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How to Build a Business Nobody Can Copy — Transcript

by MoreMozi · 3,908 words · 585 segments · language en · Watch on YouTube

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0:00What type of business is this business?
0:02I'd love it if you actually think about
0:04it right now. Like if if there's
0:05different types of businesses, what do
0:06you think this one really is? All right,
0:09now that you you've thought about it,
0:11this is the shape of the e-commerce
0:13business. So in the very beginning,
0:15you'll typically have to get some
0:16inventory, especially if you want to
0:17have a bigger business. No gigantic
0:19businesses are drop shipping. So if you
0:21want to have a bigger business like a
0:22brand, you're going to have to do some
0:23sort of inventory. You have to front a
0:24little bit of cash, right? But as soon
0:27as you start selling, because it doesn't
0:28require a lot of operational
0:29infrastructure, you can grow really
0:31quickly. But then you'll hit these
0:33breaking points that stop your growth
0:35flat. And so either these will be
0:38cash constraints in the business as in
0:39like you don't have money to buy more
0:41inventory. It could be um
0:44it could be traffic constraints like all
0:45of a sudden your ads just stop and then
0:47the the ads don't perform past a certain
0:50point. It could be that you've maxed out
0:52your distribution. Let's say if you're a
0:53retail distribution, it's like, "Okay,
0:54we got 7,000 more 7-Elevens." It's like,
0:57"Okay." And then we continue to stay at
0:59that level until we get CVSs. And then
1:01we stay at that next level. And so each
1:04of these kind of unlocks typically occur
1:06when you have a supply chain unlock or
1:08you have distribution that unlocks. The
1:11distribution could be literally physical
1:13retail distribution or it could be ad
1:14based and or affiliate
1:16based distribution. All of these
1:17different ways are promoting it so it
1:19gets it in more hands. So this is why
1:21the shape of this business looks this
1:23way. And you also can get stopped by all
1:26of a sudden you run out of stuff, right?
1:28Your supply chain dries up because your
1:30manufacturer can only do 1,000 units a
1:31day and you need 10,000 units a day. And
1:34so while you find the next manufacturer,
1:36you're flat again, right? And this is
1:38the nature of the business that you're
1:39really in. And if you're curious, what,
1:42you know, experience do I have with
1:43e-commerce? Well, I'll give you two. So
1:46first off, Prestige Labs was a physical
1:48products business. We sold through a
1:50brick and mortar distribution base. We
1:51also sold through an online store. So we
1:53had both of those angles. I had
1:54distributors, obviously our gyms, and
1:56then also
1:57any consumers could buy directly from
1:59the stores. So, we had ads that were
2:01running as well. And so, both those
2:02elements were e-commerce. In addition to
2:04that,
2:05um
2:06the launches that we had for my last
2:09book, the world record-breaking Guinness
2:11world record-breaking book.
2:13Um
2:14This is really e-commerce. It's a
2:16physical product that gets bought
2:17through a store and then shipped out.
2:18Like, very straightforward. And so, the
2:20reason that this video is so important
2:22before I dive into all the other four
2:24is that most people think that there is
2:27something inherently wrong with their
2:28business when it is in reality a feature
2:30of this business, not a bug. And so, the
2:33more you can zero in on, "Okay, if these
2:36are the big hairy problems that exist
2:38within the shape of my business, how do
2:40I put disproportionate effort on solving
2:43these key foundational issues or
2:46problems to this model that will allow
2:48me to outcompete all the other people in
2:50my space that don't know this." And I'm
2:52telling you, like, this is the sauce.
2:55And also, sometimes you'll have to
2:56switch 3PLs as you scale, too. So, even
2:58if you have the the inventory, somebody
3:00might not be able to ship out 10,000
3:02orders a day. Like, when we did the book
3:04launch for me, I had to find 3PLs who
3:08could ship out millions in 72 hours.
