rush order on iot - distributing your things to the masses
DESCRIPTION
Issues and to-dos when building an operations strategy for your hardware product.TRANSCRIPT
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The Flexible Back Office of the World’s Best Ideas… Time and Time Again.
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The Flexible Tools Behind the World’s Best Ideas
Distribu(ng Your Things Boils Down to Two Considera(ons:
The Plan Opera(ons = Lots of Moving Pieces
Make Sure the Pieces Actually Fit
The Reality “Everyone has a plan – Un(l they get
punched in the face.”
-‐-‐ Mike Tyson
"You can lose a lot of money fast in a hardware business if you do it wrong, and most people do it wrong.“ "But building it is not the hardest part," he con-nued. "It's making it, distribu-ng it, managing inventory, managing distribu-on through the channel, understanding the market and suppor-ng the product…This is really difficult stuff.“ ― Randy Komisar Partner @ KPCB The Wall Street Journal – March 2014
The Prevailing View
“The only way to win is to learn faster than anyone else.” ― Eric Ries The Lean Startup: How Today's Entrepreneurs Use ConBnuous InnovaBon to Create Radically Successful Businesses
■ Goals: o Is this a hobby? o Or a poten-al world-‐beater? o Mass market vs. High Value or Niche
■ Required opera-ons for launch: How big? o Pizza party in the living room? o Hire a 3PL?
■ Timeline: o Do my early customers (or backers) expect this
product by a certain deadline? o Or, do I have some leeway?
■ Sales Channels: o 2004: 60% via retailers, 40% own website. o 2014:
o >90% consumer hardware products are sold through retailers (e.g. Amazon, Best Buy, Wal-‐Mart, Target, etc.).
o <10% via own website.
Naviga(ng Trade-‐Offs: Start with the End in Mind
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So, What Does Scale Really Look Like? “Tradi(onal World” Example
Shipments per Month
Oprah Appearance
Acquired for $590 Million
Inbound phone support approaches 75,000 minutes per month
20,000 units in stock required
firmware update
“The Slow Burn”
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What Does Scale Really Look Like? “Crowdfunding” World Example
Shipments per Month
“The Campaign Hangover”
Tools & Systems ■ Accoun-ng
o Quickbooks o Erply o Xero o Upgrade later to
NetSuite, Dynamics, etc.
■ BI tools
o Domo o RJ Metrics o GoodData
■ EDI (aka E-‐commerce for channel sales) o Rush Order o SPS Commerce o CommerceHub o B2BGateway.Net
■ Payments o Authorize.Net o Stripe o PayPal o BrainTree o Recurly
■ E-‐commerce o Airbrite / Celery o Shoplocket o Shopify o BigCommerce o Magento o WooCommerce
■ Phone call rou-ng o RingCentral o Grasshopper o Contactual (now 8x8) o LiveOps o Five9
■ Help Desk o Zendesk o Desk.com o SFDC (Support Cloud) o Parature
Areas Ripe for Outside Help
■ Customs Brokerage & Freight Forwarding o Flexport
■ How do I get onto retail shelves? (intros usually required)
■ Packaging
■ Corporate, Legal, and Strategic Accoun-ng / Finance
Packaging ■ Again, consider your goal: Web vs. Retail vs. Versa-lity
o “Out of box experience” o Retailer Buyer percep-on – Walk around the stores. What are others
doing?
■ Vendors for custom retail and standard shipment packaging: ■ Your Contract Manufacturer (poten-ally risky) ■ Landsberg: www.landsberg.com ■ Container Consul-ng Service: hup://ccs-‐packaging.com ■ Uline: www.uline.com ■ Lots of others
■ Don’t forget barcodes if, you need them
Barcodes ■ Four op-ons
o No barcode (cheapest): Living room fulfillment opera-on + web orders only o Make your own barcodes (cheap): Use UPC or 128 or other common
language (cheap): 3PL fulfillment + web orders only o Buy resold UPC barcodes (a few $ per code): Can be used when selling to
“mom & pop” retailers. www.upc.com or Google “UPC barcodes” o Buy legit unique UPC barcodes ($250 -‐ $750 per company): It’s a good idea
when selling to mom & pops, and required for big chain stores. See www.gs1us.org and www.rushorder.com/upc-‐barcode-‐basics
■ Know your geography: If selling to Europe and others, the standard is EAN ■ Consider adding barcoded serial numbers (128 or other language) to your
packaging: o Track quality control from the factory (very important early on) o Track grey market ac-vity in the future
■ Advanced Op-ons: RFID and 2D barcodes
Pre-‐Orders and Credit Card Management
■ Pay Later Pre-‐orders = Take an actual order with a valid credit card well in advance of shipping. Charge the credit card at the -me of shipment. ■ Pros: No chargeback risk, customer sa-sfac-on higher,
flexibility to edit orders before locking in payment ■ Cons: No cash up front
■ Pay Now Pre-‐orders = Same as above, but charge the credit cards upfront. Cash now, but risk now ■ Pros & Cons: Opposite of above
■ Reserva-on or Interest List = Take customer contact info like email
address.
