Most people will ignore this post because I used the word “failed” in the headline. Don’t make the mistake that they’ll make.
If you only admire successful companies and don’t examine the failed ones you won’t get a complete understanding of what it takes to build a business.
Eric Ingram gave one of the most insightful and useful startup postmortems that I’ve ever heard. If you listen to this interview, you’ll hear how RedTagCrazy generated over $800,000 in revenue by offering discounted designer clothing online and why it closed.
Eric Ingram, BetaCandy
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Here’s the program.
Andrew Warner: Hey everyone, my name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart.
What can you learn from a failed startup? Join me today is Eric Ingram. He is the founder of RedTagCrazy. He’s going to do something very generous, he’ll share a painful business experience, so we can all learn from it. Eric’s company reached nearly a million in revenue and had about 40,000 unique sales before shutting down. Let’s find out what happened.
Eric Ingram: Thank you.
Andrew: So I said nearly a million dollars in sales, exactly how much did you guys generate in sales?
Eric: We did about $840,000. Most of that was done in the first six months, which is part of the pain.
Andrew: Six months, really powerful, and then it went down, is that what happened?
Eric: Yeah, so we started off like anybody. Launched a website, had some bloggers get us some early press, got a few breaks with the press early and just got some great momentum. In a period of about four months, we shot up from $15,000 in revenue to about $100,000 and from there we had some troubles financing our inventory, then some investor trouble, and finally our community sort of threw it back at us and we started to decline.
Andrew: All right. Let’s go over this in detail, but first I want to make sure that everyone understands what RedTagCrazy was. What was RedTagCrazy?
Eric: RedTagCrazy was a one deal at a time women’s fashion site. Essentially we found discounted apparel and sold it one at a time, similar to a Woop.com model. Actually much more similar to a SteepandCheap.com are a Whiskymilitia, those were the sites that inspired me to do it.
So that was the model. I went into it really looking to create a unique experience and to focus less on, you know, what is the market that I’m creating product for?
Andrew: So before we go back into that, I see a sign behind you, everyone watching us sees StartupLi.st. What is StartupLi.st?
Eric: StartupLi.st is a list of startups [laughs] quite simply. We’re looking to encourage early adopters to discover and follow startups and follow their activity so they might make comments from Twitter, Facebook, might have milestones in CrunchSpace, and you can follow all of that in one place. It’s my new passion and this banner, we actually created for a conference a few months ago that really kicked off the whole thing.
Andrew: Okay. So that’s the new business that you’ve launched recently?
Andrew: And the idea is, it’s kind of like GDGT which is a gadget site where you can track the gadgets you own, salivate over the gadgets you don’t have, and just keep track of what’s going on in the gadget industry. Here, it’s the same thing for startups. The benefit for startups of being listed there is that they can find early adopters who are going to try their software, try their web apps, whatever it is that their doing, give them feedback, be engaged, and then hopefully be the basis of a future growing community and user and customer base.
Eric: Exactly. That’s the goal.
Andrew: All right. Do you have another business beyond that?
Eric: Gosh, do I.
Eric: I’ve created a few businesses over the years. Yeah, we still have a drop ship website called TrulyWeddingFavors. It’s still humming along, but we’re not paying too much attention to it. We also have another called TrulyBabyGifts, which is sort of a takeoff on the first one. And we still have the RedTagCrazy platform and I’m getting a lot of e-mails these days from people interested in using that.
Andrew: I bet.
Eric: So I’m still interested in finding somebody to use it.
Andrew: I think as we talk about how you built up RedTagCrazy, people are going to say, “Wow, that’s a pretty unique and useful features on the site.” Are you living now off of TrulyWeddingFavors.com, the drop shipping company that you mentioned?
Eric: It makes revenue, not that much. I would say I’m living off of, right at this moment, some savings and some revenue that’s coming in from our other companies, including TrulyWeddingFavors, but also we have a web development company and we have clients that have been with us for about four years. So that generates the majority of our revenue.
Eric: I did some consulting a couple of months ago, so I have some cash left over from that. But we’re really putting everything into this new company.
Andrew: How many hours a week are you spending on the consulting work now, on the development.?
Eric: I’m not spending any doing the actual work, but I have a team of three full time developers.
Eric: I do some management there, help them out when they need it. You know, some client discussions here and there, so maybe three or four hours a week, at the most.
Andrew: Okay. All right. So let’s go through the story of how you got here. Somewhere in 2008 you saw a website that inspired you and led you to create this business. What was that website?
Eric: That website was WhiskeyMilitia.com. I remember seeing it for the very first time. They had a Gravis backpack on sale for like $12 and I’m not really a big shopper, never really have been, online or offline. And I saw this site, I saw this deal, and I felt like I needed a new backpack at that moment and thought, “I want this.” This is one of the few sites that I actually feel really compelled to buy, seeing that it was like 70% off retail. But I started clicking around, looking for the home page of the site. You know, “What is the home page of this WhiskeyMilitia?” And I realized pretty quickly that that was the homepage. There was just one product for sale. Pretty quickly looked at the timer that looked like the product was going to end or run out in a short period time. There was an indicator that showed how many people had bought it and that was really interesting to me. I realize now probably because I was an entrepreneur and I was into building companies and building specifically E-commerce companies.
Eric: So I looked at that and it just intrigued me. I watched that number, the next product came up, I watched that number, and they just kept rolling by and I just got kind of addicted over about a day or two of just watching these numbers, and in my head, you know, “How much are they selling?” And this is really fun and interesting. So much so that I thought, “I want to do this.”
At that time I didn’t have any product and didn’t really have any idea what I wanted to do, but I thought, “If this site can get me coming back every day,” and it had a widget that you could put in your browser, so of course I had that installed. I was looking at the site every day, every hour, just really intrigued and thought, “If this gets me, somebody who’s not typically a shopper, to use this so much, then I’ve got to do this. This is really interesting.”
Andrew: I know what you mean. For some people it would be just an interesting novelty for a moment and then they would move on with their lives, but I think for entrepreneurs seeing how much people make, seeing how the business grows is really just so captivating. We can watch it the way others might puppies in a mall window.
Andrew: So you kept watching it and here’s what I would do if I was in your place, and I think you did the same thing. You watch it and you say, “Huh, one page website, maybe a couple of frequently asked questions type pages, policy pages, easy order credit card processing, I got it already, I can do that, I could probably put the whole thing up together in a week.” Were you stripping it down and saying, “How can I rebuild it myself?”
Eric: Yeah, well all that stuff you just said is very common. I didn’t think too much about all that. I just thought, “How can I take what I see here that interest me and make it better.” Because I liked it, but I thought I could do it better. I thought, “This real time thing is really cool, but what could I add to it to make it even more real time.”
For example, you had to refresh the page to see the updated data. That drove me nuts. I thought, “This is the new age, we’ve got Ajax, we’ve got all these new technologies. Why can’t I make the page pop and look alive when you’re looking at it?” So just the challenge of doing that is what really drove me to want to do it. And how do it, how to build all the elements around it just seemed like second nature to me.
Andrew: All right, I dig that. So you decide to do it and then how long after you decide to create your own version of the site, with your own products, do you have it launched?
Eric: Well, it was probably of month of looking at this site before I thought, “I have to do something like this.” It was just driving me nuts. And this is after I had launched another business. I had already created TrulyWeddingFavors, that was the first business that we launched after I quit my programming job. And so we were trying to build up that company and we had big ideas about what that could do. And here I am three or four months into it, stuck on this other idea that had nothing to do with the business I was trying to build at the moment. It kind of made me realize the business I was building was pretty boring, and it was.
So I’d say I looked at the site for about a month and then it just drove me nuts and I had to come up with a concept, so I did that. I basically stayed up late one night, created a mock and the very next day showed my wife and she just looked at it and said, “This is great. We have to build this.” And I thought, “Yes, we do have to build it.” So from on we just started researching. You know, how do we do it? Where do we find the products? What does it look like? Can we really get a discount that allows us to sell the products at this price? And I’d say we pocked around on the idea, looking for products for maybe three months before we finally were confirmed. We went to a trade show and we found the products and it was exactly what we needed. And that gave us the kick start, basically.
Andrew: The trade show was Off Price Show. You were looking at women’s clothing that was higher end designer that you wanted to sell at a deep discount. What I’m wondering is, you these other sites that were doing a similar thing, why didn’t you take that concept and apply it towards something you really love like, ‘Are you into sneakers? Are you into web apps? Are you into productivity software? Books?’ Why not shift it to that?
