In this episode, you’ll learn from a hobbyist turned business owner on how to find your niche and how to create & market a course through Shopify.
Danielle Spurge helps entrepreneurial makers leverage their talents to create sustainable craft-based businesses.
What can I do well that I want to do more of and continue to grow it and make it better.
Tune in to learn
- Why niching down will actually build your business
- How to transition from being a hobbyist to a business owner and how much time you need
- How to create and market a course even if you don’t think you’re an expert
Felix: Today I’m joined by Paul Hedrick from Tecovas. Tecovas makes beautiful top quality western boots and accessories by hand and sells them directly at honest prices and which started in 2015 and based out of Austin, Texas. Welcome, Paul.
Paul: Thanks for having me, Felix.
Felix: Yes, so is this your first business that you started? Or like give us a little background about your entrepreneur journey so far.
Paul: Yeah, of course. Yeah it is my first business, which has been fun. My background, I would say I took the nontraditional route to being a boot salesman so to speak. But I’m not sure if there is a traditional route, but … So I grew up in Texas. Went to college in the Northeast, came back to Texas, did management consulting for awhile. And then I [inaudible] in finance after that kind of investing and operating in retail and consumer concepts. So it was really there that I was drawn into the world of consumer and the world of brands and really my desire to start a brand and to run a brand, that became pretty clear to me. It was an itch I needed to scratch when I was there.
Felix: Yeah, so you, you mentioned there’s not a traditional path for a boot salesman, but it sounds very similar to a lot of what I hear about other entrepreneurs where they go into the corporate world, maybe in consulting and finance like you mentioned and then have this kind of itch that they wanna scratch. What experience led you to look into or led you to discover your desire to learn more about building a brand?
Paul: Yeah, so I’ve always loved brands. I’ve always been kind of a gear head, you know, get car magazines and kind of read Men’s Journal and all that kind of stuff. And you know I’ve enjoyed being a consumer I guess. Maybe more than most. But really it was when I got into the work world, especially my last position, when it was our job to really stay on top of all the retail concepts that were out there. What was being built, what was kind of in the early stage, what was in the middle market stage, where was retail headed. And just seeing how excited that made me. And I think it’s because you can touch, feel, wear, eat these consumer products and all those things I felt much more naturally drawn to. Like many others are, but truly excited me in the business world. For awhile I thought I wanted to start a restaurant and eventually just realized that it needed to be something consumer product related for me to get really excited.
Felix: So we were just talking before we hit record about this being your three year anniversary. And three years ago, where was retail headed? Like what did you see in the landscape that you recognized there’s an opportunity?
Paul: Yeah, so four years ago was when I was still at my last job. I think, you know, call it early 2014 was the timeframe to set the stage. And it had gotten to the point, you know I was working in private equity and we had not … it hadn’t … There was a lot of direct-to-consumer brands, a lot of digitally native brands that seemed to be kind of disrupting, not to use what may be is an overused word, other retail categories. But at the same time none of them are really quite mature enough or major firms to be investing in and that was a signal to me that there was kind of a wave that was coming. And it didn’t seem, I felt like it was one that was gonna continue to come. And direct brand specifically was, to me as a consumer, had a lot of value propositions that I think were strong.
And you know from a business perspective you were gonna start a brand from scratch you’d be … You know it would probably be prudent just to focus on a direct channel and that theme in general is what led me to think a lot about what I would do with a brand if I had one or I just started one. And you know it’s clear that retail has continued to move in that direction. I quit my job four years ago, moved to Austin, I was living in Manhattan at the time, and yeah I picked a category in the process, which was also a fun thing … a fun process to go through.
Felix: Yeah, is that a good leading indicator to see where the retail opportunity is to look at where investors are investing? Is that something you would do today?
Paul: Yeah, it is. Truth be told the world of startups, you know, some industries move faster than others. A lot of startups I think may not be indicative of greater trends, but when you think about wanting to start businesses that end up being maybe category leaders or larger businesses, call it seven, eight, nine figure businesses or more, then yeah, I think it’s prudent to look at larger company trends, middle market trends. I was just happened to a bit lucky in that I was sitting in the seat of being able to see a lot of companies out there and seeing a lot of private data, you know, and not utilizing it the wrong way, but really just understanding which companies were growing really quickly and what were they doing well.
And I think that is … You know if you look at what companies are doing well, that is always gonna be a great rule of thumb.
Felix: Mm-hmm (affirmative). So direct-to-consumer, is that still the big opportunity that is in retail? Or based on what you’ve seen, based on your experience in the industry now, what do you believe is the next big opportunity for anyone out there that is just looking around?