Pre-‐Orders and Credit Card Management Why take pre-‐orders?
o Revenue capture / higher conversion rate than reserva-on lists o Gain addi-onal market intelligence. Message, product, price tes-ng o Build your opera-ons to suit demand (living room vs. warehouses) o Establish legi-macy with an Ecommerce presence, despite no product ready
to roll… PR and Fundraising o Easy end to end tes-ng of your direct sales channel opera-ons
Pre-‐Orders and Credit Card Management ■ Don’t charge credit cards un-l you can ship. Why?
o Customer experience – This isn’t crowdfunding anymore o FTC requirements – Extra work and some unnecessary risk. See
www.nmoa.org/Library/}c/}c-‐comply.asp o Chargebacks o Chargebacks o Chargebacks – Don’t lose your ability to take credit cards Further reading on chargebacks: hup://blog.airbriteinc.com/post/68281049873/chargebacks-‐can-‐kill-‐crowdfunded-‐businesses
■ Once you can ship, you should s-ll consider wai-ng to charge un-l right before you ship. Why? o Customer experience – Order placed Friday night, charge and ship on
Monday (customer contacts are also expensive). o Catch duplicate orders o Catch fraud (once you become a recognizable brand)
Chargebacks Kill
hups://stripe.com/us/terms#sec-on_b 9. Excessive Chargebacks At any point, Stripe, Wells Fargo, the Card Networks, or our payment processors may determine that you are incurring excessive Chargebacks. Excessive Chargebacks may result in addi-onal fees, penal-es, or fines. Excessive Chargebacks may also result in (a) addi-onal controls and restric-ons to your use of the Stripe Service, including without limita-on, (i) changes to the terms of your Reserve Account, (ii) increases to your applicable Fees, or (iii) delays in your Payout Schedule; or (b) possible suspension or termina(on of your Stripe Account and access to the Service. The Card Networks may also place addi(onal controls or restric(ons as part of their own monitoring programs for merchants with excessive Chargebacks.
Excessive = 1% to 2% of sales
Actual Terms from Stripe.
Shipping Methods: Domes(c
*USPS Priority Mail Flat Rate is the “If it fits, it ships” program.
Weight Des(na(on UPS / FedEx Ground 1 – 6 days
USPS 1st Class 1 – 4 days
USPS Priority 1 – 3 days
USPS Priority Flat
Rate* 1 – 3 days
< 13 oz US x
13 oz – 2 lbs US x
> 2 lbs US x
> 5 lbs US x maybe
Shipping Methods: Interna(onal
Weight Des(na(on UPS / FedEx / DHL
USPS 1st Class
6 – 18 days
USPS Priority 6 – 14 days
USPS Priority Flat Rate* 6 – 14 days
< 13 oz Int’l High $ Value x x
13 oz – 2 lbs Int’l High $ Value x x
> 2 lbs Int’l High $ Value x (up to 4 lbs) x
> 5 lbs Int’l High $ Value x maybe
More about Shipping Methods ■ Consider domes-c “hybrid” methods to reduce costs (remember there are trade-‐offs
though) o FedEx SmartPost o UPS SurePost and UPS Mail Innova-ons o DHL Global Mail o Read more at
hup://www.rushorder.com/a-‐shippers-‐perspec-ve-‐on-‐fedex-‐smartpost-‐ups-‐surepost/
■ Ask ques-ons about hybrid methods o Time in transit and traceability o Reliability / risk of poten-al loss o Any insurance coverage? o What will the customer experience look like?
■ Consolidate volume but setup backup op-ons o Take advantage of discounts with UPS or FedEx o Work stoppages o Customers with PO Boxes o Tight deadlines (e.g. switch from UPS to Priority Mail before xmas)
The New Retail Reality
■ Direct is dead, at least as a long term strategy. Thanks, Amazon.