Eric: Well, that makes a lot of sense now. Back when I did it the only thing I was into, I was into politics, didn’t really feel like there was a market there and I was in to building companies. I mean when I get into that, my whole mind just wraps around it and I have trouble focusing on anything else. So I wasn’t really into anything else. I was into building a great experience at that point. That was all I could think about. So I just thought, “What is a great market that I could make a great site for?” Women’s fashion just popped into my mind as being a big market, and that was exciting in and of itself. But I really didn’t understand it and I still don’t, to be honest.
Andrew: You know though, I think the logic behind it made sense. The logic of saying, “Women are buying online. We can offer this product that has a high perceived value at a steep discount.” I think a lot of it made sense, that there’s conversations about it. In researching this interview, I looked at different conversations that were going on around your site on message boards. And you’d see those kind of conversations around other topics. The only product that people would buy and have those kinds of conversations around have to do with Apple software, that you see a lot.
Eric: Right. Right.
Andrew: I didn’t even know this before I researched you, there are denim message boards where people just talk about denim.
Eric: Oh, yeah. It’s big.
Andrew: And they talked about your site.
Eric: And, of course, I saw all that when I researched it.
Andrew: Okay. So I think there’s a logic to it, but what you’re saying to me though is, “Andrew, I didn’t know it and wasn’t passionate about it.” I want to ask you later on why that mattered, because I got to believe that a product is a product is a product. You’re selling a widget as long as you understand the software behind it, as long as you understand the mark up, you know where an audience is, who cares if you wearing it or not? Can the only people who sell bras be women who wear bras? We’ll find out why it matters.
Let’s move on though. You find the clothes and you say, “All right, I’m going to invest how much money?” How much money did you decide you were going to spend on the clothes that you’re going buy and then sell on your site?
Eric: That is a great question, because I wish I had thought about that more deeply before we started. What we did basically was to look at our bank and said, “What do we have in credit? What do we have available?” I guess I learned before I became an entrepreneur the value of risk and that sort of became the cornerstone of everything I did. I felt like I had to take a risk, I had to just go all in, and I’m still doing that to this day and I still believe in that. But when we started to look at how much do we invested? What do we plan for? We didn’t think that hard about it. We just did it. Literally we thought, “Wow, we’ve got $10,000 in profit from our other business in the last few months, let’s just throw that in.”
You never plan to go small, at least I didn’t. I thought this thing was going to be huge. I wanted it to be huge and I thought, “Any amount of money I have now is not going to be enough, so let me just put everything I have in and I’ll find more money later.” And I did find more money later and that caused some more problems.
Andrew: All right. Let me pause here and ask you this. You seem to be kicking yourself for spending $9,000 to buy product, to buy inventory for this business. $9,000 to me doesn’t seem like that much money. Why are you so upset that you spent $9,000?
Eric: I guess I’d say I’m not.
Andrew: Actually, let’s hold off on that answer, because your video just froze. You want to try turning your camera off and back on and we’ll see if we can recover it?
Eric: Yeah, let’s see. Does my camera even have an on and off?
Andrew: No, in Skype turn it off and back on.
Eric: Good point.
Andrew: I want to make sure that I see you. That way if I ask any questions that make wince, I’ll know.
Andrew: So far it’s been okay, huh?
Eric: Oh, yeah, it’s been good. I’m surprised it didn’t crash earlier. Come on, you can do it. Why would it do that? It’s so strange.
Andrew: Here we go.
Andrew: Okay. So, I’m feeling like you’re kicking yourself for this $9,000 of spending on inventory. How do you feel about that?
Eric: I’m definitely not kicking myself over it. I thought it was a great move. I would do it again and we ending up spending much more than that, obviously.
Andrew: So you’re not, I might have been picking up on the wrong signals or misreading your signals. So you spend this money. Why spend to money all up front instead of promote . . . your video just froze again, I think.
Eric: Now that’s something I wish I’d thought of sooner. Well, I guess that’s the only thing I thought we could do at first, because we did start to do consignment sales directly with manufacturers and brands. But it didn’t work out for the reason that I thought it wouldn’t work out in the first place. When you do those kinds of deals the inventory is sitting in a manufacturer’s warehouse, the customer pays for it, then we have to get it shipped to our warehouse, and then we have to ship it to the costumer. They won’t do drop shipping. They’re not set up to do that. Even if they did the experience is very broken up.
We created this new type of shipping model called hold and ship. Where a customer could buy one item and then hold it and the next item they bought, if they had others on hold, it would only cost $0.99 extra to ship it. So basically they’re grouping all their purchases into one shipment. And these might be spread across weeks.
So we felt like that experience was impossible without warehousing and buying the inventory ourselves. And if we did the consignment deals, which we did later, the sale would end, we would place the order and then we’d have to wait for the manufacturer to ship the order, you have all that time in transit and the suddenly the customer can’t get their item for two weeks. And that’s how these other sample sale sites work today. We felt like that experience just wasn’t good enough.
Andrew: When I mentioned earlier that you guys had some innovative ideas in this space, hold and ship is one of them. I don’t think I’ve seen that anywhere else and I can understand if I’m asking you to hold one product that I’ve bought from your site, I’m probably going to go and buy another one. And I’m probably going to be more likely to buy the next one that offer tomorrow and the next day and the next day after that, because I’m holding on to this one product. I made a decision and I’ve got to follow through.
Eric: And that really worked that way.
Andrew: That worked.
Eric: Incredibly well. It worked so well that WhiskeyMilitia ended up implementing it after we gave them some stats about how well it worked, they wouldn’t convince their CEO to do it.
Andrew: Why did you give them stats?
Eric: I don’t know. I just felt like helping them could help us, and they did help us, honestly. They gave us some stats about their inventory and how often they bought an turned inventory, which ended up being pretty useful to us. It kind of gave us a way to start planning, which was almost too late, but . . .
Andrew: At what point did you reach out to them and say, “Hey, it’s time for us to exchange ideas.”
Eric: Good question. Actually they reached out to us. Two weeks after we launched a fellow named Sam Bruni [SP] e-mailed me, he was the general manager of ODAT over there. Whiskymilitia is owned by Back Country and it’s one of their brands. So he contacted me and said, “Hey, what you’re doing is interesting maybe we can share some information. And a lot of people probably would have said, “Well, they just want to get information from you.” But I thought, “Well, I do too. I want some information from them.” And it was great. We had a great back and forth, and traded some useful and helpful information for both companies.
To be honest, I don’t see personally, the benefit in protecting information. I think it’s over hyped, this idea that you can keep everything secret and somehow you’re going to get a market foothold. I think in more of what Gary Vaynerchuck describes as the “Thank you Economy.” I’ve been thinking about that lately, because that’s really how we’ve been operating these days and it really makes a lot of sense.
Andrew: Okay. All right, let’s keep going. So you buy the inventory, you start to run the website, and within the first month you make how much in sales?
Eric: Very first month we did $9,000 in sales and I think we had a total of $45,000 in our costs in inventory. Now this was a pretty scary time for us, because we had this inventory, we purchased it all cash basis. Well, that’s not true we had some of it on credit too. And since we were focusing so much on this new business we don’t doing as much client development work that we’d done in the past and we falling pretty short. American Express came calling and you know, “You have to pay your bill in the next 15 days.” And, “Oh, well. Whoops, I shouldn’t have used that account.” So we were just about underwater.
And it felt great to do $9,000 in sales in our first month, because our prior business, it took three months to reach that. So we were excited, but also pretty afraid of, you know, “Where are we going to get the money to pay off this inventory and hopefully sale will pick up.” $9,000 is great but nowhere near what we needed.
Andrew: I’m sorry to interrupt, but let’s hold off on the fear part, because I want to know how you get to $9,000 first month. You’re a guy from nowhere, don’t know this space, haven’t lived in this space, haven’t blogged about it, weren’t in the newsgroups, don’t have friends who are bloggers in this space that go back to when you started out years ago. You come into this place and you get $9,000. How do you do that? And I’m going to come back and ask about the fear, because I want you to be open about it. How do you get $9,000 in sales?
Eric: Actually we did have a blogger friend. So this is what we did initially. We built the website, I think we built the whole site in about a month, myself and a designer that worked with us and prior to that we had a blogger that helped us with our wedding site, writing content, writing wedding blogs, things like that. And lo and behold, right before we launch, like maybe a week or two before we launch, we find out that she happens to be a fashion blogger. We didn’t even know this and we were like, “No way, you’re kidding, right? You write blogs about fashion and you happen to have a lot of friends that do the same? Well, maybe you can help us out and tell them about it and blog about us.” And she did that. Her name was Cory Ellis. And that was incredibly helpful.
