It is commonly said that we should never mix business with family. However, Jason Boyce Co-Founder and CEO of Dazadi.com has proven that not only is that a false mantra, but that the bond of familial trust and strong leadership is the ultimate weapon against any e-commerce hardship.
In the fifth episode of Skubana’s E-Commerce Mastery Series where we invite experts of their respected fields to share their best practices for success, our host, Dr. Jeremy Weisz of InspiredInsider.com interviews Jason Boyce, Co-Founder and CEO of Dazadi.com.
In this episode you’ll learn how through strong leadership, and working with those close to you, can get you through all hardships you may face running a successful e-commerce business
Some insights found by Jason Boyce are:
How his Marine Corps experience provided him the leadership skills and determination to conquer every obstacle
How the e-commerce climate is ever changing, and the product movements he had to make to adjust Dazadi
The importance of netting 10% revenue rather than having an increased total sales value
How to maintain awareness of every cost to help stay competitive
How going into business with your family and utilizing each other’s skill sets can not only save you on costs, but the shared concern for the business is an already established trust.
RAW TRANSCRIPT: Jason Boyce of Dazadi
Jeremy: Dr. Jeremy Weisz, here. I’m founder of InspiredInsider.com where I talk with inspirational entrepreneurs and leaders like the founders of P90X, Baby Einstein, Atari, many more, and how they overcome big challenges in life and business. This is part of the Skubana eCommerce Mastery Series where top and sellers experts teach you what really works to boost your eCommerce business. Skubana is a platform to manage your entire eCommerce operation.Today, we have Jason Boyce. He’s Co-Founder and CEO of Dazadi.com. They sell home recreational products including basketball hoops, game tables, fitness equipment, bikes, and much more. He has over 13 years of eCommerce experience and started Dazadi.com in 2002 with his three brothers. They have over 10,000 products on their site. And the amazing thing is, they have 100,000 SKUs in queue. Jason, thank you so much for joining me.
Jason: Thank you, Jeremy. It’s such a pleasure to be here. It’s such an honor that you would have me on your show.
Jeremy: Yeah, I’m excited to chat because you have a wealth of knowledge, and I would like to start with a fun fact.
Jason: Sure.
Jeremy: You have a couple fun facts. One is you did a lot of kickboxing. How did you get into kickboxing and why did you stop?
Jason: Well, being a small business owner and an entrepreneur can be very frustrating at times. So I looked for an outlet to channel that angst out, and as a younger man, I found a really excellent teacher in downtown L.A. and I had always been involved in martial arts, both in the Marine Corps, before the Marine Corps, during and after. And I just really felt drawn to it and connected with it.
Jeremy: Sounds dangerous.
Jason: Well, my nose is more crooked than it used to be. I have some scar tissue, broken ribs. It was the real deal. I would get into the ring with the sparring partners, some of them were ex-convicts.
Jeremy: Really?
Jason: One guy, his name with Pedro. I’m not going to say his last name to protect him. But the way he earned his living was he would siphon gasoline out of gasoline stations.
Jeremy: Wow.
Jason: And that’s how he earned his living. So here I was running a multi-million dollar eCommerce company in the ring with him. And most of the time, he got the better of me, but it was just…
Jeremy: Who has been your toughest opponent?
Jason: My toughest opponent was a professional fighter, he was a professional kickboxer. And he’s the one that gave me this scar above my eye here and one of my several broken noses. His name was Joe, just a great down to earth guy. But it was so amazing because we would all go in there and it didn’t matter where we came from, and we do this very physical thing and then we get in the ring and we give each other a hug and a high five. It was just a really good outlet for me at the time. I’m a little too old and when I got married, my wife…I’m a little too old, now. My wife said “You know, with your business, you kind of really need your brain and I’m not so sure it’s a good idea that Pedro’s kicking at it constantly.”
Jeremy: She sounds like such a nice person. She put it so nice.
Jason: She’s amazing, she truly is my better half and I married up, for sure.
