The E-commerce Leader

[00:00:00] MV: If you’re going to make a worthwhile play with the Shopify business, well, first of all, it should be profitable in the longer term. But in order to break through to that, you’re going to have to invest
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[00:01:46] JM: Okay. Question number three is, are there diminishing returns or diminishing returns?
[00:01:51] Increasing returns, I guess, would be the opposite. So, the thing that is hard about this evaluation is sometimes you start something and it is aligned and, you do understand the costs. It’s just a small, tiny little thing and, but it’s growing, and I think that’s the, that this is the question that gets after that is like, is, is there increasing or diminishing return?
[00:02:17] if you’re investing your time, money and resources, and it’s going in the right direction, but it’s such a small thing. That’s the heart that to me, this is almost like the hardest, of the, the darlings, it’s like, it’s not demonstrating. Yeah. failure, it’s demonstrating small success and at what point do you, continue to plow into it?
[00:02:41] And if it’s a math question and the metrics are there, it’s sometimes sort of obvious if it’s, if it’s a return on ad spend of 5 at times, then the only question is add more money to the, the fire, but some things aren’t like that. Some things take time, some things are growing and they’re healthy, but you’re not going to just add, Steroids to it and have it immediately scale up quickly.
[00:03:05] And I think those are the hard, hard decisions about special projects. So if there’s diminishing returns and it’s, you put in 50, 000 and, it’s not going anywhere good. It’s, it’s just going to eat more and more and more, especially the bigger it gets, the more it eats. the, the more you have to spend to keep it alive, then that’s a pretty straightforward proposition in my mind, the bigger this mess gets, the more I’m going to have to spend on it.
[00:03:32] And none of it’s good for our business, is a pretty simple question to answer.
[00:03:37] MV: Yeah, I guess so. the only counter example of that would be maybe Perry Marshall’s concept, which is that the first few percent of a market share, easy to get, and then it gets harder and then we get really dominant, it gets easier again.
[00:03:47] Now for a side hustle, that doesn’t sound like the level of commitment you should be. Putting into it, which kind of brings us back to the point of if it’s a side hustle and it’s never really going to align with the main hustle at some point, it becomes risky to even bother pursuing it properly. You either have to go, well, this is actually the main thing now, and it aligns with what we’ve been doing, or you’re pivoting the business one way or the other, but it’s not just a side thing because.
[00:04:11] You’re right. At some point to break through, really dominating in the market, you’re going to get noticed by the competition and they’re going to start competing with you. It’s on Amazon. It’s a brutal, very direct competition. It’s a price competition and an advertising war. And, but there’s some version of that on all marketplaces, right?
[00:04:24] Or channels. And so I think that. You’ve got to be real about the fact that if you’re going to grow the baby side hustle into something real at some point, you may discover that it costs you more to acquire leads and, and or customers. And then you’ve got to think about whether you’re going to push on through to the point of being really dominant or whether actually it’s only worth keeping as a baby.
[00:04:44] And at some point, then it gets less and less good. I see.
[00:04:49] JM: I see clients who fall into this situation when they are big Amazon sellers and they want to go into Shopify and sell direct to consumer on their own website. And I’ve had painful conversations with clients where we built their Shopify site, we managed it, we, work with them or coaching, consulting them, whatever.
[00:05:08] And they come back with this, sort of frame of mind that Shopify, because it’s called the Shopify project is way too expensive and not adding nearly enough top line, revenue or bottom line profit. And, and I understand the words they’re saying and that their, their lens that they’re looking through at the same time, they’re, what they’re saying is derailing selling direct to the public or to customers and having a proper brand and a proper internet presence is too expensive.
[00:05:46] And, it’s just too costly and making efficient money on Amazon is just too tempting to, to retreat back into in a way, if that makes sense. and it’s an interesting place for business owners to be because. On the one hand, I understand their logic. On the other hand, I completely disagree with the decision to stop selling direct to consumer.
[00:06:10] what I mean? So it’s, it’s a, it’s a hard one. I’m glad
[00:06:12] MV: you put your finger on that because that’s one that comes up a lot. I often see it from the similar actually, but I see it from the other perspective in the sense that I’m more Amazon focus and an Amazon focus mastermind that I’m running for years now, nearly.
[00:06:23] What is it? Seven years. so I’ve seen this a lot and you get people to sell on Amazon. They do a side purchase on Shopify and it’s breaking even at best or losing a bit of money. And I always feel like. This is the classic side project fallacy as a whole genre, a type of the side project problem.