Paul: It is a big opportunity. But to be clear, I think people misinterpreted maybe really over the last few years, it’s been easily misinterpreted that direct-to-consumer means internet only, cutout the middle man so to speak, you know higher quality goods for lower price because you’re cutting out maybe the wholesale supply chain. That’s all well and good, but the truth is, the future of retail is omnichannel. The future of retail is people being connected to brands that make great products and deliver great customer experiences. And I don’t think … Those are the tenets that matter and I think that the direct-to-consumer business model so to speak is a great one to … it adds value to both of those elements.
It generally adds value to making great products at great value because you can theoretically bypass other people that would’ve taken margin in the past. And then you can also create great customer experiences because everyone who is buying into a retailer that is selling to you direct is buying into the same company that’s many times designing it, making it, selling it, distributing it, doing post purchase customer service. And so they’re the hub that has all the answers. They’ve designed the entire experience from soup to nuts which means it tends not to be as disparate or broken. And I think for all those reasons, yes, direct-to-consumer is a great business model, but it shouldn’t be confused with you know online only or what have you because truth is, I think that omnichannel will be how the world settles. I mean even today 85 plus percent of retail sales are offline. And as you can see a lot of the original kind of clicks to bricks brands so to speak, the people that started direct-to-consumer online only are now moving direct-to-consumer retail. And I think that’s a trend that will continue for sure.
Also, we are ourselves are planning to open our first retail store in early 2019 so it’s definitely one that we’re bought into at Tecovas.
Felix: Yeah so this is like you’re talking about basically the entire stack, like managing that entire from production to distribution to selling online to selling in your own retail store as well. This is something that it seems like a much, much larger undertaking, right, then just starting your own retail store and then kinda plugging it in from partnering with vendors to do the rest of it.
Paul: It’s a very large undertaking.
Felix: Right. Did this take as long as you had expected when you first started out? Or did it move faster than you expected?
Paul: I would say that our, Tecovas as a business has moved much more quickly than we had anticipated. And I think that’s another trend that we’ve seen is that it’s been, more than ever before, retail brands have been able to establish themselves from you know zero to seven figures to eight figures maybe more quickly and with less capital than ever before. Which is really interesting. And it’s beautiful in one way because it lets you really without a lot of infrastructure and fixed costs establish a brand that thousands, it not tens of thousands of people, if not hundreds of thousands of people, have already bought into without ever really having to invest in any real capex, like stores or major tech infrastructure.
But the truth is, the reason the people are opening retail stores is because the value will always be there in physical retail, even if it’s there in different ways, it’s not gonna be you know traditional B, C malls. It’s gonna be high street. It’s going to be you know A locations, urban locations. And the beauty of that opening stores later is that, even though it does take … it is an undertaking, it takes a lot of money and time, is that you’re building and opening the stores to a built in audience. And that’s why it’s working well I think. But, no I think it’s very prudent to start online first and to … and to be extremely stingy with your capital and investments early on because you can get much more scale on the dollar than you could, you know, call it 20 years ago.
Felix: Right, so, you’re basically saying that there’s a timing to it. You can eventually go omnichannel, but you don’t want to necessarily start that way, especially if you’re just boot strapping, you’re starting off on your own before you have much to … much capital to invest. So when you were getting started and you guys decided, or you decided to start this business, where did you kind of focus your attention first? Like where did you see that you could bring the most value to the marketplace?
Paul: Yeah, it’s funny. I might contradict myself here, because I mean building stores and real stores and stores that in great locations that serve a lot of people that are high volume, those are hard to do and they take a lot of money. But man I’ll tell ya, to answer your last question, offline is where we spent a lot of our time in the early months and you know first year. And that’s maybe a little counterintuitive, but I strongly believe in doing things that don’t scale, in addition to things that could scale. Because what tends to happen with the strategies that do scale, let’s say you wanted to get really good at digital marketing, paid social media, customer acquisition, search marketing, those are all things that great eCommerce companies are gonna do well for the most part.
But those are also things that are pretty hard to do at first when you’re starting from zero. So to go from zero to one, so to speak, and you know if that one means your first customer, your first hundred, or your first thousand, a lot of times you gotta do things that don’t scale. And so we actually … I started the company by myself, which was a long and interesting journey, but brought someone on pretty early and he and I committed to two or three times a week, we would go to trunk shows. You know I traded in my pretty nice car for an old 20 year old SUV and we would fit 50 or 60 pairs of cowboy boots in there and go to a conference or a Christmas market or a farmer’s market even sometimes we’ve tried, and we would just hock stuff in person.
