The E-commerce Leader

[00:00:00] Michael: You don’t have to get out a loan as a source of funding. You can have a line of credit set up with a lending institution or multiple lines of credit with multiple lenders institutions. And you don’t necessarily, depending on the terms of your agreement, have to use them.
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[00:01:20] Michael: Today, we’re going to talk about how to waterproof your e-commerce business against geopolitical storms are coming a suitable seafaring metaphor for our global situation. Maybe it’s a British kind of habit to talk. Yeah, Naval metaphors, just to remind you of the problems which we discussed in the last episode, if you didn’t catch that might be worth catching that, the simple version is the demand side means increasing consumer costs on home heating, travel, and food costs means that there is quite a.
[00:01:45] A challenge for consumers to have discretionary spending power, which means they may well spend a lot less on a lot of categories or types of price points may be challenged as well. Already seeing that I believe in the latest economic data in America is now the 30th of April in recording this 2022.
[00:02:02] But I imagine if you’re listening to this in months down the line, it will be only more of the same. And then on the supply side, massive constraints, this COVID zero COVID policy in China currently. Very active. Again, if you’re listening later in 2022 or even 23, that may well still be the case.
[00:02:15] There’s a containers, shortage, contended, ship shortage. And then of course, oil costs and availability has been hugely challenged by the Russia Ukraine war. There could indeed, by the time you’re listening to this, be another war in the middle east, which happens every so often. And, raw materials such as material metals are most, both more expensive and harder to get.
[00:02:34] So that’s the situation we’re in. So we need some. We got some big global problems. We need some big solutions and that’s what we’re focused on today. Jason, are you ready to plunge into some geopolitical strategic solutions?
[00:02:47] Jason: I am. I am indeed. And I think we’ve got a good little list here of strategies and tactics that people can employ to waterproof their business against the storm.
[00:02:57] And, so yeah, let’s jump into it, man. You want to kick these topics off or.
[00:03:02] Michael: Yes. So I want to just talk about meta strategies. You’d be like of two things. I think we’ve discussed before, but diversification and pivoting, or rather than. This sort of link between the two is preparing to pivot.
[00:03:14] So diversifying is a classic investors way of thinking about managing risk. And, as entrepreneurs, we have a habit of focusing very hard in a small niche, which is often a very wise thing. And we often focus on one or two supply sources, which is. Actually often not a wise thing, but because we are there’s any, one, one of me and one of you, one, if anyone who’s running a business, unless you have a massive team, which tends to be hard to get and expensive, then.
[00:03:42] I haven’t got the bandwidth to think about the versification. Unfortunately I believe that in the current situation, that’s no longer an option. I don’t think it’s a nice to have. I think it’s a must have the good news is if you’ve diversified, for example, the markets you were talking about, the different types, the markets you sell it to, or the places you.
[00:03:58] Goods from to put it into simple terms, then you have the option to pivot. And that’s really something that, again, a lot of us may be forced into the only other thing I’d say on this. I’d love your thoughts on this is I, diversification is a choice. A pivot is often a forced thing you have to pivot. So you do, but you can only pivot if you have somewhere else to go.
[00:04:17] If you have one. And that plan ceases to work, then you’re done and it’s shutting the doors time and that’s the main thing to, to avoid. So I think that’s the driving force of all this. Why are we bothering with this is we have to find a way for business continuity, basically.
[00:04:32] Jason: Yeah. Yeah. You’re on the outline.
[00:04:34] You, you put the word diversification and I, something about that, didn’t strike me as quite right. And, but I get your point and I, agree that you want to be ready to diversify, but I’m not sure it’s diversification that you’re really seeking. I think maybe the word that came to my mind was being nimble.
[00:04:50] In other words, be ready to diversify, but my, you might not be diversified. You might just be. That, be ready to switch suppliers or suppliers, or to just switch sales channels, ready to switch, team or work style. I saw one company, announced yesterday that, I think it was Airbnb their whole business.
[00:05:09] Now you can live in it. If you work for them, you can live anywhere in the world. And, work remotely and they’ll bring the teams together, but that’s their new policy. And they, the nimbleness to make changes, I think is crucial in the kind of environment where we’re entering into. And I think that’s the core mental, strategic piece.
[00:05:31] And so I guess that’s just a little different than, diversify. Hopefully you don’t have to diversify, hopefully your business stays together and it’s beautiful and you just continue to scale, but maybe you do have. Problem or maybe you have a sales channel problem and you need to be ready to make changes.