[00:06:41] If you’re going to make a worthwhile play with the Shopify business, well, first of all, it should be profitable in the longer term. But in order to break through to that, you’re going to have to invest and I can understand the resistance of investing, but that’s because you’re looking at it, I think, through a short term lens or we are an Amazon business and this is a side project lens.
[00:06:57] If you’re an Amazon business, I think you in some ways would be better off killing off the Shopify project because it’s distracting you. But if you are serious about creating. A business which can be sold for a higher multiple of the profits. Even if the profits are slightly more modest than they might have been, because it’s so much more defensible.
[00:07:12] You’re going to get eight times profits instead of four times. And that’s your objective in, say, five years time, then you would probably be well advised to consider going very hard on Shopify. But with an understanding that the cash pattern of it is going to be the Amazon business paying for the Shopify business to be built over.
[00:07:30] To maybe three years and then on the other side of that, then you have more valuable business. It’s a more risky proposition, but it’s at least a clear strategic aim. And what I think a lot of people are sort of half in there and half out. And I totally get that. I’m totally prone to that myself. I mean, yeah, but it doesn’t work.
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[00:07:46] JM: doesn’t work. It’s funny what they throw in the buckets too, because it’s like, this is too expensive. Well, what are you talking about? Well, look at all these costs associated with selling direct to consumer on Shopify. And then they start talking about all their state, Facebook ad costs, all their, email marketing costs, all that.
[00:08:03] It’s basically the cost to build a direct to consumer. Brand or presence, but it’s all attributed to Shopify. it’s all, it’s like, like just the revenues from Shopify has to justify us building every part of our direct to consumer brand. Like that’s not really a fair evaluation. Like building your email list.
[00:08:24] Shouldn’t be all on the back of Shopify is revenue. Like you’re, if you’re trying to sell the direct to consumer, you’re going to send them to your Amazon store. So it’s funny how people buckets. the expenses associated sometimes, and I get it. I mean, it, you have to evaluate if you’re doing a new thing and it’s Shopify and you need a list and you need a social presence, you need social media marketing expertise.
[00:08:47] You need advertising direct to consumer stuff. All of those things go into the concept of the project. And, and you’ve only got one little revenue line, the Shopify to direct to consumer sales, justifying it. it can be ugly, I get that. But I, I,
[00:09:04] MV: I agree with you, but I think really there are just two really big [00:09:10] differences and like, this better than me and your teacher class for this stuff.
[00:09:12] But I just want to highlight for the Amazon focus sellers out there. I can relate to the you better, I guess. number one, the equation you’re solving is different. The cost of acquiring a customer versus long term customer value. We don’t get long term customer value on Amazon because we don’t own the customer relationship.
[00:09:27] Number two, you’re paying to acquire customers. We don’t acquire customers on Amazon, which is why it’s a riskier proposition in some ways, but a more cashflow in one. And so I think you’ve got to. Once you’ve acquired a customer, you’ve got to make sure you get the long term customer values. You build an email list and you don’t send them lots and lots and lots of nurturing emails and well judged pitching emails to get them to buy from your Amazon store.
[00:09:49] Then you just wasted all of those Facebook ads and you shouldn’t be doing direct to consumer because you’re being ham fisted with it. But that’s not a business model problem. it’s because you’re not completing the journey. I had a conducting teacher He talks about to complete it.
[00:10:05] And then, good things follow from that. So if you’re going to do the Shopify thing, you need to really go all in. I think, or, I don’t mean all in as in abandon the rest of your business, but you need to complete the journey. So you’ve got a catalog that can balance out the cost requiring the customer and then monetize that customer over time.
[00:10:21] That’s the two sides of the same coin I’m saying here. But if you’re not going to do that, I would suggest don’t bother with a Shopify site. I mean, honestly, I see a lot of people who. Need a brand site, but they need to use it for lead capture in order to build an email marketing system to then sell on Amazon, but they don’t necessarily need a Shopify or functional e commerce site because they’re going to make very few transactions through it and as an interim step or even as a business model.
[00:10:48] So, if Amazon with an enhanced brand presence, I think it’s perfectly valid, but that’s not the same as the direct to consumer site.
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[00:11:42] JM: yeah, I think what you just described. Many people who get into the Shopify as their side thing, bolting it onto an Amazon business, they don’t count that cost. They don’t ask themselves a long, hard question.