3:12That's absolutely absurd, which is why
3:14we had to have multiple across different
3:16states in order to make sure that every
3:17single person got their book within
3:18days, not weeks or even months. I talked
3:21a little bit about the cons, but let's
3:22talk about the pros of this. So,
3:24e-commerce
3:25it can scale relatively fast compared to
3:28some of the other business models. And
3:29the reason for that is, once you have
3:31the stuff, I mean, it's really just
3:33like, how fast can you hand it to
3:34somebody in exchange for money? And if
3:36you have, you know, a Shopify store or a
3:38WooCommerce store, any kind of online
3:39store, like, they can just click and
3:41buy, and then you have somebody else
3:43who's shipping it straight to them. As
3:44long as they can ship it, and they can
3:45buy you can sell a lot of them. The
3:47issue is when you run out of stuff, the
3:49guys can't produce it, that can't get
3:50raw materials, they can't ship enough of
3:52them, these become the constraints. But
3:53fundamentally, if you're within
3:55operating within all of those as in they
3:57can ship more than you have, you've got
3:58enough inventory, as long as people keep
4:00buying, the number just goes straight
4:02up.
4:03And so, um
4:04what's interesting about this particular
4:06business is that it also typically isn't
4:08going to be nearly as kind of key man
4:10risk from the founder. Of course, there
4:11can always be key man risk for key
4:12skills, but if you have a product that
4:14people love and people keep going to
4:15your store and buying it, it's a very
4:17sellable business.
4:19Okay, and so that's the that's maybe the
4:21upside. Let's talk about the dirty. So,
4:23what sucks about having an e-commerce?
4:24One of the first things that sucks about
4:26this business is that in general, most
4:28people who own e-commerce stores, they
4:30can do significantly more revenue than
4:31some of the other business models really
4:33quickly. It's one of the fastest ones
4:34you can grow revenue on. And it's also
4:36because people are willing to spend more
4:37money for stuff than they are for the
4:39other three categories because there's
4:41inherent value because everyone knows
4:43there's an inherent cost to creating it
4:45and sending it. So, people are just more
4:47willing to spend money on it because
4:48it's it's tangible. Um and it's the
4:51reason if you look at like gross sales,
4:53what are the what are the some of the
4:54top companies in the world? Walmart.
4:57Huge amount of sales. Amazon. Huge
4:59amount of sales. It's stuff, right? And
5:01people love stuff. And as somebody who
5:05came to selling physical products much
5:06later in my career, I was amazed at how
5:08easy they were to sell compared to some
5:09of the other things, which then brings
5:11the the next question which is like,
5:12okay, well, sometimes they're easier to
5:14sell, people are easy to take their
5:15wallet out, um but what makes it harder?
5:18So,
5:19this is very capital intensive because
5:21people know costs money,
5:24you also have to have the money to buy
5:26the And so, it is capital
5:29intensive in that
5:30this thing might make profit on paper,
5:33but as soon as you make some profit,
5:34what are you going to do with that
5:35money? You got to go buy more inventory.
5:37And so, unless you have a flat
5:39e-commerce business, if you want to
5:41grow, the extra growth requires the
5:43profit from the earlier part of your
5:46growth path to fund the next level of
5:49inventory so you can sell through more
5:51in a shorter period of time. And so, you
5:53can have you can be very asset-rich in
5:55this business. You can have lots of
5:56inventory. You can have maybe a lot of
5:58enterprise value, but it's very common
6:00that entrepreneurs will get I mean, I'm
6:01saying unbelievable numbers. They'll go
6:03to hundreds of millions a year and
6:05pretty much only live on their salaries.
6:07Which there's nothing wrong with that.
6:09It's just different than some of the
6:10other models that are out there.