We did get a good amount of traffic our first day and it really sunk after that and then it kind of slowly, I don’t even want to say it climbed. But that initial push, the press release and that initial blog announcement gave us just enough momentum to earn that $9,000 in sales. And I’d say that . . .
Andrew: The press release was effective?
Eric: What’s that?
Andrew: Press release was effective?
Eric: I don’t know, maybe it was effective in giving bloggers some material. [laughs]
Andrew: Gotcha, Okay. So it’s not that it was a direct . . .
Eric: I don’t think the release itself was very effective, just the blogs were it really where it came from.
Andrew: Cory Ellis. I read the blog that she wrote when you first launched. It wasn’t fully focused on you. I think it was just about this new space with discounts and how you should buy discounts and how you might want to buy certain things in bulk and other things you might want to be a little more restrained about. And on the bottom of it I saw in little tiny print she said, “Disclosure: I do marketing for RedTagCrazy.com and some other site.” What does that mean? You hired her to do this?
Eric: I don’t even think we paid her to do it. I think she just did it, because she was already in the industry, she know a lot of people who she felt could help, and she was a great person, really nice. So, yeah.
Andrew: So you didn’t hire her, you just had a relationship with her and you asked her to blog and you asked her to tell friends to blog?
Eric: Exactly. She did.
Andrew: And from her and her friends you got $9,000 in sales?
Eric: Yeah, and there was a lot of viral components to the website and I thing that helped. So after the initial group saw it, you’d go to your account page and you could create a widget that you could share on your own website that showed the current item for sale and it would have a link, so that if one of their friends clicked the link and joined, they would both get $5 on their first purchase. So we tried to create those viral elements initially. We didn’t see that in and of itself create a lot of activity, but it definitely got a lot of links out there and we started showing up really quickly for some pretty impressive search terms in Google. And I think maybe that combined with some other blogs helped out.
Andrew: You started showing up because the widget linked back to you site and has the right anchor text?
Eric: Oh, I didn’t even notice the anchor text on that. That’s clever, you see. One of the things that bothers me is, that we just don’t respect failed entrepreneurs enough in this space. It’s not so much that we want to learn what to avoid, though that’s really helpful, but the fact that they took a shot I think it inspiring and beyond that there’ messages and lessons that often die with the company, because we’re too embarrassed to conversations like this.
The way that you got your early press is useful for other entrepreneurs to learn. The way that you created that hold-and-ship is useful for other entrepreneurs to learn from. And we’re going to talk about other things, “Chick Chat.” We’re going to talk about how you got thousands of comments on your post. You did a lot of things right here and I don’t want them to die with the company. I want people to learn from them and use them. And at the same time I want an open conversation about the failures and mistakes and I appreciate you being willing to do that.
So that helped. That widget helped. The $5 helped. I know it helped, because when I read blog post going back to when you launched, people put their e-mail address in the comments. People can go right now, I think, Mashable wrote a blog. If you do a search for Mashable, RedTagCrazy I bet you’ll find email address of people in there in the comments saying, “Use my email address as a referral code so that I can get $5.” They were, like, cheering you on that way.
Eric: Yep, that’s right.
Andrew: Let’s get to the fear now. This is all going great. I’m excited about it as people can hear in my voice. You were excited about it at this time, but there’s also fear. What was going on? Tell be about that side of things.
Eric: Well, I think every entrepreneur deals with this and for me it was a big hurtle to get over. All the way back to when I started my first company, it was a totally fearful experience. Just feeling like, you know, “I can build the product. I can do all this work.” And even today it drove me to build the company I’m working on now, so I think fear can be harnessed in a lot of ways. Before we launched and even after we launched we had this fear, you know, “Is it going to grow the way we need to?” And one thing that really hurt us early on is that it caused us to make some bad decisions about the company.
For example, when we launched, in that first two months we were pretty fearful of not being able to pay our credit bill that we had bought this inventory with and so we started marking down inventory. Feeling like, “Well, if we could just recover our costs, we’ll make it up on the margin.” Right? No. We thought we’d cut our margin and that would help, because we’d get the cash flow, we’d be able to pay off the bills and things would be okay. And we justified it, but it was definitely driven by fear and it turned into a long term trend in the company that I think led to its ultimate decline six months later.
Andrew: You’re saying you needed to pay off your credit card debt. In order to pay off your credit card debt right frickin now, you had to get cash right frickin in the door and that meant reducing the price below your costs. That meant the product was moving out the door fairly quickly, you collected the revenue, you used that money to pay off your credit card debt, but now it’s time for you to go and get even more inventory so that you have more to sell. You do the same thing, that cycle just goes and goes and goes and goes. And that’s what put you at risk and that’s one of the big issues in the business.
Eric: That became the long term trend. We didn’t start discounting that deeply in the beginning. But we felt like we’re building a site that’s based on [TD] these products, so let’s use that to our advantage to draw in new customers and I still think that can be a good idea, but it’s not a good way to solve capital problems. It’s a great way to draw customers, bad way to operate cash flow.
So initially I think we discounted to maybe 10% or 20% margin. And people really loved the site and one thing we learned later that it really wasn’t about that extra discount. Once you showed it to them you could never take it away. So if I said, “This will be 10% off tomorrow and the next day it won’t be.” That next day when took away the discount, they’d be really upset. But if you never gave them the discount in the first place, it really wouldn’t change that much. That’s one thing we discovered later. Too late is all I can say.
Andrew: You’re saying that if you didn’t feel a sense of desperation and you kept the prices where they needed to be, people would have paid those prices?
Andrew: An extra 10% here or there is not going to make the decision for them on these products. I guess on electronic products, which are easier to price maybe is might, but here it’s a little more unique. You’re selling items on a grid somewhere that shows where they’re cheapest, on one of those rate grids
Eric: Exactly, yeah.
Andrew: I see. That’s interesting. Okay.
All right. I mentioned Chick Chat earlier. What is Chick Chat?
Eric: Chick Chat I think is the real reason we ramped up as quickly as we did. Chick Chat was this idea, and it was funny it was like a last minute idea and it really became the focus of the whole website. I looked at Whiskymilitia and I loved watching the items sell, but they had a forum page that was hidden off to the corner and you could see what some people were saying about the product. But again, it was hidden so I would estimate that maybe 2% of their entire audience ever even saw this page and I thought, “That’s one of the most interesting aspects of this. I want to put that right dead center on the home page and see what that does.” And again, it was like a last minute decision, we even considered not doing it. We talked about, you know, ‘Do we really need comments on the home page? That will make it feel like a blog. Do we want it to be a blog?’ We had this sort of internal argument about it. We ended up doing it just based on this hunch that it would be a lot of fun.
Initially not a lot of comments or some questions like, “What is this? Is this real? Can I really type in this box?” And it just really exploded. After a pretty short time, maybe about two weeks into it, when people realized they could have ongoing conversations there, and it acted in real time, so when click “post a comment” a box would come down with nothing but the comment box. It didn’t say log in. It didn’t say give us your credentials. It just said here’s a box to type a comment and that was a little bit curious to people. So they would type a comment thinking what’s going to happen when I click this button? And they’d click the button and down would roll a very simple, “Okay, now give your e-mail and create a password.” We did send them to another page. We didn’t interrupt the experience. So they could literally create on account after they typed their comment and when they clicked “submit” the whole thing would kind of slide up and then the comment would slide right down, in one interaction without being interrupted. So, I wanted to make it really simple and easy to adopt and that really, really worked. Just eliminating the mental barriers of, “Do I want to create an account? Do I really want to sink in?” It just unleashed a crazy amount of activity and it became what you might see on Youstream today, what you might see on Twitter today, these real time conversations occurring. Early on after the first month we were at a rate of, probably, at couple of thousand comments a day. So it was more like a chat room than a blog comment system.
Andrew: I get that and I don’t understand why? And we’ll get into what the substance of it is in a moment. The reason that I’m spending so much time on this is, when you shut down there were people who were upset that Chick Chat was going away. When I researched . . .
Eric: That was what they cared about. That was all they cared about.
Eric: That was all they cared about.
Andrew: That was all they cared about?
