Amazon sellers Coronavirus impact and what we are doing

It’s disheartening to see this play out in real life.

My friend’s bread and butter business are tradeshows.

He also runs his business “paycheck to paycheck” and didn’t consider that the coronavirus could be a business risk. He was part of the “it’s just the flu” crowd.

Every show is canceled for at least the next 2 months.

He has until the end of March before all the cash is gone and he is done.

10 years of business for him going up in flames just like that.

As Amazon sellers, you and I are lucky (for the most part) that we can continue selling through Amazon while retail and customer-facing businesses are hammered.

Today, I’ll share how we are navigating this and what we are doing.

The short version.

  • Come up with plans for different coronavirus situations
  • Be proactive
  • Monitor your pending orders and PPC
  • Ship boxes via UPS more often
  • Track your inventory and stay on top of it
  • Prepare to switch to FBM
  • Fix your broken processes
  • Use data to make objective and better decisions

Coronavirus impact to Amazon sellers

I mentioned in January that we were preparing for the worst. My thoughts at the time on Coronavirus was limited to supply chains. Here’s what I said in Jan which is still relevant today.

I’ve found it helpful to be realistic and prepare for bad case scenarios versus being optimistic and being caught flat footed. That’s how businesses went out of business.

You don’t have to go into full emergency mode, but factoring in 1-2 months of delays and rehearsing scenarios on how your team should handle and make decisions in these situations is a helpful and preventative measure. It’s also great training.

I would rather have an extra 1-2 months worth of inventory (overstock) of best sellers than be out 1-2 months of best sellers.

The coronovirus is going to impact:

  • delays from raw material suppliers as they can’t make enough
  • delays from manufacturers not being able to produce at full capacity
  • delays because bigger companies may have placed massive orders and takes priority over yours
  • delays as quality goes down because manufacturers are scrambling to manufacture and QA is a distant second
  • delays because you have to find new or more inspectors
  • delays as more paperwork from China is required for exporting and backlog of outgoing shipments at the port
  • delays as manufacturers will play the force majeure hand and demanding an adjustment of the costs

Dismissing the impact of coronavirus means you are saying that none of the above are big risks and your supply chain is perfect.

Even if you source 100% from USA or another country, you will have all your eggs in one basket. If a black swan event happens in America, the same issues apply. Having backup manufacturers to existing manufacturers is something we try to do in order to diversify the risk and once it is set up, it isn’t as hard to shift manufacturing from one place to another.

The two big news so far is that

  • Amazon is overwhelmed and needs to hire 100k workers
  • Amazon is prioritizing shipments for medical supplies and other staples

The next obvious step is a total shutdown in the US (or major cities) that will take place and private businesses will be forced to sit and wait.

As Amazon sellers, we are not considered “essential” businesses. That’s something to acknowledge. If you disagree, you’ve got your head in the sand.

The reality is that Amazon can get whatever you are selling, or something similar, from a major manufacturer like Proctor&Gamble, 3M, Johnson&Johnson etc.

It’s not a matter of if, but when, and being proactive as I share below.

Expect more delays at Amazon

As the virus continues spreading quicker, more Amazon employees are not showing up or using their UPT (Unpaid Time Off).

Amazon employees get 20 hours of UPT per quarter and 80 per year, but it’s being used by lots of people.

If you check your pending orders, it’s been growing as Amazon hasn’t been able to ship out on time.

Amazon sellers Coronavirus impact and what we are doing 1

Within Amazon’s FC, the normal metric is around 0.3 days of backlogged orders.

Over the past couple of weeks, the backlog has grown to over 1.0 days. It may not sound like much, but it’s a massive increase. A delay of 1.0 means the delay to the end consumer can be anywhere from 3-7 days.

Employees are also moved around to help with Amazon Fresh which operates at a different FC, system, and procedure.

No wonder they are trying to hire 100,000 more people and giving a $2 raise to lower-tiered employees.

Another important piece of information is that inside the fulfillment centers, they have what is called AFE (Amazon Fulfillment Engine).

AFE is an order packing system that consists of three general operations–sort, re-bin, and pack. Packers pack multiple items in each box.

Amazon Fulfillment Engine. Rates are high and you work elbow to elbow with up to 3 other people packing boxes and jiffies. Normally it’s multiple items but they also do singles as well.
(source)

How can you use this info?

  1. Monitor orders and PPC. If customers get sick of waiting, they will cancel. Your ACoS goes up, conversions go down.
  2. Employees are avoiding AFE. From forums, the sentiment is many people prefer picking, rather than packing. The FC’s have fans running and if it’s an elbow to elbow situation and someone with the virus sneezes near a fan… you get the picture.
  3. Expect certain fulfillment centers to shut down. Plan for it. It could be the FC you ship to.
  4. Send out smaller quantities quickly to keep your levels topped up rather than large pallets.
  5. Track inventory levels multiple times a day to quickly switch gears as needed.

FBM shipments or international marketplaces

EU sellers have it harder because all the borders are shutting down. You should update your settings to disable accepting orders from different countries if you are unable to fulfill or the delivery will be too late.

Amazon sellers Coronavirus impact and what we are doing 2

Amazon has extended the transit delivery window, but for certain areas like the red zone, don’t expect to meet the delivery date.

Check your shipping zones and adjust your policies as needed.

If you are a seller in EU and selling in the US, read the next section as your future shipments could be in jeopardy.

For USA sellers that sell in Canada, and vice versa, borders are getting stricter. Personal travel is now blocked. Shipments will take longer to pass the border and arrive at the destination.

Strategy to move past Amazon’s prioritization of inbound products

Amazon unexpectedly blocked shipments of products outside of 6 categories.

  1. Baby Products
  2. Health & Household
  3. Beauty & Personal Care (including personal care appliances)
  4. Grocery
  5. Industrial & Scientific
  6. Pet Supplies

Even within these categories, sub-categories not deemed essential are blocked.

If your product is correctly classified and you are not able to create a shipment, then the product in question is not prioritized at this time.

Most of our products are within Health and Household, Home, Personal care and we’ve experienced the 35-50% surge in sales over the past couple of weeks.

But the new blockage means that 8 out of our top 10 sellers cannot be sent in. The irony is that our bad sellers can be shipped.

amazon prioritizing shipments
Lots of our products temporarily blocked

Thankfully, our number 1 seller is whitelisted and we are in a good position with inventory for the other best sellers too.

