Ecommerce Expertise / How To Sell Online / Success Stories

How a $1,000,000 Loss Turned into a $22,000,000 Gain

/ 10 min read

I always joke with my colleagues and friends who want to start a business by telling them:

You don’t really know what you’re doing until you’ve lost $1M of your own money in 1 year.

In 2013, that’s exactly what happened to me and my brothers’ business, Dazadi.

It was the worst year on record for the then 11-year-old company, which is saying a lot. After all, we started the business in 2002, directly in the aftermath of the DotCom bubble burst.

Add to that the fact that my brothers and I didn’t come from a business family. I had a business degree at the time, but I had gotten that and then joined the Marines and forgot just about everything I learned while in business school.

Instead, we built our $22,000,000 business by learning from our failures. And losing a million of our own hard earned money in 2013 was one of our biggest.

Meet Jason in Person

Jason is keynoting BigCommerce’s second annual Growth Summit in Chicago on the first day of IRCE. It’s a free event, so if you’re in the area, RSVP to swing by and meet him and hear his story first hand.

The Hard Learned Lesson That Lost Us $1,000,000

We chased market share instead of profitability. That’s really just a nice way to say we let our ego get ahead of our gut.

How did it happen?

Easy –– we chased market share instead of profitability. That’s really just a nice way to say we let our ego get ahead of our gut.

And why wouldn’t we have? Back then, ecommerce was so much easier.

When we started the company, we were only website-based. Life was great. We paid a nickel-a-click to a company called Overture, which was eventually bought by Yahoo, to drive traffic to the website.

Like I said, life was great. We went from $100,000 in year one, to $1,000,000 in year two, to $2,000,000 in year three.

It was too easy.

But then, we got a phone call from Amazon.

In 2002, eBay was a very successful online marketplace, but we could never figure it out. It was complicated and the fee structures were hard. We just went away from it, and from marketplaces as a whole.

But when Amazon called us in 2004, the timing and the structure were right. The model was simple. There was only one fee. We didn’t have to pay until the sale happened and we knew for a fact that Amazon got a lot more eyeballs than we did. It didn’t matter to us that at the time they were just selling books and CDs. You could see the trajectory.

For many years after that, Amazon was a smaller portion of our business compared to the direct traffic to Dazadi.com.

But it was always growing –– and business was good. It was very good.

Unthinkable Act #1: No One Buys Table Tennis Tables in a Recession

What do they call it? Throwing your money at a problem? Yeah, we did that.

Then the 2008 financial crisis hit. Turns out that when half the country loses their job, they don’t need a table tennis table. They’re going to use their money to buy groceries instead.

That’s when we did the unthinkable.

Instead of focusing on profitability, we decided to expand our product offering to cover more of the market. Instead of looking at what was selling well, and doubling down there, we spread ourselves thin –– and hired a director of marketing.

What do they call it? Throwing your money at a problem?

Yeah, we did that.

That brings us to 2013 –– when we lost a million dollars from our bottom line.

  • We were selling goods at market rate
  • Not buying them at a price to support that low price at a profit
  • Then, chasing the sale despite not making profits with the hopes that our volume would back us into lower cost of goods

This only works when you pick good, fast-moving products, and it never works with everything.

And us, well, we tried it with everything.

  • It was the wrong time
  • It was the wrong strategy
  • And it cost us –– big time

It also taught us something vitally important to every business. That is, double down in the area where your revenue is generated.

Here’s how we came back from a $1,000,000 loss in one year.

What to Do When You’ve Lost $1,000,000

We shut down the marketing department and went all in with marketplaces.

What we did in the aftermath of that disastrous year is we looked at all of our SKUs. We were getting a lot of sales, but we were losing a lot of money on a lot of SKUs. So, we cut the bad SKUS and we zeroed in on what was working.

Ironically, what was working the best, and what we had the most control over, were a handful of items on Amazon. So, we put that under the microscope.

We figured out the system for profitability on Amazon, and then we expanded that system to many other SKUs. That’s how we got back to being a profitable company.

But once again, we had to do the unthinkable.

Here is the hard truth we had to sit with:

We’ll keep the website, but we’re not very good at it.

We were spending all of our money on marketing that wasn’t generating any sales –– whereas on Amazon, sales were rolling in.

And if 2013 taught us anything, it was that we had to focus on revenue –– not on perception (or desired perception).

So, we shut down the marketing department and went all in with marketplaces.

That’s when we really started winning.

Once we focused on where our revenue was coming from, dove in and figured out the system, our profitability skyrocketed. Then, we built out our profitability reporting and a bunch of special stuff in our ERP system.

Everything was just humming along.

