Still, we always try to stop fraud in it’s tracks.  Since we don’t ever win a chargeback case after it happens*, we try to stall suspicious orders in hope of having it still in our possession (or in the possession of FedEx) when we get the chargeback .  Until yesterday though, we never actually stopped someone.  Once, Greg we missed calling off delivery by minutes. He then tried calling the customer at the phone number they registered with and actually got someone on the phone, but they denied knowing anything.

Anyway, flash forward to yesterday. We finally got someone. Here’s my best account of the time line:

• Middle of last week a customer places an order for an abnormally large quantity of one product.  His billing address passed verification (meaning that his billing address matched the billing address on his credit card) but of course he was shipping it to another address in another state.  He was smart enough to give the person in the other state the same last name. He also paid an exorbitant amount for expedited shipping.
• Greg flagged it for all of those reasons.  We did have the inventory to fill the order, but it would have left us with next to nothing for the product, so we likely would have wanted to hold the order for a week or two regardless.  He put the order in our “pending” system and shot me an email asking my opinion.
• I replied “Hmm.  His AVS and CSC both matched for his billing address. We could require that he ship the order to the billing address, which would pretty much 100% eliminate the possibility of fraud. When you email him to let him know they’re on backorder you could inquire as to what he’s using them for and if he’ll be ordering regularly so we can stock inventory accordingly.  That might give us a little more insight. ”
• Greg contacted him and he replied quickly (less than a day).  He said he ran a business and was reselling them (which might have been true), and that we could ship it to his billing address, but it would really suck that he would have to then ship it again.  He was trying to guilt us into shipping it out.
• And it worked.  We decided to finally ship it out on Monday.
• Later that afternoon, Greg received an email from someone with the same name as the buyer.  The “real” customer never ordered with us, has had several other fraudulent charges on his card recently, has just canceled his card, and told us not to ship the order because it’s fraud.
• Greg called FedEx and had the package re-routed back to us.  Scammer stopped.

Although we lucked into it in this case, we now have a new policy: large first time orders from people we don’t know must be shipped to a verified billing address. I think requiring this on every order is overkill.  It might even be overkill to require it on every single first order.  But on a big first order that’s not from a legit business this is a more than acceptable policy.

*in that post last year I wrote “Despite being able to provide tracking information to prove delivery for every single chargeback filed against us, we have lost all but one case.” I think I misspoke – I’m fairly certain that I confirmed later on with George that said “win” was a case of “blackmail” where the buyer rescinded the chargeback himself, which does happen from time to time.

Let’s take, for example, a brand new company that’s getting into the blue widget business.  For fun, let’s call the owner Carlos. Widgets cost $50, and retail for $100.  For simplicity, we’ll assume that Carlos has to pay in cash up front (which is somewhat common when you just start out), that he orders once per month, and that he receives his inventory immediately (clearly, not very common).

Carlos has saved up and he has $5k to start out with, so he buys 100x widgets.  In the spreadsheet, Qty is the quantity that Carlos has in stock, COGS stands for cost of goods sold (Carlos’ cost on the items), and Retail is the retail value of the inventory.

Now, 30 days later Carlos is doing pretty good.  He’s sold 75 out of his 100 blue widgets.

Time to reorder!  Since demand is increasing, Carlos needs to spend all $7,500 in his bank account to buy 150x blue widgets. Now he has 175 in stock, but no cash.

Things keep going well for Carlos.  In fact, he’s decided to expand his business into green widgets.  At day 60 he’s down to 50 blue widgets.  He orders 150x again, but also buys in to the green widgets with another investment of $5k for 100x.

Wait a second.  Things are going pretty good, but Carlos keeps spinning his wheels when it comes to cash flow.  When he has a lot of cash on hand, he keeps having to spend it all on inventory to accommodate his growth.  When inventory looks good, he doesn’t have any cash.  He’s profiting, but there’s no profit to spend on anything other than inventory.

Us

Now multiply this over several product lines, with multiple vendors, all of which have different payment terms (cash, credit cards, Net 30), and all of which have various delivery times, and then factor in shipping damages, warehouse space, shelving units, packing material, employees, marketing, and probably 50 other factors, and you basically have us.  It’s easy to see how, despite really fast growth and  lots of cash coming in and out, there isn’t a whole lot left, even if you’re showing a large profit.

The situations that really kill us are vendors that we spend a lot of money with but also have slow lead times, forcing us to forecast out further than 30 days.  For example, we might place an order in July to cover us through September.  We get the products, have 30 days to pay for them, even though we won’t turn the inventory over for several more months.  At which time, we’ll be placing an even bigger order with the same company.  It’s a vicious cycle.

It’s a problem that we’ll probably never rid ourselves of completely.  The interesting thing is that this problem doesn’t stop as you grow.  If anything, it might get worse.  Take the case of Zappos.