6:12In terms of the things that can also be
6:14difficult about this is that you have to
6:15rely very heavily on your partners. And
6:18so, it's very rare for an e-commerce
6:20business to be vertically integrated. It
6:22It sometimes happens, but it's super
6:24super uncommon. Uh that means that are
6:26you the one who's manufacturing the
6:28stuff? Are you the one who's actually
6:29ship you know, pick pack shipping uh all
6:32the things both locally and
6:33internationally? Are you sourcing raw
6:35materials or do you have a raw material
6:37mine that you're you know, you're
6:38collecting milk from cows and turning
6:40that into a protein? Probably not. And
6:41so, you have core dependencies on other
6:44businesses. And if those businesses
6:46fail, you fail. Like very real. And so,
6:49having many redundancies within each
6:52element of the business, okay, how do we
6:54get raw materials? How do What about
6:55manufacturing? What about uh logistics
6:57in terms of pick pack ship? Um and then
7:01on the capital side, it's like do we
7:03have lending partners? Because if we
7:04might run out of of capital if we're
7:06scaling really quickly because there can
7:07literally be nothing wrong with your
7:08business. But think about this. If you
7:10have 10 units of something and you make
7:12$10 of profit on each unit and you sell
7:15all of them in a day and the next day 10
7:17more people want to buy, there's nothing
7:19you can do. And so, that might mean that
7:21you might have 300 units worth of demand
7:24and you only have 10 units worth of
7:25profit. What do you have to do next
7:27month? You can only buy 10 more. Right?
7:29And so, your growth rate will be
7:31dictated by the amount of free cash flow
7:33that the business kicks off and then
7:35that will be the growth rate that you'll
7:36be able to sustain or only growth rate
7:38that you'll be able to have in the
7:39business and you'll be you'll be
7:40constrained by that capital. There are
7:42lending partners because this is a
7:45clearly a capital constrained business
7:46if you're growing quickly. Um, but those
7:49are some of the some of the negatives or
7:50some of the downsides. Now, if you own
7:53one of these businesses, what's the big
7:54hairy problem? What's the big problem
7:55that you have to solve?
7:57Number one is managing cash flow. So,
7:59you have to be able to forecast cash
8:00flow. You have to look at inventory
8:01cycles. How long is it you know, if it's
8:03a 12-week lead time for you to buy
8:04stuff, you have to predict how much
8:05you're going to be selling in 12 weeks.
8:07That can be difficult, especially if
8:08it's your first time.
8:10Um, number one. Number two, your
8:11distribution. You're going to live and
8:13die by your distribution. So, add
8:15accounts, um, brick-and-mortar
8:16distribution partners that you can have,
8:18affiliates or influencers who have kind
8:19of I'll call it synthetic distribution
8:21through their audiences. All three of
8:23those are your they're partners of
8:24yours, right? Product will like great
8:26product will always find you great
8:27distribution. Great distribution will
8:29always find great product, right? But
8:30the problem the big problem that you'll
8:32have to manage is going to be supply
8:33chain. How can you have enough stuff to
8:35sell? Right?
8:37Logistics isn't that hard cuz there's a
8:39lot of there's some decent, um,
8:41you know, pick, pack, ship that are out
8:42there. Everybody always has complaints
8:44because it's not their business. They
8:45would do differently, blah blah blah
8:46blah blah. You wish they they they
8:47didn't charge you as much, etc. etc. But
8:49like by and large that I would say that
8:50problem has been
8:52has been solved relatively well.
8:54Um,
8:55the next issue um is going to be
9:00making sure that the product you have
9:02has a brand behind it. And this is the
9:04real nasty one. Because if you just have
9:07a pure I call them smash-and-grab
9:09businesses, which is just your media
9:11arbitrage business. You know you can buy
9:13eyeballs at $10 and you can sell them
9:15something where you make $11 in in gross
9:17profit. That's just a smash-and-grab
9:19business.
9:20And if somebody else sees you smashing
9:21and grabbing, guess what they do?
9:23The downside of physical products is
9:25that because anybody can own it, anybody
9:27can also sell it. And so if you've got a
9:29widget, somebody else can go to China
9:30make the same widget as you. And that's
9:32where patents come important. That's
9:33where if you actually do own your
9:35manufacturing have some special sauce in
9:36terms of how you make your stuff, these
9:38become the competitive moats for the
9:40business. But the largest of all of them
9:43by far is brand.
9:45Right? Why? Like Nike shirts are
9:47inherently the same shirts that other
9:49shirts, you know, shirt companies make.