Andrew: That was huge. When I was looking at comments on other blogs and forums to see what do people think of them back in the day, there were a lot of people who said, “Chick Chat rocks. That that’s where you could get advice.” And I’d say, “Advice on clothing? That’s what they’re excited about. Well, all right, so that’s what they’re excited about.”
What I’m wondering is, I have real time comments on my site. Right underneath the video where you and I are talking, people are going to see a little box from Discuss. They probably won’t even have to enter their email addresses, because its already in there from some other Discuss site that they were on. They just have to add a comment, hit submit, bam. We’re not going to get 1,000 people commenting on this. We’re not going to get 100 people commenting on this. We’ll get a couple of dozen, maybe three dozen tops, and this is pretty typical for sites. Why did you end up with 1,000 people? A 1,000 comments.
Eric: There still some mysterious element to it. It’s a lot of factors. It’s not one thing. I think it had to do with the simplicity of it, in that they didn’t have to indentify before they started. I think it had to do with the topic, we we’re talking about women’s fashion. So it’s an ongoing conversation. In one stream you might have one person make ten comments. Not something you would typically do in a blog, because when you’re looking at a blog post you don’t have this feeling that there’s a lot of people looking at that page right now. So you just think, “I’m going to post a comment and I’ll leave, and maybe I’ll come back later after somebody sees it.” But you don’t get this sense that people are going to see it immediately. What we did was we made it feel like everybody’s watching this chat room right now, so if you post a comment there’s like 1,000 people who are going to see it and they’re going to reply to you in a few seconds, so you might not want to walk away from the computer.
Andrew: How did you communicate that?
Eric: To be honest, I think one of the simplest ways we communicated it was, when they entered their comment it showed up immediately. It didn’t say, “Waiting for approval.” I don’t know, I think literally just the visual interaction of writing the comment and then seeing it appear the way it did, gave you the sense that, “Wow, okay. So if anybody else writes a comment, it would do the same thing.” And it did work that way. So, for example, if I’m looking at your blog page and somebody makes a post, I’m pretty sure I don’t see that until I hit ‘refresh’. And that’s most always the case with comment systems. With our system it was more like a chat room there.
Andrew: I see. So maybe it’s I’m on the site and I see a new chat message come up, and I see in real time, oh, that person just wrote it right now. I should add a comment to it. Versus discuss, which kind of does real time and you don’t have to hit refresh and the page, but you do have to hit a button that will load the latest comments. I see. So basically what you created was a hybrid between a chat room and a message board or a comment box and I can see why that would be more interactive.
What about this? The substance of it: people were asking for advice, people were turning to each other for help. From what I can tell it was your wife being in that comment room under, maybe not even her real name, encouraging certain kinds of conversation. How much of it was that?
Eric: She did a lot of that in the beginning and that sticks with me now. I think when you create a community you have to ignite it. You can’t just put it out there and wait for other people to ignite it. Sure it’ll happen sometimes and it certainly does, but in our case we felt like it made all the difference to go in and comment and show people how it worked. You know, we would see an item come up and nobody was talking, so we’d say something about it. We’d say, “This item is great quality. It’s really soft.” We’d just come up with something. I don’t remember what it was. And really she did most of it. And that got people to reply and when you start to see the comments rolling it was very encouraging. It made you want to jump in and add your two cents.
So I think we had to ignite it and once we kicked it off that way, it just kept going. I mean, day and night we would look at the site and here come more comments, more comments. It was literally addicting to watch, because you knew there was always going to be somebody there.
Andrew: You use the word ignite. If I go into my comments I might thank people, like I’ll see a comment that’s interesting I’ll say, “Thank you.” See another comment that’s interesting I might add a response to it and do it for as long as I can and then get back to work. You’re igniting a conversation and you don’t ignite a conversation by saying, “This looks like it has good fabric.” What did you guys do to ignite the conversation? I want to learn from that.
Eric: You know, honestly, I’d have to go to look at what we did, because I can’t quite remember. I think we asked questions; that’s a good way to do it.
Andrew: That’s a good way, yes.
Eric: I think we’d ask people, “What do you think about this item? What do you think about brand? What kind of brands do you want to see us sell?” Another thing that I think really helped is, we were very open, we tried to be completely transparent about the company initially. We were like, “Hey, we’ve got three people in an office. We’re a small company.” We didn’t try to cover it like a corporate veil or anything. And as funny as that is, I didn’t reveal my identity for several months. I was just the admin. And everyone else was known except me, because I didn’t want to be outed as the one guy in a women’s shopping site. But I think that added some authenticity to it. People liked that and they wanted to interact with us as entrepreneurs and sort of in control of this community that was obviously growing. You could see people logging in, there was a Who’s on Line list on the side. You could kind of get a sense of how many people are here, although we didn’t introduce that initially. That didn’t come for, like, a month or two later. So, I think you could just kind of see it happening at that made you want to dig in.
Andrew: All right. You were also igniting conversations on other sites. I went back and I looked at a forum called AuthenticForum.com where you guys got caught. Caught doing what?
Eric: What did we get caught doing? I’m not sure. I remember something about that.
Andrew: Posting in the comments or posting in the message board links with affiliate code and encouraging people to go buy and posting not as yourself. And you came in there and you said, “Sorry about that, it was a friend of mine who’s using the affiliate code, was being a little too aggressive. We apologize. I’ll go talk to my friend.”
Eric: That’s right, yeah.
Andrew: And then you ended it with, “Happy Shopping,” which I thought was an interesting line at the end. And the moderator comes back and says, “It shouldn’t be too hard to monitor your friends since they’re posting from the identical computer you are.”
Eric: That’s right.
Andrew: So, tell me about that? Let’s toss the veil off of this practice in this space. We sometimes go in and we add comments and we encourage people in conversation and we build up our site as other people. What do they call it? Sock puppets. Tell about how you guys used that?
Eric: Well, to be honest, it was my wife that did most of that, so I wasn’t really too much involved. I’ve tried to stay heads down working on the product and she was doing all the socializing.
Eric: And she was really engaged with it. This was surprising to me, because she wasn’t that into, you know, obviously we built our wedding business, she wasn’t that deep into it, but this RedTagCrazy product just drove her nuts, so she was there on it constantly. She was on this Authentic Forum, she was on other forums and from what I understand, she had a friend over, her name was Stepanie and they were both going back and forth, talking on forums and interacting. And we’d do this with the wedding product too, were she’d go into a forum and say, “Hey, check out this product.” And sometimes they’re like, “Well, no self promotion.” Right? So she would go in and say, “Well I’m so and so you should check out this website, you know, I’m not the owner.” Right?
And that was generally worked. When you’re trying to build a business and you’re struggling, you just want to do everything you can to tell the world you’re there.
Eric: So I think that’s what motivates it. I guess that’s all I can say about it was a self promotion. She wanted to let people know that this is happening.
Andrew: How effective is that? By the way, I’m not here to criticize, and some people are going to criticize me for not criticizing it or I don’t know what they expect me to do. All I want to do is sit here and learn. And between you and me, I’m sure a lot of other entrepreneurs who I’ve talked to here and asked, “Where did you get your early customers?” And they said, “From message boards.” What they were doing was creating sock puppets on message boards and interacting back and forth with each just to create and conversation around there topic. What I want to know is, how effective is it? Since we’re being open now.
Eric: I don’t think it’s very effective at all.
Andrew: You don’t think that was effective, being on message boards didn’t drive anything.
Eric: No, we were, honestly, pretty surprised at how angry they got about it. Like, “Oh, how dare you talk about your own product under another name or even your own name.” That was kind of shocking to us. We thought, “Is it that bad to want to self promote?” We do it like crazy these days, right? We go to conferences with giant banners saying, “Hey, check out our product.” I don’t know, we were kind of shocked and felt like, we kind of felt like the attitude came from not just this particular forum moderator, but almost from this industry. And it gave us kind of a bad taste of the fashion industry in the beginning. And it wasn’t just this one forum and it wasn’t just this one instance. But I can say today the industry I’m in is not like that and I’m glad. But we were kind of surprised to be attacked that way.
Andrew: Okay. I’m actually looking right now. I’ve got Hacker News on behind your Skype window, because I was looking at it before we started, and there’s a post here. It’s called “Hipmunk wants you to run our Android development,” and it’s submitted by Nothing, which is Alexis Ohanian, the founder of Hipmunk. So in this community, in our community the tech world, it’s okay to say, “I’m promoting my business and not only am I promoting my business, but I want you to build my business for me.”