The Super Duper Gigantic Company

In an excerpt from his new book, Delivering Happiness, in last month’s Inc Magazine, Tony Hsieh authored an article titled  Why I Sold Zappos.  Essentially, to sum it up for you, the reason was because of inventory:

At the time, Zappos relied on a revolving line of credit of $100 million to buy inventory. But our lending agreements required us to hit projected revenue and profitability targets each month. If we missed our numbers even by a small amount, the banks had the right to walk away from the loans, creating a possible cash-flow crisis that might theoretically bankrupt us. In early 2009, there weren’t a lot of banks eager to give out $100 million to a business in our situation.

That wasn’t our only potential cash-flow problem. Our line of credit was “asset backed,” meaning that we could borrow between 50 percent and 60 percent of the value of our inventory. But the value of our inventory wasn’t based on what we’d paid. It was based on the amount of money we could reasonably collect if the company were liquidated. As the economy deteriorated, the appraised value of our inventory began to fall, which meant that even if we hit our numbers, we might eventually find ourselves without enough cash to buy inventory.

These issues had nothing to do with the underlying performance of our business, but they increased tensions on our board of directors.

The fact that Zappos had these issues is both scary and reassuring at the same time.

Solutions?

We discuss this a lot. It’s probably our biggest growing pain, even more so than hiring, scaling our technology, or developing our warehouse operations. Now, most companies aren’t Zappos, they’re more like us. Is there any solution to this problem?

Yes, there is, and we personally know several e-commerce companies that no longer have this problem. Their solution: they have a shit load of cash. They don’t rely on bank lines to buy inventory. Somewhat of a necessity in the beginning, you can see from Zappos how bank lines can sour quickly based upon factors outside of your control. We’ve also experienced a TON of red tape trying to get new lines or increase existing ones. When the application process involves 10 meetings, personal credit checks, personal tax returns, the SBA’s backing, and a 100 page business plan, you have to question whether it’s worthwhile. Unfortunately for Zappos, they’re too big to solve the problem with cash. They’ve outgrown any potential “sweet spot.”

There are really only two ways for a retail business to get a shit load of cash. 1) You start out with it because you’re rich. 2) You slowly but surely build it up over years and years of profits.

Since #1 doesn’t apply to us, #2 is what we’re shooting for. #2 is how we’ve seen other successful e-commerce companies do it. This isn’t a one or two year thing, it’s a 5-15 year thing. It means absolutely minimizing other expenses (most notably, new product lines, employees and warehouse costs) until that revolving cash flow cycle eventually starts to turn in your favor. If you’re profiting, it will (and if you’re not, well, you’ll be out of business). We see it slowly getting better. The difficult part is controlling expansion – expand too slow and you lose market share, expand too fast and you hit the reset button and start that bad cash flow cycle all over again.

It’s a fascinating topic, one that I think is often taken for granted when starting a retail venture. At first glance, you just wrongly assume that if you’re profiting you’ll have no cash flow problems, which definitely isn’t the case.

Side note: as I’m about to hit “post” I realize that this is my 400th post since switching to WordPress and moving this blog from SportsLizard, where I had another 296. It kind of blows my mind to think that I’ve written almost 700 posts over the last five years. If anything, I suppose it shows I’m consistent when I apply myself to something. Thank you to everyone who has ever read, commented, or emailed!

The answer is pretty simple: because in many instances there are trade-offs.  There’s always the initial time spent up front. But sometimes even with the automation you end up creating more work for yourself in maintenance. Or, even worse, you lessen your customer’s experience.

I have one really simple rule when trying to decide whether something gets automated or doesn’t.  If it saves us time, requires little to no maintenance, is scalable, doesn’t negatively impact the customer experience (in many cases, we’re trying to improve the customer experience), AND the end gain is worth the upfront time and resources to make the feature happen, then we do it.  Otherwise we don’t.

A good example of a successful automation is the failed checkouts on Detailed Image.  That’s a win for everyone across the board.  Since we implemented that, the number of failed checkouts has dropped to only a few per week, with almost no multiple failures from the same user.  Previously customers would fail over and over and over again because they didn’t know what was happening.  We gave the customer the information needed to solve their own problem, and they have 100% of the time.  I used to answer emails from customers regularly, but since then I haven’t received one.  And they’re less frustrated because they can solve their own problem immediately instead of awaiting an email from us.  Win/win.

On the other side of the page, we haven’t fully automated our inventory system, specifically ordering from vendors and managing “out of stock” items.  The comments on that post were fantastic.  Probably better than the post itself.  A lot of people posed questions about why we couldn’t go any further.  I did my best to explain our situation and why a fully automated system could potentially cause more headaches for both us and our customers, in addition to the upfront time to create, test, and deploy the features.

A more extreme idea would be to try to automate customer service.  The customer emails us, we scan our large database of replies, and automatically email them back our closest match.  Sounds crazy, but it’s possible.  Most companies that do this do a hybrid version where they send back suggestions automatically but still have a real person follow up.  We might do that at some point. However, that would require a lot of upfront time/money/work, and it would probably piss people off.  One of our best competitive advantages is that we reply to our emails with real replies from real people, and we do it relatively quickly.  Instead of fighting everything with automation, the best long term business solution to handling our ever-increasing volume of customer service emails might simply be to just hire a customer service rep.  All of the programming in the world can’t create the quality answers that a good employee can.