As soon as we received our shipment from China and Korea last month, we were all hands on deck to get everything stocked up to at least 40 days of inventory.

The recent surge has drawn that inventory level down, but we’ve been topping up products as much as possible during this period.

Pallet shipments are slow to get checked in, so we send in a mix via UPS and pallets. For non-urgent shipment, send via pallets where you can afford at least 14 days for it to get checked in.

Otherwise, send it as box shipments.

If our FBA products go out of stock, we are ready to flip the switch to FBM.

To anticipate this happening, we need to reconfigure our packing stations for better efficiency. We aren’t set up well for FBM so if there are suddenly 100 orders that need to be fulfilled, it’s a lot of work.

Getting it figured out beforehand will be the smart move. You can never go wrong investing in processes and setting up systems. A good thread is up on the seller forum regarding this.

Another option is to transition to a 3PL that has the capability to offer SFP (Seller Fulfilled Prime).

The challenge will be trying to get this done in 2 weeks. 3 weeks max. It also only makes sense for products with enough margin.

Prepare for the worst. Hope for the best.

I have two cliche philosophies for running our business.

1. Prepare for the worst. Hope for the best.
2. Build a business for the long term.

As much as I like growth, I do err on the conservative side. Growth is like a drug. If you get addicted, it gets very dangerous because you end up throwing caution to the wind.

I also understand that as a small business, we don’t have the flexibility and options that big companies attract. I’d love to borrow a billion dollars at 0% like Warren Buffett. But knowing this isn’t the case, I’ve focused on the mantra that cash is king.

When I say prepare for the worst and hope for the best, it is based on the idea that:

  1. the business should be able to run without me
  2. the business should be able to survive at least 6 months with zero revenue

It sounds unnecessary and too much trouble until it is too late.

The important things are never urgent.
The urgent things are usually never important.

But when you define goals clearly and work backward, you’d be surprised how easy everything becomes.

When I realized I needed to diversify the business risk away from me, I took the plunge and promoted an employee to be my right hand, then shared all the knowledge I had.

Didn’t hold back and haven’t looked back.

Took over 1 year to get through everything and learn all the tools and systems we have in place. But I know that if something happens to me, the business will continue.

Next was building up cash balance.

It took us 4 years before we became profitable. A lot of stupid mistakes were made until I admitted we were going nowhere.

Then everything flipped.

Amazon sellers Coronavirus impact and what we are doing 3

Look at the net income line between 2015 and 2016.

We went from $-35k to $77k.

Amazon sellers Coronavirus impact and what we are doing 4

Why the drastic difference?

The biggest factor was going back to basics and calculating my numbers from scratch.

This single task changed the trajectory of our business.

Until 2015, I thought I was making money on products, but my calculations were wrong.

I completely mispriced products and had to raise them. We killed non-performing products, let go of emotional biases for certain products, reduced stupid mistakes and the rest is history.

Every couple of weeks, we transfer a small percentage of cash into an account for paying taxes, and another account for a rainy day or profit-sharing.

Check out the book Profit First. It’s easy to follow and no accounting experience is required.

Just common sense to creating a healthy business and protecting yourself.

Amazon sellers Coronavirus impact and what we are doing 5

Even with the pandemic going on, our focus is put our efforts towards long term and sustainable growth. Not short-term profit seeking efforts like the hand sanitizer guy everyone hates.

Amazon sellers Coronavirus impact and what we are doing 6

Or flipping the same BBQ gloves off Alibaba and trying to do the least amount of work.

Amazon sellers Coronavirus impact and what we are doing 7

Build your internal tools to adapt and move quickly

Anytime something happens – like a delayed order, missing shipment, Coronavirus – we look at it and ask ourselves how we can prevent it or not be caught by surprise.

This helps us continue to focus on a commitment of continual improvement and building internal tools using Gorilla ROI within Google Suite to improve the way we work, save more money and increase speed.

Online spreadsheets have become so powerful now that you don’t even need to pay developers to build custom software for you. Nearly everything can be done within Sheets – with some thought and effort in creating the spreadsheet.

The latest example is our Amazon warehouse dashboard below.

There was too much communication and daily standup meetings required to figure out what had to be done.

This dashboard now does all the talking and is displayed in the warehouse on a large TV for everyone to see.

It clearly shows the KPI (Key Performance Indicators) and everyone is empowered to make the right decisions based on the data from the dashboard.

It’s not hard for our packers to figure out what the priorities are and eliminates hand-holding, useless meetings and micromanaging.

amazon warehouse dashboard
Our Amazon warehouse dashboard

We’ve beefed up our inventory monitoring, projecting and ordering models.

With data from sales of each SKU, refunds, inventory status, our custom solution helps us stay ahead and not have to rely on Amazon seller central or inflexible Amazon seller software.

If you need to improve your data needs or supercharge your own internal tools, check out Gorilla ROI.

Recap of what Amazon sellers can do during this uncertain period

  • Come up with plans for different coronavirus situations
  • Be proactive
  • Monitor your pending orders and PPC
  • Ship boxes via UPS more often
  • Track your inventory and stay on top of it
  • Prepare to switch to FBM
  • Fix your broken processes and build up your tools
  • Use data to make objective and better decisions

Amazon news to end January

In this January news roundup:

1. New profit and loss spreadsheet

gorilla roi pro and free spreadsheetsAs the title suggests, I’ve got a profit and loss spreadsheet for everyone.

All charges and fees have been neatly organized into a profit and loss format. You can easily see what your Amazon gross and operating profits are.

The spreadsheet is unlocked so you can make any changes you want.

2. Coronavirus schedule impact

I told our team today to start playing defense for products we source from China.

This is not the time to try and grow sales – but to maximize profit.

Focus on building cash flow, keep things steady and have a buffer to make inventory last 2 months longer than usual.

I’ve already canceled promotions and raised prices slightly to slow down sales of our made in China items.

Yes I am being conservative early on. But I’d rather be proactive and be realistic than to be overly optimistic.

Here’s my reasoning.

      • Factories need at least 2 weeks for things to get back into order under normal conditions anyways
      • The China holiday is extended 3 days, but it could be more
      • Most people are in lockdown mode
      • If people do go back to work, my estimate is 2-3 weeks later than usual and factories will be understaffed
      • Bigger customers will order more than usual to stock up
      • Order backlog will likely be 2-3 weeks longer than usual
      • More shipments and delays held at customs if your products happen to be in a container with something that raises a red flag from China

Add all of this together and it easily becomes a 2-3 month delay.