Andrew: And so I can understand that there’s a different philosophy in the fashion industry than there is in our industry. So maybe it didn’t work for you guys, but it might work for other people in other spaces, to go into forums and have these kinds of conversations back and forth.
What else do I want to know. Oh, the moderator though of the forum that I looked at was upset that you did it, was happy that she caught it, and at the same time she wasn’t willing to say goodbye to your ad dollars, because she was an affiliate of your business, she was an affiliate of RedTagCrazy.
Eric: That’s right.
Andrew: Tell me about the affiliate program that’s so effective that someone who’s insulted on the one hand, at the same time also wants to do business with it.
Eric: Yeah, actually the affiliate program was pretty effective. I think in particular, because this was at the time when this whole market was really heating up and I would call it sort of the discount fashion apparel market in the Internet. And just before we launched there launched this other site called GuiltGroup, I’m sure everybody’s heard of it now. Or actually it was quite a while before that, maybe a year before us, they were really early in this. And right around this time the daily deal segment really started picking up and getting steam. So there were a lot of sites out there that aggregated these deals, you know, WhiskyMilitia, they were all on these sites and so we created that program to give to, mostly, these deal aggregator sites like DealSucker.com and Dealoftheday.com or whatever it was. We also thought these forums could be a great to use affiliate deals. It really wasn’t though, there was almost no traffic, I mean, there was almost no attention from these forums. But after that the affiliate program just continued to send sales from the deal a day sites. That was really where a lot of the affiliate revenue went out, was to those sites.
Andrew: What did you use to build the affiliate system?
Eric: We used ShareASale.com.
Sorry. You know what? I’ll be honest with you. I was very busy thinking about how do I guide this conversation, while not listening to the answer? I’ve got to call myself out on that.
Eric: I do that all the time.
Andrew: I said, “I want to make sure that I do a good job here.” You wrote a blog post were you talked a lot about this and I was thinking, “Make sure that you into more depth than the blog post. Make sure that you get more useful details, otherwise people might as well go back to the blog post.” And I was going through that in my head instead of . . . could you give me that answer one more time?
Andrew: No, the answer about, like, how did you get the affiliate program going and how did you make it so effective?
Eric: Well, we just created it, in fact we took the affiliate program we used for our other business and we just showed we . . . at this point we had kind of giving up on our other business just in that it wasn’t as interesting. So we took the affiliate program, slapped a new title on it, created an affiliate page that described the benefits of it. We thought we take the best commission in the market and just top it, and we did that. And we just emailed it out to a bunch of affiliates. Authentic Forum was one of them, Deal of the day sites was another. So we just kind of directly contacted them with our affiliate program. They signed up and they started using it. After that initial push we really didn’t market the affiliate program and it didn’t really grow after that. It was just that initial push.
Andrew: And then, I wonder if this forum had your affiliate program or just your widget. I guess the affiliate program and then she was . . .
Eric: It was the affiliate program, yeah.
Andrew: Okay. June monthly revenue shot to $90,000. What happened there?
Eric: I can say that revenue went that high partly because we were growing and partly because we made a conscious effort to try to grow it that month. And that also happened to be the month where we discovered the huge hole in our process. So we were scaling up, I mean, we were desperate for inventory. We had a lot of demand. We could have sold a lot more products if we’d just had the products, right? That was what we felt and obviously there were a lot of lines that we put that sold out really quickly. I think our quickest product we put up was a particular blouse that we sold. I think was sold 30 of them in seven in real time, which is really fun to watch when you see the thing just ticking down. That became pretty addictive.
But in the month of June we decided, partly because we had this investor, that we need to see some growth, right? I mean, imagine, we had already grown from $9,000 to $70,000 in five months and we thought, ‘We need some real growth. This isn’t enough, let’s go bigger.’
Andrew: All right. I like that attitude.
Eric: So we thought, “Let’s do more sale events.” And this around the time we started doing these sample sale events. We started contacting brands directly eventually. So by this time we were doing that. And we contacted these brands and said, “Do you have anything you’re looking to liquidate, and what kind of price? And this is what we do on our website, would you be willing to offer us a deal?” So we got those deals and we happened to have a few great brands work with us like C&C California, which is a well known designer, and some others. And that month with just went crazy on those deals. And this is the deal that I described where you just don’t get a very good shipping time. The experience isn’t as good, because you know the product is not in the warehouse right then.
So we started to do these deals and sure it made revenue go up right away, but we found out after the first couple of events like this, that when we would sell a couple of hundred of a particular product that they told us they had in stock, we’d go back to them saying, “Look, we sold 100.” And they’d say, “Oh, well. We really only had 80.” And we were like, “Really, seriously, like, we just sold 20 items that you don’t even have?” And that became, pretty much, unavoidable. Every manufacturer, every brand had this problem and it caused a lot of concern with our customers, because it would happen frequently.
We’d sale 500 of a particular group of items and we would have roughly 10% of that totally unavailable. So that’s 50 individual customers, often, that didn’t get what they ordered, and you can bet they would go right to the chat room and everybody about it. So that became a negative feedback thing for a while.
Andrew: Oh, wow. Okay. Wow. All right. Let’s talk about the investor now, since you brought him up. You started out with this investor in a very untraditional way. What was the deal that you guys had?
Eric: Well, this investor happened to be my boss at my old company that I left before starting another company, and so I knew him really well, had kind of a personal relationship with him, really liked him personally. We got along really well. And so when we started the company and we need capital, I think this was in February of 2009, so just a couple of months after we were getting that early traction, we knew we needed more money for inventory. I didn’t have any experience with venture capital or else I probably would have gone there. And I just happened to reach out to him and say, “This is what we’re doing, can you help? Do you want to help?” And he was eager to help and so we thought well this is great. He basically just said, “Look I’ll give you a line of credit and you can use it as you need it.” I had a question like, “How much is it? How much can we use?” And he didn’t really want to answer those kinds of questions. So I thought, “Well, let’s just go for it.”
Looking back that was a terrible decision. I should have said, “Look, I need to know how much we have available.” But we didn’t though. And so we just bought inventory as the opportunity became available. And in this industry it’s not like you can just say, “Okay. I need another 10,000 units.” You have to find the supplier, they have to have it at the right price, and it has to meet all of our requirements. And if you don’t buy in like a week, somebody else is going to buy it. So we felt like every day we don’t have this capital we’re missing out on this opportunity, we’re missing out on the growth potential. So we felt this urgency like, “We just have to do it today, we can’t.” So we took the capital, we took the line of credit, essentially, and started buying products that we felt would be a good deal.
And yeah, I learned a lot of lessons from that.
Eric: Like, you should always know exactly how much you have in the back. That was the biggest problem. We get to June and we’re scaling up. We’re doing all these sales. I mean, our goal that month was to do $100,000 in sales. So we just set the goal, because the prior month I think we had done about $70,000 and we thought we could do it.
So we plan all these extra events. We buy all this extra inventory. When things aren’t selling well, in order to hit our goal we started discounting the inventory. We thought, “Well, we were short. Why don’t we do another sale and do another event, and do more.” We got caught up in the excitement of these events, so much so that we discounted our inventory to levels that they shouldn’t have been discounted and it pretty much immediately encouraged customers to wait. You know, “Let’s wait until this item goes on discount, because I can see what’s happening here.” And if we didn’t have such a real time interactive site it probably wouldn’t have been such a problem, but whenever there was a discount and somebody missed it they would come in and say, “What did I miss?” “Oh, you missed this. It got discounted by 50%, you should have been here.” That was a great environment, but also bad environment in this case.
So by the end of that month it was pretty clear that our margins had slipped. I think we had gone from an average of 35% margin, down to 25% and you’d be shocked what that extra 10% would do to the business. And we were also hiring pretty quickly. We had trouble keeping up with our shipments. We were doing 150 shipments a day and 500 or so sales on a good day. So we were hiring warehouse staff. We were thinking, “Let’s do more content creation. Let’s start creating modeling ads and things like that.” So we had a full-time model on staff. And by this time we had about 15 employees. And the scaling up in combination with the drop in margins caused us to loss about $10,000 in profit. And that spooked our investor. I remember this very vividly. We had this conversation. We get into a room, and he looks at me and says, “We have to cut back.” And I thought, “Well that makes sense, we just lost money. We should probably cut back.”
