Three messages before we get started. If you’re a tech entrepreneur, don’t you have unique legal needs that the average lawyer can’t help you with? That’s why you need Scott Edward Walker of Walker Corporate Law. If you read his articles on VentureBeat, you know he can help you with issues like raising money, or issuing stock options, or even deciding whether to form a corporation. Scott Edward Walker is the entrepreneur’s lawyer. See him at WalkerCorporateLaw.com.
Do you remember when I interviewed Sarah Sutton Fell about how thousands of people paid for her job site? Look at the biggest point that she made. She said that she has a phone number on every page of her site because, and here’s a stat, 95% of the people who call end up buying. Most people, though, don’t call her. But seeing a real number increases their confidence in her and they buy. So try this. Go to Grasshopper.com and get a phone number that will make your company sound professional. Add it to your site, and see what happens. Grasshopper.com
Remember Patrick Buckley, who I interviewed? He came up with an idea for an iPad case. He built a store to sell it, and in a few months he generated about a million dollars in sales. The platform he used is Shopify. If you have an idea to sell anything, set up your store on Shopify.com because Shopify stores are designed to increase sales. Plus Shopify makes it easy to set up a beautiful store and manage it. Shopify.com.
Here’s the program.
Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart and the place where entrepreneurs come to talk about how they built their business, to teach you what they learned along the way, and our hope is that you take this interview and all the other interviews and learn from them, build your own company and come back here and teach other people how you did it.
Joining me today is David Sasson who founded overstockArt.com in his house, and he built it into one of the Web’s most successful online art galleries. David, welcome to Mixergy.
David: Hi, thank you very much for having me, Andrew. It’s my pleasure.
Andrew: Hey, David, what does “overstockArt” mean? Are there people stocking art and they have too much.
David: No, actually, the name “overstockArt” came to kind of communicate the deal, if you will, communicated that the prices are low, wholesale prices, if you will. Our prices are considerably lower, as much as 70% lower than like your gallery price, if you will. We do buy the product at the source, directly from studios. We deal in handmade oil paintings, mostly reproductions of some of the world’s greatest artists like Van Gogh, Monet, and Picasso, those names. We reproduce them by hand, from scratch, starting with a blank canvas and going all the way to a finished, beautiful work of art.
Andrew: You have people inside your company who will reproduce Picasso and you guys can sell it then at a discount. Or are you buying it from somewhere else?
David: We actually buy it from studios overseas. We do not have employees that paint. We work directly with the studios, but they’re not actual employees. It is being done overseas, not inside the United States. We import.
Andrew: Okay. I know that you started in your house, but I also saw some pictures online that looked like you had a big location and somebody was working on something with wood. What’s the deal? How many locations do you have and what gets done in those locations?
David: We started at our home, modest beginnings, so to speak. We had a little bit of money, and we bought some inventory and put together a website. The downstairs was the warehouse. The upstairs bedroom was the office. We had a desk and a phone and a computer. The first full-time employee was my wife. She wasn’t getting paid but she was an employee. We grew from there. We have one location in the United States. In this location, what we do is we receive all the inventory, hold all the inventory. All the products that’s on our website is actually in stock and we ship it when we get orders. What we do here, we’ve got an office operation where we download the orders, process them, and such. Then we take it to our production environment, where we stretch the paintings, frame the paintings, box them, and ship them to the end consumer. That’s what our US operation does.
Overseas we have two other locations. One in China where all of our production, all of the paintings get done. Our office there works directly with the studios. They basically quality control the product . . . [phone ringing] . . .
Andrew: Do you want to get that phone or maybe put the phone on hold? We’ll keep the interview going. Maybe take the phone call while we’re doing the interview?
David: No, somebody got the phone. I can try to lower it.
David: You know what I’ll do, I’ll hang it up. Is that okay?
Andrew: Yeah, let’s do that.
David: I’m not sure how to do it.
Andrew: You actually have a desk phone. I thought everybody got rid of their desk phones and just went cellular.
David: No, I have two desk phones. I’m going to get up and hang up the other one, okay?
Andrew: All right, go for it. I’ll keep talking and keep people entertained while you’re doing that. Actually, I don’t have much to keep people entertained with. We should have had you flip the camera around so that we can see what your office is like. Then I could start commenting on your office space.
David: Well, they set up the beautiful paintings behind. So, I don’t want to show you the rest, it’s a mess. Everything is off the hook now, we’ll do that.
Andrew: All right. The company was founded by you or by you and your wife?