[00:11:55] Am I interested in long term customer value? and am I interested in second sale, third sale, fourth sale? Of course everybody would say yes, but then the question is how long are you committed to that? And if you’re in the truth of it is sometimes Shopify is not right for people. if they’re only ever going to sell an item one time to somebody, And that person will never be brand loyal, then maybe they’re better off on the marketplaces and not direct to consumer, but okay, we’ve, we’ve nerded out over that sufficiently.
[00:12:21] Let’s jump into question 4 and then, get the 5 rather quickly here before we wrap up. So, question 4 is, is the sunk cost fallacy at play? And of course, the sunk cost fallacy is this mental, framework that we all use when evaluating a project. We think of all of the time and money and effort that’s gone into it.
[00:12:43] As if that matters and many times, the truth of it is, those sunk costs as they’re referred to make absolutely no difference because it’s already time and money spent. The only question is, is, the, the effort, aligned with your business efforts. Is it increasing and.
[00:13:08] Is it getting the traction that, you’re, you hoped it would. Those are the questions that are important. And whether you spent money and time on it is honestly not, the thing to, goad you into continuing, if anything, the sunk costs should. feel more like an anchor that you’re like, I got to cut loose of this thing.
[00:13:29] It’s dragging me to the bottom, but in our minds, we don’t do that. We think of sunk costs like, like a, a reason to continue on. Like, Hey, I’ve invested 50, 000. I have to continue this. Really? Yeah. and that’s the, that’s a big mental hangup for a lot of people. It’s like, do I want to continue with this?
[00:13:48] Yeah. Yes or no. And why or why not?
[00:13:51] MV: Yeah, I think you’re right. And I think this is for this whole episode or episodes. This is at the heart of the matter. It’s a lot of the time people have and we all have personally that sinking feeling in your gut. Like this isn’t working, we shouldn’t keep doing this.
[00:14:05] And we know emotionally at some level that we should stop. And, and there has to be some, rational evaluation. That’s part of that. That’s, triggered by that. But then the reason we don’t move is the other emotional thing, which is, but I spent 50. Yeah. thousand dollars on this. And so it is really an emotional discipline.
[00:14:22] I don’t think it’s an intellectual one. I don’t mean there aren’t other intellectual disciplines we shouldn’t apply, such as the other things we’re discussing. Financial analysis and, market analysis. But in the end, it’s an emotional discipline that the willingness and then the ability to actually cut stuff, which you spent a huge amount of money on.
[00:14:38] Here’s the big one. Like you just said before, one of the worst things is sort of half working, but gradually working less and less. I’ve had a lot of those. I’m sure everyone’s had those. And The ability to cut those is the master scale in business, in my opinion. And I get that so much in the mastermind as well.
[00:14:54] I’m not alone. Thank God. I’m not a weirdo. I’m just typical entrepreneurs. I look at people with, with a catalog and they do the, some of them go away and do some homework and do an 80, 20 analysis of the profits. Out of 300 products they got on Amazon, 10 of them were making half the profits, which implies that, big percentage of them down at the bottom just need cutting and all that money needs reallocating to the ones that are going out of stock all the time.
[00:15:15] And they know this and they say those words, but to actually do it, it takes a lot of banging their head against a brick wall until they come and they go something like, Oh, I just really need to stay in stock of my best sellers. Yeah, yeah, yeah, yeah. You really do. And I’ve been doing that this week and we’ve been making twice as much as we made, the previous month or week or whatever.
[00:15:33] And like, yes, yes, exactly. We’ve stopped selling eggs. I’m like, hallelujah, because we all knew you had to do this, including you, but it takes so much to get there. So I think you just have to find some way of with your spouse, with your business partner, with your coach, with your must mind, pushing yourself to the point where you just actually do it.
[00:15:51] There you go. Yeah,
[00:15:52] JM: yeah, totally agree. I mean, I, I think that is, it is all about those hard emotional decisions. Okay. So the 5th question is really 1. that’s for the people who have decided that it’s time to kill the project. It’s, it’s sort of the follow on question from that decision. And, and the question is, is there a potential for pivoting?
[00:16:17] Yeah. Or, iteration or change, that actually can, salvage, I guess you could say a salvage title on the project. I don’t know, do you have salvage titles in the UK for cars and cars in America? I have no idea what that
[00:16:30] MV: means. Salvage title? You don’t have
[00:16:32] JM: a salvage title? Oh, oh, it’s when it can still run it, but it’s been worked on a lot and whatever.