Jeremy: One thing in my research, obviously, you started the company with your three brothers and I noticed that you have different last names.
Jason: We do. I refer to them as my second family. In my teen years, their family and their mother and father, Barb and Ken, took me in and taught me parts of life that I didn’t have the opportunity to learn growing up as a kid. I’m going to talk about…one of the books that I wanted to talk about is Robert Kiyosaki’s “Rich Dad Poor Dad.” It’s one of the books that I read that got me involved in this doing business for yourself, anyway. And I really connected with it because of the two fathers.
I have a biological father, who I love dearly, and I also have my Jewish soul father, Ken Klaristenfeld. He’s been an inspiration to me and really helped fill in some gaps in my learning. And once they invited me to dinner one time, I just never left. One Shabbos dinner, I didn’t want to leave.
Jeremy: You would leave ours, I’d tell you that, with all the yelling. What was life like when they took you in?
Jason: Well, I was struggling, I was a teenager, I was a little bit lost, I had lost my way. I was mixed up in some things that I shouldn’t be in, and my trajectory was heading in the wrong direction. My brothers, Elan and Josh, their father grabbed me by the shoulders and said, “What are you doing to yourself?” And I said, “What do you mean?” and they just took me in. There was no judgment. There was nothing but unconditional love and support from them, and they helped me find my way again, and ironically, sitting at the dinner table all those years, the dinner table is how we started this business. So I just love them so much, I wanted to stay close to them, and so going into business with them was the next logical step.
Jeremy: Yeah. Jason, I’m really touched by that. That sounds really amazing. At the time, you’re young, you’re a teenager. Did you take to that advice like a mature person? I think I would have been like, “Screw you” or something, I don’t know. How did you react to his advice?
Jason: Well, that’s the remarkable part is because I’ve never met a person with such patience and love for fellow humans, and I did exactly what you described. I didn’t take it easily. At first, I felt like a special connection. I felt, “Okay, I’ll probably come to dinner a few times and that’ll be that, and I’ll move on to my nefarious ways.” And they just never judged. Even when I was resistant, they stuck in there with me. And both of my fathers, both Dr. K, as we call him, I call him J.B. it’s his nickname, and my own father, both of them taught me grit. And grit is such an important, critical component if you’re going to found your own business and keep it going.
Jeremy: You joined the Marines. So tell me about your experience at the Marines.
Jason: What a great experience. I joined the Marines. I was just finishing up my business degree at Cal State Northridge, it was a degree in finance. And I wasn’t ready to join the corporate world. They do a great job, it’s a terrific business school in the Valley in Los Angeles. And they do a great job of preparing you for the corporate world and I just wasn’t ready. And I knew the education was excellent and I knew I was still missing a piece of my own development.
I was walking one day near the Student Union and I saw an Inc. Magazine cover and on the cover of the Inc. Magazine was a Marine officer in dress blue uniform and it said, “The best MBA in America.” So I picked up the article and read it, and the next day, I was talking to the recruiter from the Marine Corps. And it’s a special program, the Marines are unique in this way. If you don’t do ROTC in college, you can still go to college, and be a college student, and do all the fun things, and then after your degree, you can go to what’s called Officer Candidate School and they’ll make you a commissioned officer in the Marines. It’s a ten-week course followed by a six-month training course, and then after that, you go to your specialty training.
It really woke me up. It really took whatever boundaries I had on what I felt I could accomplish, blew them up. It didn’t stretch them, it literally obliterated them because they ask so much of you that you just don’t think you can do it. But when you get to the other side, and you accomplish it, and you look back, and go, “Wow, I didn’t think I could do that, but I did.” And it just really gave me a lot of confidence and excellent leadership training. I think it’s some of the best leadership training in the country.
Jeremy: So, Jason, what was one of those examples that you blew through one of your boundaries, that you didn’t think you could accomplish?
Jason: Well, I didn’t sleep for a week.
Jeremy: Really? Are you serious? I hear that it’s like super dangerous.
