E218: 10 Current Risk Factors in Ecommerce – How The Variables Have Changed and Their Effects on My Business

I just came back from ECF Live in New Orleans, and one of the topics people kept bringing up to me was the changes I've been making in my business for the past year.

For a bit of a backstory, we started 2018 with a list of goals, one of which is to hit a revenue of $9.7 million. At that point, that number was perfectly reasonable and achievable and we started the first few months confident and on a strong footing.

But then, some things happened in mid 2018 that changed that. These things and other factors led us to deliberately stop developing new products, which is another one of our goals. This, in turn, affected our revenue numbers, and we ultimately did not reach $9.7 million.

What these things are–factors which, in a way, made us intentionally drop our revenue goal–is what people is wondering about.

This episode addresses that.

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Full Audio Transcript

Intro: This is Mike and welcome to episode number 218 of the EcomCrew Podcast. Still nursing this sore throat from a combination of a cold, a little bit too much to drink, and too much screaming and shouting at EcommerceFuel Live. What a blast. I ended up spending about 10 days in New Orleans, got there early to spend some time with some friends who just happened to be there for the long weekend beforehand, which was awesome, got to spend some time with them. And then Dave and Dave came in and we did EcomCrew stuff for three days, and then it was time to do EcommerceFuel Live stuff which was a blast as always.

It's the weekend of the year that I look forward to the most when it comes to e-commerce, just an absolute blast, great people, great times. I did another talk there which I thought went pretty darn well. As you guys know from listening to other parts of this podcast, it's something I struggled with. I had to work quite hard out to get better at speaking and I think that I’ve gotten over that hump finally. It was definitely a lot of fun doing it. I appreciate again, Dave Couillard for helping out with the slides, making them look really awesome. It was a great time.

So, let's get into today's topic. And the reason I wanted to do today's topic, one of the things that I got asked a lot at Ecommerce Fuel Live was it seems like there's been a shift. You didn't hit your $10 million goal last year, there was a shift to taking your foot off the pedal and why? And I wanted to do a whole episode about this because it all has to do with a bunch of different levers variables that change over time and the variables in a formula spits out an answer at the end of the day. And that calculation has changed quite a bit over the last four years since I started this company and six years since I've started doing e-commerce. And that's what I want to talk about. So, right on the other side of this break, we're going to get into the risk factor levers and why they’ve changed for me in e-commerce.

All right guys, so as mentioned, we're going to get into risk factors in e-commerce today and how things have changed with those variables or what I look at when it comes to that. Before digging in today's episode, this is like the one week every few months that I have to be a salesman and mention that EcomCrew Premium is open again. You can go to EcomCrew.com/premium. As you guys know, we only open this up every couple of months just because we want to make sure that we're around to handle the email volumes. We’re just back from EcommerceFuel Live. So Dave and I will be around to make sure that we handle the influx of all the new people that sign up so we can support all of our new members.

We only open up EcomCrew Premium every couple of months, so this will be your last chance to get in EcomCrew Premium until probably April will be the next opportunity. So don't miss out, we are very strict about this. We get a lot of emails at the very end pleading and asking to join and we have to have a hard stop. So, go to EcomCrew.com/premium. For those of you who aren't familiar with that, you get four full length courses; we have a fifth one coming out later this year. Whatever we add, all this is added for free to your subscription. This is a subscription based model.

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So, all right enough about that. Let's talk about today's topic, which again, are these risk levers. And so, I've identified 10 of them. And these are the things that I'm constantly thinking about in my business, right? So, it really makes a difference when it comes down to how you're going to evaluate risk for your business and yourself. So, everyone's different, right? So, I don't profess to tell people to do things my way. However, these are just things that I think about, this is how I got to the conclusion for me, and you're going to want to think about these things differently. And maybe you have some additional things that you think should be added to list this list. If you do, go to EcomCrew.com/218 to get to those.