There have been some videos and information from people on the ground and it’s a lot worse than what the media portrays. The goal is to adjust and plan for the worst, but hope for the best.

Luckily we ordered inventory at the end of last year and our shipment is due to arrive. However, we probably have 2 months of inventory remaining at our current velocity before we must reorder.

Not the best situation to be in, but it’s something we have to deal with and try to flip the traffic to our other products.

3. Amazon FBA fee increase Feb 18, 2020

Another reminder for the fee increase in a few weeks.

I’ve run the calculations on our products and had to adjust some prices up.

These 3 shipping weight classes go up the most.

  • Small standard goes from $2.48 to $2.63.
  • Large standard goes from $3.28 to $3.48
  • Medium oversize goes from $9.79 to $11.3

Amazon news to end January 8

4. Amazon prep service in Montana

Amazon prep centers for sellers in Montana.

It doesn’t sound too bad, and I’d say the business is more stable and recession proof.

Sellers are highly dependent on Amazon with little to no control. Just a couple of weeks ago, our best selling ASIN was flagged for investigation because a customer left feedback saying a piece was missing when everything was included.

Long story short, a random level 1 customer support in India was close to shutting down our best seller listing refusing to look at any evidence and reasoning. Photos and explanations don’t work. You probably already experienced this.

Luckily, I managed to reach an account executive from the advertising team (in USA) and he was able to find the agent and send a direct internal message regarding the case. He requested that support investigate properly and provide valid reasoning and proof.

It worked.

But these prep centers are not reliant on Amazon.

Their customers are the sellers. And because there are so many sellers, their customer base is diversified and can be replaced if one customer decides to no longer use their services.

Interesting…

Amazon news from December 2019

Here’s last month’s roundup of Amazon articles and news that I sent to email subscribers.

1. Amazon FBA fee increase Feb 18, 2020

This was expected.

The more Amazon pushes 1-day prime, the cost will be passed on to the seller.

At the moment, the price increase is for US FBA and referral charges.

If you look at my table below, 3 shipping weight classes go up the most.

  • Small standard goes from $2.48 to $2.63
  • Large standard goes from $3.28 to $3.48
  • Medium oversize goes from $9.79 to $11.37

The biggest losing category is if you sell medium oversize products. Small or large oversize classes stay the same.

If you are stuck in the medium oversize class, consider reducing the size or bundling up to get into the large oversize for no increase in prices.

amazon fba fee increase 2020
amazon fba fee increase 2020

In any case, the increase in fees and charges was expected. Keep expecting it in 2021 and 2022. As the Amazon logistics network grows, so will the fees.

I see this as another sign to go after quality products that have a premium. The last thing to do is compete on price where your margins can be eroded even quicker.

Knowing how to calculate and keep track of your profit margins is vital.

My team and I continually tweak and adjust variables in our cost analysis spreadsheet (also available in the Business PRO spreadsheet package) to analyze our products and make decisions on what to push and what to discontinue.

By keeping ahead of costs rises and reviewing our numbers constantly, we’ve found ways to cut costs by 5-10%, which offsets the increase in fees.

Unless the product can be used as a loss leader or combined with something else to recoup the margins, it is on the chopping block.

2. Amazon Japan?

This report shows that Amazon is hitting record sales in Japan and paying over $270M in taxes – which is a good sign.

Rumor is that Amazon is trying to tap into other business areas, just as they have been doing in the US for the past decade. My takeaway is that the investments they are making in Japan is a great sign for sellers already selling in Japan, and for those wanting to test it out.

It’s not as big as the US or the entire EU, but it could be very fruitful if you have expertise with international marketplaces.

As I’ve lost money and failed in our UK Amazon sales, I doubt I will try Japan until our cash cushion becomes much larger or I can dedicate someone to managing international markets as closely as we do for the US.

The language barrier prevents most people from entering and cultural differences also make it tougher. But if you are willing to crack it, it’s there waiting.

3. Speeding up FBA processe and My podcast interview on how I wasted $70k

I’ve been posting more articles, but haven’t been notifying you guys with the latest one as they are mainly tutorials and catching up documentation.

A recent one goes over 5 ways you can supercharge your operations for the new year.

I did an interview a while back with Andrew Erickson who is an Amazon seller, a user of Gorilla ROI and also hosts the Zon Con Podcast.

I discussed our framework of how we approach product development, and how I got a $70K SBA loan and washed it down the toilet.

Interested in hearing our big mistake, story and how we operate?
Then check out the podcast.

4. Prime Power: How Amazon Squeezes the Businesses Behind Its Store

This article sums up what you and I know about Amazon’s business practices.

The last sentence hits home.

“We are dealing with a partner,” he said, “who can and will disrupt us for unpredictable reasons at any time.”

As Amazon continues to grow and dominate the market, we become increasingly dependent on them because they’ve made it convenient for the buyer and the seller.

For most sellers, we are on the safe side, but the bigger you get, the easier it is for Amazon to copy your product, deactivate your account and there’s nothing you can do about it.

If Amazon can shut down and control big brands, there’s nothing small sellers can do.

There’s a great point in the article where Jeff Bezo’s categorizes Amazon into two buckets: Investments and contributors.

The e-commerce side of Amazon is the cash cow now and is used to fuel new growth and expand into different areas.

I also consider our business to be a contributor where we are using the profit from Amazon to diversify into different avenues of sales. Wholesale, tradeshows, different markets. Something away from Amazon.

Thinking about diversifying and planning is never a bad idea. Before it’s too late.

5. Gorilla ROI continues to grow and improve

Since we launched Gorilla ROI, we’ve improved the service more than 10x in a short period of time to make it easier for you to run your operations.

But I’m also very realistic and clear about what Gorilla ROI does NOT support.

New functions and improvements throughout the year like

They all help in gathering your numbers for tax season.

4 more lessons from our second product and failure

So far on this blog, I’ve pulled back the curtain of our very first product and how it flopped before it began.

I ended up throwing more money down the toilet and it was a good thing that I had a day job, as well as another side business, that was funding all of this.

If it wasn’t for those two income streams, I wouldn’t be writing this today.