9:51They literally buy the same raw
9:52materials, but why are you willing to
9:53pay so much more for a Nike shirt
9:54versus, you know, an unnamed shirt?
9:56Because of the brand. And so even if
9:57someone can copy every single thing down
9:59to the thread count of your business,
10:01they still can't copy the brand. And so
10:03some of the best uh brands are in
10:06e-commerce because you have to be in
10:07order to get big. And so we think if we
10:09translate what brand does, and this
10:11applies to all of them, it's it's super
10:13important with e-commerce because it's
10:15so easy to commoditize, um is that the
10:18value that brand delivers is that you
10:20have higher click-through rates, as in
10:22more people show interest because they
10:23have a history of good experiences with
10:25you or good word of mouth.
10:27Number two is that you'll have higher
10:28repurchase rates. People will buy once
10:29and they'll continue to buy again.
10:31And number three, you'll able you'll be
10:33able to charge higher premiums for the
10:35same thing. So that means lower cost of
10:37acquisition, higher LTV because they're
10:39buying more, and higher gross profits
10:40because they're buying at premium
10:41prices. Those are very real benefits of
10:44building the big brand. And so when you
10:46have these types of businesses and they
10:47are kicking off cash, that means that
10:48that is somewhere you have to
10:49continually invest to expand and
10:52reinforce the associations that you want
10:54your products to stand for, which also
10:56means what affiliates or influencers
10:58you're not going to associate with even
10:59if they can drive quick sales. What
11:01discounts you're going to choose to make
11:03or not choose to do because of what kind
11:04of brand you want to um
11:07uh demonstrate for your target audience.
11:10There's some brands that never do
11:11discounts, and there's some that live
11:12and die on discounts. And so really
11:14depends on what kind of brand you're
11:15trying to build, but you got to be
11:16specific about it, and you want to be as
11:17deliberate about it as you can day one.
11:19And so if this is you, I think probably
11:21the most important question is how do
11:23you win, right? The per- I'll I'll just
11:25do this by describing the perfect
11:27e-commerce company, and then you can
11:30reverse-engineer what you were missing.
11:32So, the perfect e-commerce company would
11:34have its own manufacturing that it
11:36makes.
11:37It would have a very trusted third-party
11:40or be able to ship directly out of their
11:42manufacturing facility to you know, all
11:45the markets that they have. Now, if
11:47they're international, more likely
11:48they'll have to have international
11:49partners that do the logistics.
11:51Um but even more likely if that becomes
11:52bigger markets, they'll start creating
11:54decentralized manufacturing uh in each
11:56of those markets so they have lower
11:57shipping costs and faster uh turnaround
11:59times and faster cycles for
12:01um
12:02returning inventory.
12:04So, that's we're going back to front.
12:06They make the stuff, right? They have
12:08some trade secrets or unique partners
12:10that they get their ingredients from or
12:12and or they have unique way of combining
12:14unique ingredients, which makes them
12:15incredibly difficult to copy. They have
12:17uh
12:18great logistics in terms of pick, pack,
12:19ship. On top of that, they have uh a
12:22very lean team on the paid ad side that
12:27uh is a performance marketing team that
12:29is done in tandem with a team that
12:32understands brand first approach. And
12:34so, what does that mean? The most
12:35successful companies that persist over a
12:38long period of time in e-commerce tend
12:40to have a 70/30 split in terms of how
12:42they spend their money. 70 going towards
12:44top of funnel and brand awareness and
12:46associations and only 30% going to
12:49direct to purchase. And most companies
12:51that are starting out and the vast
12:52majority of the ones that I talked to,
12:54it's basically 100% just straight to
12:56purchase. You are building a drop ship
12:58company that has no competitive mode and
13:00you will always complain about the dupes
13:02and the the Chinese companies that are
13:03going to come in and undercut you
13:05because they they're in China and they
13:07have some of these other other
13:08competitive edges that you don't have,
13:10right? And so, you have to know the game
13:12you're playing because if you know the
13:13game you're playing, you'll know how to
13:14win.
