What do you do when your startup finds itself in a new market… accidentally? That’s what happened to Churchill Gowns, a company that sells university graduation garments, when it found itself entangled with the word’s biggest e-commerce market, China. Here are 4 startup lessons that managing director Alec Ramsey found out the hard way.
- Lesson 1: Sourcing products overseas
- Lesson 2: Bootstrapping an e-commerce site
- Lesson 3: Building a professional e-commerce site
- Lesson 4: Understanding the differences in an Asian culture
- Lesson 5: Figuring out what to do next
It started four years ago with a conversation that every young entrepreneur has that went a little something like this:
Stefan: “Hey man, want to start a business?”
Me: “Sure! Got any ideas?”
Stefan: “Not really. Kind of… You?”
Me: “Not really. Kind of…”
As you can tell, back then we didn’t take our entrepreneurialism quite as seriously as we do now. We’d both just read the 4 Hour Work Week by Tim Ferris and wanted to start a lifestyle business to fund our holidays overseas. After writing a list of all the ideas we had, we ended up settling on solving a simple problem that I’d experienced when I graduated from university: how to make graduation affordable.
At the time my alma mater, Sydney University, was renting gowns for between $120 and $150 for a two-hour ceremony and we instinctively knew we could do it for less. Having settled on a name and registered our partnership, we began our journey in earnest.
Here are some of the lessons we’ve learned growing our company, Churchill Gowns, into a multinational business, and how we accidentally become entangled with Asia.
First, we needed a physical product so we did what any reasonable person would do and asked Google.
We had a little over three thousand dollars combined in our accounts and went about bootstrapping our business through Alibaba. Confident in our idea (and with little to lose), we put all our money into buying gowns online through Alibaba’s biggest manufacturer of graduation regalia. Of course, we were happy to find that quality was exactly as promised pretty disappointed.
Lesson 1: Alibaba is a powerful platform for finding a (any, every) supplier. But, it is very poor at ranking suppliers by quality.
Coming from a Google-centric Western world, this was an interesting lesson to learn. Google is fantastic at ranking search results by quality. Its whole business is built on returning the best match for you query because, at a very basic level, barriers to entry in starting a search engine are relatively low and switching costs for consumers to use another search engine are almost zero. All of Google’s competitors in search (Yahoo, Bing, Ask Jeeves etc), have fallen by the wayside because Google’s algorithms are so good at what they do.
But Alibaba is different.
Starting a competitor would require reaching out to every manufacturer in China and increasingly across the world, one by one, and convincing them to create a whole new account with you. Needless to say, this would be a mammoth task.
The result is that Alibaba’s business model is also different. Without fierce competition, and with almost complete control on Chinese manufacturers’ access to Western markets, Alibaba has everyone under their thumb. There is no need to invest heavily in vetting algorithms to differentiate between good and bad quality suppliers, as customers (like us) will come back anyway. And there is no need to pander to the suppliers either. If you’re a Chinese manufacturer, there is only one way to become a “Gold Supplier” — you just need to pay Alibaba $5,000 USD per year.
Unlike Google, where the top result is likely the most trustworthy, on Alibaba you’re simply going to find anyone willing to fork out the $5k.
Luckily the solution is simple: insist that you get a physical sample, even if you have to pay for it.
Many suppliers will kick up a stink and offer to send you photos instead, which are as often as not stock photos from another company. Insist on physical samples, because in the end, they’ll do it.
You’ll recall that we spent all our money on buying stock. While this was being manufactured and sent over by boat, I started to teach myself how to code so that we could have a platform to sell through.
Nowadays if you have a simple e-commerce company selling individual products, there is a plethora of fantastic platforms to choose from. Our needs were a little more complex and, having no money, we were allured by anything that had a ‘free’ sign hanging from it. So, we decided to go with Magento Community.
Lesson 2: It’s easy to get excited by free stuff when you’ve got no money. Don’t make this mistake with your website – just pay the subscription!
Having no programming background at all, I was only just wrapping my head around HTML at the time and Magento’s PHP structure was far too complex for me to manipulate. It looked like layers upon layers of complete gibberish. So, I hacked a static HTML front end that I could design as I wanted, and copy/pasted source code from the Magento generated pages to make the cart functionality etc. communicate with the back end.
To my amazement, it worked! But wow – what a headache.
If you’re bootstrapping, I highly recommend going with a pay-per month solution that is quick and easy to set up.
If your product is too complex to use a template site, then prove your concept by designing a way for customers to request items through your site and submit their email address, so you’re not taking all the risk upfront.
Although more sophisticated, we still use a version of this method to great effect on our current site. Take our Sydney University graduation gown page, for example. The university has a unique hood (that’s the coloured things that drapes over your shoulders) for each degree, resulting in hundreds of items. The demand just isn’t there to stock every single item.
To help us assess market feasibility, we regularly include in the product drop-down hoods that we don’t actually make (yet). When a customer tries to purchase one of these items, a popup appears saying “Hi! We are currently in the process of getting this item in stock. To reserve your set and get a guaranteed 10% discount, simply enter your email address below.” Before they make this decisive click, a customer would have no idea that we didn’t stock the item – clicking on the item is their attempt to add it to the cart, so we can be sure the demand is real!