I don’t know about you, but the stat where they say that most businesses fail within the first 3 years is true for us.

Those few years were rough.

But we plowed ahead to product #2.

Are you ready?

Introducing…

4 more lessons from our second product and failure 9

Not bad for a logo from 2012.

As you can tell by the name, it’s a “spray” product.

The backstory is that my wife hates germs. Doesn’t like touching door handles or surfaces outside because who knows what’s been going on.

While browsing online, we learn about this new sprayer product that is 100% natural and green.

But it’s not just a regular spray, it’s a green tech product.

Check out my flyer.

4 more lessons from our second product and failure 10

The quick science behind the product is that you simply mix tap water and a tiny amount of salt with citric acid into the spray bottle and then power it up for 5 minutes.

There’s some plasma emission and the base starts to electrolyze the mixture and separates the chlorine from the salt to create a solution that is 80-200x stronger than off the shelf chlorine, without the harshness.

What this means is that it can literally sanitize anything. Toilets, floors, cutting boards etc. You can touch it with bare skin and it won’t burn. Safe to use around children and pets without worries.

This was the chosen one

This was a product that we felt had a lot of potential

  • It was revolutionary
  • It had science behind it
  • It was FDA approved
  • It had clinical lab test results showing it worked
  • It solved a need in every household

So what went wrong?

It will be easier to explain via our instructional image.

These are the instructions that were to be included.

4 more lessons from our second product and failure 11

Over the years, we’ve learned that a product should always solve at least one of 3 universal needs.

  1. Will it save me time?
  2. Will it save me money? (or will it make me money?)
  3. Will it make it convenient? (or will it make me comfortable?)

In OneSpray’s case, although it would solve problem #2, the cost savings didn’t outweigh the increase of time required and the inconvenience.

After a long meeting with a mentor, we came to see that the product was cool, but it would collect dust once somebody purchased it.

The product had the right idea, but in 2012, the demographic of hardcore green and natural consumers barely existed.

The market wasn’t ready for it.

Oh, and try convincing consumers to spend $80 when they can grab a bottle of cleaner for $2-5, which ends up being quicker and easier to use anyways.

Knowing when to fold

The saving grace with this product is that we folded our cards before we got too deep into it.

All we did was pay for a sample, make a logo, take photos, make a product brochure and ask people what they thought of the idea.

We followed the 6 lessons from our first failed product.

  1. We didn’t hire a marketing agency
  2. We only ordered a couple of samples
  3. We asked around to check the demand and feasability
  4. We didn’t care about being first to market

I’m glad the feedback wasn’t positive.

Around one year later, other companies started to private label the product and even exhibited at shows.

See the screenshot below from youtube. Yup that’s OneSpray.

4 more lessons from our second product and failure 12

Did a quick search and the product no longer exists.

The company from the video above is gone, as well as the parent company.

Interestingly enough, our old domain of onespray.com is now owned by another brand called “OneSpray” with a very similar concept. ????

4 more lessons learned

1. We were too early

Sounds silly, but the market wasn’t ready for green tech at that time. There was also little interest back then compared to now, where the market has exploded with options and products.

Just recently, we exhibited at the Natural Expo show in Baltimore and the place was rocking and packed with natural and organic food, products, and this and that. If we were to try again, it would be much easier with a receptive audience. People nowadays are also making their home more smarter, so there is more potential now than before.

I don’t like being the market leader. Don’t have deep enough pockets for that.

2. Pain points were triggered, not solved

The inconvenience of having to create a mixture, wait 5 minutes for the conversion to finish was too much of a hassle.

It was like picking at a scab instead of relieving it.

Never relent in the pursuit of incorporating a real fix to one of the universal pain points in your product.

Find a way for your product to:

  1. save time
  2. save money
  3. make it convenient

3. Re-educating the consumer is useless

Trying to change habits of consumers is impossible unless you have millions in marketing budget. People are set in their ways and they do not trust new small companies.

Another failing point with the product was that the mixture is so clean that it had no smell. It worked too well for its own benefit.

Consumers are so used to smelling chemicals and fake fragrances from cleaners that something doesn’t “look” or “feel” clean unless there’s a strong smell or visual component like foam or bubbles.

Being so clean and scentless was its downfall.

If the majority of consumers don’t get it in 3 seconds, it’s an uphill battle for the product.

4. Cost was too high compared to competition

Although there wasn’t a direct competitor, no consumer is willing to spend $80 for an electronic spray when you can buy a $3 spray that will last several months.

It would take years to make the machine worth it.

Would I buy it today? No.

So why would anyone else buy it?

Some products have a limit to the price. We were trying to sell an $80 all-purpose cleaner. However, beauty care products easily sell in the hundreds despite the same cost to manufacture.

Know the max price a market is willing to spend.

6 hard lessons from our very first and failed product

I shared how we flushed our $70k SBA loan down the toilet.

So why stop there?

With mostly only Amazon success stories on the internet, here’s a look at our failure. We can’t be the only ones to have run into trouble while trying to grow this business.

What I didn’t share about the SBA loan story was the product itself. But before I get into the product, take a look at my business plan projections I submitted to the bank.

startup business projections are useless
startup business projections are useless

I figured, we could start making money immediately and be profitable. We didn’t even know about Amazon at this time. These wild projections were based on selling to wholesale accounts and getting into retail stores in our very first year.

don't trust anyone who comes to you with charts like this
don’t trust anyone who comes to you with charts like this

6 hard lessons from our very first and failed product 13

Expected highlights include:

  • sales of $200k in the first year
  • no loss whatsoever because I knew it was going to the next big thing
  • $500k in sales by year 3

Introducing the next gen cutting board

Yes.

Cutting boards.

But not just any cutting board, we were going to be first ones to introduce a silicone cutting board.

We were certain it was going to be category killer.

It clearly solved a problem over traditional cutting boards.

  • “Antibacterial” concept. Roll up and sanitize in the microwave.
  • Heat resistant up to 485F. Can use as a baking tray or trivet.
  • Color coded to prevent cross contamination.
  • Won’t dull your knives.

Looking back, these photos were pretty good!

6 hard lessons from our very first and failed product 14

Because it was like this behind the scenes.

home made studio - true bootstrap style
home made studio – true bootstrap style

Getting the packaging designed

With the images on hand, we found a local design agency to do the packaging for us.