David: The company was founded basically by me and actually a partner. The partner is overseas. He flew to China to start finding sources of supply. He, basically, we did not have the company yet. He called me and said, “Let’s get this thing going. I’m here. I’ve seen some production. I’ve got some product. I’m ready to go.” So I said, “Well let’s do it.” My wife was available because she was actually between jobs. We figured with my income we were okay. We don’t have to take anything out of the business. We went the first two years without any income from the business and reinvested, everything we made was reinvested back into the business. Just trying to, just wanting to grow. Our vision from the beginning was never to stay small. We didn’t want a small operation.
Andrew: You were doing this while you had another job. You had a full-time job as a CFO of, is it Apollo Computers?
David: It was Apollo Computers. I was a part owner and a CFO. I started in the sales arena for them. Then moved to the financial area and later became the CFO while we were running this business as well. So I was wearing two hats for a long time. Working very hard, not really . . . working too hard, not making enough money, and not having enough fun is really what it came down to. I figure at some point that I got to choose or both companies are getting cheated by me, by not being able to invest enough. I chose this company and loving every minute of it.
Andrew: What was it that got you to start the company? Was it that your co-founder, Amit, called you up and said, “Hey, I see this opportunity”? Or were you guys kicking around ideas at the time for part, what was it that inspired you?
David: To be honest, my brother, who’s also working for the business, called me one day and he said, “You know.” He was working for companies dealing in this type of product but completely different environment. He said, “You have to check it out. It seems like there’s a lot of money in this opportunity, and I know you’re not an artist but take a look at this.” We looked a little bit. I told him, “Well, where can I buy some?” He said, “Well, here are some addresses of some suppliers, go ahead and call them.” I called them and bought some inventory. Just to take a look, a small quantity. I looked at the product and I was like, “Wow. This is beautiful. This is amazing. Somebody did this by hand? This has got to sell.” What I looked at is a little bit different than what I think a lot of at the time, maybe today too, but at the time for sure, a lot of your catalogues and Internet companies sold products that looked good online, but once you got them you may be disappointed. So it’s jewelry that looks big and bulky, but it’s hollow inside, it’s not very heavy, those kinds of things. When I looked at this product, I said, “You know there’s something different about this.”
It will be very hard on screen to capture the beauty of this product, so when the consumer gets it they’re going to love it. They’re going to be impressed. So they’re going to come again and buy more. I was looking at the repeat buyer. I said this is what is going to make this business work is the repeat buyer. That’s what excited me. That’s what excited me about the opportunity with this product.
Andrew: Okay. So now that you saw the opportunity, what was the next step? What’s the first thing that you did to act on it?
David: The next step, the first step was, we bought some. Now we’re thinking it’s good, well, let’s try it out. We’ve got a little bit of money, negligible amounts of money in it. Let’s see if there’s any demand. I like it, my wife likes it, my brother likes it, my partner likes it, so let’s see. We put it up on auction sites. At the time, the Internet auctions were a big thing back then. uBid was probably one of the biggest ones other than eBay. We put it on uBid.com and boy it was selling. It was amazing. We were paying a modest amount for it. We would start it at a price where we were already profitable, and it was shooting off from there. We started at $50 and some of the products sold at hundreds and two hundreds. Some at $250 even. We were like, wow, this is something else. Since then the auction world kind of died, and I couldn’t sell this on uBid today.
Andrew: Why uBid and not eBay?
David: We had a relationship uBid, so it was easier for us to work with them originally. When we thought of eBay, we saw there was a lot of competition on eBay. It didn’t look like we would be able to sell it as well. Over the years, we’ve tried eBay a few times and were never able . . . we sold a little bit, but it was never successful for us.
Andrew: When you say that you had a relationship with uBid, what kind of relationship do you mean?
David: Through IT Source, the other company that I worked for, I was at one time selling computer equipment to uBid. So I knew the buyers and I knew the people. We just forged a relationship that way. It was very easy. At the time, you could not just post product on uBid. It was a vendor auction. You had to become a vendor. It was easy for us to become vendors and for our competitors maybe not. It was a better marketplace for us.
Andrew: I see, okay. All right. And you said that you weren’t having fun. How many hours a week . . . actually, you know what, before we get into how many hours a week, let’s continue with the story. You started up on uBid. How big did it get on uBid before you decided to create your own site?
David: At first, we were running only uBid for maybe a couple of months. Then I told my wife, “I know we will not be able to sell on our own website but let’s get a site going. Let’s put all of our inventory on a site. Let’s just start it working. We know there won’t be much traffic but we’ve got to get the ball rolling. At the end of the day people will get there and we’ll make sure that happens.” So we built our own website. I built it myself, and I’m not a technical guy so it didn’t look all that good. It was kind of the canned tools that were available. I don’t remember who the vendor we used was, but it wasn’t very successful. The problem is there was no analytics on the backend. We could not tell if there was any traffic whatsoever. We decided that’s not going to work. We went to a Yahoo platform, a Yahoo store. We’re still with Yahoo today. We could finally see that there was some people visiting, not enough. There is some traffic. There are some sales. It started rolling from there. We recognized early on that we won’t be able to build a business around uBid and realized we’ve got to have our own property.