But what was really going through my mind is, we set up a very unorthodox situation with this investor. His personal accountant and long time friend had taken over our bank account and it was with our consent. It’s not like they just took it. We just thought, “Hey, this guy knows a lot. He built a company and sold it to a publicly traded company in the past, so let’s listen to him. He’s got some good advice.” So we kind of followed along with that. So by the time we’re in this room and his saying we need to cut back, I’m like, “I don’t even have control of my own bank account. I don’t know how much money we have in the bank. And if we’re losing money next month, he’s the only one who can lend me money. So where else am I going to go?” So he asked me for two things. He asked me for additional equity in the company, because he had put more money in than he initially planned, I guess, which was sort of strange because he never told me how much he was going to put in initially. You can tell there’s a lot of lessons to learn from this. So my thought was I’ll do whatever he says, because otherwise I may be out of business next month. I couldn’t think of anything else.
And we decided to cut back and he said, “Well, who should we cut?” And this was a totally emotional driven decision. I felt like there one employee in particular who had resisted some voluntary cuts I tried to impose. I said, “Hey, let’s take 25% off of the top of everybody. That way I don’t have to lay off a third of you.” I mean, I’ve got 15 people staring at me going what’s going to happen now, and I’m saying, “Well, let’s all just take a small and temporary cut. We’ll correct this and get back to normal.” One employee in particular just totally threw that back right in my face and said, “No. I can’t.” And I felt like, “I can’t either, but we’re in this situation. We don’t really have a choice.” And she happened also to be the one that was running the product pricing and she was discounting the prices pretty dramatically. We gave her the autonomy to do it and we even encouraged her to do it, but we didn’t give her specifics. So of course in the end you can kind of say, “Well, you did that. I was your fault.” It wasn’t really.
So at this point I’m fearful what’s going to happen next month. Is he going to cover our losses next month? Is he not? I thought, “Let’s let go of that one employee first, because she’s causing me a lot of headache and she’s not willing to work with us here.” And that turned out to be one our biggest mistakes, because she happened to be very closely connected to the community, and when they heard that she was let go, they just went wild. They speculated, “Oh, RedTagCrazy’s going under. They’re flailing.” They threw out all kinds of accusations.
Andrew: How did she get so tightly connected to the community?
Eric: It was part of the transparent environment we tried to create. Our employees interacted directly in the chat room by first name with our customers, which in one sense is great. You want you customers to know your employees by name. You want them to come in and say, “Hey,” whoever it is, “how are you doing today?” And that’s very much what it was like. Employees would login in the morning and they’d say, “How’s everybody doing today?” And they would just get welcomed by this mass of comments. And that was a great thing. But when we had to let her go and it wasn’t a very amicable thing, they felt like we did her wrong. We let her go and it wasn’t justified, and maybe it wasn’t justified, but it’s what we felt like we had to do and it certainly caused a lot of chaos.
Andrew: Eric, I understand the issues of this business and at the same time I can’t help feeling that this was a special business, this was something great. How many people are dying to great a social shopping experience online and just don’t know how to do it. And as you’re telling me about your investor I’m wondering, “If he had the right investor, how would things have changed? If you’d had an investor that this was a growing business and $10,000, $20,000, $50,000 in loss in one month is not that big a deal, because we’re in this space, we understand that sometimes you make some investments in business. Or giving you advice on how to adjust for that instead of cutting back and taking more from you.” I wonder how things would have been different.
I feel like you have here and I shouldn’t editorialize in these interviews, but I feel like you had here like the home shopping club, QVC experience of the future, which is we offer something, we see how people interact, they chat with each other, they say good morning for coffee, they talk, they buy, they ask about the product, they help each other out. And just as I’m calling you out on certain things here, like you going into a chat room or your wife going into a chat room and pretending to be someone else. I also have to say that same research showed me people really, really loved that community. I mean, they were in that community for real. This isn’t just you looking back and saying, “We created something where people talked and they loved it.” No, they loved that frickin place.
Andrew: Anyone could go on your site right now and see that they did. And seeing the comments that when you said,”‘We’re going away,” they said, “Where’s Chick Chat? What about that?”
Eric: Well let me add to that, and I really want to make a big point about this. When the investor told me that we need to cut back, my gut reaction was, “Okay, whatever you want boss,” because he had the keys to the bank, but my gut really told me that we shouldn’t cut back. My gut told me we needed to invest more. We’d experienced some pretty impressive growth, I thought. So I thought the misalignment was our goals. Initially, I was sort of star struck by him, because I knew how successful he’d been in the past and I hadn’t experienced that kind of success yet. So I just thought, “Let me just supplant my judgment for his. So if he thinks something is great, then I’m going to think something is great too.” And this was just a totally terrible thing to do and I didn’t realize it until many months later. But at this point my gut told me we needed to go bigger and I wanted to go bigger. I wanted this company to be huge, and that’s what drove me. I didn’t drive me to say, “Well, let’s just make a little money and then I’ll take a vacation next year.” That was not interesting to me at all.
And I have to stress also that it’s never about the money. For somebody like me it’s about the value you can create, the impact you can make on other people’s lives, and experienced entrepreneurs all know that. But at this point that’s where I wanted to go and he told me, even in the beginning that he didn’t to go there. He wanted to build what he called a lifestyle company. And he told me that in the very beginning, like in our very first conversation he said, “You should build a lifestyle company.” And I didn’t have the experience at that point to say, “No. That’s not what I want to build. Obviously we don’t have the same goals.” That should have been the stopping point right there, but that didn’t catch me enough. It didn’t catch my eye. It didn’t make me go, “Wait a minute. I don’t want to build a lifestyle company.”
So when it came to, what do we do after we’ve had some losses? His reaction was, “Hey, a lifestyle company cuts back and stays within their means.” And I was thinking, “No. That’s not the company I’m trying to build.” But again, we didn’t make that clear initially. It wasn’t until many months later, about a year after that event, that I finally opened up and said, “Look, we’re just not thinking the same thing here. We’ve got to go different ways.”
Andrew: How did you separate then?
Eric: Separate from the investor? Let was a pretty difficult thing. It didn’t happen until maybe eight months after that decline. We continued to work with him in a very friendly way, it was all totally amicable and then one day I started to do more research, more learning. This is maybe around the time I found Mixergy too. And I just felt like I shouldn’t feel bad about the type of company I want to build. I should go in that direction and should be honest with him and with everybody me that that’s what I want to do. And I just got this motivation to do that. I just felt like, “Look, from today on I’m going to be crazy honest about everything I want to do.” And I started to do that.
So we went into a meeting one day with him and he was telling a few things that in the past I would have said, “Yeah, I agree with you.” I said, “No. No, I disagree. My gut tells me this.” And I think he got set back by that, like, “Whoa, you have a gut? You’re listening to you own gut? That doesn’t make sense. You didn’t do that before.” And I could tell that he was pretty shocked. And I felt good by that. I felt like, “Yeah, this is the right thing to do. I should listen to my gut. I should do what I think is right and not just listen to someone else.” And he didn’t like it, basically. That was are very first meeting after deciding to do that and at the end of that meeting he basically said, “Look, I’ll leave the company if you want me to.” And I said okay.
Eric: You know, “Go ahead, because I know I need to listen to my own intuition.”
Andrew: How do you give him his money back?
Eric: Good question. I’m still wondering how to give him his money back. We thought, “Let’s sell the product, let’s sell the company and we’ll take whatever we get from that, give it to him.” I personally feel very indebted to him, even to this day, so I still plan on paying him back as soon as I have the means to do so. So I’m still working on that, I’d say.
Andrew: There was a time there were I saw that the merchandise quality went down. What happened?
Eric: That’s funny, what period of time do you see that that happened?
Andrew: Here’s one e-mail that someone posted, that Christi posted online, “I bought a shirt from you guys and there’s a big hole in it. What do I do? In addition my Joe’s Jeans Provocateurs were covered in dog hair and smell like mildew and also, etc, etc.” And you say, “Please ship back the merchandise mentioned below and we will refund your credit card. I believe it may be best if do not get involved in future transactions. I apologize for the inconvenience. Thank you, Eric Ingram.” And I was thinking, “That’s not like Eric.” Both parts.
It not like you guys to ship that stuff out and it’s not like you to have that kind of response. It wasn’t very aggressive, but there was something going on there. Tell me what was going on?
Eric: Is there a date on that e-mail?
Andrew: No. Do you want me to find the date?