And the beauty of that was we would learn, you know, from our customers. We would talk to them. We would hear what they like, what they didn’t like. What they thought was be interesting as a sales model and we would learn from that. But more importantly, honestly, it paid the bills. You know your overhead isn’t very high early on, but it’s actually easier to go out and sell a great physical product many times on the street than it is to you know pay for that first customer only through online channels. So it’s a bit of a chicken and the egg problem, but I think a nice balance of being kind of scrappy, hustling, and doing physical events early on with testing those initial dollars into the market if you wanna do digital advertising, is a healthy way to start. It’s certainly something that we learned a lot from and I’m not we would be where we were today … where we are today if we hadn’t done that.
Felix: How long would you say that you were doing things like this, like going to trunk shows, like doing things that didn’t scale before you recognized that okay we can now start building a system that scales? A marketing system, a sales system that scales.
Paul: Yeah it took a pretty long time. I would say most of our first year we were pretty much saying yes to everything. Really you start to … It’s when you start to feel like you need to say no to stuff that I think it’s okay to start saying no. And when that happens it’s typically because a trade off on your time and your dollar combined becomes pretty clear, you know, it’s better spent on something else. And for us, particularly, we kept a really lean team. We didn’t even hire our third person on the team until I think our, yeah, our first anniversary.
So our first whole year just a two man team and we got seven figures and it was great. And we did that through a lot of things that didn’t scale. And it wasn’t until the second year when we really started to get … We decided to make it a strength of ours to become good at paid social media advertising and some search marketing. And I think when we were spending kind of in the maybe strict first entering the five figures a month of spend, that you know going to an event that was gonna earn us 1000, 2000, 3000 dollars started to become a bigger trade off on our time, I think to just answer it tactically.
Felix: Yeah so seven figures in your first year, two man team, doing things that didn’t scale. What were some of the kind of high leverage things that you were doing? I can’t imagine, not this all came from trunk shows, right? Like what were you doing to get to the seven figures?
Paul: A lot of it did to be honest. But a lot of it came from those customers, right. Because we would meet customers in person and then those customers would always tend to be the best customers. They would talk about us the most, so best word of mouth, and also best dollar customers themselves. And I mean, shoot, we would go to events that would we would earn thousands of dollars in revenue at some of these events. Because the truth is our product sells very well in person. It’s a very high quality, kind of a high price point. You know our average price point today is around $300 in a market of products that we compared to in the $500 to $1000 range. So relatively high end and good physical purchase experience.
So to be clear, that was a pretty big part of it. But we did start to spend a little money online. And we also were able to get a little bit of launch press and I would say kind of a healthy mix of almost every channel that you could consider testing in your first year, but none of them were honestly were that big in themselves. It was kind of the sum of the parts was really the story. I remember doing our first kind of last 12 months breakdown of revenue by channel and by attribution and it was pretty even, you know, organic, inorganic, paid social was just starting. I think by the end of 2016, which was really our first calendar year, first full year, I think we had maybe just started to spend about five figures a month on Facebook.
So that was, you know, that was returning good capital for us early on because we were very prudent about becoming … We wanted that to a core competency of ours. So you know we were hyper focused on efficiency and building excel models and daily tracking budget and campaigns and AB testing. And even with really, compared to today, pretty small levels of spend, you know it was in the hundreds, we would still be doing everything that today we would do with campaigns well above that. And building that discipline early on I think is the way that you can kind of ride that train a little bit.
Felix: Got it. So the sales that you … the revenue that you were generating offline, usually going through these trunk shows and everything, were you able to transition a lot … any of that data online when you started doing things like running ads and trying to build a [inaudible] audience or anything like that? Or did you have to sort of start over again-
Felix: … when you came online?
Paul: No, it was all luckily part of the same system. I mean we’ve been on Shopify since day one and they … we used the POS so it was all going to our store. You know we were tracking emails and we would try to capture addresses when we could regardless if it were an in person purchase. So we would … I think maybe it’s worth clarifying that when we were doing these events we were not selling the inventory physically in person. We would … Because we’re in the footwear business and there’s a lot of stock keeping units, a lot of SKUs in the footwear business, we currently have 30 sizes for every men’s style for instance. We’ve got 15 number sizes and two widths. So we would actually just carry a-
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Paul: We would actually just carry a fit run to these events so customers would need to get the boot shipped to them anyway if they were purchasing. We were captioning pretty much all the same data on the customer side that you would capture through a traditional online store/sale.
We were able to gather our first 1000 customers, we were able to upload to a look-a-like list and kind of get the party started from there, which luckily happened pretty early. I think we got our first 1000 customers in the first six months or so.
Felix: Is that when it started getting real or did that happen earlier where you’re, like, wow, this could actually become a huge business. When did you guys start recognizing that?