13:17And the last piece of this kind of
13:18competitive advantage that I would have
13:20in this perfect e-commerce business,
13:21assuming they have invested that extra
13:23money to have these premium brand
13:24associations, they have strong
13:26performance marketing,
13:27Um
13:28We then have two more components to it.
13:30One is we want strong brick-and-mortar
13:32resale partnerships so that you have
13:3550,000 retail stores that are pushing
13:37your stuff out or you choose to
13:39long-term create your own pop-up stores
13:40that actually are your own. There is
13:43What's interesting is that nowadays the
13:44model has reversed. It used to be build
13:46a, you know, huge brick-and-mortar
13:48presence across many, many states and
13:49then start an online store. The last
13:52kind of version of that was like
13:53Lululemon
13:54that I would say that was more popular
13:56and that I can think of at least. And
13:58more recently it's kind of the reverse
14:00of that. You look at like the the
14:01Gymshark's, right? They They're almost
14:03all e-commerce and then they choose to
14:05open up these flagship stores in key
14:07locations that are brand additive. Now,
14:09on a on a long enough time horizon, once
14:11brand awareness has been completely
14:13saturated for any e-commerce brand, then
14:16you actually open up stores all over the
14:17place because you remove the cost of
14:20shipping
14:21um each of those markets because people
14:23actually go straight to the store and it
14:24increases their average order when
14:26they're in person. And so, the actual
14:28cost of acquiring the customer becomes
14:30rent divided by sales per month.
14:34Kind of cool. And so, uh that's what
14:36happens at the ultimate scale level that
14:39many brands don't get to and some of
14:40them just choose not to do that uh
14:42because they don't want to be cuz it's
14:43super capital intensive. Right? But at
14:45some point when everybody already knows
14:46who you are, you just want to make it
14:47even easier for them to buy. And so,
14:49that is the ultimate version of an
14:51e-commerce brand um and how you do it
14:54right. And it takes years to build that
14:56level of brand, but you can scale
14:58revenue incredibly quickly and I'll add
15:00one last caveat, which is that you have
15:01to be an absolute savage uh email
15:04marketer. And so, the amount of back
15:05end, the iceberg underneath of here that
15:08exists in terms of messaging, different
15:10process flows, the campaigns that you're
15:12running, attribution so that you can see
15:15your true metrics. Like these are some
15:16of the Like I think some of the best
15:18marketers in the world are here. And
15:20it's because, to be fair, once you have
15:22a killer product
15:23it's, you know, back-end dweebs that
15:25were going to, you know, they're going
15:26to be working on making sure that we
15:27have enough product. You can You can
15:28hire the people who can make sure the
15:29cash flow is there, all that kind of
15:30stuff. But like, the best I think some
15:32of the best marketers in the world are
15:33e-commerce marketers. Oh, last thing.
15:35The product's got to be exceptional.
15:38Because no matter what you do, you can
15:40have all the best marketing in the
15:41entire world, if you get someone to buy
15:42it and then it sucks,
15:45doesn't matter. And as you scale these
15:47businesses, the cost of acquiring
15:48customers continues to rise.
15:50And so, the only thing that you have as
15:52a compounding vehicle that can scale
15:54proportionally to increasing cost of
15:57acquisition is a referral word-of-mouth
16:00chain that does two things. One is
16:01repeat visitors. Like, how many What
16:04percentage of your sales are customers
16:05that are coming back because they really
16:06like the product? And then number two,
16:08what percentage of those customers are
16:09bringing more customers?
16:10And if you're like, well, what
16:11percentage is right? It depends on the
16:12growth rate of the business. So, if
16:13you're growing by 1,000% you're always
16:15going to have, you know, more new
16:17customers in the beginning. What matters
16:19more in terms of you want to make this
16:20thing sellable is you want to be able to
16:21demonstrate that
16:22you look at this new cohort, how many of
16:25them are going to come by again? If you
16:26can get 60%, 70% uh to buy again after
16:29the first purchase, you likely have a
16:31product that's pretty strong. Real
16:32quick, I have a gift for you. This is
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