With every single business problem we always go through this same iterative thought process.  It makes for interesting conversation because we can attempt to automate just about anything.  Just because you can do something though, doesn’t mean you should.  Or, as Kumar said, “just cause you’re hung like a moose doesn’t mean you gotta do porn!”

Much like closing down Tastefully Driven, there were a lot of reasons behind our decision, but it can all pretty much be summed up by saying that it was too much work for how small of a part of our business it was, and that we’d rather focus our time and energy elsewhere. However, unlike with Tastefully Driven, I think this will get a little backlash from our customers, which I’ll touch on more below.

Here is the in-depth reasoning behind our decision:

• Customs forms – we got them semi-automated, but there is still a decent amount of work that needs to be put into correctly filling out the customs form for every single international order.
• Customer service – often times international customers take longer to place an order and ask more questions (understandably so because of the higher shipping charge and long delivery time).  In conjunction with the language barriers, the average international customer requires quite a bit more customer service work than a domestic customer does.
• Fraud – chargeback fraud and other shady orders tend to come more frequently from international customers.  Our $6k chargeback was international (although I still take full responsibility for not having realized earlier what he was doing).  Supposedly fraudulent transactions occur nearly 3 times as frequently on international orders as they do for domestic orders.
• FedEx – we ship domestically using FedEx, but after putting in quite a bit of work and having several meetings with them, ultimately couldn’t come up with an international shipping process that made sense, both financially and in terms of our effort per order. If anything, both were worse than USPS so we stuck with them.
• Our industrial park – most international customers we’ve spoken with prefer USPS.  Unfortunately our industrial park is a private park.  USPS is not allowed in.  We have to go to the post office to get our mail.  We also had to go to the post office to drop off every single international order.  As we’ve grown, that has become a larger and larger pain.  Many times during the holidays we could barely get the boxes into our cars, only to get there and have someone working who wasn’t strong enough to lift the box (we had to help them put it in a cart in the lobby that they could then roll back to the mail room).  Had we been able to get a pick up in our park, things might have been different.
• Liquids – shipping liquids internationally is a pain, and unfortunately a good portion of our products are liquid.
• Tracking & claims – this was one thing FedEx offered that was attractive to us.  FedEx has pretty decent international tracking and a quick claims process.  The postal service does not.  It didn’t happen often, but it’s a pain to try to track down a package in Brazil that hasn’t had the tracking information updated in months.  We never get a response when we submit for a package trace or a reimbursement for the lost package.  We almost always have to bite the bullet and re-ship the package, not to mention deal with all of the customer service.  For domestic orders this does not happen.  When an order is lost we can always get a trace within 24 hours and a reimbursement if FedEx lost or damaged the package.
• Freight forwarding – I’d estimate that well over 50% of our international orders use US based freight forwarders anyway.  When an international customer attempts to checkout now, they are sent to a page explaining that we no longer ship internationally and that they might want to consider a forwarding service like Bongo International.  We decided not to try to work with Bongo (or any other freight forwarder) on integrating with our shopping cart because of the time involved, the potential liability if the freight forwarder screws up or does something illegal, and the potential for even more international customer service.
• Employees – as we start to enter our next growth phase, we’re making sure that everything we do can be easily taught to an employee.  International shipping is much more complex than domestic shipping.  Why spend 3x longer training someone because of the complexities that international shipping entails?  I’d rather have our employees hone in on becoming really good at the core stuff we do, as opposed to cluttering their mind with situations and processes that account for a small portion of the business.
• Programming – every time we added a new feature  to the site, I’d have to not only account for how it impacted domestic customers, but the international, APO, and US Territory customers as well.  Because those are more complex, I’d spend 15% of my time on the US customers, and 85% on getting the rest to work flawlessly, especially when switching back and forth between addresses in different regions.  Imagine a US customer proceeding to the checkout page with an aerosol product in their cart, then changing their address to a US Territory using our AJAX form on the checkout page.  Well, US Territory orders have to fly via air and therefore cannot receive ORM-D products.  There are a hundred similar scenarios that had to be handled seamlessly or it could cause a big problem. It’s enough to make someone’s head spin.  When ~95% of DI’s orders are shipped domestically, this just doesn’t seem like the best use of my time…or anyone’s time for that matter.

In addition to this, we are switching Hawaii and Alaska from USPS back to FedEx.  We changed to USPS in September of last year because several customers requested it, but now we’re switching back so that we can completely eliminate the post office from our shipping offerings.  I feel bad about this because the change was so recent, but these orders are an extremely small percentage of our customers so unfortunately they’ll have to pay a little more to use FedEx (which, in my opinion, is worth the extra money because of the reliability and traceability…but that’s just me).