Paul: You know, I think we’ve raised our bar a little bit over time, every quarter, every year. I definitely started the company realizing that it was a large category. I think what’s interesting that people don’t realize about the cowboy boot business is that it’s actually a four billion dollar U.S. retail category, a cowboy boot.
Pretty big, you don’t need to capture a huge part of that market to have a pretty sizeable company. The bar was relatively low in terms of market penetration for it to be a nice business. I think the expectations were always fairly high. I wouldn’t say that we had a number in mind for how big we want it to be, or at what point would it be real quote unquote. We knew that hitting seven-figures in our first year would be a really good marker, and I think I probably individually took it for granted a little bit.
I think in some ways we got lucky in that the category that I picked and the product I designed turned out to have really good product market fit early on, and I would say that was equal parts luck and skill, because I could’ve just as easily picked a market that was much more difficult to create a product that would resonate in the market. Therefore, I think I took some of our early sales success a little bit for granted, but not for the sake of a lot of hard work.
it was hard to design our product line and bring it to life. It took over a year, so we were happy. I would say it was a healthy mix of gratitude and a little bit naivete.
Felix: Mm-hmm (affirmative).
Paul: I didn’t know how hard it was to get to seven figures. I’d never tried and failed. I think it was a nice marker for us to say, okay, if we can do that soon then it can be big.
To be clear, there’s plenty of brands out there that have grown faster than we have. Just I think maybe the difference between us and some of those other maybe pretty well known, rapidly-growing brands is that many of those brands raised a lot of capital along the way, a lot more than we have.
I always wanted the business to be … to have some optionality. I wanted it to be customer-focused. I wanted to grow just as big as our customers would let us grow without sacrificing quality or customer service. As long as neither those are compromised, we’ll keep building and we’ll keep making stuff, and selling it. It’s fun.
Felix: Yeah, yeah. I think the whole product market fit thing certainly greased the wheels and we can’t discuss exact numbers, but you’ve certainly probably have been one of the largest, fastest growing consumer brands that I’ve had on this show. You’ve certainly done…
Paul: Yeah. Yeah, I mean, we did eight figures in our second year.
Felix: Yeah, that’s definitely a realm that a lot of people aim to achieve, but it’s certainly really hard to get into. Maybe even improbable in a lot of cases, unless you have this product market fit that you’re talking about.
Let’s talk a little more about this. What is product market … Actually, before we get into what is it, how would you describe your product market fit for your brand?
Paul: Yeah, sure. The world of cowboy boots is one that is pretty fragmented, and fragmented in both retail distribution, in terms of, there aren’t that many huge companies. It’s a four billion dollar market, but there are no billion-dollar companies to give you a sense. Whereas, there are many other markets out there, categories out there that have one player that takes the majority of the market.
Not the case for cowboy boots, but on the style and product side there’s a pretty big range between low-end and high-end with a lot of low-end brands going as low as $50, and high-end brands going as high as the thousands. But, on average, the average cowboy boot is probably $150–250, and there are some higher end brands that are really more like $500 to $1000. Those are the ones that I liked. Those are the ones that I think most of the market would like if they could afford it.
Our value proposition at the beginning was very simple. It was, let’s make those $500 to $1000 boots more affordable by using the same quality supply chain or better, same quality materials, construction, comfort, all together, and sell them for $200 to $400. That was kind of the original idea.
The product market fit was that stylistically a lot of boots out there were … There’s not a lot of transparency on how to select them. If you go to a boot store you’ll walk in and you might be overwhelmed if you’re a first-time boot buyer, because they actually store the inventory on the floor, kind of like a grocery shelf.
I mean, you’re walking through the inventory aisles, essentially, and they’re grouped by size. You’ll be walking down the size 10 aisle, and there’ll be hundreds, if not thousands of boots that are all different, with no explanations around what is high quality, what’s low quality. I mean, you see the different prices, but there’s no … There’s a lot of different toe shapes, heel styles, heights, colors, different types of animal hides used.
Our goal was to distill everything down to simplicity to create a simple, classic, high-quality, universally-appealing. High-quality but affordably priced boot, and all of those things. It seemed obviously to me that people would like those things, and so we made a boot that, we made a product line that was simple.
It only had two styles for men, two styles for women, and that was the hypothesis. These are the boots that I would want to wear, and I suspected that a big part, if not a majority of the market, would also want to wear them. I think we were lucky in that we were mostly right.
Felix: Yeah. Obviously not easy, but the formula that you’re laying out seems quite simple, where you’re making a product at a better value, you know an expensive product at a more affordable price, and you also demystify the buying process, you’re educating the consumer on how to make a smart decision on purchasing.