Andrew: When I’m on overstockArt.com today, that’s a Yahoo store?
David: That is a Yahoo store, yes.
Andrew: Wow, usually Yahoo stores are clumsy and not very attractive. This I couldn’t tell is Yahoo store at all. I’m looking around here and I can’t see it. That’s pretty impressive.
David: Thank you very much. We’ve done a lot of work, and there’s a lot external stuff that it has today that was not there at the beginning by the way.
Andrew: Look at this, even when I mouse over one of the paintings I can see a little bubble where it comes up big. It’s well designed. I wouldn’t have guessed at all that this was a Yahoo store.
David: Yeah, absolutely.
Andrew: Okay. You built your own store. It didn’t do that well because you weren’t getting traffic to it. uBid was going good. How big did you do? How big was the business on uBid?
David: Oh, $10,000 a month, somewhere around there at the beginning.
Andrew: That’s pretty good. I’m imagining that the margins were maybe 50%, so maybe people were paying on average twice what you paid?
David: Probably north of that.
Andrew: Oh, really?
David: Yeah, probably around three to four times.
Andrew: Three to four times. All right. So now I understand how you were just, you saw that there was an opportunity here. You saw that there was a market for it, but you need to grow beyond what uBid is going to give you room to do. How do you transition away from uBid? How do you go and discover your own customer base? What was next?
David: What we did is we built our own website. There’s a place for them to go. We’ve got a store, if you will. Then we would do two things. One we started advertising on Google, using the Google AdWords, and today, it’s Yahoo or Bing, but it was Overture. Overture was the first one that did the cost per click. We did Overture too. Started bringing some traffic to the website. We did search engine optimization that started bringing in some traffic. Also, every package that we shipped we put a note in it from us to the customers. Now the customers, some not all, came back to our site and saw the inventory. That’s how we started the ball rolling. We recognized the need to build our own e-mail list. We put e-mail registration in multiple locations on our website. Not as good as we do it today, but, for the time, it was not too bad. We slowly built an internal e-mail list of people who want to get e-mails from us. The e-mail marketing has been and still is a very profitable part of our business.
Andrew: Wow, okay. So going back to the question that I stopped myself from asking earlier, how many hours did it get to while you were still working a full-time job?
David: Well, in 2004, my first daughter, my first child, was born. My wife decided she didn’t want to be in the business anymore. I basically was to split my time between the two companies. I’d go in the morning and work at IT Source. IT Source and Apollo, it’s a d/b/a, so it’s the same company. Then in the afternoon, I work at overstockArt.com. Ten hours a day is probably where I was working and then . . .
Andrew: Ten hours total or ten hours on overstockArt?
David: No, ten hours total a day, and then I was working also on the weekends.
Andrew: I see.
David: You take it with you. You take it home with you. That’s the problem that you can’t focus on one thing. You go home and you’re thinking about those things. It’s impossible for you to execute any idea that you have. That really is the worse part of it.
Andrew: Do you have an example of something you were trying to execute and were having trouble with because you were just so divided?
David: You know what, I really can’t give you an example. You know everybody that’s an entrepreneur or aspires to be an entrepreneur probably has. You go to sleep at night or you take a shower or you do something or you’re eating dinner and all of sudden you’ve got this great idea. You’re thinking, well, how can I do it? Some of them are big, you know, they’re big. You know, I want to start a company competing with Coca-Cola. Some of them are small, you know, I got this great idea for an iPhone app. How do I execute it? You go the next day and you execute it. But if your schedule is so packed that you cannot spend anytime thinking about your next move, you just cannot execute anything. It’s very frustrating for a person that wants to grow, that wants to have ideas, that’s got an entrepreneurial spirit. Anybody of your listeners could probably relate to that directly.
Andrew: Why did you start this business as a side company instead of starting up full-time right away?
David: I couldn’t afford it. I had to have a consistent source of cash flow.
Andrew: I see. We talked about the funding for the business. What was the funding?
David: The initial funding was basically whatever we had, some of our savings and credit cards that we borrowed money through. That’s it.
Andrew: No investment in the business from outsiders. It’s all bootstrapped with some debt that you took on early on, but very little.
David: Sure. Later on we got an SBA loan. We did three of them by now, but initially it just us.
Andrew: At what point did you decide that’s it, I’ve got to quit my job and focus on this full time? Where was the business at that point?
