How to Build an Online Retailer to $1M in 18 Months (“EZ-Guide”)

by Drew Sanocki      

I recently read Justin Winter’s post over on Clarity about how he grewDiamond Candles to one million dollars in one year.

Impressive, to say the least.

I immediately thought of my own experience in online retail. It took my company about eighteen months to cross the one million dollar revenue threshold — slightly longer than it took Justin, but not half bad as we did it holding no inventory, employing very little capital up front (about five hundred dollars).

My retailer was DesignPublic.com, and we sold home design items (cribs, bedding, furniture, lighting), all drop-shipped from more than two hundred manufacturer-vendors. I sold the business in December of 2011.

Like Justin I learned a lot in our ramp-up to one million. With the benefit of hindsight, I can identify several take-aways for those of you on a similar quest. Peruse these recommendations and see if you can apply any to your retailer.

1. Choose a Blue Ocean

Nothing new here, only a recommendation driven home by everyone from academics like Michael Porter and W. Chan Kim to entrepreneurs like Rob Walling and ecom gurus like Andrew Youderian and Dan and Ian.

The pale dude did not choose a niche he could dominate. Don’t be the pale dude.

Choose a ‘Blue Ocean’ — an attractive niche / market / industry with little competition and lots of potential. It’s more than half the battle.

We chose the home design niche. I wish I could say that we sat back and built a robust spreadsheet listing thousands of niches, then used Porter’s five forces to rank them all, causing “home design” to rise to the top.

But we didn’t. We just thought design was cool, so we built a design retailer.

Were we lucky. We accidentally stumbled upon one of the sweetest ‘blue ocean’ niches at the time. Here’s why:

• Competition was negligible — only one major retailer sold home design products online (DWR), and online wasn’t their focus.^a
• Home design products essentially marketed themselves online: every product had a proper name (it wasn’t just a table—it was a Blu Dot Strut Table in Watermelon), and as a result each one attracted long-tail, targeted, purchase-hungry customers who arrived via a Google search.
• Design consumers were flocking online to compare prices against their local (expensive / elitist / poor-service) brick and mortar design shops.
• Home design manufacturers already knew how to drop-ship, so the Internet didn’t represent an operational shift for them. (Before the Internet, when customers would walk into a shop and ask for a sofa in a different color, the shop would call the manufacturer and have it shipped direct. So convincing these same manufacturers to drop-ship for us was easy-peasy.)

The Blu Dot Strut Table in Watermelon — pretty cool, huh? Products like this one are why I got involved in design in the first place.

Given these dynamics, we owned the market for several years. Revenue ballooned.

The takeaway? Niche selection is the most important decision for entrepreneurs. Notwithstanding our dumb luck in finding our niche, don’t let your passion for a certain product category dictate your decision to get into that category.

Instead, use your head. Assess the niche. Look at the potential competition. Consider going boring and off the radar to a Blue Ocean.

The retailers who are knocking the cover off the ball today — FindItParts (the Aftermarket Heavy Equipment Parts Guys), RealTruck (the Pickup Truck Accessories Guys), Net Direct Merchants (the Electric Fireplaces Guys), to name a few — chose a niche that they could dominate. Learn from them andplay a game you know you can win.

2. Focus on Your Flywheel of Growth

One of my favorite business books is Jim Collins’ Good to Great. In it, Collins examines more than one thousand firms in an effort to answer the question: “How do some good firms achieve sustained greatness?”

He finds that truly great firms do several things, but two stand out:

1. they do one thing better than anyone else (the “hedgehog effect”)
2. they create a self-reinforcing flywheel around that one thing.

We were able to pass one million in revenue over a short time period because we adopted this framework. We nailed on one thing, then built a strategy around it.

Our one thing was content marketing; we aimed to do it better than any other retailer:

• We were the first home design retailer to start blogging.^b
• To turn out top-notch blog content, we hired true design professionals to write for us, not interns.
• We hired off-season TV comedy writers to craft our product descriptions and thereby differentiate the brand. J. Peterman eat your heart out.
• And occasionally, about once a quarter, we would produce the kind of epic, viral content that would make even Corbett Barr sing and attractthousands of high quality links from relevant other blogs.

Our emphasis on content marketing produced the following growth flywheel: ^c

Design Public produced great content. Top bloggers noticed and distributed it. The inbound links drove traffic and higher rankings. The result was relevant traffic, opt-ins, and revenue which we could plow back into content marketing.

It was a nice little self-reinforcing flywheel that drove the top line.

Growing companies all have their own flywheel. Gilt’s amazing exclusive merchandise pulls in customers who refer even more new customers.DiscountMugs.com operates massive Adwords campaigns that drive the top line and finance even more massive Adwords campaigns. Threadless’s t-shirt contests attract voters who end up becoming customers. And so on.

You don’t need a content marketing flywheel — you just need a flywheel. As soon as you can, figure out your flywheel, then focus on that.

3. Sell What People Want

Steve Blank talks about the importance of figuring out what your customers want. So do Paul Graham (“make something people want”) and Peter Drucker (“create customers”).

