What to expect as your e-commerce business grows.

WHAT TO THINK, HOW TO MANAGE AND STRUCTURE YOUR ECOMMERCE BUSINESS THROUGH ITS GROWTH STAGES

Paul Lepa, CEO, PearlsOnly.com

Background

2003-present

E-commerce – PearlsOnly.com Beijing, China

1992GraduatedElectrical Engineering with Computer Minor

Calgary, Canada

1992 - 2001TelvantKoch IndustriesTelvant• Marketing• Project Manager• Senior Account

ExecutiveCalgary, Canada2002-

2003ABB

Director, Global Pipeline Unit

Mannheim, German

2003-2005ABB

Director, Global Pipeline Unit

Beijing, China

About PearlsOnly Last12 years over 30 million USD in sales 250,000 customers world wide Websites in US, UK, AU, CA, DE Amazon in US, CA, UK, DE, FR (and soon IT and ES) Grew from 2 people to peak of 60 employees Nearly killed the business 3 times! Lost a LOT of sleep Worked both the hardest and the least hard in my life

Agenda1. Stage 1 – Growth

Characteristics Think / Manage / Structure

2. Stage 2 – Transition (aka Growth Ends)3. Stage 3 - Steady State4. Lessons Learned 5. Q/A

Overview of Growth Stages

STAGE 2TRANSITION

STAGE 3STEADY STATE

STAGE 1GROWTH

Time

Top LineSales

($)

STAGE 1 - GROWTH

Growth Stage

STAGE 2TRANSITION

STAGE 3STEADY STATE

STAGE 1GROWTH

Growth Stage

Doubling or tripling of your business – 100%, 200% and up - Year on Year growthEg. $500K, $1M, $2M,$4M,…

Big hours and long weeks – 80+ hour weeks

Too Many things to do, not enough time Wish you had help with all the things going

on, but no time to train anyone

What are the CHARACTERISTICS of this stage?

Growth Stage

Think about how to get bigger Think in 3 months increments – things change very

fast View most things as transient You are experimenting – things will change Do most things yourself Do not delegate/hire until you have gone through it

yourself

How to THINK in this stage?

Growth Stage

As little infrastructure as possible ie. No office design, corporate standards, letter heads, etc.

Hire the best people you can – 1 good hire = 6 bad ones

Shared server / outsourced cart Don’t focus on the bottom line, but on top line

(if you know that you can later optimize the bottom line)

Few simple KPI’s (sales number, CR (conversion rate)) – the rest from hands on work

How to STRUCTURE your business at this stage?

How to growDO Try a lot of things Throw away what doesn’t

work Look at your competitors

and copy best ideas and improve by 20%

Follow the Golden RuleSite Quality 1stTraffic 2nd

DON’T Optimize the business –

it will change too much Do to many SOP’s – they

will change too much

Growth Stage – Parting Words The most creative of the stages The most tiring and demanding The most (personally) rewarding Unfortunately it ends (and you will miss it)

STAGE 2 - Transition

Transition Stage

STAGE 2TRANSITION

STAGE 3STEADY STATE

STAGE 1GROWTH

Your Year on Year growth is 40-50%, not 100-200%

Less things are changing in your business You have more free time Less fire fighting

Transition StageWhat are the CHARACTERISTICS of this stage?

How can I reduce my work load How can I have others do my tasks How can I optimize my costs How can I make this business work/last

without me in it Convert employees to part-time/outsource

Transition StageHow to THINK in this stage?

Change from ‘management by knowing’ to ‘management by reporting’ Will feel very wobbly and slightly out of control This is a HUGE change

Invest time into Processes and SOP’s (1 or 2 years to get it all solid)

Transition yourself from doer to owner Take your time – its uncomfortable

Transition StageHow to STRUCTURE your business?

Challenging to be an owner not a doer Managing by reporting is a critical new skill Reality that your business is the size it is

but its not all bad

15% Growth Over 10 years is 4X $500K business, in 10 Years becomes $2M business$100K business, in 10 Years becomes $400K business

Transition Stage – Parting Words

STAGE 3 – STEADY-STATE

Steady-State StageSTAGE 3STEADY STATE

STAGE 1GROWTH

STAGE 2TRANSITION

Bittersweet Stage Your Year on Year growth is 15-20% Business runs by SOP’s Things are well understood and predictable Business is FORECASTABLE Profits are steady Requires very little time for you to manage

Steady-State StageWhat are the CHARACTERISTICS of this stage?

Steady-State Stage

How do I maximize profit How do I maintain slight growth How do I defend my space (niche) Ok to accept lower profit in trade off for more

time

How to THINK in this stage?

Steady-State Stage Manage by KPI’s Manage by Reports Manage financially

Follow SOP’s and Procedures Maximize Profits by

Minimizing Costs

How to MANAGE in this stage?

Steady-State Stage Biggest Challenge

Boredom Avoid Coasting – as you can only coast

downhill Business not big enough

Steady-State Parting Words Steady-State Stage is where you can either:

HarvestSell

Partial to Harvesting – given than Sell on exit is 2-3x net profit

Overview

STAGE 2TRANSITION

STAGE 3STEADY STATE

STAGE 1GROWTH

Time

Top LineSales

($)

Quit my job - not prepared for how exposed you feel - worked more not less Worked 100 - 120 hour weeks for many years  Started to calculate the cost of my time off  Co-mingling business/company money Problem with big numbers - $50k on monthly Google PPC - $10k holiday

seems cheap Unrealistic growth expectations  Weak accounting - poor cash flow  models – Near Business Kill #1 Buying too many goods based on bad estimates - hard to be rescued with

bigger volume Growth is a drug With will power you can make ANYTHING grow

The mistakes I made during Growth Stage

SOP’s - people resist Not enough training into SOP’s No process in place to monitor/update SOP’s Managing by reports is great - but your data has to

be right :) Growing your business through your GM or hired

CEO doesn't work – Near business kill #2

The mistakes I made during Transition Stage

Easy to check out - I checked out for 3 years - came back to find all kinds of bad things    

My KPIs where off – for example watching profit but not COG ratio.

Started projects just for fun - to keep busy but not make money – should be called a hobby.

Cannibalizing existing business to run another one - Near business kill #3

The mistakes I made in Steady State

Lessons from Mistakes

Its All Empty!

Thank you!

Growth Stages – Question and (hopefully) Answer

STAGE 2TRANSITION

STAGE 3STEADY STATE

STAGE 1GROWTH

Time

Top LineSales

($)

Presentation

Will be available for download next week, at paullepa.com