David: You’d be surprised, but it was in 2009, and the business was actually in pretty rough water when I decided to do it. It was actually a discussion that I had with my brother, who was also in the business. He said, “You know, we really got to grow this. We’ve got to move forward.” And I said, “You know what? You’re right. I’m feeling so drained at the end of days and there was so many great things that we could do. We just got to go after it. If it means we need to go get some external money, let’s get some external money and get it done because just kind of growing and limping along is not fun. It’s not exciting. We’re not doing what we need to do.” So we decided, I think it was early 2009. Then, in June of 2009, I wrote an action plan for myself. What are the steps that I need to take to get it accomplished? I had it all written out. I didn’t really follow any of them, but at least I had a plan. During that time, the economy was rough and business was tight. We felt it was the right thing to do. We turned it around. August of 2009 the business started completely growing. It has just taken off.
Andrew: Okay. Wow, I thought that, so this is seven years after you launch it, you finally decide I’m going to do this full-time. First seven years it was a part-time business.
Andrew: For you and for your co-founder?
David: No. Yeah, you could say that mainly for me. For him, it was basically full-time.
Andrew: He was basically full-time. What’s the responsibility breakdown between the two of you?
David: I’m the president and CEO, and I’m responsible for the US operations and the company as a whole. He is the operations person in China. He’s basically our Vice-President of Operations in China, and he’s in charge of everything that we do in China, which has to do with the procurement of the product.
Andrew: Is he living in China?
Andrew: Oh, really? Wow, full-time he’s been in China since you guys started the business?
David: Absolutely, yeah.
Andrew: Wow. All right. Let’s go back in time before we catch up to where you are now. You’re building your business on uBid. You’re slowly transitioning people to your own site, slowly buying traffic from Overture, which use to be Goto.com. At what point are you completely independent of uBid?
David: I don’t remember the years exactly. Probably as early as the middle of the 2003, uBid is becoming somewhat insignificant. Because of changes that they were going through, they were just not able to drive the sales anymore. Our website takes center stage, 2003 or 2004. I don’t remember exactly. Once you bring the traffic to your own website, obviously, the art then is to convert that traffic. That’s an ongoing battle. We go through this battle today too. If your traffic is smaller, it’s a little bit more difficult of course. The numbers, all the numbers are smaller. By 2003, we had already moved out of our home and got into our own place. I would say definitely by 2004 uBid was no longer a very important portion of our business.
Andrew: Okay. So, how did you at first convert people who came to your website, to overstockArt.com? How’d you convert them from viewers to customers?
David: At first it was just a hit and miss. There was not a lot of options online. I’m guessing that the customers were simply looking for a product and they found us. They would look at one or two competitors and chose us. I couldn’t tell you exactly why. At first, we did not have framing, we only offered rolled canvas. Today, obviously, we offer a huge variety of frames. Our product was always the highest quality possible. We always had a step above in quality, and I think that’s a reason why people chose us.
Andrew: People can’t tell the quality online. I’m looking right now at a bunch of Monets here, and the picture looks good, but I can’t tell what the final product’s going to look like. What’s going to convince me to buy or convince me to walk away isn’t the product itself, but what? What did you learn? You said you learned a lot about converting users into customers. Teach me some of what you learned.
David: Okay. We didn’t know back then. This is some learning stuff that we’ve done later on. If you look at the zoom, for example, that’s one thing that shows customers the brush strokes. What we discovered is that people don’t realize that it’s an oil painting. The zoom was so they could see the brush strokes. Although we say it all over the site that it’s an oil painting, it doesn’t sink in, maybe? That’s one way to show it to them. If you look and see the view art in a room, that allows you to actually not only see our art in your room, not only see the features of the product but actually see the benefit of the product. You can also upload an image of your room and now you’ll put our product that you’re thinking of purchasing in your room so you can see how it’d look. We saw that that’s a terrific product to help and convert customers. Other things are things that inspire confidence. Putting logos like FedEx, for example, putting all these seals that show you’re a secure site, all these types of things that reinforce the fact that you are a legitimate merchant. Customer testimonials are very important. Customer testimonials right on the product page relating to the product they’re buying.
David: That’s other people saying good things about you. Those are some of the key things that help people convert. Overall navigation, helping the customers find what they are looking for. Your search, though it’s a Yahoo store, Yahoo supplies the search, but it’s not a very good search. So we invested in a different search that helps people find what they’re looking for and narrow it down. You can search for a Monet and it will give you Monet paintings. There are different sizes and different styles, from different galleries. Those types of things that help the user narrow it down. There are a lot of different options. Also we did something, for example, in the old days when we started the website, once we added the framing, we had at the top, on the product view, there was just the rolled painting basically. At the bottom was a framing utility. We discovered that some people never scroll down. So they’re not buying a frame. They don’t know we can frame it. Those are things that you learn as you go. Some things are unique to some products, and some things are just general. Different colors for the add to cart button. Our first add to cart button was red. The research we’ve seen is that red is a stop for us, a dangerous color. So your add to cart, you don’t want that to communicate danger. You want it to be a happy green color that they’re excited about.
