Last time we wrote about Colin and Sheets & Giggles, we talked about their beginnings, Colin’s quest to start a mission-driven business, and more. This time we dig deep into Colin's advice for other Shopify merchants as they strive to build their own mission-driven businesses.

Beware VC Funding

While Sheets & Giggles has raised some outside investment to fuel the fire of their growth, they remain 90% revenue-funded. This is by design.

Venture capital is a very big thing for startups,” Colin told me. “And the VCs are mostly good people, but they're looking for outsized returns. They don't care if you go bankrupt, they're just looking for boom-or-bust 20-100x type returns.”

Of course, no VC actually wants any of their investments to go bankrupt. What I believe Colin is saying here is that it's a numbers game: to them, it’s a calculated risk. Invest the money in a bunch of good-looking companies, and know that many will fail, but a few will succeed. Failure happens, and because it's difficult to predict the future, each investment made needs to have the potential to return the entire fund.

“Imagine a $30-million fund,” Colin continued. “Hypothetically, they can invest $1 million in 30 companies, and if just three of them exit for a 30x return on that initial valuation, they can triple the fund. Then they can show their partners [the VC's investors] something like an IRR of 17% over 7 years, even if 90% of their portfolio companies produce zero return.”

Colin isn’t interested in the early-stage "hypergrowth" pressure that comes with being a significant bet on a VC fund’s balance sheet.

“And so I don't like relying on that type of financing,” Colin said. “I wanted to build a scalable company with profitability as the first thing in mind. It really helps you keep a rigorous focus on unit economics and marketing costs, and it makes sure you don't go crazy with bad decisions – I've seen a lot of founders spend too much too fast on hiring, marketing, and new product development and overextend directly after a financing round.”

Lessons:

  • VC seed funding may be alluring, but it’s hardly a guarantee of success. Rather, it means you're now on a treadmill, and there's no getting off until you either boom or bust, and most people bust.
  • VC funding can instill bad habits in entrepreneurs by allowing them to overspend on the wrong things because of the pressure to grow at all costs, and lose focus on the fundamental metrics of a healthy business.

Know Your Metrics

Colin, like many successful entrepreneurs before him, knows the importance of measuring the right things.

“Every day, you’ve got to dive into the data to know things like your add-to-cart rates,” Colin said. “Day over day, week over week, month over month, you’ve got to know your add-to-cart rate, your cart completion rate, the percentage of people that are coming from mobile devices... knowing these helps you more quickly identify pain points and optimize your web design. It sounds obvious, but a lot of people don't know these like the back of their hand, and they need to."

Some of the other things Colin says you should measure are:

  • average cart (order) value
  • average price per unit
  • how many units per order
  • net margin on every single sale (including subtracting marketing costs per unit)
  • cost of acquisition for a new customer
  • cost of acquisition for any order including repeat orders
  • cost of acquisition per unit from a marketing contribution perspective

“So many founders and CEOs that I know have no idea what their core metrics are, and it hurts them in investor convos if they can't recite these like they live and breath them,” Colin told me. “They're like, ‘oh yeah, I think it's a hundred bucks average cart value’ or like ‘oh yeah, I think it's like a 3% conversion rate’ or ‘oh, I don't know what our add-to-cart rate or conversion is.’ Conversion is literally add-to-cart times your cart completion. That's it. Once you’ve got that at a high enough percentage to be profitable per sale, the only thing in the entire world that then matters for D2C company should be the amount of visitors you get. That's all you should care about; understanding your 1-2 core drivers allows you to stay completely heads down on them.”

These are so important, Colin says, because visitors and conversion rate influence every other metric, such as cost of acquisition, your net margin, and your variable cost per unit.

Once you have a grasp on your metrics, you can put them to use by finding out where the breakdown points are in your business.

Colin continued, “Are you struggling with add-to-cart or cart abandonment? Is it when they're going to the second or third stage that there's cart drop off? Is there something wrong with that page? Is there a break? Did PayPal not work? There's a million different things that can influence these metrics. And if you don't have a robust understanding of where the failure points are in checkout or what's causing people to not convert, then you can never get better at it. Then you're just driving traffic for no reason and paying for visitors that are never going to convert. I think a lot of people don't put enough focus on the metrics.”

Lessons:

  • Your most critical metrics are your number of visitors and your conversion rate.
  • Once you have your metrics, look for holes in your performance. Once you fix that leak, find another, then repeat.