I want to talk about the first part, which is about creating a more … a product with more value than what’s out there already. You mentioned that the key to that for you was same or better quality of construction, and materials, and the focus on a better supply chain.
Do you have experience here? How do even come in and say, hey, I can do this better, than a company that has obviously are veterans in supply chain management, assuming.
Paul: Yeah, great question. The truth is I didn’t know at first. When I quit my job I didn’t know, which maybe I should’ve figured out in hindsight. Luckily, this was a product world that, after doing some research, which was a lot of cold-calling, and Googling, like any good entrepreneur would do.
I figured out that pretty much all of the world’s high-end Western boots were made in, not only one town in Mexico, but really one street in one town, which is pretty crazy. I just went there. I went there knowing that I wanted to take the same strategy that many successful have newer, [inaudible] native brands that take in, which was lets not try to build a factory from the ground up or try to enter a really complex, multi step supply chain. Lets go to the experts, lets go to the factories that are already making the best products in the world for the best brands and see if they’ll work with us.
You know, luckily, there were four or five boot making partners, call ’em factories, but truly they’re just, it’s all handmade, it’s all done by people. Really they’re just big clean buildings with a bunch of artisans in them. Anyway, I convinced one of them to work with me. I committed to spending a year learning everything there was about putting a cowboy boot together and designing it piece by piece and picking the suppliers for each component piece by piece.
Taking our time because unlike maybe, tech companies, I knew that maybe their attitude is lean start up, it’s get something, get your V1 out there and ship it and then iterate on it with feedback. You can’t really do that with a physical product that people either wear or eat for that matter. You have to get it pretty close to a 100 percent. Maybe not a 100, but you got to get to 90, 95 percent before you can bring it to market. I recognize that and we leaned on a supply chain that was already doing all of this.
What was gonna be unique about us was going to be how it looked, putting all the components together, only using the best, which most brands try to cut corners at some point and our goal was not to cut corners. We were working with factories that would have loved for us to use all the best components because it makes their lives easier and so that was, it kind of came together more easily I would say then you might expect with someone with no experience. It’s a very complex process. It’s not something you can just, you know boot making is over 200 steps, almost all hand made, almost all done by someones hand. Yeah. Luckily there are people out there that know how to do it. We think we found the best.
Felix: Yeah. I think that that’s an interesting story about how you found the street that all these boots are being made on. I heard a similar story from another goods brand, where they found the same high luxury brands were all using the same manufacturers and they just went to them and got them to work with them.
Paul: Yeah, it’s a common thread.
Felix: Yeah. But how do you, what’s that conversation like? How do you convince them to work with you? ’Cause I’m assuming that they obviously have bigger client that you are, besides your competitor to them some degree. Is it not an issue, where you’re coming and say hey, work with me as well. Where you are basically a competitor. What`s that process like? Or that conversation essentially.
Paul: It’s not an easy one and you’re right, that is actually how many of the reactions go, I think. For me personally, I came armed with a power point deck because I was a former consultant and that’s what I knew how to do. I’m not sure I opened it, I think maybe we got to the first or second page. I met with, I think three and one of them said no, we’re working with a brand that is pretty much directly competitive with what you’re doing and we wouldn’t want to upset them. One had minimums that were too high and the third one, neither of those were true and they made great product and they had just, I think lost a client who had moved production to a different city or something, I can’t remember. And so had some capacity and they actually had already had a little experience with a couple brands that were internet focused and were familiar, didn’t take a lot of explaining and they were bought in early on.
We’ve since moved on from that factory. Ended up going with the first one that said no to us, later on. Because they are, I would think they’re the best. It wasn’t easy and it was a little bit of luck again.
Felix: Yeah. Like you were saying, unlike the tech industry which has the luxury of adopting the lean start up approach, where you iterating all the time. You have to create something essentially is gonna be very expensive to create for the first time and you can’t just iterate on it that quickly. You mentioned you took a year to do this. To learn, to piece it all together. How did you know that you put together the right product for the market? Was it just kind of a gamble or did you have a way to validate some of it along the way?
Paul: Yeah. I was, I’ve been asked this question before and it’s funny, like man that would have been a good idea to actually ask people and pull people. But no, I didn’t pull customers, so to speak. What I did do was I went to pretty much every Western boot store that I could drive to and I asked the head sales associate every time I would go, I’d say hey, point me to your best selling men’s boot, point me to your best selling women’s boot. Invariably a lot of times were pointing me to the same style. But many times, many different, this is the store carry different inventory or different styles.
