oh this is interesting. Great. Let us talk to you all day long about where cinnamon comes from and what makes this cinnamon so special." We loved that. We got really good responses from customers reading the website saying, "That's so interesting, I never knew that cinnamon was tree bark. This farmer's story is cool." That's a competitive advantage. Other spice companies, if they're not sourcing directly, they don't know who the farmer is, they don't know exactly where it grew, they don't know what makes it this massive commodity version of this product that is truly an average, and then often that average is, you know, below average.
That's where we got to talk to our customers. We had a number of customers say, "Hey, I want one of everything on your site," and we were like, “add one of everything to your cart," and they were like, "no, we want you to do it." We heard that from a handful of people, and we said, "Okay, we're going to introduce our complete collection." With one click, you get one of everything on the site, and it ends up being between $250 and $300 depending on how many spices we have on the site at any given time, that was our eighth highest revenue driver in 2020, which I couldn't believe. I had no idea that people would want to spend that money, but a lot of people were either sending it as housewarming gifts, or some would say, "Hey, my spices are really old, I'm going to do a fully pantry renovation."
It comes time and time again to customers emailing us and reaching out. We've tried to make our site in a way that it’s easy to reach us, to reach out to us in any way that you want, because when a customer runs into something, and they have a question, or they don't know, they're going to spend one second trying to figure out how to contact you before they just bounce out and say, "Whatever, I have other things to do, I'm going to get this elsewhere, it's not worth it." The customers don't get to hold our product, smell it, taste it. The website has to do all the heavy lifting to help them understand what they're getting, how they're getting it, and what it will be like.
That has helped us, these long descriptions to say, "Oh, you like cinnamon, but you don't know if you like our cinnamon? Let's give you 800 words about what makes it so special" That in turn also ends up helping a lot with SEO, and that also has helped a lot with PR. We know where everything else in our pantries comes from, our meat, our produce, our grains, our coffee, our chocolate, our tea, our wines. You wouldn't buy wine if you didn't know where it came from, and so that's been a really big part of saying, "Hey, spices too. We know that this hasn't been an option, and most places will have no way of telling you because spices come from many countries and many farmers, and it'll take years to get into the country.” We're changing that.
That is one of the competitive advantages that we have, which is being able to share with you where it came from, and what makes them so special.
How the pandemic accelerated a pivot to direct-to-consumer sales
Felix: At one point, you went from supplying restaurants to a direct-to-consumer model. Tell us about how that transition went.
Ori: We did what was in front of us, and what was in front of us was my co-founder emailing his chef friends and saying, "Do you want some spices?" And then going door to door, and then doing all that. That ended up being a really good place to start because it legitimized us. It's the same way Under Armor sponsors athletes. We could say, "Look at all these incredible chefs that you admire that are using our spices. Don’t you think these would be good in your home kitchen too?" Then we realized something that everybody told us was the wrong way to do things but ended up being helpful. We're bringing these spices in, it’s usually in big 25 kilograms, 55 pound sacks. We don't care how we sell them, so we started selling them in food service, which was like one pound, one quart containers.
We started packing them into jars which are half cup or four ounce jars. Then grocery stores were interested, so we started packing in cases of 12. Then some of our bigger restaurant customers and some food manufacturers came along and said, "Hey, I want your spices but I can't afford them at the price and I don't want like 50 one pound containers, can I just buy a sack?" We said , "Yeah, sure." We were two full-time people with four lines of business. We would sell to food manufacturers, restaurants, grocery stores, and direct-to-consumer. Everyone said that's insane, each one of those could be a business in and of its own. You need dedicated teams and this and that, and we were like, "No, it's all being sold through Shopify, we have the inventory, it's easy for us to pack it into different sizes and to just get it out of the shelves."
In 2020 what ended up happening is direct-to-consumer took off. 50% of our revenue came from restaurants in 2019, and with the pandemic, that went to just about zero as all the restaurants closed and indoor dining was banned. But everybody was cooking at home so-direct to-consumer grew and grew. We always knew we wanted to be mostly direct-to-consumer, and the reason for that was that we get to email our customers directly. We get to have that direct contact with them, we have tens of thousands of customers that are ordering, and we get to interact with them again and again. Versus one massive customer that could pull us off the shelves, and that would be the end of our business."
Also, to the point, direct-to-consumer is a higher margin. We're able to do more fun stuff with that margin. We can cover shipping, we can add free goodies, we can have extra spices, we can launch new things. We're working on a fun sheet of magnets just for fun so people can throw it on their fridge. We made kitchen towels that have our logo on them. It’s more fun, and it’s a lot more interactive, a lot more interesting. We can invest more behind it, pay our customer support people more, pay our farmers more, do all these things. It's helped grow our business in ways that would have been challenging to do through the higher-volume, lower-margin channels, at least at this stage of our company's life.
Felix: What are some of the tools or apps you rely on to run your business?
"To the point, direct-to-consumer is a higher margin. We're able to do more fun stuff with that margin. We can cover shipping, add free goodies, have extra spices, and launch new things."
Ori: Everything is through Shopify, all of our sales, everything happens through Shopify. Sometimes if we have a restaurant or a grocery store, they'll email us their order, and we can put it in behind the scenes on our end. What we've done is we were able to code a custom wholesale store. If you log in and you're tagged as a wholesale customer, you'll see only our wholesale products. You'll see cases of jars, see sacks of spices, etcetera. You can order that yourself if you want to, or we can service it ourselves. We use the Bundles app to create easy bundles. We have a DIY bundle. It's really easy to look at companies that are like four or five years in, and you look at your website one year in, and you're like, "I want it to be like that," or, "I shouldn't launch until it's like that." What we instead did is, every week, we're going to launch something new for the website.
We're going to do better photography. We’re going to upgrade our reviews app. We’re going to change the way that referrals are added. We’re going to add a gift note. We’re going to improve the packing slip. Every week we have a product that we implement on the site, and then slowly over a year, over two years, the site got a lot better and looked a lot more professional, and ended up becoming a better experience for the customers. We're still all-in on Shopify. We use a bunch of different apps. Stamped.io does our reviews. We have Advanced Shipping Rules to figure out how to make it nicer, to have the shipping rates displayed in a nicer way. If anybody ever wants to know all the apps that we use, they can just email me directly. But Shopify's been the core of that business, and it's allowed us to run our business.
Felix: What would you say is the key goal you want to reach as a business in 2021?
Ori: As a business in 2021, what we want to do is strengthen our operations. We've been trying to figure out how we do things, ship things, and all of that stuff. We know what we want to do, we know our customers, and now we need to build all of the systems to help all this flow easily through our systems. That will then allow us to grow two, three, four X in 2021. That's our biggest focus. Turning the things that used to be manual and where every time we’d be like how do we do this and how do we prioritize. We're going to turn those into strong systems and create processes within our business. I know that sounds super un-sexy, but that's important in terms of delivering a promise to our customers and making sure that whenever you order, we can ship it within one business day. It can arrive within two business days. You can have this great experience that makes you not need to go to your grocery store to buy mediocre spices ever again.