By doing this, we not only get a great measure for which items we should introduce next, but also collect qualified customer emails for marketing purposes, and use these to upsell other items in the meantime. To see how it all works, check out the page linked above and try selecting ‘Architecture, Masters’ in the hood drop down.
If you’re past the bootstrapping stage and ready to build a really professional next level site, learn from our experience: don’t go with a freelancer!
We’ve worked with some great developers from Asia (particularly India) and Eastern Europe and there is a difference.
We tried everything. We tried using people recommended through friends. We hired gun Australian developers to set exams and test developers for us. We tried hiring highly reviewed developers through generalist sites like freelancer.com, and hiring ‘experts’ though premium services like toptal.com.
No matter what precautions we took, sometimes we just got duds.
Lesson 3: Asian business sometimes promise more than they can deliver—do your homework!
To generalise (take note: I’m sure there are plenty of exceptions and things are constantly changing!), we tend to find that Asia-based developers and manufacturers have a culture of providing unrealistic expectations. They promise things beyond their experience and aren’t willing to admit something is going wrong, no matter how early you catch on or how nice you are about trying to give them a way out.
If your site is a simple e-commerce store, then go for it! But if your site needs to be more complex, pay the money upfront and get a local professional you can meet face-to-face and whose clients you can talk to. You might think you can save 10 or 20 grand managing a freelancer remotely, but the cost to your business in delayed deliverables, miscommunications and time spent micromanaging will not be worth it. Trust me.
When I first travelled to China to meet our manufacturers, I was amazed to see how friendly they were. They took the time to show us around Hangzhou, take us out to dinner and, of course, get us drunk. Keep in mind we weren’t as big contract back then—we had only placed one or two small orders—so this level of attention came as a surprise.
Drinking is a big pastime in China, and can be used very differently in a business context to how it is used in Western culture. In Australia, we tend to take clients out to have fun and to bond—essentially, to foster loyalty. While this is also the case in China, drinking also serves as a way to judge your trustworthiness.
While being taken out for dinner, we were greeted with seemingly endless cheers (“ganbei!”), where both parties would down their drink. The lower you hold your glass compared to the other when you clink, the more respect you are showing, which quickly results in people doing a cheers almost on the floor in a game of respect one-upmanship.
As the guests in the room, we were obviously the target of every cheers, meaning we consumed a lot more alcohol than everyone else.
Without a long history of business together, your ability to drink can be judged as a proxy for your business acumen. It is well known that alcohol is a disinhibitor, and many Asian cultures believe that how you behave when you are drunk is a reflection of how you will behave when doing business together.
Our manufacturers have kept up the attention since then too, sending us generous Christmas presents every year and always imploring us to remain friends. We’ve reciprocated the gift giving and we are genuinely thankful for their support growing our business to where we are today. But don’t let their repeated promises of friendship fool you—at the end of the day, business is still business.
Lesson 4: Despite promises of friendship, many manufacturers will cut corners if they can get away with it—be pedantic and vigilant about your product quality!
We’ve had containers of products made in the wrong size; fabrics sewn on the wrong way around; orders that looked nothing like the sample; barcodes put on the wrong products; colours changed without our consent because a supplier thought ‘it looked better’.
Sure, some of these cases were genuine mistakes, but either way it doesn’t matter. The lesson here is that nobody is going to look out for you, no matter how much love they show.
Many manufacturers outsource parts of their manufacturing process, and when under pressure, they sometimes skip quality control. Sometimes there are miscommunications within the factory. Sometimes there are language difficulties. Whatever the reason, receiving a container of products that are the wrong size or that are barcoded incorrectly will potentially haunt you for years.
Small mistakes multiply into huge problems when multiple customers receive the wrong products, and you are left scrambling to fix everything at once.
The solution? Specify every single detail.
Don’t assume suppliers know what the word ‘ratio’ means in the sentence ‘sleeve length and gown length should always be in the same ratio, for every size’–explain it to them, make a size chart, and draw pictures with labels.
And finally, once you’ve established a relationship, tell them you need to withhold some amount—even 5% of the total payment—until you can physically check the final order. It may not be enough to recoup the losses from any mistakes, but it will hopefully be enough to incentivise them to quality check everything, so those mistakes never occur.
After growing our business in Australia, we had to figure out what to do next. After much debate, we decided to set our sites on a new market: the UK.
Expanding to the UK has been full of new lessons, and many new mistakes. We’ve learned what it means to expand too quickly, we’ve learned how to pivot when you lose a huge chunk of your revenue,we’ve run the gantlet with cash flow issues, we’ve discovered that not all businesses play fair, we’ve learned how to raise money when you don’t want to move with the expanding business, and we’ve learned that despite what you might think, English and Australian culture have huge differences.
But, I think we’ll need to save those lessons for another time.
This article was written by Alec Ramsey, Managing Director, Churchill Gowns