TMBA 233: Stop, Drop(ship), and Roll in the Profit

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TMBA 233: Stop, Drop(ship), and Roll in the Profit post image

This week, Ian catches up with us from Mexico to talk about the struggles and successes we’ve experienced with our portable bar company over the last nine months. We’ll talk about our experience displaying our new flash bar at a recent trade show and the pros and cons of drop shipping as a Playa post photo 233business model, among several other topics.

Listen to this week’s show and learn:

  • The benefits of living as a digital nomad in Mexico, Asia, and Europe.
  • How to decide if drop shipping is right for you.
  • How you can benefit from stepping up to an inventory-based business as soon as practical.
  • What you can expect when taking your product to a trade show.
  • Why it is so important to have market intelligence when determining how to price your product.

People on this episode:

Mentioned in the episode:

Post Photo 233

PBC post photo 233

One of our products was featured in a Super Bowl commercial, can you spot it?

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Thanks for listening to our show! We’ll be back next Thursday morning 8AM EST.

Cheers,

Dan & Ian

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Published on 02.27.14
  • http://www.linkedin.com/in/sholaabidoye/ Shola Abidoye

    Thank you Ian!! We should hook up, Mexico has a lot of potential. All it needs is an initiative to build an entrepreneur community. I am usually a tough cookie to impress and you guys are crushing it. Smooches…

  • Bryan

    Is that your valet stand in the ad?

  • Bryan

    by the way the booth setup you have there is awesome.. very impressed! Any ‘real’ drinks at the bar?

  • Dustin

    I was in Playa last year for 2 1/2 months, but unfortunately, I had to leave early because the internet was so unreliable. Are you having the same issues? Plus I started getting sick of the food, surprisingly.

    I’m headed to Chiang Mai in April and hoping not to face the same problems.

  • richardpatey

    Hi Dan / Ian another great episode – am interested to know what’s your % split between cold calls vs qualified traffic for sales?

  • http://www.nomadicnotes.com/ James Clark

    Congrats on the new product launch!

    I spent a couple of months in Playa and loved it, but there is definitely a lack of good cafes there so I didn’t see it as a long term option. I loved the food as I was living away from the tourist area so was eating cheaper local food.

  • http://www.ilikethatlamp.com/ Kiri

    Loved this. As you said, once Amazon decides they want in on a niche, the game is over for anyone else selling that product. Impossible to compete with their wickedly thin margins and devastating customer service offering. As richardpatey said below, can you tell us more about your cold calling strategy? Would make a brilliant future episode.

  • http://www.TropicalMBA.com/ Ian

    Hi Dustin,
    Internet down here is great! Surprised it’s changed so much in a year, the speed and consistency is generally over 5up and 1down. Also, have found a bunch of variety in the food, as James suggested if you get off the strip there is a lot to explore.

  • http://www.TropicalMBA.com/ Ian

    Woot! Come on down! Agreed the community is thin down here but I think that will change. In general it’s very easy to navigate and operate down here with a limited spanish vocab for me.

  • http://tomfrearson.com/ Tom Frearson

    That pic from the trade show takes me back. Even the engineering shows we used to go to had girls and free beer!

    What do you guys think about dropshipping more complex, heavier products like automotive parts? Is it a risky strategy even if it’s used to research and test the market?

  • http://www.linkedin.com/in/sholaabidoye/ Shola Abidoye

    Did you hire/rent a scooter? Also curious why you chose Playa vs other parts of Mexico

  • http://www.tropicalmba.com/ Dan

    great idea Kiri, in the meantime this episode touches on it!!!

    http://www.tropicalmba.com/6-ways-to-get-laid-or-get-paid/

    Yeah when Amazon coming I start hearing the imperial march song from Star Wars :P

  • http://www.tropicalmba.com/ Dan

    No really if those products are regularly distributed that way, I guess the risk is if you do take over the manufacturing you’ll have to take over the distribution as well so you’ll need to factor that in to your costs.