Jason: We had this training evolution, it was called The War. It was towards the end of the basic school, which is the six-month training course. And I had the honor of being put in charge of our platoon and there was just so much to do…it wasn’t my plan. I planned on sleeping a couple hours every day out in the woods. But it just didn’t work out and I didn’t sleep.
I think on day four without any sleep, it was the middle of the night and I was laying some wire. We were doing this defensive operation. I was laying some wire to communicate with my other commanders. And I started to have a conversation with this guy who was standing there. I didn’t know who it was. But I’m having this detailed conversation about how the mission’s going and what we’re learning and how great it is. And then I stop, and I look again, and I reach out, and I touch this person, but it’s not a person, it’s a tree. So delirious by day four that I was talking to a tree.
Jeremy: Yeah, that’s crazy.
Jason: Sleep is required. I don’t recommend anyone go without sleep for a week, but there’s circumstances and I’ve done it with my business. You just pull a couple [all nighters]. Hopefully, I’m not at a place where I have to do that anymore, but that’s just one small example of where you really find out what you’re physically and mentally capable of.
Jeremy: So what’s another, Jason? That’s fascinating. I’m going to make the whole interview about the Marines.
Jason: I’ll give you a short story about when I was in Officer Candidate School. I was not prior enlisted, and I didn’t do my homework in one specific area. I didn’t learn how to drill, march individuals. So I was one of the first leaders picked in my platoon during Officer Candidate School, which is a boot camp environment. The only difference in Officer Candidate School from boot camp environment, at some point, after the drill instructors have been leading it, they hand it over to you and say, “Okay.” They pick someone and they picked me and I was terrified. And I had to learn to drill. You march to the chow hall, you march to all the different training evolutions that you do in a given day. And I marched my platoon right into a wall.
Jeremy: I have a horrible sense of direction. I would march them worse places, yeah.
Jason: I couldn’t figure out my left from my right and some of the guys that were in my platoon were seasoned Marines. They had been sergeants and staff sergeants and corporals in the Marines and they were just cringing. And so I just really felt like I couldn’t figure it out. But it wasn’t even the drill instructors that helped me. They were yelling at me nonstop while I was just doing the worst job of anyone in history at the Officer Candidate School, I’m convinced.
But a couple of those senior guys came over and said, “Look, Candidate Boyce, you’ve got to do this,” and they kind of took me under their wing and showed me how to do it. And later that day, I was already doing it properly. And so just the whole concept of, “You can’t do it now. But with a little bit of help, and a little bit of patience, and a little bit of fortitude, you can figure it out later.” There are just hundreds of examples of that where I would screw up and recover quickly. So that’s another example of the Marines.
It’s just a great experience. Anyone who’s interested in the military, I would highly recommend going to college first and doing something like this, especially if they feel that they’re a leader and they have some natural ability to lead, going here will really solidify that.
Jeremy: So, Jason, take me back to…you’re around the dinner table. You’re with Ari, Elan, Josh. The discussion around the first inception of Dazadi.
Jason: I love this story. I love what happened. It was such a seminal moment for us. Brother Ari, who incidentally, he’s no longer with the company. The grind of doing the eCommerce business was something that he just wasn’t interested in any longer and he moved on to greener pastures. But it was Ari’s idea. And you have to understand, there’s four brothers and then there’s me. And Ari is just the coolest cat you’ve ever met, never gets excited. You could say, “Ari, the building’s on fire.” Ari would go, “Oh, really? Let me grab a cup of coffee and I’ll see you guys outside.” Now, he doesn’t get panicked or get ruffled.
And he hung around the Rastafarian crowd in high school and was very mellow. So Ari brings up this idea at the table, “Hey, family. I’m going to start a new business. It’s going to be an eCommerce business and I’m thinking about selling basketball hoops,” and it was all his idea. And everyone at the table…I was actually home on leave. I was still in the Marine Corps, but I was getting towards the end of my four years.
