[STEP BY STEP] How Do I Keep My Business Lean?

Brian: [00:00:45] Hello and welcome to Step by Step, a podcast by FutureCommerce, presented by OpenStore. I'm Brian.

Phillip: [00:00:50] And I'm Phillip, and we are in Episode 3 of 5 of this 11th season of Step by Step. And if you are jumping in here just at the middle, might I suggest go back and listen from the very beginning. I don't want you to miss a thing. It's super important because this season we are asking, how do I architect my business for a dream exit? That's right. We're going to teach you step by step how to sell your eCommerce business, and it's all brought to you through the courtesy of the fine folks at OpenStore.

Brian: [00:01:23] It's a super interesting season. I learned a ton just getting to talk to the entrepreneurs who started these businesses and then were able to actually go sell them. It takes a lot of work to start a business, a lot of motivation, a lot of really just, well, you've got to be a different kind of person, really. But to get from there to actual sale requires a path. And there are a lot of things you have to do to sell your business. And so in this series, we've been learning from entrepreneurs who have been telling your stories. This is Episode 3 of 5, so you might be jumping in right in the middle here. If you are, go back, start at Episode 1 and listen on through. There's a lot to catch up on already. And so in this episode, we're going to be learning about how to keep your business lean. This is important, especially as you go to sell your business. If you have a bloated business with bad margins, it starts to get a little bit less appealing. And so we got to have a conversation about how to be really smart, make good investments, and keep things as tight as possible as this founder went along through his journey.

Phillip: [00:02:48] I remember this conversation with Jonathan. The thing that really kind of stood out to me was maybe the business started as what you might consider to be a lean business, meaning, "Oh, I'm not going to hold inventory, I'm just going to drop ship product. You know, eCommerce is a thing that anybody can do. That's what they told me on YouTube when I watched that video that one time." But in reality, a lean business for Nine Months Sober meant having greater control over the customer experience and doing that in a thoughtful way. And it meant taking on inventory. So lean for them wasn't just drop shipping products to a customer, it was how do we minimize staff and overhead and minimize the number of apps required and the investment in technology so that we can deliver a great product and a curated selection for our customer. That's what lean meant for them. And I think lean might mean something different to everybody who's listening here today. I learned a lot. I know you learned a lot, Brian, and I can't wait for our audience to listen. And so without any further ado, let's join Nine Months Sober to hear about their journey and Jonathan tell us in his own words how he architected a dream exit Step by Step. We are continuing our series here with OpenStore, our Step by Step series about how to build and sell your business. And today we are joined with Jonathan Paquin, who is the Founder of Nine Months Sober. Recently sold his business, Nine Months Sober, to OpenStore and is going to tell us all about the story and maybe give us a little bit of insight into how you can do that, too. Welcome to the show, Jonathan.

Jonathan: [00:04:24] Hey, guys. Happy to be here and looking forward to sharing and giving you some ideas or some insight on how you could maybe exit or build an eCommerce business or scale your current one.

Phillip: [00:04:40] I'm pumped because I have such little understanding of the type of businesses that we've been covering. It's been really interesting and informative for me. Brian, I know that you have the same sort of level of excitement too.

Brian: [00:04:54] Oh, for sure, absolutely. Yeah. I'm really excited to hear your story, Jonathan. Tell us a little bit about yourself and how you got started when you got started with Nine Months Sober and why you started it.