  • http://www.tropicalmba.com/ Dan

    thank you James!!! Something tells me you found all the good spots.

  • http://www.tropicalmba.com/ Dan

    Hey Richard most of our sales come from the latter…. it’s cold calls that we use for customer development, learning about the marketplace especially at the beginning, and serendipitous deals and partnerships (reaching out to people that are interesting etc), but it’s not a sustainable/smart strategy in the long run for recurring business IMO

  • http://www.tropicalmba.com/ Dan

    DUDE it’s been a *tinge* spotty!? :P

  • http://www.tropicalmba.com/ Dan

    thanks Bryan! We should have spiked these things with Vodka and discount coupons! :P

  • http://www.tropicalmba.com/ Dan

    correct

  • http://www.tropicalmba.com/ Dan

    Thanks Shola!

  • Bryan

    For the record, I read the post and commented before listening to the podcast!

  • Bryan

    I agree 100% regarding cold calls but ‘cold’ emails can be a different story.

  • Bryan

    I know you’ve talked about it so maybe you just want point me to the relevant podcast but maybe your viewpoint has changed. Can you tell me your thoughts on
    attending vs having a booth at a conference? We’re contemplating a conference in the fall but I’m not sure if we should do a booth or just attend.

  • http://www.tropicalmba.com/ Dan

    ! :) totally cool :)

  • http://www.tropicalmba.com/ Dan

    hey Bryan, traditionally we have been bearish on the value of exhibiting vs. just hustling the floor. this last experience might have changed our tune a little bit, we’ve managed to have good successes with both approaches, i suppose it depends on your cash reserve and upside potential. i wouldn’t “bet it all” on a tradeshow as i don’t think it’s a great gamble but I’m sure others would disagree. i’ve seen it go both ways. you can see our “walk the floor” strategy in this episode:

    http://www.tropicalmba.com/6-ways-to-get-laid-or-get-paid/

  • Bobbie

    Don’t you love that. There was an H&R Block commercial once that showed boys in a German restaurant figuring out they could deduct their lederhosen from their taxes. We supplied the decorations for the commercial. We also did a pampers , baby dirndl and lederhosen commercial but never got to see it. But that is what happens when you have unique products, people with unique needs find you.

  • http://www.tropicalmba.com/ Dan

    :D :D :D not bad honors but backstage party would be nice!!! :D

  • http://tomfrearson.com/ Tom Frearson

    I guess I’m more concerned about dealing with returns. If the product is dropshipped and the customer claims it’s faulty, who decides if the claim is valid and who covers the costs?

  • http://tomfrearson.com/ Tom Frearson

    What do you think about sending an email before making a call? Is it worth the extra time and effort?

  • Bryan

    I agree with Dan’s take on the appropriate use and timing for cold calls. Sending an email before the call is helpful but still not scalable. It’s about volume (with the right techniques) in my opinion and you just can’t do the volume in calls that you can do in emails.

  • http://www.LimitlessMindset.com/ Jonathan Roseland

    I’m interested in living in Prague as well. I’ve heard that Czech women are really beautiful but that EVERYONE smokes. I try to avoid sucking in the second hand smoke… Anyone comment on this?

  • http://www.tropicalmba.com/ Dan

    I didn’t notice the smoking thing but I’m not that sensitive to it.

  • Mark E Greene

    Several years ago I ran a (relatively large) eCommerce operation (in Europe, whilst living in South America) that sold A LOT of drop-shipped goods
    back in 2008/2009. BUT we completely saw the writing on the wall back then (more detail below) for drop-shipping, so I’m quite surprised to hear it’s still being spoken about as viable in the LI community?

    We did subsequently transition to manufacturing our own products (in eastern Europe + China) and got into physical retail/warehousing (Yes Dan, I can drive a forklift!). We died a beautifully glorious death (cash flow), but that’s a tale for another day :-)

    But back to drop-shipping..

    In 2008, if you knew what you were doing, SEO was still a very plausible route for the ‘little guy’ (read: not Amazon) to make an impact. Thanks to great advice from the likes of Aaron Wall etc I doubled-down our ranking efforts and completely dominated our (competitive) niche.