I personally find it to be atrocious.

They basically put the photos I provided them, along with a stock photo into a random grid position and charged us $2,000.

Looks like it was done in MS Word.

6 hard lessons from our very first and failed product 15

But being our first product, I was determined to push ahead.

Experiencing Chinese quality control

We ordered 50 samples in order to go to the next round of development – quality and NSF testing.

The first batch of samples came and they were 100% defective.

A cutting board is supposed to be flat and smooth, but our samples had tiny dimples all over it like some sort of skin disease. There was no way we could accept this.

With no experience, we didn’t know how to vet suppliers and we didn’t even know about Alibaba back then. We were just doing things on the fly without any proper process.

I announced a sudden 1 week break off work and flew out to Shenzhen to meet with the supplier. Looking back, I should have known.

The factory was a small dingy place. The walls and ceiling were bare concrete, place was covered in dust.

Today, I know that these are the factories that need to be avoided at all cost as there is no QC.

After a couple of months going back and forth, we get our final samples and it is still not perfect.

Those darn dimples.

At this point I’m just fed up and gave it the OK. I just want to launch the product and become a millionaire. You know that feeling, right?

Time to send for testing and certification

We send a bunch of cutting boards to NSF for testing and certification to claim our cutting boards are the best in the world.

A week later, we get a call that the cutting board failed its very first test. In fact, all 100% of the cutting boards failed.

The test?

A simple hardness test to see if the cutting board can withstand standard knife pressure.

Our cutting board failed looking like this.

6 hard lessons from our very first and failed product 16

Doh.

Throw another $1,000 onto the burning pile of money.

Stupid mistake after stupid mistake

For over 1 year, we didn’t even think about the most basic of basic requirements. We were so in love with the new idea that we completely ignored the basic reason a cutting board exists.

To support a knife.

Everything else is secondary.

This was in 2012 by the way.

7 years later, silicone cutting boards are being sold on Amazon, but the funny thing is that most have been wiped out.

They aren’t selling well because of the exact issue we ran into.

Here’s a photo somebody posted as a review. Looks familiar.

cut marks on silicone cutting board
cut marks on silicone cutting board

6 hard lessons learned

1) We made another bad mistake with a design agency.

There are many talented designers on upwork who can do superb work at affordable prices.

2) Getting the product tested saved us.

Although I felt that spending money on NSF testing was a waste, my wife was right. She pushed for it and the results confirmed the project had to be killed. It saved us money as we did not have to order thousands of units that no one would buy.

If your product requires testing and certification to remain compliant, do it.

Making sure you have accurate and up to date FDA certifications, exemptions etc is critical.

3) Create a product backwards.

  • See if there’s demand.
  • See if the numbers make sense to make and then sell.
  • Make a cheap MVP (Minimal Viable Product).
  • Get lots of honest feedback.
  • Negotiate small minimums to start.
  • See if it sells with marketing, good images, PPC.
  • Only then make a big order.

4) Every mistake in business costs money.

At school or in a job, mistakes will cost a grade or a slap on the wrist at worse. In business, it’s all money. And it costs more money to fix the problem. We blew $70k on mistakes.

5) Business projections are useless.

You don’t know what you don’t know.

Business projections are pie in the sky numbers. Nobody knows until you actually get started.

Surround yourself with people that have gone through similar situations. Or at least business minded people who won’t discourage you.

6) Being first to market can be risky.

Creating a unique product comes with a lot of risks as the product has not been proven.

If done right, you become associated with the new category.

But there are always competitors and deeper pockets, waiting for you to make all the mistakes before they dive in and dominate.

More failures?

This was our very first product. This was our very first failure.

The good thing is that we didn’t give up and let this dictate our future. We took the lessons from it and applied it to the next product.

We aren’t perfect and we still make mistakes, but that comes with the territory of trying to build a long term business.

I’ll continue to share more failures, successes as well as details on how we run certain aspects of our business like managing inventory, sharing confidential data with employees and trying to grow outside of Amazon.

How we flushed $70K down the toilet

We nearly sunk our own ship.

Allow me back up to a pivotal point in our business when we knew nothing, that could have ended our business from the start.

In the beginning

that excited feeling from a new venture
that excited feeling from a new venture

We were so green and wet behind the ears that we made mistake after mistake.

In fact, I’d say we (as in my wife and I) made more mistakes than most people as we didn’t have any friends or connections with people who ran a business.

No one to ask for advice while we were starting up.

My family were puzzled, and questioned why I would leave a well paying 6 figure job at Samsung Electronics.

We had to learn everything through our failures and it hurt.

It still hurts with every new fail we encounter. There never seems to be a shortage of them.

Let’s go back to 2012.

As the title suggests, we were approved for an SBA (Small Business Administration) loan. Considering that banks were still tight on giving credit in 2012, it was a big feat for us to close on the SBA loan.

It literally took us 8 months to get the loan, but we got it.

One of the requirements was to submit a business plan. We made a killer deck, with wild cash flow projections that put us into positive territory after the first year. HAHA.

This was before we even knew about selling on Amazon.

It’ll be funny to upload the business plan for you to see. I now realize how useless business plans are for new businesses…

I see the same type of mistakes from people pitching on Shark Tank and other investment shows where they claim to have the best idea, and believe it will be profitable right away.

Just like me.

But with all those hopes and dreams filled in our pockets, we finally finished the SBA loan and got the money.

$70k fresh in the bank.

The dumb, horrible, inexcusable $70,000 mistake no business should make

How we flushed $70K down the toilet 17

With a big balance of $70k now in the bank, we had so much opportunity.

Right?

We did what any newbie entrepreneur would do. We stopped being resourceful.

When we were financing everything out of pocket and didn’t have much cash to work with, we kept an eagle’s eye on all expenses.

With this newfound wad of cash, common sense left the house.

We figured we needed to take our product packaging to the next level and fast before anyone found out.

After some searching, we found a superb design firm from San Francisco and hired them to design our

  • brand identity
  • logo
  • packaging
  • trade show materials like banners, brochures and other useless stuff like a presentation folder

The problem with marketing agencies is that there is a lot of “fluff work” to make the high cost worth it.

They performed the usual “market research” which takes at least a couple of weeks. Something we had already done by buying competitor products and comparing them.

Mood boards came next.

Then a lot of calls, proposals, and lots more back and forth over the next 3 months.