Carefully Shifting a Profitable Model to Additional Channels

To do anything on OSCommerce cost money and time and resources we felt were better spent on our marketplace sales.

Except that the whole time we were winning, we knew that anything can happen on a marketplace like Amazon and that in order to really add value to Dazadi, we needed to be growing our customer base on Dazadi.com and driving more sales there.

And to make that happen, we really needed to shift our mentality.

We didn’t see ourselves as a marketing company. We had been burned. Plus, we were on OSCommerce at the time, always had been.

We had our own developers and development team –– and still, the platform wasn’t feature-rich enough to really win at marketing.

To do anything on OSCommerce cost money and time and resources we felt were better spent on our marketplace sales. So finding a new platform was the most crucial piece for us.

We knew that the path of getting back to driving sales and traffic to Dazadi.com was having a really good ecommerce platform.

And, because we had developed and iterated on an open source platform for so many years, we knew exactly what we were looking for and we knew what we needed –– and what we didn’t.

So, we got to work. We interviewed probably half a dozen different service providers, and figured out one important thing. Here is where we landed:

It was going to take us 5 years to get caught up with everyone else if we went with open source or custom build. We needed a platform that had everything we needed right then already built-in, and one with extensible APIs we could connect to our home grown ERP system.

That meant we were looking at a SaaS solution.

That led us to Shopify Plus –– and doing yet another unthinkable thing.

Unthinkable Act #2: We Don’t Want a Plug-in For That

We were clearly trying to find a platform on which we’d grow to $100,000,000, to $200,000,000, to $500,000,000 in revenue, and Shopify Plus just didn’t get it.

Here’s the thing: I personally was very frustrated with my experience in communicating with Shopify. We had several meetings with them and to every question, the answer seemed to be:

“We think we have a plug-in for that.”

So we said, OK –– and I had my team go and research all the plugins we’d need. That got us here:

If we have to identify all the plugins, and then we have to integrate those and test each individual one to make sure it works and does what we want it to do –– well, then we might as well build the platform ourselves.

In fact, one of my most frustrating calls in which I almost hung up on them was when they didn’t understand freight. They just didn’t understand the furniture market.

It was a frustrating sales experience.

We were clearly trying to find a platform on which we’d grow to $100,000,000, to $200,000,000, to $500,000,000 in revenue, and Shopify Plus just didn’t get it.

Turns out, BigCommerce was the only platform that had the system on which we could build out everything we needed in a very short and easy manner.

No one else could do it.

Better yet, the BigCommerce team totally got that we were trying to do. For freight, for instance, they said:

“Oh yeah, we’ve got lots of furniture people. We know exactly what you’re talking about. We know exactly what freight is.”

For us, that’s the biggest thing. Of course everyone knows about small packages. That’s easy. Freight is not easy and the fact that BigCommerce embraced that and had the features built-in to allow us to do what we needed to do –– well, that was the selling point for me.

These days, internally, we call BigCommerce the “grown up platform” because it literally had every single feature built into it that we needed.

And, those features are built-in the grownup way. They are in there for the complex business –– businesses like us who have been on the IR 1000 list for 8 years running.

Now, we can finally focus on building the marketing plan that our Dazadi customers and the Dazadi company deserve.

So, how are we planning to do that? How are we taking these lessons and applying them to the future? Great question –- and it leads us to our next unthinkable act.

Growing to $100M and Beyond

Download this free guide to see how Dazadi leverages BigCommerce to grow to $100M in revenue and beyond.

Unthinkable Act #3: The Decision to Give Up $2,000,000 in Revenue

I cried myself to sleep for about a week after we cut that revenue.

One thing we did as we began to ramp up our marketing expertise was to cut out all of our drop shippers. Doing that meant we cut out probably $2,000,000 of annual revenue.

I cried myself to sleep for about a week after we cut that revenue, but I think at the end of the day it makes us a stronger brand and a better company.

That doesn’t mean that becoming a 100% inventory business wasn’t really, really painful.

It very much was.

The reason we did it, though, is because we noticed that our performance metrics, on time delivery and order errors were significantly higher with our drop shippers than they were with our own inventory, with our own fulfillment centers.

We did our due diligence to work with our partners at those drop shippers for years, trying to improve those metrics and ended up finding out that they just couldn’t do it.

We needed to make a drastic change.

So, we set out to open additional fulfillment centers and end our drop shipping relationships.  Today, we have four across the country, excluding the stuff we send off to Amazon FBA.

Now, because we do not drop shipping anymore, we’ve significantly reduced the amount of SKUs we offer. We’re in the process of ramping that up, but doing so differently than we ever have before.

This time, we’re adding our own private label products and exclusive SKUs you can’t get anywhere else on the web. This means most of our now 16,000 SKUs have their own UPC codes.