So, the first one is going to be inventory, so like how much inventory do I have sitting on the shelves? For me, this calculation is very different in terms of how much risk and how much pressure I feel in my business based on how much inventory I have. I feel very differently now with $1.3 million in inventory than I did when I had $100,000 in inventory. So right now, there's a constant level of stress, I’m constantly thinking about the fact that I have $1.3 million in inventory. I have this asset and I can't pay my mortgage or my tax payments with it. It's an asset, but it's not really an asset.

So it's something that can definitely add a lot of stress. And when it comes down to how you feel as far as comfort to assets versus debt, which is the second thing here, that's also going to be a part of the calculation. So we have about $700,000 in debt against our inventory. We do this first of all, to help us grow quicker. Second of all, we do it to help us with an Amazon loan to help us keep our account in good standing. We've been told by many people that having an Amazon loan helps you in the case of an emergency, they will think twice about shutting your account down. So, that's something that's really important.

For me, I'm a really debt averse person. I don't like having a car payment, which we don't have any car payments. I don't like having credit card payment; we have no credit card debt. I don't even like having a mortgage. We do have a mortgage on our house. It's a small mortgage compared to the cost of our house. But we did that to have enough money to buy inventory initially, which is the next thing on my list, which is how much money have you invested of your own money into your business. That's going to be another lever that's going to be something that you're going to be thinking about.

And for us, we invested a substantial amount of money in our business to start with to get this thing off the ground to get it where it is, mid six figures of cash we put into the business that we had from savings. And that's another risk factor, something else I'm thinking about. Now, there's other things, other outside factors like tariffs. That's another thing that wasn't even on the radar several months ago. But tariffs to me is a risk factor. If the trade war does get out of control, spiral out of control, you never know where it's going to go from here. And it's hard to use logic to dictate where things might go because the tariffs came out of nowhere to begin with.

The first tariffs that we paid were on goods that we had already put a deposit on and had no way to anticipate the tariffs even coming. And for us, it puts the cash flow problem because we weren't prepared for the money that we were going to need for those tariffs. So if it escalated to 25 or 50%, something went crazy, that's a risk as well. I don't think that's going to happen, but it's certainly another risk lever.

Another one's going to be net worth. I think that it's really important to be looking at what's your net worth. And the next one here as well I think goes hand in hand which also was what's your age? This is one of these things that it's really difficult for me to come to terms with. I've always thought of myself as an overgrown kid, and think of myself as a teenager or young 20 something in a lot of ways, because I still like to have fun. And the reality is that my body doesn't feel that way any longer. I can feel that when I drink, when I go exercise, when I get lack of sleep, whatever it might be, those things all come into play. But another really sad reality is that I only have so many years left in my career and left to make money.

And so there's a big difference to network the age ratio for me as I get older than when I was younger. When I was in my 20s and I was doing crazy business stuff with the online poker and we were starting that organization, and there was a time that we literally could have gone bankrupt. I could have lost my house, my car, and everything. It literally was down to that point pretty [inaudible 00:08:48]. I go there for a while because we were growing so fast and there also were some outside pressures as well that we were dealing with. We were kind of past the point of no return. It was either going to blow up in a good way or a bad way.

There wasn't going to be a middle ground at a certain point for that business. But I was fine with that because I was in my 20s and it would be like no big deal for me, I’d just pick up and start all over. But I got to tell you, the thought of that at 42 is a pretty overwhelming prospect. So, this is another risk factor that I think is really important, at least for me to be thinking about. I don't want to take a chance of betting the farm as someone was saying at ECF Live, or we say bet the house or whatever saying you want. I don't want to go all in, another cliché saying on this business anymore, right?

I don't want a situation where if the worst case scenario did happen, that I end up with nothing for the last five years of effort. So, it's a very different calculation when you add up all these different things than it was when I was younger. And as we continue to have more inventory, more personal investment in the business, I continue to get older, my net worth goes up and the chances of that going to zero, all those different things make a big difference.