When it was all finished, we blew our entire $70k SBA loan on the design and marketing.

How dumb were we?

  • We did not set a budget
  • We didn’t know what we needed
  • We didn’t have a plan to sell the product

We were infatuated with the idea of having eye catching packaging.

Sales cures all… if you sell

How we flushed $70K down the toilet 18

Now that we had packaging deemed worthy and looking like it belonged on every retail shelf, we hit our first trade show.

Things started off “meh”.

We landed a few tiny accounts but still super excited to see it live on the shelf.

Fast forwarding a little, we visit the store, talk to the manager and buyer and get bad news.

The product wasn’t selling.

What a punch to the gut.

We realized we didn’t put any thought into how consumers think and chooses to buy a product. We approved this beautiful package design that wasn’t communicating any of the benefits to the buyer.

It only caused more confusion.

Back to basics and fundamentals

With all the cash gone, we couldn’t afford the fixes or redesigns the design agency would charge. Their hourly rate was $250-$300.

So I did what should have been done in the first place.

I went to the local supermarket and studied and analyzed the common themes of successful products.

And one by one, I started to make changes myself to the packaging. Having experience with photoshop helped.

The original designers certainly wouldn’t have approved my design changes. It messed up the aesthetics, the text alignment wasn’t perfect, I added images taken with my phone, the images didn’t flow 100% – but the conversions rocketed up.

Other improvements made to the product

Renamed the product to what it was.

If we were selling a yoga mat, we first called it some stupid name like “plush mat” thinking we were being different and creative. It was just stupidity. Should have just called it “yoga mat” from the beginning.

Added simpler descriptions.

We also had different versions of the product, and people would constantly ask us about the differences. Using the yoga mat example, we added terms like “hard”, “medium”, “soft”. Or small, medium, large to the packaging.

Added in use photos.

I took some random in-use shots with a cheap camera and my phone, created a collage using free online photo software and embedded it into the front of our packaging.  People can never have enough in-use photos.

This version is the same design we still use today -7 years later.

What I learned wasting $70,000

How we flushed $70K down the toilet 19

I’m being unfair by saying it was a screw up as the logo and design really is beautiful and it has created a wonderful brand and foundation over the years.

However, if I had another $70,000 loan, everything would be done differently.

The big takeaways:

Having no money forces you to be creative and go into fight or flight mode.

A sudden big balance causes “lotto syndrome” of spending on unnecessary things.

We no longer use agencies.

This a global economy and our main designer is in Eastern Europe. Her rate is $30-$50/hr and delivers mind blowing quality and speed. In a recent trade show, passersby would stop to just comment on how on-point and attractive the packaging was. Ever since, we have had great success finding designers ourselves from dribbble.com and upwork.com

Research your customers, not the product.

Had we bothered to put in the effort to do our own customer research and gathered feedback much earlier (or even during the design phase), we would have been in a much better position and with more money in the bank.

Sales is sexier than design.

The product could look the prettiest, but if it’s vague, doesn’t have a clear cut message and fails to convert, it’s dead to me. I’d rather have a website or product like craigslist.org that looks 20 years old but converts like crazy, than a flashy website that doesn’t convert. Same thing applies to product packaging.

What’s next?

Hindsight is 20/20 and it’s funny to look back on it. I’m shaking my head and laughing as I write this.

I’ll continue sharing more failures, successes, and lessons learned as I take you through our journey of getting to $5M in revenue and beyond.

Should you sell niche or mass market products?

So which is better?

Give me a sec to tell you a short story of how I got to Seattle.

I was born in Korea, but grew up in Australia. Finished my schooling and in my first job, the company was trying to break into the US market. They had an office in Redmond, WA (Microsoft territory) and asked if I wanted to move. This was in 2005.

Seeing as how I was recently out of school, no commitments, no money, I eagerly accepted.

Packed up and left my life in Australia in 5 days.

Interestingly enough, I’ve outlasted the original company I worked for. The boss closed up shop, but I’ve been here ever since.

But when I arrived in the US, it was supposed to be a joke, but there was a reality to it and I’ve always remembered it.

I was told that when you migrate to another country, it’s very important who picks you up at the airport.

Your path will follow whoever picks you up.

Most immigrant Koreans run a small Teriyaki restaurant or laundromat. The new person is introduced to the world of Teriyaki and laundries and before you know it, you are neck deep in the same thing.

Same with Amazon.

Depending on who you learn from, you’ll get some great advice, but also bad ones.

And if you don’t challenge or question advice, you may end up doing the same thing.

So which is it?

Niche or mass market?

We started off with a niche product because that’s where I am most comfortable. I was into long tail keywords, smaller markets and dominating it.

But now I hate it.

Niche Pros

  • Less competition
  • Cheaper to launch and learn

Niche Cons

  • Can’t grow. Limited ceiling.
  • A few extra sellers make it crowded

On the other hand, we stumbled on mass market products by unexpectedly. I had designed and created what I thought was going to be a nice niche product, but sales took off. In the first week, we were selling 100 units a day.

What we stumbled upon was to go after mass market products with niche features.
Don’t make the same old boring mass market products. Innovate a little and think about how it can be improved.

All products are simply improvements. They are rarely category creators, and so you are simply taking market share away from another seller.

A zero sum game.

Now, I shun niche products like bbq silicone gloves, garlic press, phone holders.

Mass Market Pros

  • More sales
  • More growth
  • More efficiency

Mass Market Cons

  • More competition and copycats
  • More planning, strategic thinking
  • More expensive

What’s your take?

How to source winning products without scouting software

The other day when talking about the need to have an Amazon strategy, I shared a story of “Matt” who was doing $3M in sales with great profitability – to now, barely breaking even and struggling to come up with profitable products.

Matt and hundreds of thousands of sellers (from the US and international) are now using the same scouting tools, like Jungle Scout to look up the same products. We use AMZ Scout which is the same thing, but I purposely avoided Jungle Scout in order to try and avoid getting our searches, product ideas and keywords being stored on the Jungle Scout database for all to find.

Why I don’t use scouting software for new products

It’s best to think of scouting software as a point-in-time tool. It provides historical data of what a product has done – never what a product will do in the future.

What this means is that you’ll never find products that solve an existing problem. Scouting tools will limit your findings to products that are currently already on the market.

If there’s enough demand based on what the stats show, a hoard of other sellers will be selling the same thing in a couple of months.