Jonathan: [00:05:06] For sure. I guess I'll bring you back a little bit to when I started just doing eCommerce back in my early twenties. I would say 2014, 15 is really like where I started doing well online, I would say. I started with t-shirts. This is where like it was a company called Teespring and they were doing print on demand. And I started doing Facebook ads through these print on demand t-shirts to different niches like dogs, and it was a dog niche or like professions. We were doing sometimes funny shirts or trending stuff. And then I built an in-house team to do that, and then we then transitioned to do more licenses. So we did the license for the NFL and NBA, all this type of stuff, always with the print on demand model. So print on demand is for those that don't know, is when you sell something, the t-shirt doesn't exist, and you print it and then they ship it to the client directly for you. So that doesn't hold any inventory. So that's really a cool business model for anyone who wants to get started, I guess, in eCommerce. And then at some point I built an actual brand of print on demand. We took some of our winning designs on t-shirts and put them on jackets and then sold that business as well. And at some point a guy that was doing well with t-shirts as well, we kind of met and we decided we wanted to build an actual brand with products that really help people and solve a problem not just like selling t-shirts. And my partner David, with Nine Months Sober, his girlfriend was pregnant and he had success with t-shirts in the maternity niche. Actually the name Nine Months Sober came from one of the t-shirts that was selling really well. So that's a catchy name. Some people like it, and some don't. But I guess it's good because people will remember it and it brings a reaction.

Phillip: [00:07:39] And you know exactly what it's talking about when you read it.

Jonathan: [00:07:43] Yeah yeah. Actually, at first, Google thought we were something related to alcohol or whatever, but at some point, Google figured out it was the brand. But yeah, and in the comments to a lot of people on the comments of the ads on Facebook, Instagram, they say like, "Oh, I love the name." Sometimes, you know, some didn't like it, but it's always like that.

Phillip: [00:08:09] Well, there is always, you know, I think anything like this in the world has a little bit of a polarizing quality to it. One thing that's often overlooked, especially in pregnancy and serving new moms and babies, is just how much you have to buy. And in fact, it's everything. It's not just clothing for the babies, but it's clothing for a mom whose body is changing. And if you are the kind of person who wears a Rosé All Day t-shirt, you need something to wear for nine months, too. And maybe there's a whole curated marketplace of similarly aesthetically pleasing, well designed products that might be able to service that. Was that sort of the intention from the get go is providing everything from for those first nine months and beyond?

Jonathan: [00:09:08] Yeah, I mean, really at first we came from like a print on demand background. So we thought of doing like print on demand exactly like you said, like the Rosé All Day but for pregnancy, some rompers for the baby. But at some point, we thought of like just kind of trying actually, like novelty products and some sort of gadget products that are sort of new or solve a solver problem for moms and their babies. So, yeah we really transitioned from the print on demand model to really like testing a bunch of different products to see how the markets would react and where we would get traction. So we started dropshipping, and I don't recommend dropshipping as a business model, but I guess to test the market, it was good and it was good timing for us, like where we get traction. So yeah, and then we saw where we get traction and the dropshipping comes with some difficulties like shipping time and returns and a bunch of different things. So at some point, we took the cash that we had and we bought some inventory and brought it and we sourced it in China, our best products, and put our tags on. And we tried to also like modify it a little bit, make it our own or some we had feedback from already customers and we tried to improve or just twist it and of course, branded with like a tag, Nine Months Sober and box all that good stuff that helped build a brand and build the repeat customers.

Phillip: [00:11:05] Drop shipping is a gateway drug to running an inventory business is what it sounds like. {laughter}

Brian: [00:11:11] How much more work was it once you moved off of the dropship model to warehousing your own product? Did you have to hire more people? Was that a really big moment for you as far as ramping up and management? And also, is that the moment that you said, "You know what, maybe I want to sell this?" Or was that always the intention?

Jonathan: [00:11:32] We sure had the thought of it, but we thought maybe it wasn't the right timing because, you know, we thought we could grow it even more. Yeah. Yeah. So yes, we tell a little bit, but we really wanted to scale. And then what we did is we hired the sourcing company in China that really helped us. They were in China and they would get the sample, they would test it, and they would send us videos and pictures. And then, "Oh this is not what we like," and then get back to the manufacturer. So we're glad that we hired that sourcing company at first that was based in China to really help us do that. And we didn't get our own warehouse. We'd partner with Shopify fulfillment which was just in Beta. Yeah it's called a 3PL, like a third party fulfillment, and they were in the Beta back then, but now they're open to most Shopify stores I guess. And yeah, we just shipped their inventory and we had to, for the importing, we had to do like a bunch of papers and some bound and a few things. But it was a cool process. I enjoyed it because, you know, it's new and we were confident with the products we were sourcing and also on the pricing too, instead of shipping one by one, you buy in bulk, you get a discount. So at the end of the day our costs were really similar from drop shipping to 3PL, I mean some products were higher, some were lower so we were really confident with the ability to have better products branded and that shipped quickly to the client.