Other outside factors, platforms I guess is probably the best way to put it. I had put down here on my list Amazon shutdown as the title of this, but what if Amazon shut our account down? I don't think it's very likely. What if they shut down our listings? Again, I don't think it's very likely. They have shut down listings, they reopen them really quickly, but this is still a factor. So again, it's one of these things where like it's binary either our business is doing high six figures a month in revenue or it could go to zero or very close to it would be your 80/20 basically.

So it could be we go from high six figures to low six figures overnight, and all these other levers and everything that affects our business just goes to zero pretty quickly because we’ve run out of cash to support the whole organization. So this is another risk factor. And for me, this risk factor as a percentage chance has increased. I think that there was a time where I felt like the chances of our Amazon account getting shut down were sub zero percent or sub 1%, I apologize, sub 1%. I think now it's probably in the two or 3% range, right? I don't think it's that high but I do think that it's more than 1% at this point.

And you got to ask yourself this, if you have an opportunity to make a million dollars today, guaranteed, or you can have a 19 out of 20 chance, or let's say a 29 out of 30 chance, let's say probably is more accurate or 28 out of 30 chance to make $5 million tomorrow — or not tomorrow, but let's say a couple of years from now, which one would you take? Now, if I had a net worth of $100 million, I would play that game over and over again with no questions asked. But when you factor in some of the other stuff that I talked about here, at some point, that I don't know when exactly that is, but at some point, a burger in the hand becomes worth more. You take the guaranteed payment even though it's not the best gambling decision, not the best business decision, but it might be the best decision for you in your life and your family.

The next one is the economy. Another outside factor is the economy, and I have to believe that we're at the tail end of an economic cycle. This is not a political thing. Last time, I said, I don't want to talk about politics, I got a really funny comment on the blog. I try to stay away from that stuff on here and I don't like talking about politics because it is so visceral. So please don't take this as that. Please take this as a statistical study of the fact that we are in the longest boom economy in the history of the United States. And every other boom economy that has lasted less time than this has ended in something bad happening like a recession or a depression.

So, I think that the reality is that we're probably pretty close to that no matter what happens from here, no matter who would have won the presidency. It's again not a political thing whatsoever. I think that this is something that we have to all be thinking about. And it's very hard to time this, but I think you have to be aware of this nonetheless. So, the economy is another one on the list. And then you have to assess — I already mentioned this once, I'm going to just re-say it again; the asset is worth now versus later.

So again, if you in a situation where — what's the long game here? Are you looking to have a $10 million dollar exit, is it a $1 million exit? What's your long game? What's the asset’s worth now? What could you sell them for now? What could you do to stop growth and start collecting profit now? What's that worth now versus later? And again, do you want to play Russian roulette with high stakes. So Russian roulette is this whole game that you would play where there's one bullet in a revolving gun of — so you have like a one in six chance of death. I don't think that it's that high in e-commerce. I don't think that it's a one in six chance of things completely going off the rails for our business.

And again, every business is a little bit different because there's other things in play here. I mean, how segmented is your brand? Are you a single skew business, competition, all these different things, what are the outside factors that are at play here? And I think that these are all things that you have to keep in mind. And in fact competition is the next thing I have on my list because we didn't get into that yet. And I think that competition is getting stronger and stronger on Amazon. I do think that Amazon still an incredible business to be involved in. But again, with all these other risk factors, it's something to think about.

So again, this is not a decision that was made in a vacuum. It wasn't a decision that was made hastily or quickly. People kind of ask that like was there something that kind of happened? No, it was a combination of all these things that happened at the middle of last year when I just kind of realized that the risk to reward ratio had gotten out of adjustment for us and what I'm comfortable with in my life and for our business. So at the end of last year, or sorry, in the middle of last year, we made a very cognizant decision to stop developing new products and to start focusing on profit instead of growing net revenue or top line revenue.