[00:05:47] And I think it’s the readiness, the pre preparation to change. That’s the central thesis that I think we go into this time of geopolitical challenges and storms, geared with.
[00:05:59] Michael: Yeah, you’re right. It could be that for some people, diversification would make sense, meaning, we’ll get into some details, but for example, if you just sat in, UK, for example, you might choose to say the UK and a little bit in, in American, so that would be straight up diversification.
[00:06:12] It could be that. In some cases, as you’re saying, I agree entirely are preparing to pivot, but don’t press the go button. So you, you start exploring suppliers in Mexico, for example, which is bound to be harder to work in most cases and possibly less reliable, less quality than your current suppliers in China.
[00:06:29] That might be a very typical scenario in that case. I’d entirely agree. You want to prepare to pivot, but you wouldn’t. Press the go button immediately. Cause it could be a lot of time and energy in the wrong way. So yeah, absolutely. And so yes, preparing is the key, I think you’re right. And then nimble is a great word.
[00:06:43] Let’s go through these. They’ve got to multiple strategies here. I think we put them into three buckets if I’m right. Maybe before. Let’s go. So you mentioned the word nimble. Tell me about your thoughts about the word nimble. I like that, but how does this play out in this scenario for you?
[00:06:54] Jason: I think the first, the first. Question is, do you have, the mind share, mental and emotional energy, the bandwidth to say, okay, I could make changes. I could make changes all day long. Some of us just get worn out. We just, we’re just too tired to say that. I can’t deal with the kid cope with the idea of changing a lot in my business right now.
[00:07:15] And, so I think part of it is having a mental and emotional gas in the tank and saying, okay, I, I’m, I could be prepared to change anything in my, about my. Quickly and easily. That’s the hallmark of small companies, it’s it’s the big entrenched businesses that generally have hard time being nimble kitchen table entrepreneurs, people who are smaller e-commerce operators should have the capacity to be more nimble.
[00:07:39] And so we want to cultivate that in your own mind and heart. And how do you do that? You’re generally, it’s a mental and emotional state you’re in, you’re not burning. You’re not, frustrated or locked into systems, people, processor, sources. You’ve got a mindset that says what are my alternatives and having the energy emotionally to explore those, and being open-minded versus closed minded about such things.
[00:08:01] You have on the, on the conversation talking points, this fantastic, a phrase, which is the willingness to let go of some costs. And I think that’s key to this, that, having a mind share a space that says, I don’t care what I, what it costs me a year or two or three ago, to do this or that, or the other thing.
[00:08:19] I’m going to be willing to say, let’s go. As needed to meet market forces. And I think that’s key, that, that ability to say, no, I’m not going to be tied by my investments in. Thinking systems, process products, tools, whatever, the sunk cost fallacy is not going to snag me up. And I think that’s really central to the idea of being just mentally with it and ready to make changes.
[00:08:42] Michael: Yeah, I agree in that entirely. So just on the sunk cost, a couple of thoughts. One is. It’s easy to say and really hard to do. So I have to recognize it. It’s emotional work. And that sounds like a funny, sort of new agey word, but, overly woke or something about my experiences. It’s very real. You have to find some process, whatever it is, and anything from psychotherapy to drinks with your friends running, I don’t know, whatever it is, commiserating with people on Amazon conference, whatever processes you personally find to let go of the fact that your product, which was beautiful.
[00:09:11] 12. Six months ago in the crazy times we live in is suddenly no longer viable or the supply chain that worked beautifully is absolutely broken to pieces because your suppliers in Shanghai, if I is right now could be the case. So that’s one thing to recognize that what we’re saying is a big ask, but I think at critical one, the other ones, so it’s emotional fitness is a business skill.
[00:09:30] If you want. It sounds like a funny thing to say, but I think it is as a business leader. The second thing is, Related to that, a seemingly innocuous and actually grown up business practice. Can I think, create a sort of fallacy without you realizing, which is year on year growth projections year on year profitability, and so forth feels like what grownup companies do and it is, but there’s a, there’s an inherent trap in that, in the you’re expecting last year to be a version of last unit this year to be a version of last year now, bigger or smaller.
[00:09:57] Whereas if the dynamics have changed violently since last year, that’s no longer, a very helpful way. It is my opinion. So I think that there can be a trap there. And I find that amongst my, the biggest sellers I worked with. Yeah, you’ve got quite robust in dealt with crises before, but they did get trapped into, oh, my sales are down on last year and I see as a comparison point, that’s not a very helpful starting point.