Last night I wrapped up all of the programming and deployed the changes.  As I mentioned above, international customers are now redirected to a page explaining that we no longer ship internationally.  We tell them that to proceed to checkout they’ll need to change their default address to a US address.  We also display a message in their My Account page.  And obviously we made it so that new registrants must have US addresses. As much work as it was to get that stuff functioning properly, it was more work to update our FAQs, Terms of Service, various other pages and screenshots across the site, and change the shipping quote system to only allow US addresses.  I was happy to get it all done.

As I touched on in the beginning, I do expect some backlash from our international customers.  There will probably be a few not-so-nice emails. We have a lot of loyal international customers that have been with Detailed Image for years, some predating when Detailed Image became part of Pure Adapt.  For the most part, I think we’ve done our best to give them a positive experience, and any time you do that you will have a few loyal customers who don’t like that your business decision negatively impacts them.

APO (military) customers are even more tricky.  There aren’t a lot of them, but the ones we do have are very passionate.  They’ve had a tendency in the past to complain when certain shipping discounts only applied to the 48 contiguous states (i.e. places we shipped FedEx to).  It sucks that FedEx doesn’t ship to APOs or PO Boxes, but they don’t.  We did try to integrate their SmartPost shipping service that does just that, but that was a fucking nightmare that almost cost us thousands of dollars and pissed off hundreds of customers (not worth getting into).  We’ve had a few disgruntled APO customers contact us in the past with some pretty harsh remarks.  Stuff like “we’re at war protecting your ass and you’re so greedy that you can’t even offer us free shipping like you do to other US customers”.  It’s tough to deal with because we obviously have a great deal of respect for everyone in the armed forces.

But unfortunately they aren’t our target market and it’s just not a good move for our business to continue to serve them. It would be awesome if they shipped their orders to a family member in the states who could then get it to them, but we understand that many may start shopping elsewhere.  Much like with Tastefully Driven, we are essentially giving new orders and new customers to our competitors, which at the end of the day is fine by us.

This was definitely the right thing for us to do for the long term health of our business.  We’ll be able to do a lot more for our domestic customers with a lot less effort by not having to factor in the international implications of everything we do. The right time of the year to do something like this is January, when sales are slowest and we’ve got the time to handle the project correctly without distraction, so that’s what we did.

We have two more of these types of announcements coming in the next ~2 weeks.  Once the dust settles I’ll step back and analyze what we’re left with and where we’re going from here.  Exciting stuff.

Clearly shutting down our Amazon store will help our detailing competitors. They will sell more products and probably will sell more at a higher margin since there’s one less competitor in the fold (many times it was just us and one other company bidding each other down on a product).

But we never mentioned that in the decision making process. Not once. And from that last post it’s obvious that there were a lot of factors, but all of those factors were internal. We were just trying to do what was best for us, not what’s better or worse for the competition. If our actions happen to help them, so be it. Who cares if their volume on Amazon goes up? We’ve decided that we don’t want that volume. We’ve decided that we have different plans for our time and money.

I think a rookie business mistake is focusing too much on your competition. Even though you’re in the same market, your goals are often very different. Copying the competition can be a dangerous game that can take your eye off of the customer. Business is not a zero-sum game. There is room for a lot of people and companies to succeed in a lot of different ways in an industry. You can find yourself in trouble if you try to succeed “their way” and not “your way”.

Effective March 1 the e-commerce store will be closed down and we will sell any remaining inventory (non-detailing of course) on Amazon. We’re running a 30% off sale to try to blow out as much of the inventory as we can before that date. We’ve already pulled all detailing items down from Amazon and have no plans on listing them again in the future. As soon as the fitness items, poker cards, and personal care products sell out, we’ll close our Amazon account.

This is the first of several key pieces to our 2010 puzzle. I’ll continue to write about them one at a time as they unfold.

Why?

As you know, I’ve had my issues with Amazon in the past. But if it was profitable and we already had the warehouse space, why not keep them both running?

The short answer is that they were both very labor intensive processes for the relatively small percentage of our revenue that they brought in. It just didn’t make sense to either A) teach our employees these processes that aren’t very refined and have high potential for error, or B) invest the time and money necessary to refine them.

The long answer is that there were a lot of factors. Here’s the (rather long) list that I came up with:

• Amazon was a relatively small part of our business. A very unprofitable small part. Consider this: in 2009 Amazon accounted for 22% of the orders we shipped out the door, but only 5.7% of our e-commerce profit.
• The expenses add up. Amazon has a very basic system for quoting shipments. We had a hard time balancing affordable shipping with losing money. Several attempts at finding cheaper shipping alternative failed for one reason or another. Add in the $39.99 monthly fee, 15% per order, plus materials (box, tape, peanuts) and the margin was about half of what the same product would be on Detailed Image.
• When we accepted that we’d trade margins for volume on Amazon, it was under the assumption that we’d be able to use that volume to take market share away from our competitors, we’d be able to secure lower discounts with our vendors and FedEx, and that we’d be able to solicit those customers and entice them to shop on our sites. Amazon was still a relatively low percentage of our sales, so the volume discounts never really came into play. And while we were taking market share away from our competitors, we were indirectly making it impossible for us to lure them over to our sites. To gain the market share we had to undercut our competition and our regular retail prices. If a customer can get it cheaper on Amazon, why would they buy it from us in the future? I suspect this happens to all sellers. There’s no motivation for customers who buy regularly on Amazon to all of a sudden start shopping elsewhere.
• Since the customers aren’t loyal to you or your brand at all (like many are with DI), they were much more difficult do deal with. Not always, but certainly a higher percentage than DI.
• Even when you’re right and a customer is wrong (like when they violate your policy or Amazon’s policy), they always have their “Feedback” hanging over your head. We often spent extra money to please a disgruntled customer so they wouldn’t leave negative feedback. A customer who cares nothing about us at all. That got old. We’d rather focus that attention on the loyal DI customers we do have.
• We had trouble getting the technology to work. Order processing and inventory management were semi-automated, but a far cry from the faster and more accurate system we have for DI. It takes under 5 minutes to run all of DI orders, regardless of volume. It can take 30 minutes or more to run Amazon/TD.
• As we move towards hiring full-time employees in 2010, we didn’t want to devote the resources necessary to improve the Amazon/TD/DI syncing. Nor did we want to devote 75% of our training towards such a small part of our business. DI works great. Almost perfect. The time it would take to get Amazon and TD to that point wasn’t worth it. The programming maintenance is a lot of work on my end. It just doesn’t make sense to have complex systems for a small part of your business when the larger part of your business has simple, scalable systems.
• Speaking of work on my end: as it stood, I did all of the Amazon/TD programming, customer service, and site maintenance. Not that it was a ton of work, but we probably just freed up 15% of my time.
• On Amazon, you’re one crazy seller away from being screwed. We have a few fitness products that move regularly and we profit quite a bit on. The problem is, all it takes is one new business undercutting us and we’ll never sell another one. Maybe they’ll think like we did and try to take market share and gain the customer email addresses. Or, Amazon could pick up the item and undercut us as well. That constant threat is tough. You can’t ever keep inventory high, even if you have the historical sales data. One day the sales could stop in an instant and you’re forced to sell products at a loss or sit on the inventory.

What went wrong with TD?

Still, while this was the right decision for us, I couldn’t help but be a little sad as I was putting up the closing sign and writing the “official” announcement on the TD blog. We had high hopes for TD when it launched. In the end, it didn’t work, and any time something I believe in and work hard on doesn’t work it hurts a little.

We really had a grand vision for TD. We wanted to create this new form of social shopping. We wanted to become an “Amazon for nice things”. And to be honest, that was probably the problem. Not the grand vision per se, but the fact that we were reaching for something that we really couldn’t do correctly with the resources that we had.

We didn’t have enough money to buy the right products or start the right stores. We didn’t have the money or time to invest in marketing the way that it needed to be done. We underestimated how much needed to go into moving into the warehouse, growing DI, and becoming profitable. And ultimately, we weren’t capable of building it the way that it needed to be built, and we learned that the hard way.

The funny thing was, it worked in the beginning. I remember one day, about a month in, when TD had more orders than DI. But we were spending time and money to get those orders. We couldn’t keep up the PPC spend. We couldn’t keep creating content on the blog and the forum. So eventually it took a back seat and essentially became our “Amazon store” that had all Pure Adapt products.

I think up until the middle of this year we held out hope that we’d be expanding into non-detailing e-commerce, but we’ve realized that just isn’t a financially viable option right now (and personally, I’m just not that interested in more e-commerce at the moment, but that’s another story for another day). So there really was no point in keeping it.

And then there was the Commerce with Conscience program and the awesome experience that we had working with the Regional Food Bank of Northeastern New York. It’s hard to kill that program (for now at least), but we’re working on other ways to “give back” in 2010.

Was the decision hard?

Surprisingly, no. I threw it out to my partners at one meeting. Then I went back and ran some numbers to confirm what we suspected. We met again, and within minutes agreed to give it that ax.

Which is what I love about our team. When we killed our client services in February 2008, there were months that the consulting revenue was greater than 50% of our profit. But we looked at the big picture, at what we wanted from our business in the long term, and we made a decision. One that we haven’t regretted. It might not have been the right move for other people if they were in our shoes, but it was right for us. I have a feeling this will be the same way.

When you’re in school, your grades are – for the most part – tied to your effort. If you study hard, you’ll score higher on tests. Even if you do bad on tests, you get credit for attending class, asking questions, and doing homework. If you put in extra time after class, your teacher/professor will likely notice and adjust your grade accordingly. Your hard work is directly tied to your success: you work harder and longer and you always get better grades.

Same thing in the corporate world. Work hard, put in extra hours, and you’ll inevitably get good reviews, get raises, and get good recommendations. Even if your project bombs and costs the company a ton of money, your boss will still likely give you a glowing review if you come in early and stay late. You work hard. It wasn’t your fault that the project failed.