And the reason for this is I've always felt like it's easier to start generating net profit when the time comes than generating top line revenue. It takes a long time of cycle of developing products and a lot of effort from an advertising standpoint to be able to do that. But very quickly, you can change your net profit equation and it's been pretty dramatic for us. And it takes — the amount of stress actually, a lot of people were telling me at ECF Live, oh man, you look good. You look like you're kind of like just at peace with other things and don't seem nearly as stressed. And that’s because we have money in the bank for the first time in this entire ecommerce journey.

And again, that's a part of this equation as well, is just the stress that's kind of a variable that I don't have on my list of 10 here but the stress of running an e-commerce business and always being in that situation. Look, there is no way to grow an e-commerce business at 100% per year, which is what we were doing without putting every single penny back into the business. So we were always in this situation where our tax returns show that we made lots of money, mid six figures every year in net profit, but there was never any money to pay it. There was never money in the bank account to pay it, at least not until like April 13, or 12 or way up to the deadline.

It was always really like a crunch and really a scary time. I don't like living like that. And over time, it certainly has wore me out a little bit. It's kind of eating away at me. I'm not impervious to this stuff, I'm still human. And it's certainly wore me out a little bit. And the feeling I have now is pretty awesome because again, we kind of took our foot off the pedal a little bit in terms of trying to increase the growth rate from where it was and just kind of keep it more in line with organic growth. And all of a sudden, instead of having to invest six figures in all these new products all the time and spending lots of money launching new products, we were just harvesting the seeds that we already planted. And next thing you know, there's tons of cash in the bank, which is, again a great feeling.

We already have more than enough money to cover our taxes that are going to be due in April and it's been great. So, this is a path that we're going to continue on for 2019 and we might even make some even bigger moves in 2019 by potentially selling off an asset or something along those lines to get even more cash off the table and adjust this formula more into something that makes me feel comfortable. Now again, everyone listening to this podcast is going to be in a different position. And I think that this is the last thing I want to kind of talk about on this podcast because again, I just came back from EcommerceFuel Live.

I talked to literally over 100 different entrepreneurs while I was there, a lot of them about this exact subject, and everyone again, is in a different point in their life. Some people want a lifestyle business. Some people want the four hour workweek business, they want to spend time with their families, they want to spend time at the beach, they want to spend time traveling, whatever it might be, they just don't want to be spending large amounts of time in their business, they don’t want their business running them. They want to be running their business.

Some people on the other end of it want to like knock the ball out of the park, which is certainly the way that we have been running our business year over year trying to hit this doubling effect every year, which is a really great story, which is really contagious and infectious and makes you want to do it more whether you want to do it or not. You kind of get sucked into that vortex. And I can definitely say that that was something that happened to me for quite a while. And it was a heck of a ride and a lot of fun. And then there's something in between, which is I think, where I kind of want to be at, which is spending less than 80 hours a week in my business and feeling like I’m more and more in control of my business, that I have time to do the things that I want to do in my personal life, that I don't feel like I'm stuck in an office and things of that nature on ongoing basis.

So, we're going to be making some changes with some of that stuff as 2019 goes along as well. And I'll be talking about that when we do release our 2019 goals episode, which should come out sometime probably in late February or early March. There's some stuff we're still trying to work out and you know how I am once I say something, we really try to go after it. So, I want to make sure that that stuff is all ironed out before we go there. But again, everyone is in a different spot and everyone has a different amount of risk at the table.

I get the fact that we are unbelievably fortunate that we had hundreds of thousands of dollars to be able to invest in our business to begin with, that we've been able to live off of savings for the last few years as we've been able to grow this business, that I’ve been able to travel and visit 49 countries at this point and 48 states, and I mean it's incredible. I look at the fortune I've had compared to the average person, the average 7 billion people or 8 billion people or whatever in the world now which hit me really hard again, just being in New Orleans and walking around seeing so many homeless people waiting on the streets. You just got to keep that stuff in mind and I realized that like how fortunate I am.