And everyone at the table goes, “Ari, that’s hilarious. You can’t start a business. You can’t keep a job right now. So what are you doing?” So I looked Ari in the eye and I said, “I’m getting out of the Marines in three weeks. Let’s do it together. I think it’s a great idea and I think eCommerce is the future and I think we can really make a go at this thing.” Then everyone started laughing at me, “Oh, that’s funny, Jay.”
And then shortly, younger brother Josh, who by the way, was in high school and wrote our first database and website, he was a junior. Josh joined shortly after and without him, it never would have launched. And then soon after that, Elan…so Elan and Josh are still with us. Still integral parts, co-founders. And Elan joined us, and he was just getting out of the college frat scene and said, “You’ve got to sell game tables. My frat house had a pool table, a Foosball table, we’ve got to get into this.” So he’s the one that brought that to the table, and it remains one of our best-selling categories.
Jeremy: So you get back three weeks later. What do you do first?
Jason: Well, I get back to the Marines and after every night when I was going home, I was online doing research. So we wanted to make sure that basketball hoops was the right fit. So we made a long list, as long as my arm, of things that we loved doing. Shabbos at the house was all about backgammon, basketball, games, everything that we could do without television.
Jeremy: I want to be invited, yeah.
Jason: Come on over, anytime. The door is always open. And so we loved doing those things, so we made a long list of all of those things that we love to do, and we started surfing the net. I don’t even think we were using Google, at the time, to surf. I can’t even remember, I think maybe Compushare. I don’t even know what…
Jeremy: This is like 2002-ish?
Jason: 2002, yeah, 2002. So we looked at all the existing eCommerce sites for all of those products that we loved to sell and basketball hoops, there were a couple of guys that were really good, but we thought, “You know what? I think we can take these guys. I think we can do this. We know the sport, we love the sport, we’re passionate about it, and we can grow it from there.”
Jeremy: Neither of you have experience selling eCommerce or basketball hoops, so what do you do? It didn’t start off with the name Dazadi either.
Jason: No. Ari came up with the name Super Duper Hoops, which I’m still absolutely in love with.
Jeremy: I like that name, yeah.
Jason: It’s a great name. In 2004, we changed it to Dazadi, and the reason why we did it is because we hired a very good intellectual property attorney in Los Angeles. We were basically a pro bono case for him because we were so small…he’s still working with multi-billion-dollar, multinational companies.
Jeremy: Right.
Jason: We met with him and we said, “We want to trademark Super Duper Hoops,” and he had a very frank discussion with us. And he said, “Guys, the good news is is I can get you the trademark so you can protect it. The bad news is, you’ll be my biggest client.” So we said, “Got it, Jorge.” Jorge Arciniega is his name, and he’s just amazing. He’s a mensch, he’s a great, great, great attorney and really has helped us steer the company. So we came up with the name Dazadi.
Jeremy: So, Jason, now what was working well with the inception of Super Duper Hoops, and then, what mistakes did you make early on that you wish you would have avoided?
Jason: The environment was such when we launched, that it was really hard to make a mistake.
Jeremy: Really?
Jason: Yeah. So we launched on May 28th, 2002. We launched the website at around 10:00 a.m. in the morning. By noon, we had sold two hoops.
Jeremy: Really?
Jason: By the afternoon, we had sold four hoops.
Jeremy: Wow.
Jason: Just so you know, our infrastructure to start the company, we started it in Ari’s apartment in downtown L.A.
Jeremy: Right.
Jason: And he didn’t have a working computer. So I took my last paycheck from the Marine Corps and bought Ari a computer, it was like $1,000. Within 24 hours, we had already earned back the money to pay off our initial investment. So we had a drop-ship relationship where we put the product up on the site, we sold the product, sent the order to our new friends, and they shipped it directly to the customers’ home. And that’s how we were able to start this business with no capital.
And at the time, something else that was working beautifully was pay-per-click advertising, PPC. I believe the name of the company that we started with was Overture, later bought by Yahoo!…
Jeremy: Right.
Jason: …Google worked out an arrangement with them and dominated that space. But we were paying a nickel a click. The percentage of the sale from marketing was well under 5% and it was really hard to lose money. It was almost too easy for the first year. We started in May, so half a year, we did $100,000 in revenue the first year. The next year, we did $1 million.
