Coffe shop around the world: Making Money Online Forum

At first glance, Alex Zhardanvosky and Joe Speiser don’t practice the “stick to your core competencies” mantra they preach. After selling a major share of Azoogle (now part of Epic Media Group), the online advertising business they founded in 2000, they started selling… pet food.

“In 2002 we had $2.1 million in sales at Azoogle,” Alex says. “By 2005 we had grown to $64 million. We sold a chunk of the company and started looking for another business we could start from scratch.”

In spite of the Pets.com debacle—in fact, partly due to the highly public failure of Pets.com—the two launched PetFlow.com, a scheduled online pet food business, in March 2010.

“We love pets, and as pet owners we knew there was no way for a customer to buy pet food online easily,” Alex says. “The industry had been largely devoid of investment after Pets.com failed, and we saw that as a definite opportunity.” After less than four months PetFlow.com took its first orders and has since grown at a 10-15% monthly pace, with November sales reaching nearly $1.5 million.

Alex has started several successful businesses—and has made angel investments in a number of companies founded by previous partners and employees—so I asked him to share a few lessons learned from multiple start-ups. Here’s what he said, in his own words:

Never try to act “big.” Red tape starts playing a big factor when a start-up reaches a certain size. Small companies try to act really big, sometimes just because a few employees came from larger companies and they feel the organization needs to become more “corporate.” For example, frequent meetings aren’t a productive way to spend time. In big corporations you have Monday sales meetings, Wednesday management meetings, Thursday operations meetings… but if you create a naturally open forum, you don’t need all that. We set up open office layouts so we don’t need to discuss things as a team; everyone is already in everyone’s business, so to speak, in a really good way. Joe and I share an office and we almost never close our door.

“New” doesn’t have to mean “complicated.” Most products are wants, not needs. You don’t have to buy an iPod, but if you have a dog you have to feed your dog. We wanted to provide a solution to an ongoing need. The pet category is completely recession-proof and it isn’t based on fads or fashion. Plus it’s non-cyclical: Dogs don’t eat more at Christmas than they do in July, so we don’t have to ramp up for the holiday season. As long as we execute well our customers naturally become long-term customers.

What others do is irrelevant. On the Internet it’s all about deals, but when you create a valuable product and service proposition you don’t have to give it away. We don’t offer sales or discounts. While we provide pet food, we really sell a service and the elimination of a chore. In essence, we sell time—our customers’ time. To feed your pet you have to go to the store, walk down the aisle, stand in line, lug the heavy bag home… and do it over and over. That’s a chore. Customers love us because we eliminate that chore, and brands love us because we don’t discount their products and dilute the value of their brand. Most online retailers focus solely on being the low-cost provider, but providing the best overall value—in cost, convenience, and making life better for your customers—matters a lot more.

Stick to your core competency. We learned this the hard way. When we started our online advertising network we focused on cost-per-action (CPA), performance-based advertising. Then we spent a year trying to start a cost-per-impression (CPM) network and eventually realized our customers didn’t want it. We diverted lots of smart people and spent lots of money on a glittery opportunity that was a complete loss of time and revenue. Now we like to say, “Never bend over a dollar to pick up a quarter.”

Of course you could argue that PetFlow.com wasn’t in our core competency, but while the category itself is different we knew the model inside out. In our online advertising business we worked with Netflix, Blockbuster, Columbia House, and other major subscription-based services. We knew how to land and develop long-term customers. So we stuck to our core competency, at least until we had to…

Take over when you have to. We started out using a third-party logistics (3PL) provider to handle fulfillment. The problem is that once you reach a certain growth rate it’s tough for a 3PL to grow with you. When our 3PL started to struggle—missing ship dates, shipping orders incorrectly, shipping to wrong addresses, etc.—we knew we were in trouble, because from a business owner’s standpoint there are only two things that matter: How many customers you have and how long you keep them. So we stopped advertising in June, leased our own facilities, and jumped headfirst into warehousing and logistics, even though it’s something we knew nothing about. We thought we could use others to handle critical tasks but we were wrong.

As daunting it seemed, we got really smart people to help us. We found the best in breed software, found a staffing agency to help us hire great people, and already we’re more efficient than our 3PL had been.

Our business is highly dependent on scale and growth, and it’s really important that we deliver consistently... so core competency or not, we had to take over.

Delegate—and then delegate some more. Our employees typically don’t need to ask for permission. We give employees a specific task and trust them to make the right decisions; if they don’t, together we’ll figure out what to do better next time—and then everyone will know what to do. Then, after we delegate we...

Don’t micromanage. I ask people to only copy me on emails when they want me to know about something, not because I have to know. When employees feel they have the authority to take action and generate revenue for the company, they’re a lot more productive.

Find what matters and then excel. We don’t try to make PetFlow.com a pet food “discovery” site. And we don’t try to educate our customers about pets or pet foods because they’re already extremely knowledgeable. Our goal is to make it easy for customers to purchase what they already know they want, so we focus our energy on making our shopping cart and checkout system as simple and easy as possible. “More” isn’t always better. Sometimes "more" is just distracting.

Let your customers drive your business. We currently have about 4,500 SKUs and we’re expanding all the time because we let our existing customers tell us what they want. Customers will buy what they ask for, so find ways to ask. When your customers tell you what they want and you give them what they want they’ll stick with you for a long time.

Best 2011 Books for Entrepreneurs

Don’t Be Afraid to Break Stuff

Harness Creativity by Thinking Inside the Box

In spite of the Pets.com debacle—in fact, partly due to the highly public failure of Pets.com—the two launched PetFlow.com, a scheduled online pet food business, in March 2010.

Our business is highly dependent on scale and growth, and it’s really important that we deliver consistently... so core competency or not, we had to take over.

Best 2011 Books for Entrepreneurs

Don’t Be Afraid to Break Stuff

Harness Creativity by Thinking Inside the Box

Coffe shop around the world

Monday, 26 December 2011

Making Money Online Forum

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