So, my risk calculation is very different from the person that is down to the last $10 in the bank and they don't have anyone else to turn to, and things are very, very different. Or maybe you're 55 or 60 years old and you want to just retire, and be done with this stuff. I mean everybody's equation is different. And I would just encourage you to stop thinking about what others might be thinking about you in that regard and think about what you really want. Again, it's easy to get sucked into.

I will admit firsthand that I've personally been sucked into this because I love it. This is my disease, I talk about this, this is my addiction, this is the thing that I absolutely love doing e-commerce and the growth is just as exciting as when the stock market goes up and I'm in a stock whether it's investing in the stock or even may be leveraged in options, it's just super exciting and you don't want to sell because you want to continue to ride the wave up.

And the same thing happens in e-commerce, and I would imagine for me at least it's even worse because there is hundreds or thousands of podcast listeners that come up to me throughout the year when I go to these live events who are like, oh man, I love listening to the podcast, I love the success story. It's amazing. You've been growing so quickly, and then becomes like you want to continue to be able to tell this story for that audience and lose track of maybe what's important to me, I would say personally.

So again, that's all the stuff that went into this. There was a lot of thought, it wasn't just a — someone was asking if I was at a midlife crisis or something. I don't think it's quite that type of thing. I think that I'm just trying to make the best prudent business and life decisions and not end up in a situation where one of these levers gets flipped in a non optimal way and I have to go on the podcast to say that I have nothing. That's my biggest fear, and I want to make sure that doesn't happen. When we were early on in the e-commerce journey, and we had invested let's say, $100,000 in inventory, during that time, if things went to zero, it literally wouldn’t have affected my life in any way.

I could have lost $100,000 and it would have been an absolute like barely even a speed bump or running over and ant in my life. It wouldn't even have been noticeable, really except from an ego perspective. I can tell you things are way different now from that perspective. $1.3 million for me is a life changing amount of money in terms of what we have invested in inventory. And then it's also the opportunity cost, the amount of money, the cash we could get if we sold an asset or the cash we can get by investing money by taking profits out of the business instead of always investing money in the business and having a cash stockpile where I can look at that money and say, oh, we have something to show for all the effort we put into it.

Yeah, that equation is definitely a lot different now than it was way back when. I thought it was important to do this podcast to kind of explain that and give all of you guys something to think about as well. And I look forward to your comments, so if you have questions or thoughts about this episode, go over to EcomCrew.com/218. Let me know what you think about this episode. And hopefully, it's giving you more to think about, an understanding as to why there was a shift in 2018 and why some of the things that are going to come out for 2019 are going to exist as well.

So, that pretty much wraps up this episode. I already mentioned EcomCrew Premium at the at the start but I don't want to let you guys forget about it, again EcomCrew.com/premium. That's going to be open this week only. Once we close that, it'll be April before that's open again, and if you've been interested in doing that, I don't want you to miss out. And again, we're not hard salesmen. If you just enjoy all the free content, please continue to do that. That's what we're here for. I can tell you I'm more motivated than ever to continue to put out that free content, to continue to put out this podcast.

EcommerceFuel Live usually is the thing that once a year that really fuels me up to do it because I got so many people walk up, my other friends were kidding me, teasing me, it’s like oh Mike Jackness. Like Mike [inaudible 00:24:55], who's one of my great friends. He probably won't even listen to this episode because he doesn't actually listen to the podcast. He just loves making fun of me for what people come up and say. But I'll tell you what, it never gets old. It is awkward because I am kind of a little bit introverted and it's still weird for me to put myself out there and do those things. But everyone loves compliments and feedback. So when you do see me, please come up and tell me.

Even if you’ve said it before, every time it puts a smile on my face, it gives me a little bit of a dopamine hit, it makes me high, it makes me appreciative that the fact that you guys appreciate what I'm doing and what Dave is doing as well. So, that's going to do it for this episode everybody. I love seeing all the guys that I did see and gals at EcommerceFuel Live. It's a shame that it will be another year before we do that, but I hope you guys all have a great 2019. And until the next episode, happy selling and we'll talk to you soon.