Eric: Well, I could assume. I’m pretty sure I remember that. That occurred after the decline, after the layoff and a lot of people started claiming all of a sudden, which this had never popped up before, “Oh, the merchandise all had hair on it.” I mean that was part of the wild accusations that started happening. Yeah, we had problems with inventory, but happened from the very beginning. When you buy off-price merchandise it’s not top quality goods. Even if you do buy top quality goods, if you go into a Macy’s or something, even at a department store you’ll find items that have holes in them, that are irregular where maybe one side of the shirt is slightly longer than the other. There not that common but it happens. Every apparel manufacturer has these abnormalities. And I think because of all the negative emotions that started emerging from this decline, they started just grasping on to those and saying what else can we find that’s bad about RedTagCrazy and throw it at them, because they fired our favorite staff member.
Andrew: I see.
Eric: That’s when it started happening and we saw that happening. We saw that people were just looking for things to throw at us. So we thought, “Look, we can’t do business with somebody like this, because every time we ship them a product, if there’s anything wrong with they’re going to go on the review site and say, ‘Look, see it had a snag in the tag underneath the, you know.'” It’s like this is not something you would normally do, but because of the personal nature of it, we felt like we couldn’t keep those individuals, that really had a chip on their shoulder, products or we would just never see the end of it. And that was true, they hung on for many months, like six months after this, they hung on to this grudge and it just never went away. To a point that it really made me long interest in the product, in part.
Andrew: I thought that jeans covered in dog hair and smell like mildew and had a hole in them just didn’t feel right to me. At the same time the response doesn’t feel right either. “I believe it may be best if we do not get involve in future transactions.” That’s your frustration in the moment, isn’t it?
Eric: Yeah, definitely. It was very frustrating. Part of this was pent up, because I knew what potential we had and I knew how quickly we had grown. I felt frustrated that we had to cut back, that we had to see this go the way it did, for something that I didn’t believe in, for building a lifestyle company. Not that there’s anything wrong with lifestyle companies, but it’s a choice. It’s a choice you make and I never consciously made that choice. Somebody else made that choice for me. So I felt kind of bitter about that. I felt like, “It never had to be this way.”
So pretty much for the entire life of the website after that point, I felt like we had a missed opportunity. And I felt like I didn’t want to try to bring it back, it was too late.
Andrew: You know I really love the Harvard case studies. It’s one of my favorite parts in the school where they would present a case to you and say, “How would you solve it? How would you deal with it?” And when you’re not in the moment and you’re not the person who’s the subject of the story, you could come up with some interesting solutions that will help you thing through business ideas and make you a sharper business person. So you and I are now no longer in the moment. Let’s evaluate how could you deal with this in an ideal world, 20/20 hindsight, with all these people criticizing you in this big community that you’d built that was supporting and rooting you and helping you become more and more, bigger and bigger, more and more successful. Now they turn against you with the same ferocity. What could you do? What could another entrepreneur in your place do?
Eric: I think what I should done, and what anybody could, is do nothing but apologize and nothing but work to rectify the situation. It was a very emotional time, and I’ve learned since then to not let my emotions get so involved the actual operation of the business that way. But being that way can have benefits and it can be negative. I think that, as somebody who thinks emotionally, you have an intuition that drives you toward doing things that others might not think of and you’re able and willing to take that leap, but at the same time it can drive you to make decisions without thinking too deeply.
So thinking back now I think it’s pretty obvious what you should do. You should just say, “I apologize. It will never happen again, here’s your money back.” You really treat customers like royalty, and they are. You’re only in business because of them and if I had to go back I would simply do a lot more apologizing. Be a lot more open about the whole thing. And that was one of things I tried to close with in my blog, was to say that I really do regret not opening up sooner, not being more honest about the situation the company was in. But then again there was a big issues with the investor. I didn’t really want to out him or seem like we were blaming him. And because I internally disagreed with the decision I felt that it was hard to open up about that. You know, without basically going on there and saying, “Hey, I disagree with our investor.” I mean, could you really do that in public in front of your customers?
We were that transparent initially, but this made me feel like I should back off. I couldn’t say that, but what can I say if I can’t say that. So I felt that I had to be really guarded about it. And again, this could have all been avoided had I been more honest and up front about my intentions with the company early on.
Andrew: There are two parts of what you just said that I want to explore here. The first is that you could have gone in and apologized and apparently you did that. I forget what site I saw this on, it was some review site. These people are really very vocal in this community.
Eric: Yeah, they really were. We trained them to do that.
Andrew: How do you train them to do that?
Eric: Well, I mean, the chat room really got them to feel comfortable speaking out and speaking to us in a very direct way.
Andrew: I see.
Eric: So when it came to that moment they had no fear about just opening up and letting loose. So I think many months of participating in this active community just made them feel like they should come out a be open.
Andrew: I see, okay. And that trained them to just talk openly about the product and review it even on other sites apart from this. And there were a lot of very positive reviews, including one positive review that was right above Christy’s review on whatever site I happened to see it on, and she had a very positive long review, followed by a big giant paragraph of why she changed her mind now, because you guys are terrible people. I’m paraphrasing and it’s not exactly what’s she saying, but essentially.
Andrew: Followed by, surprisingly, another long paragraph saying, “I talked to the founder. I understand they’re going through a tough period here. I take back my two stars. I now change the whole . . .” I don’t remember, my memory is never clear enough to explain it, but the gist of it is, that you did talk to that one customer somehow, e-mail or on the phone, you completely turned her around and got her to be more open minded and I could see how reaching out to all these people who were upset and saying, “Hey, I’m sorry. Things are tough, we’re trying to make this work.” I can see how that would have helped. So that’s the one thing I want to take from that previous statement.
Andrew: The other thing is, I’m wondering if having a mentor would have helped. That if having somebody you can call up and say, “Look, I’m having this issue with my investor. What do I do? What do I do about this investor? I’ve got this company, $90,000 in revenue, lots of fans. Is this valuable or am I just kidding myself and it all base on me giving away everything at a loss?” And I believe that if you had that things would have different too. What do you think about that?
Eric: Absolutely, without a doubt. The only mentor I had was this investor and really wanted to be a mentor. He made it very clear that he wanted me to learn from him. And again, I knew that I didn’t see things the way that he saw them. From the very beginning, that very clear to me that we saw the world in a different way. And it just wasn’t what kind of company we want to build, it was the kind of things he did in his personal time, the kind of interest he had versus the kind the kind of interest I had. We were pretty opposing personalities and I didn’t realize how important that was. I felt like, “Well, he’s successful. I want to be successful. There you go we’re the same kind of people. We should get along, we should do this.”
But now I realize yeah, absolutely, I think mentorship is huge. Today there are a lot more people that I can turn to for advise and I know how to listen to my own gut. I think today it would be completely different. But I also recognize, after the decline that it wasn’t just the situation with the investor and now, “Well we don’t have money and now I’m angry at the community.” I guess this is more of a realization that came at the end of the year. When things had calmed down the community wasn’t really bugging us too much, there was still some negativity in the community and that never really went away, which was sort of like that stunk, because I knew how it used to be and I just looked at the site like, “Ah, if only if could be like it how it used.” But near the end of the year I realized what it would take to turn the site around. And initially, when we were growing very quickly, I could say that it happened because of the community, they told their friends, they came back and bought many, many, many times. Our best customer that year bought $60,000 of our inventory. So we had some really great repeat customers and we felt like what made us successful in the beginning was that community. Now that the community’s gone, we actually have to focus on the core business, which is product, the fashion, the style and I had no passion for that. They only passion I had in the beginning was the community, the experience and that didn’t exist.
Andrew: That brings me then back to the statement from before. Do you have a little more time? I know we’ve gone over by half an hour including the set up time.
Eric: Oh, yeah. I’ve got lots of time.
Andrew: Anyway I’m going to come back to the passion question in a moment, but let me just say this, before we started I was worried about doing this interview, because I said, “He talked about this on his website, how are you going to make this into a useful interview beyond that?” As I expressed earlier, and I felt the pressure on me of making this good for you so that this becomes that you can hold to years later and say, “This meant something to me. I wasn’t just talking for two hours or it just didn’t happen to be on a blog, and also useful to this bid audience.” And I felt the weight on that, and I said, “It’s all on you, Andrew, do the frickin research, make it work.” What I realize as you’re talking is, “It’s not me.” This interview is good because of you, that insight that you have. You just tossed aside a statement that I don’t want to go unnoticed. That shows why this is such a good interview and why you’re so insightful.
