The company underestimated how hard it is to get customers
I didn’t know what to expect, but I thought that if you put up a web site, you know, people will come. I had no idea. I mean it’s not that easy. They don’t just come and even if they do come, there’s a good chance they’re going to leave. I think our bounce rate was 80% in the early days which is not good.
[Andrew’s note: they ended up getting customers largely through ads in search engines and search engine optimization.]
As they grew, customer service didn’t scale
When we were small, our service could be excellent for every single customer. It was so good that our retention rate was 50%. And on average those customers bought from us once a month. Once we scaled, we couldn’t maintain that level of service.
In the early days, the phone would never ring without being answered. Every email was answered within 12 hours. Usually it was a matter of minutes, but our promise was 12 hours. At the beginning, my business partner and I personally answered every single phone call.
So when the owners of the business are the ones doing the customer service, I would hope that it would be pretty good. We have a vested interest in the business. But that’s easy. It’s when we scaled and when we had 15 employees making $8 an hour that we had to instill that same level of pride into them that I had for the business. And that’s the difficult thing.
They listened to EVERYTHING their customers wanted
We were basically responding to our customers’ needs, which is good, but they were asking us for everything under the sun and we were trying to deliver that. So they were asking us for ab equipment. Next thing I know we’re selling healthy pet food. I mean, we were taking pretty much any product that you can think of and justifying it as some kind of wellness product. And before we knew it, we were selling sexual enhancement stuff and saying, “Okay. Well that sort of fits into the whole healthy living thing. You’ve got to have a healthy sex life.”
They sold more than they could stock
We expanded too quickly. We offered a thousand products when we actually only stocked a few hundred. And if you ordered one of the 700 that we didn’t have, we would quickly order it from our distributor, get it in our warehouse within a couple of days, then try to rush it out to you. So it was a dangerous formula that actually encouraged us to grow faster than we really could.
Drop shipping wasn’t an option with the majority of our distributors. We actually had to physically take possession and then get it to our customers. So it was a true just-in-time system. It’s hard to stay disciplined that way. If you can do it and if you have a good system designed, I mean, go for it. But it’s extremely difficult to scale that way. Very difficult. And it’s also very hard to have a high level of customer service because you can’t guarantee that your distributor’s going to be able to get you the products in time. There could be shipping problems, they could be out of stock on something. It really adds a layer of complexity to the business that makes it very hard to scale.
They sold too many products
We were definitely imagining that there were certain things that customers wanted. Healthy pet supplements, for instance, was something that we went into. That was less of a request by our customers and more of us seeing the size of the pet supplement market and saying, “Hey, that’s a huge market. This is the next wave of growth. Let’s get on it.”
[Andrew’s note: If you listen to the program, you’ll see the logic behind this. Sales really did increase when they added more products. The problem was that they were adding more products than they could handle. By the way, pet supplements did very well for them. Similar experiments didn’t go so well, like selling cereal.]
Expiration dates restricted their ability to experiment
There certainly is a benefit to experimenting but it’s not cheap to experiment, by any means. In the case of supplements and food — we sold protein bars and different forms of food — they had expiration dates. And depending on the rules of the distributors, we couldn’t always return everything. It gets very tricky. When we moved warehouses about a year into the business, I ended up throwing away about $20,000 worth of product that was either expired or had went bad. So it’s even more complicated when you’re dealing with perishables. But if your vendors have an easy return policy and you think that you’re not taking on a lot of risk, then sure, there’s a lot of benefits to experimenting.
They blurred their brand
You can never lose sight of, “Okay, what’s our company supposed to be in the first place?” And I think getting into pet products or getting into sexual enhancement, which we justified under “health,” can kind of blur the lines a little bit. And I think our customers began to get confused and say, “What are these guys really selling?” We’re not bodybuilding.com where you think performance body building supplements. It was Fit Fuel, trying to be healthy living to everybody and we got a little bit away from our core mission.
They didn’t set benchmarks for success
I think experimenting in a measured fashion is a great thing to do, but you have to be scientific about it. We weren’t scientific at all.
Actually set benchmarks for yourself before you set out in the experimenting. Say, “if I don’t sell X amount of this product within three months, we’re going to kill it.” Have quantifiable benchmarks that you set, because as you grow, those things are very important. And hold yourself to them. It instills discipline in you. Really think through the different things that make a product work. Don’t just take a shotgun approach and try everything. It’s very good to fail quickly in anything that you do in entrepreneurship, and it’s good to fail quickly with a product too.
But just make sure that you do that, because in some cases we held out hope and were a little more optimistic for some products that we probably shouldn’t have been.
They couldn’t grow their forums to critical mass
We never grew a huge forum and I haven’t figured out the art of growing a forum or social network, so they never really took off for us.
I think you need critical mass in any community and we didn’t quite achieve that critical mass. I mean who wants to go in a forum when there’s really nobody to talk to? So at the beginning I and 9 or 10 of my good friends were just having a conversation amongst ourselves trying to get it to look like there was a ton of messages on there and a ton of users so that other people would kind of jump in and join the conversation. I don’t know if we ever got to that point.
They tried to make their software do what it wasn’t made to do
Our web developer had no end to his complaints of OS Commerce [the ecommerce platform they used]. Not to say that OS Commerce is not a great platform for someone to get started with. It’s free, I love open source. The problem was simply that we really wanted a custom platform. And we sort of got so far into customizing OS Commerce that it would have been very costly for us to just scrap it and start over.
So working with an existing code base, especially when you have a good programmer, is a problem because he has to work within that architecture. And it might not be as conducive with your long term plans as you’d like it to be. So, if you have the recourses, starting from scratch, starting custom, really gives you the flexibility to build it however you want to build it. By the time we were done, we had basically stripped OS Commerce down and built it back up again, but we were still left with a lot of remnants of code and a lot of things in there that just it would have been easier not to have in the first place.
They used too many different outsourced developers
To give you one example, we were going through our site several months ago and our programmer found a piece of code that was throwing errors for the last year from somebody that worked on our site on Rent-A-Coder a year ago. They actually left some debug code that if you went to a certain part of our site it was actually showing up.
I mean nobody reported it to us because most customers that saw that error weren’t going to take the time to send us a note to say, “Hey, guess what! Somebody left a debug code on your website.” They are just never going to come back, and they’ll think to themselves, “This company is not so serious. They got debug code on one of their pages.” So you have to be very, very careful.
They got distracted by non-core features, like video
We put on a video sharing component to our site. I think it was videos.fitfuel.com. This is at the height of the YouTube craze. We said let’s get some videos shown in our website. So we took six months of development work using Rent-A-Coder and probably 10-12 people built this big section of our site. It took a lot of time and energy. It never really took off for us because we didn’t take the time to promote as much as we should have. We never reached critical mass and we could have used those resources instead to simply build our core site.
They lost sight of their purpose
You’ve got to have a purpose. I’m talking about a purpose in your life. You need to know what your goal is. What do you want to do in the world? What are you trying to accomplish? Are you like a piece of driftwood, sort of going wherever the market takes you, wherever the tide takes you. And it’s easy to get blown off course. So I think you need to ask yourself, before you get yourself into anything, what is it that I really care about? And what is my goal, long term? What do I really want to do?
Full program includes
– You’ll hear what the company did right. I focused the text excerpts on mistakes, but if you listen to the full program you’ll also learn how they raised money, grew sales and how they got so far with little resources.
– You’ll get a deeper understanding of the issues Luke faced. Reading my notes is helpful, but listening to Luke tell you what happened will really leave a lasting impression on you.
– You’ll see lots of specific lessons, with clear, descriptive examples directly from Luke’s experience.