It also means that we now have the time to look at each individual listing as an asset.

We are putting a lot more energy into product page SEO and optimizing each page as though it is a product page to drive increased conversions so we can add more SKU variation as we have the revenue to do so.

What we’ve learned is that by having much fewer SKUs, we can really give each listing its due.

And it’s working. As of writing, search traffic has the second highest conversion rate on the site, falling only behind campaign generated traffic.

Now, let’s talk about those campaigns.

Our Plan to Build a Powerhouse Marketing Organization

I’ve had it ingrained in my head for too long that any time we have to do an integration, we have to do it ourselves. But we don’t. Not anymore.

First things first, I’m having to unlearn years of open source constraints.

I still talk to my team about building out a consumer financing option and how we can integrate that into the site. And then, I talk to BigCommerce and they already have a Beta running, and other customers using it and they can tell me if it’s working –– or if it’s a waste of my time.

I’ve had it ingrained in my head for too long that any time we have to do an integration, we have to do it ourselves.

But we don’t. Not anymore.

So, this is where we are starting in our marketing and our campaigns –– not on building integrations, but on installing apps and services and moving forward with our plans.

Optimizing for Conversion

Beyond optimizing for SEO by providing better product pages (and better quality products), we’ve also integrated with an optimizer.

With it, we’re looking at all of our different pages and finding out which ones have the highest bounce rate. Then, we’re iterating on them and doing some A/B testing to improve the performance and the conversion rates on those pages and across the board.

This is an area where BigCommerce is ahead of the game, in my opinion, by offering a  one-page checkout. The experience is so clean –– and the integration with Amazon Pay will work to help convert our former Amazon customers to webstore customers (as well as anyone else who uses Amazon, which everyone does).

That’s an integration I haven’t had anything to do with. It is just there. Ready for me and anyone else on the platform to use.

It’s on the checkout page where consumer financing will be live, too. Even there, we have options:

Those solutions speak to different audiences, and as we look to move international, will help us to optimize for conversions across locations.

Laser Targeting Consumers on Facebook and Google

I remember the glory days of Google AdWords, where it was a nickel-a-click.

Like I mentioned earlier, our campaign driven traffic is our highest converting on the site (year to date).

That’s because we have been looking at Facebook audiences and building audiences from people who’ve bought from us in the past and who like our products.

We’re beginning to drive traffic to specific landing pages that are optimized and ready for those ad campaigns and retargeting as well. We’ll do the same thing with Google AdWords.

All signs are pointing to the fact that this is really going to work.

For example, we identified 22,000 customers from our BigCommerce Analytics that bought products from us last year. And we were able to find 17,000 of those on Facebook to create an audience.

It’s all really exciting.

I remember the glory days of Google AdWords, where it was a nickel-a-click. I also remember when it became $5-a-click and you couldn’t make money anymore. It was kind of throwing mud on a wall to see what stuck and you really couldn’t narrow in.

Now, with Facebook audiences and what you can do in Google, you aren’t throwing mud on a wall. Instead, they’ve given you a pinpoint laser where we can really go right to the customer who’s bought from us and likes our stuff and make them different offerings to bring them back.

It’s amazing how sophisticated things have gotten.

I got a friend who is an infomercial legend in Seattle. He’s been doing this sort of thing on television for a long time with all their Nielsen data. It’s nice to see that digital is caught up, and taking that to the next level to laser focus in on an exact customer.

Email Marketing to Customer Cohorts

Email marketing is another big area we’re focusing on. I’m embarrassed to say that we didn’t do a lot of email marketing last year, but we’re changing that this year.

We’re looking at gathering more data about our customers when they come to the site and segmenting those lists in a way that we were never able to do before.

Then, we’ll drive them to optimized landing pages, which are on the BigCommerce platform.

Now that we feel we are best-in-class in our category, it’s really exciting to be able to focus on driving more traffic to our site and going after and learning these new and much more sophisticated ways to drive sales.

It’s really exciting time for me. I love learning, so this has been a nice journey.

Final Word

We are going to win. I know that now.

We are going to win. I know that now. That’s what this whole journey has been about –– removing the fear of failure. It was a steep learning curve. We’ve both lost millions and made millions, and we’ve come out the other end smarter and stronger for every moment.

That is what I’m most proud of, that we haven’t been deterred when we’ve failed. We just keep carrying on. We put things out in the wild and see how it works. We adjust. We learn. And we continue to build our family business.

Meet Jason in Person

Jason is keynoting BigCommerce’s second annual Growth Summit in Chicago on the first day of IRCE. It’s a free event, so if you’re in the area, RSVP to swing by and meet him and hear his story first hand.

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