Brian: [00:13:36] Do you feel like it was essential to move to a 3PL model versus dropshipping for the exit? Do you think that actually made the exit something that was more achievable?

Jonathan: [00:13:50] Something more achievable? I don't think it's needed. I think some dropshipping does sell, but I think it has less value actually to me. And also like I said, dropshipping comes with some issues with like reviews and sometimes people do chargebacks because they haven't received their product in a week and they haven't received it. So when they see an ad again on Facebook they comment, "Oh, don't purchase, I never received mine." You know, even though it's going to be there in two days. But people are used to this Amazon next-day shipping kind of thing. So yeah, I think it was a needed transition, especially when COVID hit, the shipping time went through the roof and we already started that process before COVID. And we were really glad that we did because I think dropshipping, most business during when COVID first hit China, it was like instead of 2-10 days, it was 2 to 3 weeks shipping time or even more sometimes, like a month. So it's not good.

Phillip: [00:15:03] When you're looking back on the journey, you said you had this skill you acquired in the 2010s of running eCommerce and marketing, potentially leveraging some of those skills in building dropshipping businesses. Then you became a full on business operator. You're acquiring inventory, you're taking positions on inventory, you're creating a brand, and you're bringing that brand into the marketplace. How difficult is it for you to look at that thing that you built and all the time in the ten years that it took to sort of acquire the skills and then put them to use in building and scaling something, how difficult is it for you to get your head around the fact that it's time to relinquish that or to partner with someone like OpenStore who can help take it to the next level? Is there a part of you that says, I've done everything I can do here and for the next stage of growth, we need another phase of operator or is there some part of your journey that you've said, "My personal growth as a founder is outgrowing this brand that I've built that helped to get me there?" What's the mindset?

Jonathan: [00:16:17] Right. So the reason for selling I mean, we've been doing that since 2018 and we've felt we had... We worked with that sourcing company quite a bit and we had a bunch of inventory and we thought we didn't want to go through another process of like sourcing more products and all that stuff. And we thought the brand was in good shape to sell. It was profitable and it was like kind of cruising. And my partner wanted to pursue a real estate project and that stuff, and I just had the baby too. So we thought, "Oh, this is good timing to sell." So that's kind of why, and we weren't really actively like, "Oh, we want to sell, we want to sell," but we thought about it and then one of my, I would say, my friend that's in a group of like we call it a mastermind where we share ideas about eCommerce and other stuff. But he told me that he sold this store and there's this company, OpenStore, that buys eCommerce companies as long as they're meeting the criteria. So it's like, "Oh, let's see how that goes." And that's how we ended up selling.

Brian: [00:18:56] So through a word of mouth referral through your eCommerce mastermind group. How essential is it to you, you co-founded your company, and you have a network of people, it sounds like that was critical actually for your success of building and growing a business and then ultimately exiting it? When you look back, what are some of the key benefits of having a partner as you grow a business and having a group like that? Obviously, we've already heard that one of them is the one that passed on the OpenStore referral.

Jonathan: [00:19:37] Exactly. Well, I think the partner it's really helpful to mastermind and put yourself accountable, and some I'm always more and more in charge of the marketing and he was more in charge of the sourcing, and we kind of split that thing and I think some partnerships work well some don't. But I think we did well together and of course the mastermind, it's really fun to be able to exchange ideas. Sometimes before you go with a company you ask if anyone knows about it or referral or if you have issues you can reach out to some people, and we try to share what's working, what's not, and all that good stuff. So that mastermind, it was really, really something that helped me. We're like 30 or 50 eCommerce and we try to vet everyone that gets in. We vote if that person, we think it's a fit, and all that stuff. And that I got to get in there from events. I went to a bunch of eCom events and met some people and then I got invited and I'm really glad I did not only like for this OpenStore referral but a bunch of other things. It helped me quite a bit just to be in a group of like-minded people that just openly share and everyone trusts each other to keep the important stuff confidential or not always, but I'm really, really happy and lucky to be in that group. Yeah.