Jeremy: Wow. Holy cow.
Jason: So the environment was really, really good.
Jeremy: That’s amazing. So when did you expand beyond basketball hoops?
Jason: So basketball hoops was actually our first category, SuperDuperHoops.com was the first website. About six months later, we launched SuperDuperGames.com and then Super Duper Scooters and Super Duper Baseball. And it wasn’t until 2004, we merged them all together under the Dazadi name.
Jeremy: So what were some of the bestsellers after the basketball hoops? Because obviously, you go from $100,000 to $1 million. That’s a huge…you have a ten times jump.
Jason: Yeah. We kept pinching ourselves and in the back of my mind, I’m like, “Something’s not right here. This is too easy.”
Jeremy: Too easy, yeah.
Jason: “Something is coming,” and sure enough, plenty came after that. Everyone learned about PPC, nickel click, and it’s a bidding process. So the prices for PPC went up, up, up, up, up. Pretty soon, that 5% or less of the sales started becoming 10, 15, 30% of the sale, and when your profit margin is 40 to 30% and if you’re paying 30 and then always up to 50, sometimes 60% of the sale, the math doesn’t add up any longer.
Jeremy: Yeah. So what was the next phase? You expanded from the Super Duper Hoops to Super Duper Games. Yeah. So what did you find was doing really well, and what things did you have to maybe think about dropping?
Jason: Well, we didn’t think about dropping anything. Everything that we went up with started selling right away. It was just kind of the Wild West. The irony is, it was after the Dotcom bust. So when we were going to vendors at trade shows and saying, “We think we can sell your stuff online,” they were all laughing at us because the bust happened and the Internet was a failed experiment. We were like, “We think, maybe…you guys had a rough patch, but we think this thing may have legs. Give us a shot, let us sell your product. We can prove to you that we can be a valued vendor for you.”
So we just kept adding, adding, adding. Game Tables was the next site and we started selling arcade games, which is something we still sell, which is one of my most fun products. Arcade legends, Ms. Pac Man, Galaga, all those great ’80s…
Jeremy: My wife’s favorite, Ms. Pac Man, yeah.
Jason: Awesome. Let’s talk offline.
Jeremy: So what was the next major milestone? So right after…obviously, you see PPC, all the competitors pile on. What did you do to then shift to compensate for that?
Jason: We went in to a dark period. We didn’t compensate quickly enough. The prices of pay-per-click advertising kept increasing. Our costs of goods was increasing. Shipping prices was increasing. And the downward pressure provided by the Internet was pushing prices down. So every month, we would look at the numbers, costs were going up, prices were going down. It wasn’t a very good situation. So we had a number of years where we just weren’t making any money. We were breaking even. We were still growing and still selling items, but…
Jeremy: The profit margin was diminished.
Jason: It was a real challenge. And one of the milestones that changed that for us, we got a phone call from Amazon. And Amazon said, “We’re going to start offering people like you to sell your products on our website,” and we were sitting around…actually, my three-in-one poker table, which was my dining table in my bachelor days …
Jeremy: I like that.
Jason: We were sitting around the table. Elan and Josh and Ari and I were having a meeting about the business, it was a pre-Shabbos business meeting. We had a very detailed conversation, we’re talking about these struggles that we’re having, what to do. And the meeting is about to wrap up and Ari goes, “Oh, yeah, by the way, I forgot to tell you guys. It’s not a big deal, but Amazon called us.” And we’re like, “What? Amazon called? What? Why are you just bringing that up? The meeting’s over?” And he brought up the fact that Amazon called and they wanted us to sell basketball hoops, and I said, “Give me the number. We’re calling them back right now.” And ironically, we were one of the first guys selling on Amazon, basketball hoops. I think we sold basketball hoops on Amazon before Amazon was selling basketball hoops, actually. Because they had opened up the marketplace to so many other categories.
