I woke up at about 4am, made coffee, and read stories by Miranda July, Charles Bukowski (from his book “Hot Water Music”) Nora Ephron (from her book “I remember nothing”) and half a story from John Updike before I was ready to start my own writing for the morning. It was 4:47am when I got an instant message on Facebook. “Hi James. Can I just get one piece of advice from you”. I didn’t recognize his name. “Ildar” something.
The sun was just peeking through the curtains. I felt good. Within a few minutes, the first train going into the city would pass by the house. I like the sound of it. I don’t like to talk to people so early in the morning. I like morning sounds. Privacy. That’s why I wake up early to start writing. I wasn't sure I wanted to IM with anyone at 5 in the morning. But...
“Sure,” I wrote.
He had a business selling eco-friendly bags. And he wanted to raise money from venture capitalists and wanted to know how to go about it.
Here’s a bag:
The IM conversation is below. My notes are in brackets. I apologize in advance to Ildar if I was a little rude. I want to be helpful.
Me: Do you have customers? You should get health food stores or other organic-focused stores to buy bulk from you.
Ildar: Well, my main concentration is not reusable bags, but handbags, backpacks, messenger bags etc. No stores. We’re only selling to consumers.
[ Mistake #1: Not a broad enough definition of who their customer is. When just starting out, the focus should be to sell to anyone you can and be creative about it. You absolutely need to get a customer. No customer, no business. Important rule: you want to take the hard problems and make them easy ]
Me: its hard to market to consumers. Unless you get a huge distribution partner like a Walmart or Macy’s. Can you get a big chain to invest / take equity/ in exchange for distribution?
And then you can raise money but by then you might not need it. No matter how much money you raise, money wont buy you distribution. It will just buy you marketing. and marketing to consumers is very hard.
Ildar: …look at ebags.com. They had investors, market to consumers, and now they have a multi-million dollar business.
[ Mistake #2: incorrect comparison to others. You have to make sure you are not BS-ing yourself every step of the way. I’m not being critical here. But once you start BS-ing youself you can end up going down a wrong street, end up in a dark alley, and thugs are standing there waiting to strap their belts around your neck.
Ebags.com raised $30mm from Benchmark Capital…in 1999. 1999 does not equal 2011.
Its hard to sell things. You can’t just put up a website and begin selling organic bags. In an earlier post, I said the easiest way to be an entrepreneur is to start with a customer.]
[Rule: The 5 Wins Principle]
Me: you need to have 5 “wins” in order to even THINK about attracting venture capitalists. Sample wins include: stores buying your bags, Walmart taking equity in exchange for distribution, revenues increasing month over month, light at the end of the tunnel in terms of profitability, some cheap way to market.
Raising money is very, very hard. Find easier problems to solve first. Solve them. Then go for harder problems.
Here's our wins:
1. we have all our vendors drop shipping products for us - we don't have any physical stock – so limited expenses for inventory and warehouse, etc
2. we've seen constant growth in sales and revenue over past 6 months due to increase in rankings in google, and other marketing
#1 is no good. Everyone has it. This is the Internet. The entire idea of the Internet is you don’t have to carry physical inventory.
#2 is good [but not really. See below.]
3. we live in the time of "organic boom" and sales of organic products will be constantly going up, besides with ban of plastic bags in many cities - we are in a good shape for future profitability
4. we developed a strategy when we give 5-10 % of every sale to charity - that will create word of mouth, and good for PR
#3 is only ‘ok’ if you can prove #3 by getting distribution or getting some store to bulk buy your stuff. Otherwise, if no proof, then nobody cares about “organic”. [Rule: Dont BS Yourself. If no customers, then no business.]
#4 is no good at all. Venture capitalists don’t care about charity. They'd rather you take that money and build your business. The PR value of giving to charity is almost zero.
Better PR is having naked girls carry your bags on subways while making out with each other.
Ildar: hard to convince them probably :)
Me: Yeah, thats why its good PR. Its too easy to give to charity.
Ildar: Not everyone does, though, even if it's easy
[ Mistake #3: Why argue with me about this? ]
People want to get bags that make them look good. The organic stuff helps a tiny bit. You dont have to further give to charity. Its like you're begging your customers to buy your stuff. ‘oh, we are so good you should buy us even though you might not like the bags.’
So… the only real "win" you have is increasing sales for six months. How have sales increased? What were sales last month.
still in single thousand digits
Me: Ok, so you can’t count that as a win. No BS! You need to do something drastic after six months of sales and ‘single thousand digits’ sales.
- You HAVE to sell to stores in bulk or give up equity to get distribution. Go door to door to stores. Hustle. Get one store to buy a bunch of your bags and you have a customer.
- or see what happens if Kloe Kardashian tweets you ever day (use something like celebritytweets.com to get her to tweet your bags for $3000 a tweet)
- or... get naked girls making out in subways while "wearing" your bags. Do it simultaneously in every subway in NYC.
:) I see
Nothing else will work
If ebags didnt raise that amount they would’ve been out of business almost immediately. You want to avoid that if you can. So you have to sit down today and start thinking really wide outside the box
Yeah, i guess retail business is tough to be in
It doesn’t have to be. But you have to go crazy to make it work.
Give up equity to get customers, go to the heads of stores, go to a Kardashian, do something crazy in the marketing. Just organic bags online is not going to do it. You have to sit down right now and come up with 50 ideas for going completely crazy.
Give up 90% of equity to a walmart if you have to. Again, i'm taking an extreme. but thats the way you have to think. Think WAY out of the box from how you've been thinking
------- [End of IM conversation. Ildar said thanks and I signed off.]
Now its 5:50am. I just spent an hour of writing time. Claudia is up. I ask her if she thought it would be interesting for me to write down the IM conversation in an article.
Yes, but only if he gave permission?
Because you don’t want to do anything over the line.
Its ok. He gave permission. He was fine with it. I’m even going to link to his site.
You know what else is over the line?
Not refilling your wife’s coffee.
So I did.
Follow me on Twitter if you have other questions for me
- The Easiest Way to Succeed as an Entrepreneur
- You Can Call Yourself An Entrepreneur Only if….
- How Being a Sore Loser Can Make You Rich
And finally, if you have any other suggestions/ideas for Ildar please put them below. He can handle negativity (I asked him this) but try to make it constructive. Or feel free to ask other questions in the comments below.