I’ll add my two cents: it’s so elementary but so many startups completely whiff on it, bringing products to market that potential customers could care less about. If you do this, no amount of conversion optimization is going to help you.

Don’t be those startups.

Be sure to sell what people want unless you are a big company like Apple or Coke in which case you can dictate demand.

Our company had a systematic approach to merchandising, one that allowed us to identify and merchandise the products / categories / brands that potential customers desperately wanted:

1. Before merchandising a new product / category / brand, we would enter the relevant keywords into an analysis tool like Wordtracker, Market Samurai or theGoogle Keyword Tool.
2. The tool would give us two important pieces of information: 1) the number of searches for that keyword, which we used as a rough proxy for demand, and 2) the number of competing sites that were targeting that keyword, which we used as a rough proxy for supply.
3. Knowing the supply and demand for every relevant keyword, we could then merchandise products / categories / brands with high demand and low supply.
4. Repeat while customers knock down our doors.

This approach almost ensured that each new product we offered was a success.

DwellStudio was one such line. Women were fanatical about the brand, searching low and high for it online. And yet only brick-and-mortar retailers carried it, and they rarely put the brand on their websites.

DwellStudio nursery bedding. There was a time when mommies were driven into a frenzy to buy this, and no one was selling it online.

High demand, low supply. Within months after convincing DwellStudio to sell online, we became their top retailer, on- or off-line.

We took a similar approach when considering what categories to get into ^d and even what names to call each category (“Modern Bedding” vs “Contemporary Bedding”).

It’s not just search data that offers this insight into customer demand — Threadless and Quirky have demonstrated that user-generated content might even be a better way to ensure merchandising success.

What’s important isn’t your method, it’s just that you do it — think systematically about what your customers want, then sell it.

This is the essence of product-market fit for retailers. If you can achieve it, merchandising becomes marketing.

Sell what people want.

4. Measure Everything

As an online retailer you need to eat and breathe web analytics. I don’t care what you sell or that you aren’t a “math person” . . . if you don’t understand 75% of what is going on in your free Google Analytics account, you don’t understand your business.

Kinda harsh, but if you want to grow, the answers are in there. Some of your online marketing campaigns are working better than others — do you know which ones? What are your goals — increased memberships? Email sign-ups? Product purchases? Which campaigns consistently give you heaps of high lifetime value customers, and which give you a steady stream of discount-hungry, customer-service-taxing, returns-prone customers who will absolutely kill your company?

Knowing the answers to these questions allows you to focus on what is working.

At DesignPublic.com, I conducted regular weekly and monthly analytics reviews to give me an accurate snapshot of our business performance. [I wrote about some of my key early-stage ecommerce metrics in another post.]

I am always at a loss to find royalty-free images that depict “metrics”. In this case I have opted for a Japanese Google Analytics dashboard which is slightly more funny because it is in Japanese. Enjoy.

Following this routine gave meseveral incredible insights:

• Email campaigns absolutely crushed any other campaign in terms of average order size and repeat order rate.
• Certain product purchases, like crib bedding, were triggers for other purchases, like cribs.
• 20% of our brands drove 80% of our business
• 20% of our brands took up 80% of the customer service time
• 20% of our customers — the ones who emailed frequently and asked about discounts — drove our returns and follow-on customer service issues.

I could go on. How many of these insights would I have had in the shower? None. How many did I have by committing to a metrics-first approach? All of them. How many showers did I take? Trick question.

Each insight is actionable. Each action drove revenue:

• We emphasized email marketing as our primary marketing lever, complete with opt-in forms on every page and strong segmentation on the back-end. Revenue increased.
• We de-emphasized social channels. Costs decreased.
• We ditched magazines as an advertising outlet and embraced blogs.Revenue increased.
• We eliminated our coupon-driven affiliate program. Revenue increased.
• We instituted a vendor review process to try to rehabilitate or kill brands that were causing too many issues and hindering our ops team. Revenue increased.

You might look at this list and think our lessons are relevant to your business. Maybe they are, maybe they aren’t — embrace the process instead.

Emphasize metrics across your business. Institute regular metrics reviews. Act on the data.

Once you shed the dead weight of what’s killing your business, your top line will soar.

5. Embrace ‘Techmology’

Techmology. Science. Know it, understand it, embrace it.

You run an online business, you have to be comfortable withtechmology. What’s that? IT, servers, hosting, code, APIs, CSS, FTP, etc. No, you don’t have to be a grade-A developer like Zuck or Gates, but you have to embrace learning about all of these things if you don’t know about them already.

I don’t think I’ve ever meet a SAAS entrepreneur who doesn’t know a thing about software, but every week I meet ecommerce entrepreneurs who don’t know a thing about the platforms and technology that power their businesses.

Why is this so bad? Because the technology — the online part of onlineretailer — is what enables the rapid testing, the massive scalability that is a precursor to achieve truly significant growth. If you remain ignorant of the tech, you have a couple of strikes against you from the get-go on your quest for one million.