Brian: [00:21:33] Did you look at any other exit partners? So as you went to evaluate Open Door, you got this word of mouth referral. You went and you got the quote. Did you go directly to their website and sort of go through that process? Did you look at anyone else throughout your cycle?

Jonathan: [00:21:51] Yeah. I mean, we talked with some brokers a little bit, but we never moved forward and say and put it for sale until OpenStore. Exactly. We went on the OpenStore website, then we connected our Shopify or Facebook and we uploaded a 3PL and that's pretty much it Then we got an offer quite quickly. And that was good for us. And we.

Phillip: [00:22:23] Moved forward. Amazing.

Brian: [00:22:25] Wow. Dare I say that you sort of cop the purchase of your business? {laughter}

Phillip: [00:22:34] It's like Insta-cop.

Brian: [00:22:34] It was an Insta-cop. It was like OpenStore Insta-copped y'all.

Phillip: [00:22:41] Yeah. Yeah. Basically. Yeah. Yeah. {laughter} What was the decision time, I guess is the actual question. How long did you consider the offer?

Jonathan: [00:22:52] We liked the offer. And like I said, I was having a baby and my partner wanted to pursue his real estate project. So we were like, "Oh, it's time." The universe or whatever you want to call it was just guiding us through that process. So really, we went for it, but we were thinking about it, but we just never put it for sale until OpenStore. But it was the right timing for us.

Phillip: [00:23:21] Sure.

Brian: [00:23:22] That's quick decision-making. I'm impressed.

Phillip: [00:23:27] Yeah, I guess it helps to have a plan at some point before you start heading into the process.

Jonathan: [00:23:34] Oh, yeah, for sure. I mean, I think if you want to sell your business, it's oftentimes you want to sell when things are looking good. And sometimes you say, "Oh, I want to keep it, it's looking good." But you know, it's not when you have difficulty or you have slower months that it's the best time. So for us, it was the right time. Yeah.

Brian: [00:23:55] I like that. Get out on a high note. You don't sell when you're slowing down, you sell when you're speeding up. And I definitely heard some of that from many people lately. Although maybe, maybe you got out at the right time. The economic environment is getting a little bit more difficult and was that part of your decision-making process? Did you do any forecasting about the economy?

Jonathan: [00:24:18] A little bit, I would say. We got a big push when Americans received a stimulus check after COVID or whatever. I think most of the brands saw that, too. People got stimulus checks and the first one that they got, we were like, "Oh, wow. How come our sales are doing so well?" And also, I think people were buying online more. You know, they didn't want to go out to the store as much, so they were looking to purchase more online. So I think that affected that. And then we didn't look at like, "Oh, there might be a recession coming up," but we definitely thought it was the right time for us. Some brands can get affected for sure by a recession but I think a maternity brand is the type of thing that you'll still purchase. It's probably the thing, especially if it's your first one, you want to make sure you have everything and everything is is all set.

Brian: [00:25:34] A lot of families started and expanded during COVID. {laughter}

Phillip: [00:25:39] Well, I guess when you're locked indoors for five or six months, that tends to happen.

Jonathan: [00:25:46] It did, yeah. And me and my fiancee wanted to have one, too, but we kind of wanted to wait. You know, we didn't want to get the whole mask and everything. So, yeah, we just recently, she's six months now, so we got a baby coming.

Brian: [00:26:05] Congratulations.

Jonathan: [00:26:06] Thank you.

Phillip: [00:26:06] Congrats. Incredible. Not only are you the founder, but you're now a customer.