The best way to use a scouting tool is to find a new product, and then upgrade it or change it to become unique. But this also comes with challenges, as the Chinese supplier will likely start selling it to others unless you protect yourself with a NNN document or bilingual PO document with the owners signature.

That stainless steel bottle you come across is going to get more saturated by the time you get your shipment and are ready to sell.

How to source winning products without scouting software 20

This niche for “stainless steel bottle” shows up as a 7/10 for niche opportunity. Take a closer look and you’ll see how saturated it already is.

Making an improvement with a steel water bottle is going to be tough.

Don’t trust the opportunity scores from any of the tools. They are usually behind or just wrong.

The way we use scouting software is to monitor competitors and look up potential industry numbers. Rather than believing the numbers the tools give out related to a product, we take a broader look at the industry to determine whether it makes sense.

Here are some better ways that we’ve been able to come up with winning products.

Attending unique trade shows

How to source winning products without scouting software 21

This is an old school method, but it works.

For all the naysayers out there, not one of them will be able to give data to back up their reasoning other than their personal reason of not liking trade shows.

We don’t bother with the massive ones like Canton fair or the Home Show in Chicago anymore. Trade shows dominated by big brands are not worth the time unless you have connections to get great pricing for wholesale orders.

Most of the time, the big brands are not interested in selling to Amazon businesses.

Plus, the products are all about same and big brands don’t innovate. They continue to push what currently sells and what is safe. No reason to fix what is working.

In 2018, we attended our first Indie Beauty Show in New York. Filled with brands and unique products I’ve never seen before.

This is the type of show where you come away with a lot of product information as the vendors are mostly all small businesses – having to innovate in order to get their product noticed.

One product that caught my eye was Activated Charcoal Gum.

Activated charcoal products are “in” at the moment and people like to chew gum and whiten their teeth.

Light bulb.

This is the type of product that you won’t find via Jungle Scout.

In fact, it’s already been a year, but search on Amazon and there’s not a single charcoal gum product. The search results are filled with “charcoal powder” because that’s what scouting software shows.

That’s just one example.

At such shows, we’ll get a ton of ideas. Takes a lot of work to ruthlessly eliminate everything that does not fit within our product line and strategy.

Big Box Stores

How to source winning products without scouting software 22

The easiest way for us to find top sellers and high demand products is to simply visit Walmart, Target, Home Depot or any other big box store.

Amazon has their best sellers list, but I find it hard to figure out and being able to touch and feel the quality of a product makes a big difference.

I treat big box stores like showrooms and local trade shows. Big box stores only carry high turnover products. I know that anything being featured prominently at eye level on the wall, shelf or endcap is a hit item.

Let’s use yoga mats as an example.

Since I can’t find a way to improve on a yoga mat and simply increasing the thickness or size does not offer any competitive advantage, it may be a better idea to create products related to yoga, but not yoga mats.

  • deep tissue massagers
  • some uniquely shaped yoga block
  • meditation incense or fragrances
  • a pillow or support product
  • and so on

Plenty of ways to serve the market without getting into a messy fight with me-too products.

Or find a reoccurring theme in the 1-3 star reviews and fix it. A lot of our hit products have been created in this way.

Traveling

How to source winning products without scouting software 23

You’re probably like “whaaaat?!” Who has time for that?

Outside the norm of day to day activities, your senses are open to new experiences. Have you noticed that you get great ideas when you are either in the shower, on the toilet or doing everyday normal things? Travel is like that too.

It helps that we mix in travel with business. We also benefit by expensing certain things for business too.

When we go to Europe, we’ll visit the big box retailers, little towns, markets, fairs, gift stores and see all these unique and fun products that we’ve never seen before.

Most probably won’t sell, but during my last visit to Japan, we were able to develop products based on some great ideas we caught over there.

I then turn the ideas over to software and just plug away on Amazon to find out what the current problems are, level of competition and potential sales volume.

Rather than making products with a looking-backwards approach all the time, we find new products with a forward looking method and then use the backwards approach to validate whether a product or idea has potential.

What about you?

Summary

  • I just don’t use scouting software to find product ideas as my main method of choice.
  • With scouting software, everyone else is looking at the same thing.
  • Use old school techniques of sourcing products like trade shows, browsing through stores and discover new ideas in different countries.

Do you have an Amazon strategy for growth and protection?

Last time, I shared why buying courses to make quick money on Amazon is a baaaaad idea.

Over the next couple of weeks, I’ll dive deeper into our thinking and overall business goal. Maybe you can take something away from our framework.

First, what I can’t stress enough is that we are just one business and this is our strategy of navigating through the business world. We go through business pains on a daily basis and I’m sure you’re in a similar situation.

Are 8 figure sellers always right?

Do you have an Amazon strategy for growth and protection? 24

I’ve come across 8 figure Amazon sellers, who run a completely different business model to us, they tell me I’m doing it all wrong.

Sure. I’m wrong on many things. My wife likes to remind me when I get out of place ?.. (and I still don’t listen)

But just because somebody does big revenue, are they right?

Nope.

They aren’t right – but they aren’t wrong either.

Existing Amazon FBA business models

Do you have an Amazon strategy for growth and protection? 25

Off the top of my head, the various types of business models I come across on Amazon are:

  • the FBA supermarket store model (Target store strategy) – example
  • the FBA specialty store model (Best Buy, Willams Sonoma,  strategy) – example
  • the FBA branded label store model (Uniqlo, GAP, Anker strategy) – example
  • the Alibaba product store model (slap a different name on the same Alibaba products strategy) – example

Each model can be broken down further. e.g. the supermarket model could be selling all items related to health supplements, an FBA braded store could focus on just swimwear or bbq related products.

This is important because most often, Amazon sellers are grouped into either:

This is why there’s a lot of bad advice out there. Because depending on the strategy, a lot of things change and the way you source, operate and make money changes.

Our business focuses on OEM. This is where we create our own mechanical designs, artwork and everything related to the product. Our manufacturer then makes it according to our specifications.

In this way, our products are unique, patented and random factories in China do not have access to our assets.

An 8 figure that sources products by wholesaling has a different perspective and strategy of operating their FBA business. And because they don’t have any experience or scale with ODM or OEM, their advice isn’t always applicable to how we operate.

In order to get good and sound advice, make sure the person you speak with, understands and has experience with your FBA model.