[00:16:38] Okay, anyway, so the question is, can you iterate change or? Pivot in some form or fashion. And, and, and those are, those are the hard questions. I think that’s where the, almost of a whole podcast by itself, this like ways you could pivot or ways you could, exit a project. but I, I guess I would just say in short, the.
[00:17:00] Conversations that we’ve had internally this week about that project that 60, 000 was lost in that. This is the net effect of that thinking and that math work and that conversation is, we’re looking now at how do we pivot and, how do we, salvage what’s possibly salvageable, out of that project.
[00:17:23] And in essence, move on. and I think this is the hard work of it. for Amazon sellers, I would imagine that means lost of inventory. cutting loose of, what, what amount you’ve got where and, maybe relationships with vendors, suppliers or whatever. how do you, how do you get out of that stuff gracefully and tactfully and all that?
[00:17:41] and in a way that’s helpful. And efficient and done elegantly.
[00:17:47] MV: Yeah. And I think that before you even look into complicated pivots, sometimes you need to not throw the baby out with the bathwater. For example, if you’ve got a parent, as in, one type of product with multiple variations, one of those variations might be very profitable and popular, in which case there’s nothing to stop you just keeping that and then running the rest of the stock down and not restocking all of those things.
[00:18:05] In fact, you could think of that as a giant split test with physical inventory instead of just a digital split test. and you’ve discovered what the market wants and what it wants is the red ones in the medium size, whatever it be shoes, plastic widgets. It doesn’t matter. The market is spoken.
[00:18:18] Sell what makes sense to [00:18:20] you and to the market and cut the rest. Yeah. I mean, so you don’t need to stop everything. I mean, okay. The MOQs have got to work and so forth. you’ve got to look at the cashflow, but sometimes you can, you can salvage a few useful things from that. And then the other thing is, I would say if you’re a physical product seller, don’t be too depressed.
[00:18:36] If you have to sell through certain imagery at a loss, because I would think of it as a capital transfer from a place of low yield to high yield. So if you’re going out of stock on your best sellers and by definition, you probably are because they sell. A lot and therefore you’ve probably don’t put enough inventory in for the peak periods.
[00:18:52] whatever your peak is, most people it’s Q4. Then, guess what, if you sell through the stock on the other stuff, even at a loss and you can stock, more highly for the best sellers. Overall, you’re still going to make more money from the system as a whole. So if you try and think of it as a system as a whole, rather than get obsessed with individual products, then, you, you can still look at as a very, very positive move.
[00:19:11] And that’s the simplest. And often the most helpful version is to simply sell free stock and reallocate that capital.
[00:19:18] JM: Yeah. Great, great example. I mean, that’s, that’s the win, that’s coming out of a losing situation with a winning, change. I love it. Okay, man, let’s wrap this up. You want to, Bring us home on this fun conversation.
[00:19:31] MV: Yeah, sure. So basically it’s do a quick summary. When to cut off or kill a side hustle, shiny object or special projects, special projects. I love that. So that’s a bit military. So, the basic questions to ask yourselves are what’s the projects casting thing, the opportunity costs, i.
[00:19:45] e. what you’re not doing instead of this thing. Is the project aligned with the current corporate strategy? That’s question number two, which is really important. I think question three, are there diminishing returns? That’s so common taken on Amazon right now. Don’t forget about Amazon ad costs, folks.
[00:20:01] That’s all I would say there. Q4 is a sunk cost fallacy at play. That’s an emotional thing I would say. And Q5 is there a potential for a pivot or an iteration, or at least. Not throwing the baby out with the bathwater as I would say, it’s a good conversation. it’s still the things coming up a lot at the moment in the mastermind for better or worse reasons.
[00:20:21] And I think it’s one of those business skills that in tough times, we’ve got to develop really quickly. So, from my sides, if you want to evaluate your Amazon focused business, you’re very welcome to come over and have a chat to me on an audit, just go to my amazon audit. com. A my amazon audit. com and we can discuss if perhaps there are some products that you might want to be leaving by the wayside.
[00:20:44] If that’s your feeling.
[00:20:46] JM: Nice. And yeah, if you’d like to connect with us at Omni rocket, we were happy to do a free Shopify site audit. or talk to you about your Shopify site or a potential Shopify project. just visit us at omni rocket. com and you can see in the menu, the, connect with us bit. So Michael, great conversation, man.
[00:21:07] Really appreciate it today. As always, it’s an honor and I’ll end there. Thanks everybody.
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