And so the marketplace has been a great thing for us. It’s a continued source of growth for us. And that price that we pay for an acquisition fee is fixed, so that’s something we can work with. Unlike the pay-per-click advertising where it’s a variable cost…
Jeremy: Right.
Jason: …it wasn’t even variable in both directions. It was variable all the way up…
Jeremy: Right.
Jason: …until the point where you could really literally go out of business if you were paying too much for your advertising.
Jeremy: Yeah. So what have you seen that’s worked well on Amazon than what has not? Because you’ve been in since the beginning.
Jason: We have. We were in from the beginning, and I am so envious of Jeff Bezos and what he’s created over there. Not just in the marketplace, but his own site, the Cloud. We’re now…all of our infrastructure is in Amazon’s Cloud, which is just a revelation for us. We get the 2:00 a.m. phone calls about the servers going down in downtown L.A.
He’s a huge inspiration to me, read his books. So we’ve learned a tremendous amount. I mean, on some level, Amazon has been a teacher for us, and it continues to work. And one of the things that we also do, it’s a growing part of our business, is we’re sending inventory truckloads to Amazon through their Fulfillment by Amazon. I was very skeptical about it when we started using it, because it’s their customer and we don’t basically get to re-market to that customer.
But when they offer to allow our products that are in their warehouse be listed at Prime, Prime Shipping, so it’s the free two-day shipping and up here in Seattle, it’s a one-day shipping, we saw a big lift in revenue.
Jeremy: Really?
Jason: It made it worth it for us. So that’s been a nice surprise. It’s taught us how to buy inventory rather than do drop-ship. We’re making a big push over the last couple of years to inventory more of our items, and the marketplaces are really big drivers to the site. We also have a benefit because we’ve been around a long time, we’ve been around 13 years now. In eCommerce, that’s like dog years. You might as well [inaudible 00:25:29] years.
Jeremy: Right, yeah.
Jason: And so we’ve built up a lot of history, so we have a lot of organic traffic that comes to the website, and we do some stuff like affiliate marketing, also where that price per sale is fixed. And Google PLAs, the Product Listing Ads, we’ve had some success with them. We turned off things like some of the other consumer comparison shopping engines because it became the same bidding process where the cost per sale was too great, we couldn’t cover it with our profit margin. And even when we were re-marketing to those customers, we weren’t getting it back until very far in the future.
So we’re doing very little CSE, we’re doing very little PPC, and those are the areas that are really driving traffic for us.
Jeremy: Yeah.
Jason: And then when the customer comes to the site or they buy it from one of the other channels, we’re on Walmart.com, Sears.com. We’re doing a little bit in eBay. Buy.com, which is now Rakuten. So when they see us on all those marketplaces and they have a good experience, they come back and maybe they’ll tell a friend or two. It’s been much better than I was anticipating when I was…we did the pluses and minuses things when it was time to launch with Amazon and the pluses far outweigh the negatives. And even some of the negatives have gone away, we really do think it’s been a driver to our site.
Jeremy: Jason, obviously you said FBA has been huge with Prime customers. What else has surprised you that’s worked on Amazon?
Jason: At this stage, after doing this for 13 years, I don’t have too many more surprises. I always enjoy when we do have surprises, but FBA, I think, for sure, was the biggest thing. I thought that it was going to be the ruin of our business. I was one of the brothers who thought it was going to be the ruin…everyone else was doing the, “I told you so,” dance when it worked out really well.
Jeremy: Right.
Jason: So that was a big one and also, the idea of carrying inventory has been something that has been huge for us. A wise jewelry dealer once told me, “Jason, you don’t make your money when you sell your product. You make your money when you buy your product.” And I’m scratching my head going, “What are you talking about?”
Jeremy: That seems weird, yep. Keep going.