[00:10:21] Jason: No, I totally agree that, I was just, listening to podcasts the other day and they said one of the tests for, intelligence is they’ll do simple games. I, how many words can you create these letters in 60 seconds or, how many, how many. Number combinations, can you can make out of this or that.
[00:10:36] And these simple game, simple tests around creativity and the CRE and the ability to create is a defacto, a measure of intelligence. And the reason some cost fallacy is interesting is because if you’re pure creative as an entrepreneur, you’re like we could do this, and this, the sunk cost fallacy we’ll truncate three, four or five.
[00:10:58] And you’ll say, no, I can’t do that because, or no, I can’t do this because, and so it, it cuts down your creative energy and that’s the reason it’s the, Party spoiler. And that you really have to address it because in moments like these geopolitics going crazy with supply side and demand side, changing inflation and, container costs and sourcing costs, and all of these things you want to be maximally creative and sunk cost fallacy will down them.
[00:11:27] And that’s, that’s the reason why technically I think it’s important to identify it as a spoiler and then say, no, I’ve got to be maximally creative right now. I’ve got to look at all the options available and, but really brainstorm to the maximum to figure out how I can be effective going forward in this crazy market times.
[00:11:45] So I think that’s interesting and you’re right. It is mental health or kind of, mental health, fitness, I guess you could say, as a leader of your company, something like that. Yeah,
[00:11:54] Michael: it is. It’s the difference between being Pollyannaish and say, no, everything’s going to be fine.
[00:11:58] Then an alternative is, and by the way, this is probably phases. You go through as an entrepreneur, like they said, the phases of grief, quite similar to some of the phases of being an entrepreneur. It is emotional roller coaster in there. It’s going to be fine. My goodness. It’s really not. I can’t believe the war started.
[00:12:11] I can’t believe China has gone into lockdown. I can’t believe XYZ. I can’t believe that the terrorists were imposed in 2016, et cetera. And then there’s a kind of, okay, how can I resourcefully respond to this? And to your point, letting go of mental baggage then enables you to access that creativity that as you say has gotta be the whole market of an entrepreneur.
[00:12:30] Jason: Yeah. Just one, one last thought on this idea, There’s no, it’s no surprise. Why? In tumultuous times, many businesses fail. And, you asked the question, why do these companies fail? Sometimes they got boxed into a capital constraint and they literally ran out of money.
[00:12:47] Sometimes they were in a business that just collapsed because of market changes, the, on the demand side and there they were at, holding the, the VHS tape player. When no one else wanted to buy VHS tape players or, those kinds of scenarios. But I guess that my point is it’s in radical market conditions like this.
[00:13:07] When you will see entrenched players really fall apart and new upstarts really take advantage and take market share. This is the time in which the, those who cannot pivot and cannot be nimble. We’ll fail and those who are starting or those who can, will take that void space and make it their business and become a thing because they had an opportunity because someone else was too rigid to take advantage of the opportunity.
[00:13:39] That was rightfully theirs. It’s almost like their inheritance going into the change economy is theirs to take, but they can’t take it because they’re not nimble. They lose it. Someone else. Yeah, very interesting times,
[00:13:52] Michael: yes, they are very instinct times. Th the Chinese case of course, may live in instinct size, mean it could be a curse or a blessing, depending on, as you say, how rigid or flexible and creative you are and how resourceful you are at talking resources.
[00:14:06] We better talk about capital that you’ve put that on the list. The reason you put it on are less than, or your ups, you, we got to talk about that because one of the reasons businesses fail is they simply run out of cash to pay the bills. When they fold you bankruptcy of some description, what are your thoughts on this?
[00:14:20] How do we even approach this?
[00:14:21] Jason: I always send people back to my favorite book of all time, growing a business by Paul Hawkins. And, he created Smith and Hawkin, which is a wonderful company that you sold to, or ultimately got sold to target. And one of his chapters, I always remember reading it.
[00:14:34] It never. Never needing the information, but being reminded of it in my mind a few, many times, but it was this idea related to money and his comment was always raised money before you need it. And his thinking was it’s easy to raise money when you don’t. It’s near impossible to raise money when you do need it.
[00:14:58] Therefore you have to raise money and get your hands on capital, and keep it, when you don’t need it. And there’s two sides of hard problem there. W one is. The discipline of getting it. The other is the discipline of keeping it until you need it. And so his book is his genius on that.