You say, “He’s successful. I wanted to be successful, so I felt I had to do what he did or be like him or go down his path.” And you brought up a great point that there are lots of different paths to it and if you try to go down his path, which is a lifestyle path, when you have a whole other vision for yourself, it’s not going to work and it’s not going to fail, because he’s an idiot who’s trying to trip you up or because you’re an idiot who doesn’t know where you’re going. It’s just different paths and this idea of you want to be successful, there is only path to do it is just so wrong and now we’re seeing in this story it just doesn’t work.
Eric: Exactly, yeah.
Andrew: I just wanted to compliment you on that, because I’m sitting here going, “Wow, this guy is good.” So I have to say that out loud, but I also need to come back the message.
We talked about passion earlier on. I didn’t understand why it mattered. As I was listening to you talk, I said, “It doesn’t matter that he’s selling jeans or trucks or belts or microphones or lights or anything, he’s passionate about building a community, passionate about selling a product, passionate about finding the right deals.” I still don’t see why the passion would have mattered. Do you think you would have continued if you were passionate about the cloths, but the community went away and the sales went down?
Eric: I think that there’s a really specific reason that the passion matters. And it matters, because, okay, let’s say in this case I was passionate about building the community, building the experience, and I admitted that to myself long before I created this company, I felt like it’s all about the experience and the community for me. I want to build something that consumers really love and when it came down to it, the community had really kind of turned me off, because of the way they had reacted to our situation, but the reason that passion matters is, that if you don’t have passion for the core market when it comes time or there comes a situation when you have to focus on that core market, you won’t be driven enough by those aspects of the business that aren’t present at that moment.
Again, by the end of the year, the community really wasn’t going to come back without first coming up with a decent product and the product had really declined by that point, because we didn’t have inventory. It was boring. If you looked at the site, you’d see the same stuff you saw the week before it, and that was really boring. So without doing that I knew I had to focus on the business of making the site interesting again. And what had to come before the community, because I couldn’t just ignite a community off of nothing, they had to have something interesting to talk about, and that’s what we didn’t have.
And without that passion you just won’t be able to push when things get really tough. And that’s ultimately why I think you have to have that passion, because things got really tough for us and I just did not have the motivation to build a business around fashion. We got lucky initially, almost, where this community started to just go wild and I was passionate enough about that to just keep pushing and pushing and when things got really tough, and it didn’t get really tough until after we started to decline, I couldn’t use the motivation of a market that I wasn’t passionate about to drive me every day. In fact I came in to work feeling pretty down every day, like, “What do I do now? Well, gosh, I have to raise money for inventory. Well how am I going to do that?” Because you go to sit down in front of an investor and you say, “I want to buy a million dollars of women’s clothes.” And they say, “Okay. Well, why are you qualified to do that?” And I could not in my right mind say I’m qualified to do that or say that I even want to do that. And that picture about having to pitch and investor about a market that I really didn’t have passion for was just enough to get me to say, “I can’t do it.” I know I can’t do it, because I couldn’t even convince myself I’m into fashion, never mind an investor.
Andrew: Oh, I see. I see what you mean, okay. If you were really passionate about fashion and the market started to dry up and you weren’t making any sales you’d just be in there working on it anyway. Working on the community, chatting with them, you’d care about their feedback, you’d care to talk to them and get to know them.
Andrew: All right. Let me ask you this. I know what I’ve gotten out of this conversation. I know my audience has gotten a lot out of this conversation about your openness. What’s in it for you? Why be this public about a setback?
Eric: Partly because I’ve learned an incredible amount by reading other setbacks, by listening to other setbacks. I’ve certainly watched a lot of Mixergy interviews and I realize how much it’s helped me. In fact, I would say the only you’re really going to motivate yourself to build a company is if you have a vision, you can see yourself accomplishing something. And the only way you’re going to have a vision is if you understand something’s possible. Because it’s hard to envision something you don’t think is possible. And how do you understand that something is possible? You do that with and understanding of the elements around it.
So I started in the very beginning by reading articles by Paul Graham and the Startup Library. When I worked as a developer I just kind of found that library, I don’t even know how I found it, and I read every single article and it gave me a basis, an understanding what could be accomplished. With that understanding I was able to develop a vision about what I could accomplish with that understanding. And I know how important that is. I feel like I want to help other people do that. I now know why mentors do what they do and for the same reason, I want to share my story and help other people succeed. It give back to you in was that’s hard to describe, I guess. But I feel a deep desire to help other people succeed and that’s why I’m so passionate about what I’m doing now, because that’s exactly what I get to do. I get to see other entrepreneurs and see their dreams realized and I never have to grow up out of the scenario. I’m building a company around helping startup entrepreneurs develop their early product, their early customers. And I’m more passionate about than anything that I can imagine. I’ve been passionate about that from day one, the day I discovered what entrepreneurship was all about. So it kind of comes full circle to me and feel like if I can do this interview, it would help other people understand that it just feels great.
Andrew: How does your wife feel about you being this open about the situation?
Eric: She loves it. She’s definitely open about it too. We talk openly about it, I guess just for the very fact that it’s helped us so much to see others be so open about failures about successes. I love when I’m watching an interview and somebody reveals the numbers. They say, “This is how much we did,” or, “We tried to get here and we failed,” because it’s those details that kind of give you the understanding.
I mean, if I’m trying to build a company and I don’t even know what’s possible, how can I shoot for a billion dollar company if I don’t know a billion dollars is possible. So I have to hear somebody tell me that it’s possible.
Andrew: But you not telling us that a billion dollars is possible. You’re telling us that failure is possible. How does that help?
Eric: Because you have to except that failure is possible or you’ll never push and do anything. I mean, if you’re fearful of failure, and I was in the beginning, it’s unavoidable, even if you understand it the way I do, you still fear failure. What I’m learning now about Silicon Valley is that they really embrace failure and that’s something that I really love, something that I dearly want to be ingrained in our society is this understanding that failure is necessary and if you fail you’ll go on and do more. In fact, what I often tell people is that you only fail if you give up. I gave up on RedTagCrazy, because I lost interest. I didn’t fail at RedTagCrazy there was just no more I could do. Even if we had run out of money, run out of resources, I suddenly forgot how to do everything I do, I could keep pushing and as long as you’re pushing you don’t fail. So failure is really optional.
Andrew: So you think if you could have gotten yourself to just pep up, to look at the business again with fresh eyes and regain your motivation that you could have continued it?
Eric: Oh, yeah, absolutely. I could have, I could have made a conscious decision that, “Look, I’m going to learn everything about fashion. If I don’t know it now and maybe I’m not passionate about, I’ll just read fashion magazines until I become passionate.” I mean, you can do anything that you set your mind to.
Andrew: I see.
Eric: Absolutely anything, and if you just decide that you want to do it, if I decide my company’s not going to fail, it never has to fail, but eventually you might want to give up. And I certainly wanted to give up on RegTagCrazy after some time, and you shouldn’t feel bad about that. So admitting failure is admitting that you wanted to give up. And in Silicon Valley and in the startup culture, it’s okay to do that. It’s okay to say, “I give up on this. I’m going to do something better with my time.”
Andrew: Something better, right. I’ve seen lots of entrepreneurs who’s done interviews here about successful companies and when I dig in, I find out about a past company that they shut down and that’s why they got where they got, because they moved on past that other business.
Eric: Yeah, now that really hits home for me.
Andrew: One of the benefits of having these kinds of conversations I think is illustrated in this book that I think everyone who’s listening to us should get, it’s the autobiography of James Caan, not the actor but the British entrepreneur. And as a salesman he would at the end of every call when he got rejected, he would sit and he would do his own personal post mortem, “Why did I fail on this sales call? What didn’t work for me?” And he would, I think, even write out a response for next time. And eventually the setbacks kept repeating themselves until he has a response to every potential setback and every potential no. And I think there’s the same thing here. I think as we talk to entrepreneurs and think about our own setbacks we start to see some patterns and if we recognize them ahead of time, because we’ve heard about them on Mixergy through interviews or because we’ve done our own personal post mortems, I think we could head them off and avoid them. So I think that’s the benefit of this interviewing.
I know beyond that there’s been a lot of insight. If every interview that I do is this insightful then I’m golden man. Unfortunately it’s not that easy.
Andrew: That’s why I have to just say thank you again for doing this interview. Not just for being here and being open, but for being open and introspective. For actually having thought this through.
The new company is StartupLi.st. You go to StartupLi.st and that’s where you can see Eric’s new business.
Eric, thanks for doing the interview.
Eric: Thank you for having me.
Andrew: All right. Thank you all for watching. Bye.
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