That’s not what happens when you run a business. You can throw all of the hours in the day at something, all of your heart and soul, but if the work is misguided it doesn’t matter. All of a sudden your hard work isn’t necessarily rewarded.

Running a business is hard. The odds are stacked against you. You have competition that has more resources and more experience. There are a lot of ways your business can go wrong. There are a lot of things you cannot control.

Your smart work is what’s rewarded. You still have to work hard, but the amount of effort doesn’t directly correlate to success. You have to decide what matters and what doesn’t, and then spend your time doing what matters and ignoring everything else. Most people suck at this because someone else has always made those decisions for them. Their entire life someone has told them what is important and how they should be spending their time.

Starting a successful business always requires effort, hard work, and persistence. But it also takes effort, hard work, and persistence applied to the right things. You can’t just blindly throw hard work at something and have success. Working hard is no longer the difficult part. Figuring out what to work hard on is.

I’m always impressed with how your processes [flow]. Having a system like this that works properly needs:
a) the programming doing the work and
b) someone to plan the process.

That’s something that’s very hard to do on a small business budget. It’s something that’s hard to do via consulting, for example. For a competitor, they might think “Adam blogged that he took 1 week to do this. 40 hours. I can get that done for $4000 (or $400 on elance) by a consultant.” They can’t. The communication between programmer & business owner isn’t simple.

I would be very surprised if your competition had your combination of low-tech & high-tech working together this well. The upshot is that they just won’t [build] such smooth systems.

Here’s how our programming projects go.  I take the role of project manager and programmer. After an initial discussion of the goals of the project, I sit down and map out a plan. I go pretty in depth, trying to take into consideration exactly how each potential change will be implemented and how it will impact the existing features.

I then call a meeting to present the plan to my partners. I generally talk through how the system will work, using demos from other sites or printouts if necessary. They bring up anything I’ve missed, any potential problems they see, and any potential features they’d like to see added in addition. We then decide exactly what will be in the final version, taking into consideration how much of my time each part will take, when we need it done by, and how big of an impact each part will make.

At that point I have a pretty good idea of what we need. I then sit down and program a demo that’s one step away from being deployed. We meet to review and test the demo. If any adjustments need to be made, I make them and then we release the final version. For the first few weeks I ask my partners to monitor certain things in case there are any bugs. I also pay super close attention to make sure there isn’t a chain reaction somewhere that I didn’t foresee.

Here’s the real key to the process: all along the way I make a million mini business decisions without ever running them by my partners.  Each decision speeds up the development time a ton, considering the alternative would be posing a question , awaiting replies from everyone, and then coming to a final decision.  Of course, I can do this because I’m an owner and the programmer.

Unfortunately (or maybe fortunately for us), I think most mid-size e-commerce companies (10 – 50 employees) have an owner or management team and then a separate programmer or programming team.  They have now introduced communication breakdowns that cause all sorts of problems, stemming primarily from two things:

1. The owner/management team doesn’t have a programming background, nor do they have any real understanding of modern e-commerce.
2. The programmer doesn’t have a complete understanding of how their features impact the business, partially because they don’t understand how the entire business functions (accounting, customer service, supply chain, etc), partially because they don’t support their own software, but mostly because management doesn’t make an effort to ensure that they do those things.

What happens next?  The project goes through extra iterations because the owner is frustrated with the results:  “He can’t do what I tell him to.  How hard is it?!?!”  Of course, the programmer is equally frustrated “He doesn’t know what he wants/what he wants isn’t feasible/what he wants will cost far too much time or money for what it’s worth.”

The end result is that the project takes twice as long as it should.  Neither party is happy with how it came out because they feel like the other side ruined it.

The root cause of the problem goes back to the very beginning of the company.  This seems obvious, but at some point, if you’re going to make your living selling stuff online, you have to place an importance on the technology that connects you to your customers.

That means having someone on your executive team that comes from a programming background and still actively programs (even if it’s just a few hours a week).  This person should have a voice in every business decision you make.  They should be able to then communicate to the programming team what needs to be done (or, if they’re small like us, go ahead and program it themselves like I do because I am the “team”).  But this programmer needs to have the trust of ownership to know that they can make business decisions without fear of being questioned every time.

The executive team also has to take an active role in understanding online business.  This means that everyone in the organization reads books, magazines, and/or blogs about e-commerce and online business.  After all, this is your industry.  You can’t do your job to the best of your ability if you don’t understand it.

Of course, this also applies to the programmers.  There has to be an emphasis on making sure that the programmers understand how the other areas of the business function.  They have to have a point of contact with their users so that they know what is or isn’t working.  Small incremental improvements will come from programmers that the regular customer service reps just won’t think of.

Do some companies do this?  I think so, but I also think it’s rare.  Especially when you’re under $50 mil/year in sales.  The owner probably built the company successfully because of their operations or retail skills, which is certainly to be commended, but to stay competitive in this modern web economy you need a programmer as part of your decision making process.