Why knowing and defining your strategy is important

Do you have an Amazon strategy for growth and protection? 26

Apple is one of the biggest company in the world. Exxon Mobil is also one of the biggest energy companies in the world.

But it would be foolish for Exxon to tell Apple how to run their operations based on their experience in drilling and refining oil.

The advice and strategies don’t match.

The same applies with Amazon sellers. Depending on your business model, the strategies and mindsets are starkly different.

It’s all about focus.

Etailz is one of the biggest sellers on Amazon, and they crush it while making 1-2 cents on every sale. They make it up with volume and win the buy box with their internal software, systems and processes. They are willing to anything and everything.

Think of them as the “Walmart” of Amazon. Etailz knows who they are and what they are trying to achieve.

However, this isn’t a model that I or many others enjoy.

We like:

  • to sell a lot of a single product
  • with large margins
  • with high conversion rates
  • less sku’s to deal with
  • and we can get better prices with more volume

We want to create branded products that meet, or get close to our internal 40/20 rule. Aiming for 40% gross margins with 20% operating margins.

We also stick with a family of products and create product lines around each other. It makes it easier to sell both products if they are relevant to each other.

This way, it helps when we attend trade shows and events to have a family of products we can showcase, rather than displaying 50 random products.

Zigging When Others are Zagging

Do you have an Amazon strategy for growth and protection? 27

In hindsight, our saving grace over the years is knowing who we are, and being disciplined (to some extent) with what we invest in.

I also like to hear what the consensus advice is floating around. Purely for the reason of trying to take advantage of the opposite angle that isn’t getting attention.

If gurus say that you should find and sell products over $20, then I’ll test things under $20 while aiming to meet our 40/20 requirement.

If the consensus is to do light products, I’ll look into whether a big or heavy item can be profitable.

The one thing you and I have in common is that we want to turn a profit. It’s just how we do it that differs.

I’ll leave you with a short story of a seller that I met online and why focus and defining your strategy is important.

Let’s just call him Matt.

Matt was doing $3M on Amazon and very profitable using the Alibaba private label strategy. His business is now breaking even – no profit.

“we were doing great but not so much anymore because everyone’s doing what we were doing now. From 3+ mil sales down to breaking even now… Too much competition forcing me to look at other places but haven’t come up with any new products worth while. Maybe I’m thinking I go to Canton fair. I have no other ideas left at this point.”

He’s done it before, so he has the experience to do it again.

But it goes to show how competitive Amazon has become and how sellers can be pushed out in the blink of an eye if you don’t have long term strategies in place.

Why guru courses are a threat to your FBA business

Let’s talk about frozen yoghurt.

First, I love it.

Now it wasn’t until the 2000’s when frozen yogurt really started to gain traction as the food trend veered towards probiotic and healthier alternatives.

One of the early pioneers in “froyo” was a company called TCBY, but soon, new names and franchises started popping up everywhere. Red Mango is one of the early companies that brought an improved version of froyo from Korea and it took off.

A red mango store
A red mango store

Then everyone wanted a piece of the action.

You could find frozen yogurt everywhere. Now, all that is left is a handful of companies.

The weak have died.

These weak companies are the ones that didn’t have a plan or competitive advantage and just wanted to be a “me-too” froyo joint.

There is no secret to Amazon success

only hard work
only hard work

The froyo example is the current state of Amazon FBA.

Not too long ago, the FTC nailed an Amazon get-rich-quick marketing scheme – slamming a $102M fine in their face.

Another big course/workshop selling the “secrets” to Amazon success, is on the chopping block.

It’s not that the people who paid $32k for a course didn’t make money. I’ve heard many stories of people losing money and giving up while doing it properly.

There are 2 main problems.

  1. Many of these new sellers from the course got suspended following the “advice” by such self promoting gurus.
  2. All the sellers are copying the exact same method being taught in these courses.

Amazon FBA is the new get-rich-quick playground.

Here’s a run down of the $32K course. I’ll summarize it in 6 steps.

  1. Open a pro Amazon seller account
  2. Find a best selling product using some scouting software that everyone else is using
  3. Contact a supplier on Alibaba and get quotes of the product in question
  4. Come up with a  name overnight and then slap on your new “brand” label
  5. Ship to Amazon
  6. Become a millionaire

Back when we started in 2014, it was still competitive, but not as saturated and cutthroat as it is today.

FBA success is not sexy

Amazon business isn't the prettiest fish
Amazon business isn’t the prettiest fish

In hindsight, we lucked out in a major way because our original business plan was to be a wholesaler.

We had no intention of selling on Amazon.

We spent an agonizing amount of time on crafting a bigger picture of what business we wanted to build, a potential lineup of products, invested (and overspent) on a stellar logo and branding that builds trust instantly.

The wholesale plan didn’t go as expected and we needed to liquidate. As a last resort, we threw the product up on Amazon.

Then things changed.

Amazon took over

The products started selling within the first week and started to pick up more and more momentum.

And our product was competing against huge corporate brands. Even to this day, there aren’t many private brands in our category because the brands are so big and entrenched.

  • Yet we are selling over 100 units/day for this one SKU
  • We’ve never rarely get a hijacker
  • Our returns are around 1%
  • For every 100 people that visit the page, 20~30 people buy
  • It can’t be found on Alibaba

We don’t do or bother to follow what gurus teach because if it’s mainstream, you and a thousand other sellers are trying to do the same thing.

Unique things we did in our Amazon FBA business

Why guru courses are a threat to your FBA business 28

As I wrap up, here are some things we do differently to run our business. This is in no particular order.

  • We don’t stray too far from our core product line. Building a family of products helps the products promote each other.
  • We look at industries that China and Asia can’t copy or compete in.
  • We never use scouting software to sell random products. If you want a list of best sellers, go to WalMart or Target and see what is on the shelf for each category. That’s your best seller right there. Just need to make it better.
  • We hit the road. It’s easy and comfy to list an item and work from a desk, but we sell at shows, go wholesale and build a client base.
  • We’ve built a significant customer base who found us through tradeshows and then found us on Amazon. The power of face-to-face selling is real.

I don’t want to contradict myself and provide a step by step “course”.

But if you want to join us on our journey as we share our mistakes and findings as we strive towards reaching $5M in revenue, reply below and let me know what things you would like us to write about.