[00:15:13] And I think many people are in this situation where you might have a great cash flowing business, and you’ve never wanted debt. You’ve never needed money, like from outside investors. And you’re like, no, I’ll just do this on my own device. And then the geopolitical storm hits or the tide goes out or whatever metaphor is and you realize, gosh, it would have been handy for me to have a big line of credit or a, a loan product or something I could tap into.
[00:15:36] And, and having the capital access to that capital in times, like these, I think is one of the central themes of those who make it, those who survive, just have more financing options. And so I think having access to capital, whether you stockpiled at yourself and you’re just a genius hoarder of cash, or whether you’ve got loan products available to you or whatever is going to be a king maker, or it’s going to be a spoiler, for people who are otherwise good operators.
[00:16:07] And I think that’s the hard part is people who can say I’m a great operator. I don’t have any debt. I run a great cashflow business, but the market just changed numb ruined. And but I know I was a good operator. Yes, you were. But you didn’t have capital. And I think those are the things to think about right now.
[00:16:23] What are your thoughts
[00:16:24] Michael: on them? I agree with everything you said. So the point of credit lines or loans, and you were wanting to distinguish, I think absolutely rightly between diversifying and preparing to pivot or preparing to diversify. And this is a fantastic case in point, to your point, you don’t have to get out a loan as a source of funding.
[00:16:43] So source of funding, diversification, or preparing to diversify or pivoting, right? Those are the three options and they prepare diversify or actually pivot, You can have a line of credit set up with a lending institution or multiple lines of credit with multiple lenders institutions. And you don’t necessarily, depending on the terms of your agreement, have to use them.
[00:17:02] But so the point, Paul Hawkins, excellent point. So true. They say a banker will, give you a coat to use until it’s not going to give you an umbrella when it’s dry. And then as soon as it starts raining, they take it back off you. That’s the joke, isn’t it. And there is something. Yeah, if you learn up credit, you don’t have to take the loan, but it’s ready.
[00:17:17] And that is exactly what you’re saying, preparing to pivot without actually acting on that super smart, because you’re giving yourself options and it gives you maximum options for the future. The other thing. Great operators or that capsule won’t survive. I guess what that means is there will be a massive transfer of wealth and assets from the people who are good operators and builds a beautiful brand, but can’t afford to run it anymore.
[00:17:38] There will be people with capital who wants to buy a beautiful brand. That implies to me your thoughts on that. Yeah.
[00:17:46] Jason: It reminds me of exactly what I, I said this on our. Colin podcast on Tuesday morning, which is by the way on the call an app, if you haven’t checked that out yet, go do that.
[00:17:56] We’ve got Chris green and Kyle hammer who joined us for a four, four way conversation. But, my comment there was to look at what Elon Musk did with Twitter at the meta level, which was identify an asset that was valuable, that he saw huge potential in, In essence editing, it’s operating this with his tweaks changes and, and, perceived, improvements and he bought it.
[00:18:17] And, the geopolitics that we’re entering in the inflationary stage we’re entering in the economy, and many people are predicting massive recession ahead. And all of this hardship, I think the, the primary idea here, There will be massive transfer of, business ownership. People were many, baby boomers are just done.
[00:18:37] They’re done they’re in their late sixties or seventies. They’ve had a good run since the eighties or whenever they’re ready to sell off their business, whether they are e-commerce operators at this point, or just brick and mortar, that whole wave of change by itself is a massive wave of business transition.
[00:18:56] Let alone. All the people who get themselves into trouble as e-commerce operators who have created brands or a, a a good product lines, whatever it is. And, and they will not have the, the ability to proceed. And for those who are ready, willing, and able to, step in and make that kind of change happen and be the new owner of a, a hurt or a strict.
[00:19:18] Business or maybe it’s a beautiful product line. That’s just being, run by someone who’s just done. This is the time in which these changes will occur at massive acceleration. And my only commentary on Tuesday was you learned to be a business buyer. And have capital and be nimble.
[00:19:34] These are the elements that go into succeeding in this tumultuous time.
[00:19:39] Michael: Yeah. I guess some people will be in a position to buy businesses if they, if their business in a good position and others will be simply, surviving, so So it depends on your position, but either which way, objectively zoom back from the individual’s position.
[00:19:51] You’re so right. That there are going to be transfers of assets, big transfers tend to happen in times of crisis. And I really love the fact that you brought in demographics. That cause as I discipled Peter Zion’s thinking, which is geography and demographics are there. They’re not exactly destiny, but they’re closest.