There was always the common theme that it was almost always a high end brand, but one of the lower priced ones, 450 to 550 price point of the highest end brands, they were always a simple, classic design, round toe, brown leather, smooth leather. A boot that really could be viewed as universally appealing and that to me, that was my original hypothesis and that was kind of just confirmatory for me. That okay, well I sampled enough to think that I got a pretty good picture of the market. I went to small and big stores. I went to urban and rural stores. Everyone’s pointing the same direction. Why is it so hard to find this boot? Lets go make it and see if it sells.
It was a lot of gut. I didn’t know how to design a boot, but I knew what boot that I, I had a boot in my head that I would want to wear. I knew how to draw. I had taken a bunch of Art classes. This turned into a bit of my creative outlet for me. Which was kind of fun and still is. I still draw all of our products, actually. Which is a fun way to start.
Felix: Yes. I will talk a little bit about now that this scaling of the advertising once you transition to that phase where you’re going online. You mentioned that you started out with five maybe ten thousand dollars a month to nearly a million a month in advertising spent over two years. You mentioned that you were able to do this by being extremely resource oriented as well. I think that when people scale, they start taking this kind of shot gun approach where they’re like, we’re spending so much money, does it matter as much? They start thinking of it as a brand awareness thing, they don’t think of the metrics or the kind of cost perspective whatever action they’re looking for. What is your approach? How do you make sure that you’re scaling without kind of losing sight of the numbers that really matter?
Paul: Yeah. I think a lot of people out there, it’s easy to jump to later years. To be clear, we actually haven’t, we’re about six figures, we’re not like to that seven figure monthly spend yet. Yeah, we started with four and went to five and went to six. We wouldn’t jump to the next level until we had built pretty rigorous processes. We were maybe unlike many start ups that are willing to you know, kind of lose a lot of money to get market share at first. You know, kind of invest in the J curve so to speak.
We did not really want to do that because we didn’t have a lot of money and we weren’t sure how much we could afford to lose. ’Cause we weren’t sure how big the company could get. We were very conservative first. We would try to be profitable on first purchase. What we would do, our method was pretty simple early on. It was lets find an audience and a hypothesis if it’s creative or targeting otherwise. Lets spend a little bit, it’s gonna be a little bit like throwing spaghetti at the wall, but then one of the pieces is gonna stick and lets spend money on that audience or that strategy, whatever it was. Not to generalize it.
We wouldn’t move on to the next one until we felt like performance was starting to decline in that first one that we found. It just kind of vein by vein, we would be tapping them one by one and we wouldn’t increase our budget until we had kind of built our process and out understanding of what was working previously. Brick by brick we would establish and I think that served us really well.
I think we actually, I remember early on talking to someone who advised us, oh man, you gotta just spend fifty thousand dollars right off the bat, over the course of two months to learn anything because you’re not gonna get enough consumer data to make good decisions on it unless you spend that much. That to me seemed unhealthy and now I know what’s true about it. It has some truth to it. You do learn a lot more about the market and what’s going to work if you spend fifty thousand dollars. But you don’t have to. It’s just a little harder to do it the other way. Which is spend a little and take the time and take the rigor and apply the rigor to smaller numbers.
I think it’s because when you’re applying really, kind of high level rigor to smaller numbers, sometimes it doesn’t feel worth it. Believe me, it was worth it for us. We learned a lot when we weren’t spending a lot. We were able to apply all those lessons and continue to get better so that the time we were spending a lot, we felt like we had learned along the entire way and we weren’t just driving a car without a steering wheel. Which is what I think it would feel like if you jumped straight to five or six figures. You know spend numbers.
Felix: Mm-hmm (affirmative).
Section 2 of 3 [00:18:00 - 00:36:04]
Section 3 of 3 [00:36:00 - 00:51:35] (NOTE: speaker names may be different in each section)
Paul: … do five or six figures. You know? Spend numbers.
Felix: Yeah. I think this part about learning more about the market’s important, because I think a lot of people that are starting off will try Facebook ads.
They run a test, it doesn’t work, they get frustrated, and then just kind of toss the entire thing away without looking for the nuggets or the data that they could gather from it.
Paul: Yeah. You need to be willing to test and I think what you just mentioned is a great example of it’s a balance between being willing to test, because you kind of do have to …
Now, what was right about that spend 50 thousand dollar comment that I made was eventually you have to be willing to spend that much, because it might take a long time to learn a lot and what’s important is that you really don’t know what’s gonna work.
We had a lot of hypothesis early on that we thought were slam dunk. Let’s target people who like A, B, C, and these geographies. Man, some of them worked really well and some of them did not work at all. Even though we thought that they were just as good.