    At that stage about 50% of our product offering was drop-shipped goods, the rest were purchased and stored in a fulfillment facility. The two following experiences made me pull the plug on drop-shipped items.

    First Problem: The piggy-backers

    We ended up in a nasty cycle with some competitors who had terrible rankings and were relying on expensive advertising.

    a) We’d list a product from a third party (so we couldn’t alter the name of it etc). Thanks to our high traffic volumes and wonderful copy [ ;-) ] plenty of eyeballs would see the product and be persuaded that YES this was a great buy. Sales would be brisk.

    b) 4-6 weeks later, a competitor would obtain & list the product, at perhaps 10% lower than our retail price.

    c) Now the last thing a lot of people do before they checkout is.. they have *one last Google search* using the exact name of the product etc.. *just in case* they can save a few cents.

    d) Boom – they’d land on competitor’s (often crappy-looking) page with a lower price. One of the following two things would then happen. (i) They’d abuse us via email for being over-charging rip-off merchants or (ii) they’d buy from the competitor and THEN abuse us via email.

    Now some people may say we wouldn’t have lost the sales if our site was more trust-worthy looking etc, or we’d made a better stab at reducing checkout friction and fear, uncertainly & doubt etc. To those people I say.. that’s BS.

    10% is 10% baby. You can have every flippin’ security seal and the greatest hold-your-hand checkout funnel in existence, but that’s still not going to convince ANYONE to pay $100 instead of $90.

    Vengeance was sweet though.

    When I pulled the plug on drop-shipped products where the supplier had low barriers-to-entry on who could be a re-seller (read: 99% of all drop ship suppliers!), overnight we put about three competitors out of business whose main source of visitors had essentially been our re-cycled traffic.

    Second Problem: The thanks-for-validating-our-market-for-us Suppliers

    There was an entire product line from a manufacturer that we were drop-shipping. For our part of the world we had an understanding that we’d be the only drop-shipper in that region. We sold TONNES of the stuff and we both made good money.

    Flash forward about 6 months. The manufacturer informs us that they have now sold distribution rights in our region (using our Sales as market validation) to a third party who would ALSO be retailing the items online (don’t you just love it when someone tries to be BOTH wholesale and retail simultaneously?).

    We politely told them to go fork themselves and dropped their items.

    Within 12 months, the regional third party had both started up & folded. It never ceases to amaze me that companies of all sizes seem to occasionally forget that without effective marketing and eyeballs, your product just gathers dust in storage.

    While there are always outliers & edge cases, my experience of drop-shipping has been that price wars and evaporating margins mean any drop-shipped product has an extremely limited life cycle. And oh yeah, the returns can get really messy.

    However, and only in my opinion of course, there ARE some (limited) positives to drop-shipping and they all revolve around the learning experience. Selling DS products will at least open your eyes to:

    * The life-cycle of launching a site, trying promote it
    * Working out the kinks in your paypal/stripe setup (try to avoid getting/needing a merchant account unless you have a regional need like we did. The pain, sweet jesus, the pain)
    * Dealing with customer service, which is a TOTAL nightmare in a DS scenario. You can theoretically end up in a chain-of-perfect-disinformation: Manufacturer -> DS Supplier -> Retailer (you!) -> your fulfilment/shipping service -> your pissed off Customer. Wow I think I just started sweating a little but writing that line, flashbacks ;-)
    * You can learn what market segments might be ripe for you to develop your OWN products
    * Finally, you may or may not be exposed to the mystery of how-the-fork the internet basically runs off of PHP. (I come from an enterprise software background, so to this day, reading PHP makes my eyes & brain bleed).

    Love the Podcasts guys,
    Mark E Greene

  • http://www.tropicalmba.com/ Dan Andrews

    Wow Mark so great to hear your experience!

    Interesting to hear the customer service angle as well, that didn’t occur to me as we didn’t run into it much but it makes sense for sure.

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