My business partner and I weren’t developers, but we taught ourselves some basics on the job. And with this knowledge, we were capable of makingseveral key shifts that grew our business:

Example #1: Improving service

Estimated ship date on a DP product page.

One month after launching DesignPublic.com, it was clear to us that the top customer question was, “When is my order going to ship?”

This was a perfectly reasonable question when we were selling everything from baby bedding that would ship via next-day FEDEX to custom Italian sofas that would ship in six months . . . maybe.

So we spent a weekend building out a simple system to get that information from our vendors and present it to users on the product page, in the cart, and in the order receipt. The result? Customer inquiries fell by 50% and sales increased as users appreciated our openness and transparency.

Example #2: Nailing SEO

Knowing that modern design presented a long, long tail of potential search terms we decided to familiarize ourselves with SEO. I spent a week learning the basics from sites like Seomoz and (the now-defunct) Spider-food, then sketched out some take-aways:

• We should emphasize our brands with dedicated brand pages – people search for brands.
• We should emphasize product names – people search for products.
• We should use proper tagging.
• We should integrate a blog into our site – people like to read about design.

Wow — earth-shattering insights, right? Not exactly. But by thinking through SEO before we built the system then cooking it into our platform, we were able to achieve near lifelong #1 or #2 rankings for all our brands and products. Our SEO was so good that SEO legends like Rand Fishkin called us out as an exemplar of SEO.

Example #3: Scaling drop-shipping

Final example. After a few months running the business, my business partner Sina was pulling his hair out — drop-shipping was killing him.

Every night he would manually copy order data from our cart, paste it into Quickbooks, use Quickbooks to generate purchase orders, send those POs to each vendor, and log everything in a spreadsheet so he could track when the orders shipped.

Look how happy this man is now that he doesn’t have to copy and paste orders anymore. Check out his drop-shipping app at Duoplane.com

As orders were increasing month over month, this task was taking Sina well into the night. The man was losing hair that he didn’t have to lose (Exhibit A: photo to the right).

After a particularly bad week he had had enough. He wrote a simple script that dissected each order and generated both the purchase orders and an import file for Quickbooks. Pretty basic stuff, but it enabled him to focus more on growing the business instead of on running spreadsheets.^e

If you run an online retailer, tech is your store, your marketing, and your operations. Embrace it. Embrace I.T. Learn to write a few lines of code; learn how things like HTML and CSS work. Think about what is possible.

Instead of thinking of tech as something that is the responsibility of anexternal agency outside of your company, own it. You’ll get a sense for what can be changed and for how quickly. You adopt a policy of listening to your customers and your team for feedback.

And you will make massive growth possible.

6. Go All In

Finally, if you want one million in revenue, my last recommendation is to go all in.

The Internet is filled with stories about companies that have skyrocketed to millions within weeks or done it while the founder was on a beach in Bali. I don’t dispute that that is possible, but those outcomes are harder to plan around because they involve a fair amount of luck.

Make your own luck. With a little hard-work and discipline regarding the other five recommendations on this list, you greatly increase your odds of success.

At Design Public, my co-founder and I thought about our business seven days a week, 24-hours a day for each of our first few years in existence. I’d wake up at night and write down ideas on a notepad by my bed. Other ideas would come in the shower or on the way to lunch or while I was on vacation.

John Bresee, co-founder of Backcountry.com, once told me that “Winning in ecommerce is nothing sexy, just pressure over time.” We were applying that pressure — always testing, always improving, always tweaking.

Making your own luck is hard, but it works. It’s not as sexy as working on a beach in Bali, and not as thrilling as stumbling upon the right market and getting to one million in a week, but it’s more predictable. You control it.

If you adopt the “all-in” approach, you may not get to one million in a year like Justin did or a year and a half like I did, but you do increase your odds of getting there at all.

Summary

Inking one million is hard work, but it’s also fairly straightforward.

Nail your market (#1) and your strategy (#2), then optimize and improve your business (#3, #4, #5). And work hard at it (#6).

This approach worked for us. It’s not the only approach, but it’s one I believe has a high likelihood of success for an ecommerce retailer.

I hope this post gave you some ideas that you might apply to your ecommerce journey. If you want some more specific growth techniques that worked for me — or some further insight on how to get from one to five million — sign up for my regular newsletter below where I publish hacks, tips, and tricks regularly.

Good luck!

1. DWR was a catalog and studio retailer first, a web retailer second. They were weak on SEO; their pricing was uncompetitive.  (back)
2. In 2003, I’m not sure if we were the first retailer to start blogging, but we were certainly the first within the modern home design space. And yes, I will define that niche as narrowly as necessary so that I can continue to assert that we were the first.  (back)
3. This is a scan of my ideas notebook from 2004.  (back)
4. This is why five single guys decided to make “Nursery Furniture” a top category priority.  (back)
5. He grew that system over the years until it became a stand-alone SAAS app, Duoplane. If you are a drop-ship retailer, and you are starting to pull your hair out, I encourage you to check it out.  (back)