So, you do have to be willing to learn and to lose a little bit every now and then, but I would challenge … You don’t have to lose a lot, you shouldn’t. Anyone who tells you that you should second guess.
Felix: Yeah. I think that’s an important lesson that as an entrepreneur you obviously need that confidence to move forward, but then you also need to be willing to be open to the data and not be kind of blinded by your beliefs necessarily. Especially when it comes to running advertising.
Paul: Yeah. You should be truth seeking.
Felix: Just to drive this point home, can you think of an ad that you guys have ran that was surprising to you that it actually worked? Just based on because you didn’t expect it to work and all of a sudden it performed way better than you expected.
Any kind of testing that you guys kind of ran along those lines?
Paul: Yeah. I can think of a couple, maybe two different examples. One … These were early days. Pretty simple, but stuff that is worthwhile testing for anyone.
We would test people who liked our competitors page and we wouldn’t mention the competitor in the ads, obviously. I’m not sure that’s even legal, but we would just advertise to them, because we thought that our product was similar and good.
Those went okay, but actually I don’t think a single one of our competitive kind of focused ads did really that much better than average. Whereas, every now and then we would find this vein of either a media publication that we either hadn’t heard of or just didn’t know a lot about when we dug into it and we would get three or four times the return on our investment on some of those media companies.
I realized it’s because those companies have already … They sometimes define demographic and messaging more clearly than a brand will, because they’re writing content all the time. And so, that was an early one that we thought was kind of cool.
Was a lot of times media companies are good targets, and you can learn from them, and you can cross them with other audiences. So, yeah. A couple of tips and trick, but truth be told there’s very little pattern … There’s no secret sauce, there’s no silver bullet. Very few of our lessons that we learned were easily translatable into other channels or other audiences.
A lot of times you kind of have to go with what works for a little bit, even if you don’t know why, and know that it’s gonna kind of run out eventually and you got to find another audience that works.
Felix: Constantly chasing the-
Paul: Yeah. It’s a little frustrating. Yeah. You do feel like you’re chasing, but it scales.
Felix: Right. What’s your routine today then? Or, maybe not today since you’re at the scale that is probably not necessarily relatable to a lot of listeners, but early on what was your routine as a company or maybe whoever’s running the ads?
How did you guys decide what kind of ads to set up? What kind of campaigns to set up and test?
Paul: I think the same philosophy applies all the time. I mean, first of all it starts with great creative and creative is an area that I think a lot of people feel unwilling to invest in, because you’re not buying an eyeball when you pay for photography or a video.
But, the truth is the lesson we learned maybe too late, because we were really cheap on creative early on and later we started investing pretty heavily into it. Was that a good creative will multiply the effectiveness of any ads. It ends up paying for itself really easily.
So, have creative kind of lined up, have your creative have been created through hypothesis. Meaning, if you think your customer looks a certain way or does a certain thing, then make sure that your creative speaks to that. If not includes it directly.
And then, kind of plan the creative around. That’s what we would do. We would say, “All right. We’re gonna focus on this product, we’re gonna line up these creative, we’re gonna have … ” We would think about value propositions, we would think about the different types of copy that you could include in ads.
Which, is part of creative. But, there was also … We were also pretty scientific about it. We would create Excel files with let’s have an ad be attribute based. Meaning, we would talk about specific aspects of the product that we think would appeal to people.
Let’s have a product be value proposition based, which is, “Hey. Good value for money.” Or, “More comfortable than other products out there.” And then, we would talk about just kind of brand language. What are some attitude kind of copy?
Overall, we would kind of have a matrix of copy images, and then audience targeting and we would just … Every week, I think we would pretty much line up … I think we kind of agreed early on to two or three hypothesis a week and early on we had a small kind of boutique agency helping us ideate some of these and execute some of the campaigns since we didn’t have a lot of experience with Facebook early on.
So, that was primary focus of ours and we just iterate from that. I think today we’ve got an eight person internal marketing team now and they don’t … What they do state is not so different from that. It’s just across more channels, across more creative types. It’s with a little more modeling built in and a little more cross pollination thinking, but honestly it’s the same thing.
I mean, we make stuff, we take pictures of it, we take videos of it, we write copy for it, we put ads out there if they’re display ads or copy ads or Facebook ads, and that’s how we get a lot of our traffic.
Felix: Right. Is that where you always start? A hypothesis?
Paul: Yeah. I think it pays to be hypothesis driven. It’s hard not to be. Right? It would be hard to create an ad without having an idea of why it would work, but I think it’s also … I think as you grow you need to be more comfortable stretching your hypothesis a little bit, because you …
I think what will naturally happen for any company that has product market fit, your first wave of customers are gonna likely be the people that just get it right off the bat. Like, you made something that they were already buying maybe, and yours is better or lower priced for the same quality, and those people are gonna come first.