[00:20:05] We can get to very reliable predictors of what will happen over the longer term. I think the baby being in retirement was always going to be a thing. And I think that, COVID has shown that up because one of the reasons I suspect that there’s a labor party, sorry, labor market shortage in the U S Europe, UK, everywhere already is because a lot of people are just retired during COVID and they’re not going back into the workplace.
[00:20:27] And the other thing that you just put your finger on as to the other thing of the transfer of baby boomers, owning assets. And selling them off. Like literally my father is he’s older than a baby boomer. He’s I suppose the silent generation, but he’s literally just sold off some commercial property because he was done with managing it.
[00:20:41] I’m that’s not untypical. We just, they don’t want the stress anymore. And, yeah. So I think what’s happened with. The last couple of geopolitical shocks COVID and now wars in Ukraine, to start with for the moment is that they have accelerated a, an underlying trend anyway, which is very interesting.
[00:20:58] And so I liked the fact you brought that in.
[00:21:00] Jason: Yeah. Okay. So the next part of our conversation, I think is like identifying the, the opportunities to pivot or to, to make change a reality in your business. And there are these fall into categories, how. How do you see opportunities in the market space to either shift your own work differently into a new way, or for businesses that are in those spaces that maybe are, in need of, a rescue.
[00:21:27] And so those fall into different categories, you’ve, you’ve broken it down here. One is to look at the supply. I’ll go ahead. Jump in.
[00:21:33] Michael: Yeah. You can break it up any which way you want, my instinct is to start with the demand side. Just that there’s no demand.
[00:21:38] You don’t even need to worry about the supply. I’m just on that point. For example, Germany is the second biggest Amazon marketplace in the world. It’s the most powerful economy and it’s got wealthy consumers that buy a lot of physical goods. Germany’s demand could just drop off a cliff pretty much at any point.
[00:21:54] If the, for example, somebody in Ukraine blows up all the pipelines coming from Russia to Germany, which would make sense because it is, they’re getting a billion euros a day. About a billion dollars a day. The Russians are from. We were pains to pay for oil as it stopped flowing. But that could happen.
[00:22:09] Russia could turn it off. All the Europeans could decide that they’re willing to bite the bullet and collectively under the pressure probably of the U S turn those types off from their side. So there are three parties in this conflict that could cause that to happen. If that happens, then Germany’s going to go into the most almighty recession.
[00:22:26] Since the second world war I think is pretty predictable, which means that demand side could create a. Pretty instantly. I don’t know whether it takes a one or two or three months to, to feed two or one or two weeks or people just panic. That’s hard to predict, but that’s an example that if you sell, for example, just in Germany of why geograph.
[00:22:43] Yeah, diversification of your market. So who you sell to and where the demand actually is, could change so rapidly that I think diversifying eyes and not just preparing to sell, but actually getting on with selling in the U S I would say, is a necessity now. And that’s not an easy ask because. Big markets requires more capital is hyper-competitive and there’s a cultural shift as well.
[00:23:03] Sending to Germany is not the same as selling to Americans. So it’s a big ask, but I think it’s really important to consider that sort of thing now.
[00:23:10] Wrapup: Hey folks. Thank you so much for listening to the e-commerce leader. There are a lot of challenges in e-commerce right now from geopolitics, honestly, right now. Whenever you’re listening, I don’t think they will have gone away. So waterproofing your e-commerce business against the political storm geopolitical storms, I should say, driven by economics politics.
[00:23:27] Lots of factors is I believe a non. Negotiable critical business skill. Hope you found today, thought provoking at the very least and helpful preferably in your thinking about this. If you want to check out our other podcasts on that topic, then go to the e-commerce leader.com for some show notes and resources linked to the podcast as ever.
[00:23:51] Don’t forget to check us out on your podcast player of choice and do subscribe. On these, say Spotify, apple podcasts, Google podcasts, lots of places, and do leave us a rating or review if you enjoy today’s show. Really, I think it comes down to a willingness to grasp the nettle at this point, and to really do your own investigating, do listen to our second episode on this topic, while we be talking more about the strategies that you can employ to.
[00:24:16] Deal with the challenges in e-commerce from geopolitics. And that’s all really part of us trying to help you be an e-commerce leader. And right now, leadership is needed more than ever before. Good luck with it. Do you get in touch with any other comments or thoughts? And if you want to get some coaching from Jason or myself, that you can find us at our respective websites, Omni, rocket.com for Jason and amazing fba.com for myself.
[00:24:41] Like so much for listening, look forward to seeing you in the next.
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