Jonathan: [00:26:11] Yeah, I tried all the products and using it.

Phillip: [00:26:16] Incredible. Let's shift a little bit, for the audience that's listening. I think we've covered a lot of ground of ways that they may find themselves in an applicable situation. What are some of the ways that looking back if you could give us a good example of what was something you did very right along the way that sort of helped you to maximize your valuation? Looking back, like, "Oh, we put some things in place that really helped us in the end." What would one of those things be?

Jonathan: [00:26:53] Well, I would say, I was in charge of marketing. And from my experience, it was really knowing Facebook and how to profitably run ads. That was a big thing. And I think if I could say the things we did right is we tested a lot of different offerings, different products and we tested a lot of different creatives. So I think creatives are really a key to Facebook ads. You know, that's the first thing they see when they're on Facebook. So really testing a lot and seeing what works, seeing where we get traction, and trying to test, but in a smart way. You don't want to overspend and you don't want to not test it right and not spend enough. So really having that experience prior really helped. And also, once we had these creatives that we saw working, once we get that flow of clients, all the comments of people like saying, "Oh, this helped me breastfeeding so much. I was desperate and this helped me keep going," or "All this product, when my baby uses it he's so happy." And we see pictures in the comments of that social proof that you get when you see an ad with like thousands of comments and they're most of them are positive and thousands of likes, thousands of chats. And it really helps and it gives Facebook, I guess, plenty of data to optimize and see who are their customers. So really I think that was a big part of how we were able to scale and do it in an efficient way. And testing a lot of different products and seeing what resonates with the market and what's working well as a direct response product. I would say these are some of... The name too, I think, was a good scroll stopper, I would say, where people were like, "What is that?" Yeah. So I could give any tips to anyone. I would say test a lot of creative, a lot of different angles. And when you see one working, pump up the budget on these ones and try to get that feedback going that social it really helps as social proof on comments or as reviews on your websites or that type of things will really help customers. Because when you're a new brand, I guess people like don't know you, so they really rely on that social proof.

Phillip: [00:29:51] When you're looking back at some of those early steps you made that sort of helped to build the sales of the business, what are some ways that you were able to take that mentality of testing and apply it to other areas for building the actual core fundamentals of the business? And we're talking about enterprise value, right? There are things that contribute to the value of a corporation that at the end of the day you can see through the growth and through orders and sales, but that's the end of a long journey. Would you say that you apply those same sorts of mentalities around creative testing and trying to drive curiosity? Are those things that you can turn inward and help to grow the team, help to make the right hires, help to bring in the right agencies or other vendors? Talk a little bit about how you make those sorts of operational investments.

Jonathan: [00:30:47] Yeah, for sure. I mean, on their part, we didn't really use any agency. We tried to keep everything in-house because sometimes agencies can be good, sometimes they can be less good, and sometimes they can be expensive too. So we tried to just do it by ourselves and learn along the way. And for this business, we hired in the Phillippines a lot. So there's a lot of training involved and we did, of course, go through some testing, I guess some employees, say for emails or for customer service. We tried to see, you know, we hire a few and see which one works well. And we really liked the, if I can go in the Phillippines model because, these people are loyal, and they really want to make a difference. And we were like that too, because we didn't get the in-house. We had more like more freedom, I guess, instead of going to the office. So we like that idea and that David was having a baby too, my partner. And also in the Phillippines, it's quite cheaper than Americans, but sometimes they have these less experienced, or sometimes their connection might not be as fast as an American. But I would do it again probably if I wanted to build a similar brand. I really like the Filipino hire, and we did test. In terms of agency we did get an agency for sourcing when we transitioned from dropshipping to 3PL in sourcing our own products. And of course we tested I mean, not really tested, but just got some proposals from a few different agencies and see what works best. I think that's important to do. Definitely. It's a good mindset to have because you don't want to jump into the first agency that comes up. It might be good, it might not be, but you definitely want to get different proposals and see what your gut feeling saying is the best way to go.