Andrew: You know what? I’ve been seeing this . . . I’m writing a question down here to come back and follow up with you on what you said. I’ve been looking at the website as you and I were talking about it. It’s true, when I see the painting, I can’t tell that it’s not a photograph. When I move my mouse over, without having to click anything, you show me the bigger version of where my mouse is and I can actually see the brush strokes.
Andrew: It took me by surprise at first, and then I just got it. Okay, this is real. You also have a little, what is this, a logo that says “hand painted art, genuine oil on canvas.” I see the scroll section on the right there where people can see the frames that they pick. I can see how now I would get to scroll through it and pick the right frame for it. What I was wondering, this is what I wrote down. How did you know this stuff? How did you do tests to figure out that green means go for add to cart but red doesn’t work, red is stop. When people see red, they’re less likely to click. What kind of tests are you doing?
David: That was not a test. That specific item, for example, was looking on the Internet and what colors people were using. Reading about colors. I read a few books about colors in general, not so much for a Web standpoint. What kind of messages different colors are sending, for example. We just got the idea from that. It wasn’t researched. It wasn’t specific research of doing an A/B test. It was more of looking at what’s being done. It was looking at suggestions and just reading best practices.
Andrew: How did you know that people weren’t buying frames because they couldn’t see that frames were available to them? What kind of tests were doing? Were you doing any kind of customer research or was it just a hunch?
David: Yes. No, that one what we did is we did a survey. In the survey, we asked a bunch of different questions. One of the questions was the different services that overstockArt offers. I don’t remember the numbers, but there was a surprisingly low number of people, on our survey now, and the surveys is people who have bought from us or people that have at least registered on our website. These are not just people off the street. These are people who have been to our site and took the time to register or buy. We asked them if they know that we deal in oil paintings, if they know that we deal in framing. A surprisingly low number of people noticed that we had frames. So we started looking at our navigation. What’s causing that? Here it is and that’s what it is.
Andrew: I see. So they didn’t even know that you had it, that it was a possibility that you guys were offering it.
David: They didn’t know it was a possibility because they never scrolled down.
David: You’d be surprised on that survey, we found that there’s a fairly low number of people that know that we deal in oil painting. That’s part of what gave us the desire to put zooming option and such.
Andrew: I see that you also have a phone number at top of your store. I see lots of stores today offering a phone number right on their website. I thought the whole idea of the Web was that people can go and do self-service and buy for themselves. You don’t have to be hassled with phone calls. Why do you have a phone number on there?
David: Well, you’re right. I’ll give you a long answer here. Our first order on the site, we accumulated some e-mail addresses and we sent our first e-mail newsletter. I remember waking up in the morning and checking out the website and we got an order. It wasn’t a huge order. It wasn’t a lot of money, but it was like, wow, this is amazing. We were sleeping and we actually made some money. That was so exciting. So, yeah, that is somewhat what the Web is all about. At the same time, you’ve got to give customers confidence. You’ve got to give customers great service. The Web is not about send it and forget. The Web is about taking great care of customers. In a way the Web brings back the small store that you had, the general store that you had in the small town in small town USA, you know, where everybody knew everybody. Everybody asked everybody. You couldn’t take advantage of a customer because he would tell everybody else in town. That’s what the Web’s about in reality from a marketing standpoint. Everybody is connected and everybody can post negative feedback and everybody can say bad things about you if you don’t take care of them. And if you do take care of them, not only do they come back, they can tell everybody how great you are. The whole idea of the phone is we help them buy and we help them after a sale and we help them every step . . .
Andrew: How many calls a day are you getting on that number?
David: Not a huge amount. The phone is not a huge producer of sales for us. It is when we do some BtoB type things. It’s not so much as far as the number of orders.
Andrew: Is it mostly reassurance that people see that there’s a number there? They know if I ever have a problem. I can call them up.
David: Yeah, absolutely. It’s a reassurance. It’s a reassuring point that they know that there is a person on the other side. We answer with our own people. It does not get farmed out.
Andrew: Who does it? Who answers the phone now?
David: We have people in our office who answer.
Andrew: Whose job it is to answer the phone? Or who just has a phone by them, and if anyone happens to call, they pick up?
David: It’s part of their job. It’s not their sole job.
Andrew: Okay. I see. You don’t even need a full-time person to answer your phones. You just need to have a number that goes into your office.
Andrew: There’s nobody answering it weekends? There’s nobody answering it at night? You’re not hiring a phone bank to do it for you?