■ Start on Amazon to build sales and credibility. Leverage Fulfillment by Amazon (FBA) via the Marketplace if need be.
■ Start strategically. o Your product on the shelf at Best Buy ≠ Success. o Sell-‐through at any store = Success
■ Don’t forget “.com” drop-‐shipping. It might just work.
Major Retail Opera(ons Aren’t Trivial
Returns Management
■ Return to stock (A-‐stock) o Unopened o Ready for sale
■ B-‐Stock o Opened, maybe slightly used o Can be fully refurbished o Use for warranty replacements o Think about consequences of advanced replacements vs. wai-ng for return o Sell through close-‐out markets (Woot, Groupon, eBay stores, other)
■ C-‐Stock o Sell as “dent and scratch” or similar descrip-on through close-‐out markets o Consider selling to non-‐core geographic markets to avoid future channel conflicts o Recycle / trash
If you build it, they will come (at a rate > 8%). Think about returns in three “buckets”
Reducing Returns
■ Be accessible
o Phone support – Consider it market research. Not many successful startups say “We don’t want to talk to our customers”
o Online FAQs / knowledge base. Use Zendesk, Desk.com or similar o Videos. Lots of videos.
■ Be ready to test and inspect returned units to understand: o Is the product really defec-ve? o Or do customers just need to be educated differently?
■ The longer the return window, the beuer: Don’t force customers to make a decision. 30 days is probably sufficient.
■ Warranty period: 12 months is preuy typical.
■ Be careful with restocking fees
Sales Tax ■ Most shopping carts over-‐simplify reality, but are probably good enough.
o Thousands of tax rates across the US. o Nearly 1,800 rates in CA alone… State (7.5%), county, local. o Up to 3 districts in CA may apply at any given -me. o For example: Union City ≠ Hayward. San Jose ≠ Campbell. o Download actual rates at hup://www.boe.ca.gov/sutax/pam71.htm o Beuer yet, use 3rd party tools like hup://www.avalara.com/
■ If you sell to resellers (i.e. wholesale orders), be prepared to keep tax exempt / resale cer-ficates on file.
■ Oh yeah…. Don’t forget Use Tax when you give product away. hup://en.wikipedia.org/wiki/Use_tax
■ C’mon man. Really?
o If you have any success whatsoever, a CA sales tax auditor will walk through your door once every three years or so.
o No audit trail or grossly incorrect collec-on = bad day. o The worst thing you can possibly do is charge sales tax and not remit it to the state.
Checks & Balances ■ Order audit programs or checklists
o Bad addresses o Wrong accessory with item o Shipping UPS or FedEx to a PO Box o Check for fraud
o Order velocity o Order size versus shipment method o Denied par-es
■ Reconcile monthly
o Bookings (order taken but not shipped, revenue not recognized) o Billings (revenue recognized) o Accounts Receivable (A/R) o Inventory o Sales tax o Cash (credit cards, checks, credit card fees)
Basic Metrics to Live By aka “The Early Warning Signs”
Metric Why you should care?
Orders Booked vs. Billed Understand why orders inbound aren’t already outbound
Inbound Customer Support Volume* Spot defec-ve product, confusing packaging, confusing instruc-ons, anything that inhibits evangelism of your product
Marke-ng Source & Demographic Data Cohort analysis is key to understanding who your customers are and which customers are most profitable
Shopping Cart Funnel Rates Where is cart abandonment occurring?
Returns Ra-o Even the best consumer hardware products can have a floor of 8% or more
Shipping & Handling Audit Cover your shipping costs, net of carrier surcharges and other surprises
Returning & Referring Customers Measure viral uptake
* Topic tracking is a big bonus and is why Zendesk, Desk.com and others are so useful
■ Rush Order blog: hup://www.rushorder.com/category/fulfillment-‐ar-cles/
■ Airbrite / Celery blog: hup://blog.airbriteinc.com/post/65507836090/fulfillment-‐guide
■ PandoDaily – The Hidden Kickstarter Industry: hup://pando.com/2013/12/25/the-‐hidden-‐kickstarter-‐industry
■ Retail MBA & Rush Order joint webinar: How to Sell to Best Buy: hup://youtu.be/HfSe6wuc70o
Further Reading
Opera(ons = Lots of Moving Pieces There’s no perfect solu(on for your startup, but you’ll know it when you see it
Dana Madlem VP, Client Services