Phillip: [00:33:19] Solid advice.

Brian: [00:33:20] Gut feelings. I love it.

Jonathan: [00:33:22] You have to.

Brian: [00:33:24] Speaking of gut feelings. So you made the exit. OpenStore is pretty, pretty good about allowing you to transition out of the business pretty quickly, as far as I understand. What are you leaning into now that you have had this experience? Are you taking the things you've learned and applying them to something new? What's next for you, Jonathan?

Jonathan: [00:33:46] Correct. I mean, I'm the lead a media buyer of an agency which I own with partners. So, yeah, I'm definitely using that knowledge I acquired through the years to continue building a business on the agency side. I really enjoy it because I work with a lot of different niches, from jewelry to clothing to supplements. So I really, really enjoy it and I see different perspectives. And we try to work with companies that have investment, investors, and are looking to grow. And then we can help them do that.

Phillip: [00:34:35] Amazing. If you had to ask yourself some questions, let's say you could go back in time and have a conversation with yourself right at the beginning of the journey. What are some things you would have told yourself to watch out for? What's some advice that you can give people in a similar stage of business?

Jonathan: [00:34:59] I think at first you want to minimize the expenses. Of course, you need some growth and you want some growth, but you maybe would have been just you want to... It's easy to it's like, "Oh, it's going to grow later," and all that stuff. But really I'm trying to maximize profit because that's really what your business is going to be evaluated at. Of course, there's the volume, the revenue. But I think really when people are acquiring especially that type of business like Nine Months Sober, they're really looking at profit and how much can I make and when can I get my money back. So you kind of want to put yourself in the shoes of the buyers and really optimize every single piece of the business. And yeah, you want to stay on top. And a big thing too is to add just quickly, in the market that changes Facebook changes, platform changes really like the name of the game is just like move fast and adjust to whatever comes at you.

Phillip: [00:36:14] Incredible. Yeah. Great advice.

Brian: [00:36:16] Thank you so much.

Jonathan: [00:36:18] It's a pleasure to be sharing that.

Phillip: [00:36:20] Congrats on all the success. One of the things that we've found in this series is we're talking to people who really just kind of strike me as being very aspirational and very approachable types of individuals, people that I think any one of us could look up to, to say, "I can see myself in your shoes and the things that you have done don't seem so far out of reach." You sometimes see these founder personas and they seem to have all of the answers, the people that we've spoken to on this series and just like yourself, Jonathan, have really felt like probably the most approachable and down to earth people who seem to have done something really remarkable but maybe replicable. Brian, this series has really been enlightening for me.

Brian: [00:37:18] Oh, me too. I've learned so much. It's so cool to see these stories. And I'm inspired.

Jonathan: [00:37:24] I watched a couple, and I'm going to keep watching. I really, really enjoy what you guys are doing.

Phillip: [00:37:33] Thank you so much for listening to this episode of Step By Step. You can find more episodes of this podcast and other seasons of Step by Step at FutureCommerce.fm. And Brian, we've covered a lot over the years on Step by Step. What are some of the other topics that our listeners can dive into to learn a little bit more?

Brian: [00:37:53] You can learn about how to compete or not compete with Amazon. You can learn about funding for retail and commerce. You can learn about shipping and all the intricacies that come with shipping and the opportunities that come with shipping. You can learn about customer experience and how it's so different from customer service, and how to turn that into a revenue-generating center. It's so, so much more.

Phillip: [00:38:20] Oh my gosh, And this is the 11th season. If you're not on our mailing list, the best way to stay up to date with everything that we're doing is to go to FutureCommerce.fm/Subscribe and of course, visit OpenStore. We have a special offer for you in maximizing the valuation for your dream exit. If you were to sell your business through OpenStore, it takes just a couple of minutes to get a valuation and hey, maybe the next phase in the success of the growth of your business is to sell it to OpenStore. Hundreds of brands have done so maybe yours is the next one. Thank you to OpenStore for giving us their support and trust here on this 11th season of Step by Step.