[Side note: same goes for a new web start-up.  If you have 2-3 partners in a team, one of them damn well better be a programmer.  Otherwise this problem will soon become one you're trying to solve...likely after you've wasted a ton of time and money.]

The Process & The Time Frame

We didn’t really plan it this way, but from the time we launched the previous cart in 2007 we were planning for this one.  We kept track of every potential feature that we’d want, both on the front end and the back end, we collected data in any instances where we weren’t sure about something, and we kept tabs of the e-commerce industry in general and noted any features that really enhanced shopping for the customer.

I think a great example of this is how when you add an item to your cart, you remain on the current category or item page to continue shopping.  As I outlined in Part 1, instead of taking the customer away to a cart page and then back to continue shopping, we simply show a drop down in the upper-right hand corner of the page.  This feature came from our own shopping experiences on Altrec and Old Navy.

Because we didn’t have any money to spend on this project, because we gave ourselves a limited time frame of less than six months, and because the project essentially involved one programmer (myself) and one designer (Mike), we had to think very hard about what was important and what could be left out.  Having those restrictions is almost always a blessing in disguise.  It essentially prevented “feature creep” and allowed us to focus on only the most important aspects of the shopping experience.

Design / User Interface

In my opinion, Mike did an A+ job with the design and user interface.  The design is tighter, simpler, and more modern than the previous site, however when you land on the site it still “feels” like an e-commerce site.  The products are on the familiar left nav, and the search box is across the top.  Only when you start browsing and see the AJAX drill through, or start searching and see the autosuggest, do you start to realize that the site is a little different than the average e-commerce site.  We tried not to over-use AJAX, to only use it in the instances when a page refresh would slow the shopping experience or when immediate feedback would improve it.

Programming Framework

This stressed me out a lot.  I thought long and hard about developing on a framework like CakePHP, something that countless programmers recommend.  If we truly were starting from scratch and I had more time, we probably would have.  But a lot of the pre-existing code was well written and stable, so the goal here was really to just make it more organized, secure, and scalable…as fast as possible.  For the forseeable future I’m going to be the one managing our sites, so after much back and forth I made the decision to essentially build my own framework.

My style is, well, my style, and I thought that for the most part I’d do a better job if I knew everything about every single line of code.  All of the common functions and classes are stored on our server in a location that they can be accessed by all of our sites, which will prevent me from rewriting code on future projects.

We did use the fantastic script.aculo.us effects framework and also Lightbox 2 for images, both of which saved me a lot of javascript work so I want to make sure I give credit where credit is due.  But all of the server side PHP I wrote from scratch myself, specifically for this projects and for future projects of ours.  Starting a new e-commerce site could probably be done in less than a day if there weren’t any fancy features being added.  We want a platform that can evolve into many shopping sites while still being easily maintained.

SEO / W3C Compliance

We pretty much nailed the on-site SEO for DI:

• Every page that isn’t behind a login is W3C compliant. With all of the complexities of a site like this, it wasn’t easy.  But the payoff is huge – our site will be easier to index, easier for browsers to display correctly, and easier for screen readers to decipher for the disabled.  It also helped us from making sloppy coding mistakes, such as using the same element id in two spots on the same page or forgetting to close a tag.
• Every page has a relevant Title Tag and META Description.
• All pages use proper HTML for headings, paragraphs, lists, etc. We also took it a step further and became one of the first sites of this scale to use CSS tables in our design (explained in my post about IE8 from back in March).
• Every size of every product has it’s own re-written URL.  This was actually pretty tricky because on each item page you can switch sizes using AJAX.  We considered only having one URL per product and then always defaulting to the small size (as we did on the old site).  Ultimately though, we needed to be able to link to a specific size, both on-site on our browsing pages and also to send to customers.   So if a product has multiple sizes, there’s an extra directory for the size, such as http://www.detailedimage.com/Dodo-Juice-M35/Rainforest-Rub-Soft-Wax-P234/250-ml-S1/
• 301 Redirects for every old page, including pages dating way back to the original Miva and osCommerce carts.  Many links from back then still get clicked and indexed.  I spent a lot of time developing an intelligent 301 redirect system to keep everything search engine friendly without losing the links we’ve already built.
• More Pages. Each manufacturer has it’s own page with information and the products we sell, the detailing guide has pages for each step in the process, and each product has it’s own review page in addition to the product page.   The review pages all use the title tag “{PRODUCT NAME} Product Reviews”, which hopefully will pull in some search traffic.
• Sitemap, XML Sitemap, and auto-generated/auto-uploaded Google Base file.