David: Yeah. No, not at this point.
Andrew: It just goes to voicemail, but people at least know that they can reach you.
David: Yeah, and we would call them back right away.
Andrew: I see that a lot, actually. I see phone numbers on websites. I see that people do it for reassurance. I used to think that if you have a phone number on the site, you need to have somebody standing by 24 hours a day to man that number so that the customer, god forbid, won’t go into voicemail. What I’m understanding is that it’s okay if it goes to voicemail. They’ll know that you’re a real company. They’ll accept that they can talk to you on Monday morning when you get back in.
David: Customers would rather you call them right back, but they live with that. I think that’s one area of improvement. Maybe it’s when we get to the scale where we can have a 24 hours. I’m not so excited about farming it out. I think that customer service is such a key thing for us that I’m better off calling a customer back the next day, controlling the level of service that the customer is getting as opposed to not really knowing what the company on the other side is doing.
Andrew: I see the other thing on your website that I’m noticing is you have an Inc. 5000 company. You told Inc. what your revenues were, but you are and I agreed before the interview started that we weren’t going to say it here because you’re a private company and you want to keep that stuff private. Can we say at least, I know what the revenues were last year, can we say at least over a million dollars in revenue last year?
David: Oh, yeah, for sure.
Andrew: Okay. We’ll say that and we’ll leave it at that and we’ll continue on with the rest of the questions. What happened in 2009 that suddenly, you went in and you worked full-time, what did you do differently that suddenly the business took off?
David: I think it’s a number of things. I think that we sat down in June, June was a very tough month. Then we sat down in July and the beginning of July was very tough. About the same pace as June, it’s the first year that we are actually shrinking from the year before. We’ve always grown every month, virtually anyways. We’re looking at this and I’m thinking to myself, you know, I’m not sure if I can cover payroll. It’s tight. I’m not sure where I’ll get the money. I was talking to my partner. I was saying, “I can go and find more money for us, but I really don’t want to dig a deeper hole. We’ve got to figure out something.” Then just sitting around and thinking to myself. I was saying, “In my other business, in IT Source, when I get tight of cash, what I do is I pick up the phone and I start smiling and dialing. I start calling customers, e-mailing customers, and I’ll go get the cash. I’ve had situations where things were tough, where I’ve raised $400,000 in a month, from customers selling inventory.” I said, “You know what? That’s exactly what we need to do. We need to get aggressive. We need to go after it.” I talked with my brother, who does our marketing, and I said, “Amitai, let’s get to work. Let’s start pushing harder.”
We increased the amount of promotions that we did. We became more aggressive. We actually invested more in marketing. We’ve done things that were more, I don’t like the word aggressive so much, but they were more reaching out to customers. For example, when customers would fill out a request to get a quote on a custom order, we would not only send an e-mail with our request. We would pick up the phone after we sent the e-mail and said, “I sent you a quote. Have you had a chance to look at it? This is our process. Are you ready to go with it?” So the close ratio went up from filling out those requests to actually getting orders. We simply started turning the wheel and reinvesting it all into marketing again, and it just took off.
Andrew: You know what? We’re now 42 minutes into our conversation, and I can’t believe that it took me this long to get to this part. It’s been great up until now, but now you’ve got me at the edge of my seat. I want to know what you did to turn things around. But before I even ask you what you did at overstock, tell me more about this smiling and dialing at the company you were working with before this. If you needed to go and get customers or needed to grow your business, what kind of phone calls would you make and what kind results did you generate?
David: The company dealt with used computer equipment. I have to give you some background. It’s a completely different industry. We would basically purchase or receive, via services we provided, large quantities of used computer equipment. Then we would sell them. We would sell them to customers all over the world. Being in the industry for a long time, I knew . . . it’s a fairly condensed industry as far as the amount of players even though it’s worldwide. I knew quite a few people. So I would simply advertise through the different networks and send e-mails directly to buyers. I knew buyers in countries like Sri Lanka and Pakistan and Romania and the Dominican Republic and Brazil and what have you. I’d get on the phone and I’d start calling. “Hey, I sent you this package. Have you had a chance to look at it?” “Yeah, I have.” Say the package is $100,000. Yeah, I’ve looked at. Your price is a little bit high.” We start discussing price, requirements, discussing all these pieces. And I tell them, “It’s first come, first serve basis. Once they’re gone, they’re gone. I’ve got the inventory here today, so let’s get going.”
It’s never that easy. Customers respond after you do it enough. It’s the type of business where you’ve got to develop trust over time because they’re sending you their money and you’re shipping the goods. We’ve created a good reputation for ourselves. Because I was working with customers for many years, I was fairly well known from that standpoint. It was easy for me to reach customers and talk to customers and help them get involved in the product and purchase our products. Whenever we got tight, I would really increase the amount of activity that I would do in order to get those orders going.