Customer Service: How One Bad Experience Ruins Everything

As any great ecommerce entrepreneur would, Colin places a special significance on customer satisfaction and cultivating word of mouth.

“There are only two reasons that people re-buy from brands,” Colin said. “That first purchase? That’s marketing. Lots of people can do that. The second purchase is the combination of a great product and great customer service. So, of course you’ve got to be really confident in your products because people won't buy shitty products twice. But even with a good product, if your customer has a bad experience with just one human at your company via email or Facebook message or Instagram or a phone call, they're not going to buy from you again."

Colin further asserts that entrepreneurs should look at customer service and customer experience through the lens of unit economics.

“Your customer service directly impacts your conversion rate, which impacts your cost of acquisition,” Colin told me. “It impacts your return rate, which is literally just dollars taken out of your average order value. And it impacts your star rating, which further impacts your conversion, further impacting your CPAs. So we put a big focus on that. We have in-house customer support, full time with benefits. We don't mess around there. For the first year, I literally had a phone number on SheetsGiggles.com where people could reach us 24 hours a day, and I had my phone on ring at night. I personally took responsibility for that for like 12 months, my phone was by my bedside and I used to pick up at 1:00 AM when people called.”

I hope we can all agree that Colin is a rockstar for taking customer service phone calls in the middle of the night. That’s what I call walking the talk.

“When you call a bedding company, you really need something,” Colin half-joked. “It's not a crazy amount of call volume, but you know, it's all-hours. We're a night time company, so you know, some people call at night.”

I find myself imagining what on Earth people might call their bedding manufacturer about at 1:00 AM. I’m sure there are at least some entertaining stories, but sadly Colin didn’t share any with me. In any case, S&G’s dedication to stellar customer service is astounding.

Lessons:

  • Customer service affects core metrics within your business. Treat it with the respect it deserves.
  • Customers only rebuy from you if (a) your product rocks and (b) you have stellar customer service
  • Bonus: go above and beyond for your customers, including handling late-night chat, phone, or email support. The more accessible you are, the more your customers will love you.

Gathering Feedback: Asking Your Customers What’s Wrong

S&G places further emphasis on the customer’s experience by gathering feedback from their customers, no matter what it takes. They use this information to learn what is and isn’t working on their website, with their product offering, and more.

“I think that a lot of people don't understand what their customers see,” Colin told me. “So I would tell people to spend a lot of time… there’s this phrase in software development: eating your own dog food. So, you know, that means you should go through the mobile checkout, try putting in a credit card, give yourself a discount code for 100% off, go through PayPal, get your own confirmation emails, check the experience across devices. You have to know what it’s like for your customers.”

Of course, doing this yourself brings all sorts of assumptions to the table. Perhaps the checkout process feels fine to you because, after all, you built it. The real value is in getting your customers to tell you what’s wrong. And while many brands rely on surveys and automated email sequences to do this, sometimes, especially early on, taking a more manual approach can be just what the doctor ordered.

“There’s this very specific, tactical thing I did early on in July of last year when we first started the Shopify store,” Colin said. “I basically found a hundred people that had added to their cart and that didn't complete checkout. And I straight up emailed a hundred people from my email address from the CEO saying, ‘Hey, I'm the CEO. I'm curious as to why you didn't complete your order. If you answer me, I'll give you a $5 gift card to Amazon just for taking the time to get back to me.’ Plus, I offered a 10% off code for S&G.”

According to Colin, about 70 people replied to his message. And while they primarily wanted the free $5 on Amazon, they still provided valuable information.

Colin continued, “They told me, ‘Oh, you didn't have paypal’ or ‘you weren't delivering for another two weeks and I need bedding right now’ or ‘I just decided that it was too expensive’ or ‘you didn't have the color that I wanted.’ There were so many different pieces of feedback that were useful and that were affecting our cart drop off. At the time we had about 70% cart abandonment rate. But now we’ve got it down much lower.”

Lessons:

  • Think about your customer journey through to fulfillment. What’s broken? What could be improved?
  • If you’re stuck or can’t figure out what’s wrong, get creative by asking your customers directly and making them an offer they can’t refuse. The feedback will be priceless.

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That’s it for our conversation with Colin McIntosh of Sheets & Giggles™. We’ve learned a lot from him which I hope you head out and put it into practice. Remember, you don’t need VC money to be a successful ecommerce brand. All you really need is a great product, a laser focus on your metrics, and a passion for incredible customer experiences.