The Back End

Much like the previous system, our back-end allows us to process orders in a matter of minutes.  If someone places two orders, they’re merged together to save us (and them) on shipping.  When we click to process each morning, a massive PDF is generated with all of the invoices for the day.  A text file is also generated to import into FedEx Ship Manager.  We print the invoices, import the text file to print the shipping labels, and export the tracking numbers back into our system.  The tracking numbers are now in the My Account section for the customer.  At 7 PM that night – after the packages have been picked up and are in FedEx’s system – the customer is emailed a link to their tracking information.  The invoices and shipping labels are printed in the same order so they match perfectly for whomever is pulling the order.  FedEx gave us a free printer for their labels so we are able to print both concurrently.

So while many companies manually do those steps, we have it automated down to a science.  Which is why just the four of us have been able to process all these orders in just a few short hours each day.

The Immediate Results

Business is a very bottom line type of thing.  Stuff either works and makes you money, or it doesn’t.  So far, this site has worked.  The feedback has been fantastic, much better than any project I’ve ever done before.  Conversion rate for the month of May (through the 26th) is up 0.5% over the rest of 2009.  And we reached our largest month to date in revenue by about the 23rd.  So bottom line, this launch of this project was a success in my book.

Time to take a step back and celebrate.  Then time to get back to work.  We’ve got a lot more awesome stuff in the works.

Banner System

One time during one of our sales a while back Mike decided to throw a banner announcing the sale into our template on the old site.  It looked totally out of place, but sure enough, that sale performed exceptionally better than previous ones, most likely because every visitor on the site saw the sale banner while they were shopping.  Previously we had just been announcing sales in our newsletter and on our forums.  Sometimes we forget that the majority of our traffic reaches us via search.

A banner system was one of the “must have” features for the new site.  It had to be integrated seamlessly into the design, and it had to catch people’s eyes just enough to convey information without annoying them.  We decided on a sliding banner system, which I ended up building from scratch when I couldn’t find an open source banner system that did everything we wanted it to.  The system is pretty robust – you can put any HTML into it, not just images.  It waits 5 seconds before switching banners.  We decided to have it stop on the last banner as opposed to cycling back through because we found it to be a bit annoying (plus, if you’ve been looking at that part of the page for 10 – 20 seconds and haven’t clicked a banner, odds are you aren’t going to if we keep cycling them).  If you want to see a previous banner you can click the buttons.   The only caveat is that the system doesn’t work on webkit browsers.  For both Safari and Chrome we just show the #1 banner.  I know why it doesn’t work, but couldn’t justify the time to re-build the system just for those browsers.  Maybe down the line.

The Daily Special banner will always show, as will the monthly specials.  If we’re running a special promo or announcing something to our visitors, we’ll add those in as well.

In the end, I think this is one of those features that just elicits feelings like “smooth” and “slick” from people, even if they don’t click the banner. It’s one of the first things you notice when you settle on the site. It makes you think you’re about to have a modern shopping experience, something a bit different than you’d get from a basic Yahoo E-commerce site.

Banner Did You Know Tips

We needed something to fill up the rest of our banner space along top, so Mike came up with the idea for “tips” about our site, our products, and detailing in general.  Each “tip” links to a page with more information, be it a product page or blog post or page in the detailing guide. We thought of it as more of a filler feature, but it’s one of the first things that everyone mentions when they see the site.  They’re addicting to click.  Since the launch, we’ve begun tracking the clicks and will eventually serve the more successful ones more often (success could be defined solely as CTR, or we could factor in how many of those clicks lead to sales).

Contact Form and Help Pages

I wrote a while back about how we decreased our phone calls and emails with our previous contact page.  We decided to make it a little more intuitive this time around, with a more traditional FAQ, help pages for things like returns and shipping, and a contact form, all easily found on the left side of the footer.  The contact form requires several steps before actually contacting us, finally forcing them to click “I checked the Frequently Asked Questions and was unable to answer my question” prior to showing the actual form.  We also are recording all of the inquries, which is the first step towards an eventual more advanced ticket system like you see many larger sites provide.

Gift Certificates

Our previous gift certificate system was sort of a hack job.  This time around I built it right into the cart.  From the users perspective, the gift certificate page is much simpler, and on the back-end it integrates seamlessly.  Gift certificate only orders aren’t charged shipping, and aren’t put in our ship queue.  As soon as the customer places the order, they receive an email with their gift certificate and it already shows up in their My Account as a completed purchase, with a link to the gift certificate.

Affiliates

Surprisingly, we actually have a rather large affiliate program.  I say surprisingly because back when I did SEO & web marketing consulting, I worked with several companies that were much larger than ours and they always had affiliate programs that generated next to nothing.  Anyway, our program previously paid out monthly.  If you had cash as your option, we paid you via PayPal, and if you had DI credit as your option, we deposited cash value + 15% into your DI account to use towards your next purchase.  On the new site, we kept cash the same, but now pay out credit immediately upon purchase. Even if the item is returned, the affiliate still keeps the credit.  Now you see the immediacy of your work – post an affiliate link on a forum in the morning, see credit in your account later that day after someone makes a purchase.

We also still have all of the features I outlined from the launch of the old cart back in 2007, my favorite being the dynamically generated PDF invoices.

More to come in Part 3