Andrew: I see. So instead of calling around looking for investors, you just start calling your customers and see if you can convert them, calling your prospects and see if you can convert them into customers. Calling people to ask them for information, see if you can close that sale. All right. So now you said I’m going to bring that kind of aggression, I’m going to bring that kind of motivation to my job here at overstockArt.com. You said the word aggressive a few times. What kind of things did you do?
David: There are two parts to aggressive. You should never be aggressive with your customer where your customer feels that you’re pushing. Because if you’re pushing, they’re pulling, and if you’re pulling, they’re pushing. You always got to use a pull methodology, even if it’s an aggressive internal methodology. Does that make sense to you?
David: Though we decided to be aggressive internally, we didn’t want them to feel like we are attacking them. I would, for example, talk to the people answering the phone and explain some sales strategies. I would always tell them as you’re doing these things, never make them feel uncomfortable because then they will not call again. The biggest things that we’ve done as far as being aggressive is like this. First of all, we use to send one e-mail message a week. I have always been worried not to affect them too much. We said, oh, let’s raise it, let’s send three. That’s three times as much touches, but it works because all of a sudden the person’s thinking they have a 20% off discount, should I buy, should I not? Now, they get it again. They got it. It’s going to end in a day, let’s go and buy it. It’s that type of . . . it’s aggressive because there’s a lot more touches, but it’s all in a pull type methodology, if you will. It’s only for people that are registered. We never expand because that just doesn’t work. For all the people that are thinking of purchasing a million addresses for $100, save your $100. Do not spend it. Just have people that want to get your e-mail, that’s probably the biggest thing.
The next thing that we did, that’s going to sound a little tricky, is everybody in the industry were afraid of the economy, everybody dropped their prices. My partner talked to me and said, “You know, we need to drop the prices. This economy’s going to hit and it’s going to hit bad.” I said, “You know, I don’t think so. Dropping the price is not going to work. Our product is not electronics. This is the type of product people buy because they find what they want. It’s not something that they buy because of just price. But people are looking for a value. But if you drop your price, you just dropped the value because they don’t know the value in it. Let’s raise our prices, but give them bigger discounts.” That’s what we did it. Prices went up and discounts went up. Now, I can afford to give a greater discount because my native price, which communicates the value, because if you put this painting is worth $1,000, it’s a $1,000 value. All of a sudden, we start at $1,000 . . . we don’t start at $1,000. Our paintings are quite a bit less expensive than that. But all of a sudden, that’s the threshold. Now they get a heck of a deal getting 40% off, where before they could only get 20% off. But still the prices we receive is similar. So that’s something else that we’ve done that was extremely successful.
Andrew: I see that actually. I see even on the bottom of the website, there’s get 20% off coupon today if you join the newsletter. I see now how you can afford to do that for people and still maintain your margins.
David: It’s a key for a merchant. A lot of young entrepreneurs are thinking, you ask them what’s going to be your competitive edge. Well, I’m going to be cheaper than everybody else. That works if you’ve got a better cost structure, and it could work for a guy starting out. But for over a long term, as you’re growing your business and your overhead is ultimately going to grow, that doesn’t work. Unless you build something like Walmart did and there’s some companies that were successful. For most entrepreneurial ventures, to just be a cost leader, it doesn’t exactly work. You’ve got to figure out what are going to be the things that will cause consumers to buy from you. How can you grow faster than your industry? That means you’ve got to take dollars that were going to go to your competitors and now they’re going to you. You have to take business away. So why should they buy from you? Those are the kind of things that affect that.
Andrew: The other word that I wrote down here is promote. You said that you increased promotion. How did you do that?
David: It’s a number of things. The first thing is going back to e-mail. A lot more e-mails, that’s the first promotion. The second thing is cost-per-click marketing. That’s something else that we’ve invested in. The return on cost-per-click marketing in our industry is a little bit difficult because it ends up costing you a lot of money to get the first order. Taking care of the customers and going back to that even though that doesn’t sound like part of sales. Customer service to us is not a cost. To us it’s an investment. We feel if we take care of that customer better than anybody else in our industry, they’re coming back to us. We might lose money on the first transaction. Actually that is happening to us more than we like. It happens where we lose money on the first transaction, but we’re banking on a large percentage of them coming back because we’re going to give them a superior product and superior service. And if they want to return, we don’t make it difficult. If they want to return, we know this is our time to shine. This our time to show that it’s easy to deal with us, it’s fun to deal with us even on the backend.
Andrew: When you say lose money on the first order, you mean because cost-per-click advertising is so competitive that you have to pay more than you can earn back immediately. Is that right?