For those people, honestly selling to them … Advertising is kind of straightforward. It’s, “Hey, guys. Here’s what our product is. Here’s the price. Do you want it?” A lot of them will say yes. It gets harder with each wave of customers, so you need to therefore be willing to stretch your hypothesis a little bit.
You might find customer groups that you didn’t expect, so you have to be willing to test hypothesis that maybe you don’t feel very great about. But, yeah. I don’t think we’ve ever had an advertisement out there or a strategy for that matter if it was like a radio campaign or what have you that didn’t have a clear hypothesis at first, or a clear measure of success, or a reason for doing it.
We never spend money unless we are really … We’re skeptical about this. We don’t spend money unless we really think it could work.
Felix: Right. Can you recall how far you’re able to scale the business just by going after those kind of low hanging fruit customers?
Paul: I would say high seven figures. Maybe even eight figures? But, only because we … I mean, the market’s pretty big for our product. But, there’s a smattering of kind of call it stage two and three customers and they’re later adopters of course, because it took us a little while to get to that scale.
So, along that way some people may have been hearing about us for a year and a half and they may not have been ready to purchase in November 2015, but maybe it took them to December 2016 to realize, “Hey, you guys. I’ve heard enough about it, had enough people in my network. I’m not an early adopter, but I’m in.”
It’s not a perfect … It’s not all your first wave, and then your second wave, and then your third wave. But, yeah. I think that low hanging … We’ve found, and I don’t know what it’s like for anyone else really to be honest. I mean, we’ve talked to enough brands that we think this is generally true, but certainly not universally true.
Is that most marketing channels, most sales channels … Even if it’s outside of online, tend to have … Call it a honeymoon phase. Similar to opening a really good restaurant. There’ll be a really good month the first month, and then it’ll maybe taper off. And then, it’ll build on itself over time.
I think that’s the same … It works the same with marketing channels in many ways. Although, it’s unclear how much they’re gonna build over time later nowadays, because everyone else is … More and more people are advertising every year. Naturally the cost of advertising is rising, which I think is probably a pretty universal truth right now unfortunately for advertisers.
Felix: Because you pay so close attention to the campaigns that you are running, how do you make the decision on whether you just scale up a particular campaign or an ad versus turning it off?
Paul: Oh. I mean, 100% results. If we’re not getting the dollar purchases we don’t do it. We’re still … We’re not … We’ve got plenty of room to grow. I think later we may change this, but still. We’re very much purchase oriented. We’re running ads just to get likes. or to get impressions, or to get … Call it brand awareness.
We don’t really focus on that now and there’s nothing against increasing brand awareness, we just … Generally, ads that increase brand awareness don’t pay themselves off as quickly and we’ve always been focused on being capital efficient. So, pretty easy.
If an ad isn’t driving purchases, then we’ve got indicators and rules that we’ve established. But, yeah. We don’t keep … If you were playing poker and you’ve lost 10 times in a row? Yeah. Maybe it’s the gambler’s fallacy to fold, but at the same time you’ve only got so much money to lose. Probably. So, maybe you should go to a different table?
Felix: How do you know much time or how much of the budget you should allot for a test before you can make that decision?
Paul: You have to … That’s something you just have to decide yourself based on your tolerance budget wise, but it needs to be informed by past results. For us, again we’ve got a pretty high price point product.
When we first started our average order value was around $220.00. It’s higher now, because we’ve introduced a lot of higher price point products. But, it was around $220.00 and you need to spend more to get a $220.00 purchase than you do to get a $10.00 widget purchase.
So, you should think about it maybe as a multiple of your average order value and your profit. And then, kind of scale from there.
I remember we would get frustrated early on. “Hey. We spent $100.00 on this ad and nothing’s happening. No purchases yet.” It’s like, well actually if we had spent $100.00 and we had got a purchase, that would be pretty good.
You got to kind of right size your thinking a little bit according to your brand, and then also I would look as data. This is the kind of stuff that’s useful that you don’t have when you’re starting on day one, but once you’re on day 30 or day 60 or day 600 you have a lot of this data.
Which is, how long does it usually take between kind of first touch and last touch to get a purchase? What’s the frequency? How many different channels are they seeing advertisement? You’ll start to learn those things, and then you should adjust your budget accordingly. Right?
If it takes two weeks on average for someone to purchase, then you should probably be willing to run your only advertising campaign you have for two weeks or more. Right?
There’s little, basic learnings like that I would say. But, it’s gonna be different for every business. Right?