Andrew: Is the cost per click the only place where you end up paying more per customer than you earn?
David: Yeah, it’s the only place I can think of offhand.
Andrew: It’s a very competitive area right now.
David: It’s very competitive. It’s expensive and because, on search engine traffic it’s a little bit harder to convert because what happens is they search for oil paintings, for example. Then we come up and so does all our competitors are coming up. They’re coming into our site. They’re looking at what we’ve got. They say, hmm, “Nice stuff. Let’s go see what some of the other people have.” They hit the back button or the research button, because you can do that right there, and then they see all our competition and they go next, and next, and next, and next. It’s definitely competitive. The close ratio is not great. We fight close ratio all the time, because we’re in an industry that’s inherently difficult to close because it’s a very visual product. Compared to if you’re selling books or if you’re selling airplane tickets, they don’t have to touch and they don’t have to feel. They know what it is. Our product, it’s an oil painting. You want to see it. You see the brush strokes. You want to see how it looks in your house. We always feel if we can improve conversion we can bid higher in the search engines. We can do these things because we now can close them in a fast enough pace that we are able to invest more in marketing.
Andrew: 2009 was a transformative year for the business, right?
David: Yes, absolutely.
Andrew: We’re now at the end of 2010. You guys have done better this year than last year?
David: Yeah, absolutely. We’ve grown in every month this year. We should hit about 50% growth.
Andrew: Fifty percent growth from 2009 which was a stellar year to 2010.
David: Yes, absolutely.
Andrew: All right. Let me finish it this way. If anyone else, and in fact not if, when every single person in my audience ends up in a situation like you were in last year where suddenly things go bad and they need to do something to recover, they’re going to think of you. What advice, like in that Yoda head, that Yoda voice, not Yoda voice, but what advice can they remember? What advice do you want to leave them with for that situation?
David: I’m going to leave two things. One is not just when you get into tough situations, in general. The one thing to be successful as an entrepreneur, and to be successful in almost everything probably, always allow yourself time to think. Don’t get into a situation where you’re just running as fast as you can doing the sales, doing the production, doing the books, or doing all this stuff that you just don’t have any time to think. Because that’s the only way that you’re going to grow your business, that’s the only way you’re going to achieve your goals is if you spend time during your day, during your week, during your month, whichever way you want to divide it on your schedule, you have to take time and you have to think. You have to think how am I going to grow my business, how am I going to solve this problem, how am I going to get out of this cash flow crunch, how am I going attain my goals? It’s any one of these parameters that you want to think about or that you want to achieve success in. If you don’t take time to think, you truly might as well go work for somebody else. If you want to be a successful entrepreneur — you’re an entrepreneur, so you might agree with me — taking that time to think of how you’re going to strategize to grow your business is probably the most important piece of advice I could give anybody.
The second thing is and it’s related, when you are faced with a tough situation and it could be anything, and small business owners are facing those situations because we don’t necessarily have a huge staff to address any kind of issue . . .
Andrew: Let’s see. We might have just. . .
David: . . . picking us up, and say, “Don’t worry. I’ll take care of this one. I’m going to go to work for you.” No, you’ve got to do it yourself. It’s any kind of issue that you can be facing. What I would say is when you’re facing this issue, stop for a second and take a deep breath and go back. Think what the worst case is so that you can address that worse case scenario. Say, “Okay, I’m going to run out of cash here. So what’s the worse case that can happen?” And in most cases, you’ll discover that the worse case is not quite as bad as you thought. There is a way out of here. Let’s relax. Let’s not stress, because if you’re stressed you cannot think and you cannot function. You just get into this frantic situation and you don’t know what you’re doing. If you’re talking to customer stressed, they feel that stress and they’re not buying from you. Then you just start to build a small action plan and just go to town and implement it. Don’t wait for anybody. Don’t take no for an answers. You just got to go and do it.
Then if you’ve got a staff that’s big, that’s great. If you’ve got a staff that’s small, get them all on board and explain the situation. Communicate to everybody the situation. If you don’t say it, they’re going to know about it and they’re going to guess probably worse than what it really is. You’ve got to be the leader. You’ve got to be the coach. You’ve got be the guy with the confidence that stands in the corner and says, “Hey guys, we’re faced with this situation right now. It may be cash, it may be this, it may be that, but we’re going to handle it first of all. This is how we’re going to handle.” If you come in with your confidence and you inspire your people to follow through with this aggression and this energy and make it a positive energy as opposed to a negative energy, you’re going to win.
Andrew: All right. That’s a great place to leave it. The site is overstockArt.com, overstockArt.com. Thanks for doing the interview.
David: You bet. Thank you very much. I really enjoyed it.
Andrew: Me too. Thank you all for watching. Bye.
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