Jason: I don’t understand, but it’s quite simple. If you buy at the right price and you buy in the right quantity, compared to what the market retail price is, and you have a cushion for profit margin, that’s the best way to make money. One of the things that I can tell your viewers, someone out there who’s maybe thinking about starting an eCommerce company or who’s maybe been struggling getting an eCommerce company off the ground is there’s a lot of noise out there. And the noise that you hear…I read a lot and I follow things like CNBC, Business Week. All the big guys, right? One thing that you must understand if you’re a founder and you’re bootstrapping a company, is that if they make a decision, it’s not always the best course of action to follow what they’re doing.
And I’ll give you a prime example. A company like Amazon, if they want to gain market share, they may sell a product where they’re losing money on it. And it’s perfectly fine and capable for them to do that because they’re eating up market share, they’re holding on to that customer, and they’re re-marketing to that customer. Good for you, Amazon.
And when they lose enough money, they have the type of investor base…and when you’re selling your stock over $500 a share, if you’re losing money, you can just go sell some more shares and bring in the money to cover those losses, or you could sell corporate bonds or any other number of financing options.
Jeremy: Right.
Jason: If you’re bootstrapping your company and you’re losing money on a SKU, you cannot make it up. There is no amount of capital that’s available to you right now that will allow you to survive that. We’ve had two near-death experiences. Probably more [but] two very pronounced ones.
Jeremy: Yeah, tell me about it, yeah.
Jason: One is in 2008 when the world was coming to an end.
Jeremy: Right.
Jason: The whole financial markets were cratering. Our product is very highly discretionary, which means you don’t need a Foosball table to survive.
Jeremy: You don’t? Okay.
Jason: We have some customers…
Jeremy: Unless you’re a frat.
Jason: It’s free with that statement. But you don’t need it. So when you’re worried about losing your job or the world’s financial system is going to crater, you don’t go out and buy a Foosball table. You save your money for things that you need like food and important things.
So when the stock market started tanking in 2008, sales stopped. We could hear crickets.
Jeremy: Wow, really?
Jason: We could hear crickets in the office. Everyone stopped buying. Because it was just this mass panic. I stopped buying, too. We all stopped buying things and we understood why. So that was our first round of layoffs, which as an entrepreneur and as a businessperson, is the hardest thing you can do. We laid off about 70% of our workforce, we shut down a big warehouse that we were operating, moved into a 700-square foot office and we crammed about five or six people in the office and it was really uncomfortable. But that’s what we did. That’s what we had to do to survive. 2013 was another year where we really…it was much worse than 2008. As bad things as things were in 2008…
Jeremy: Really.
Jason2013 was our worst year on record. In the year 2013, we lost $1 million at the end of the year.
Jeremy: Wow.
Jason: And we were talking to the bankruptcy attorneys, we were talking to everyone. And now, how did we get to this point? Well, we started listening to the voices and the noise and what you have to do to become a successful eCommerce company. You have to have a certain member of staff. You have to have a fancy office space, and we put a bunch of money in redesigning a very cool office space, in West Hills, so that we could attract talent, and we started going after market share. When we finally fixed our reporting so that we could see the 360-degree view of all of our costs down to the order level…”Sally Smith in Utah buying a table tennis table,” we see all the costs that went into that order and what we received for that order. We had about half a dozen SKUs that grand total, had lost hundreds of thousands of dollars. We sold them and the quantity was big, but we were losing money on every sale, and we had lost hundreds of thousands of dollars.
On top of that, our overhead was bloated compared to what we were generating in revenue. It was a disaster, I thought it was the end. My brothers and I sat around at the end of November and said…or I should say at the end of December and said, “A big holiday season is not going to help us. We either need to file for bankruptcy or do something else,” and my brothers put on the table what we called the nuclear option. Going back to the apartment, cutting our costs, and coming back to it.
And it was at that point that I realized that a company like ours that’s bootstrapping ourselves can’t chase that sale. Can’t go after market share because you’re out-capitalized and you’re out-expertised, if that’s a word. So at that very moment…and I’ve got to tell you, I had heard the words for ten years prior to that. I knew that we couldn’t be a market share without going out and having an IPO, or having big capital backing us, or big investors. But losing that…when you look at your P&L, your profit and loss statement at the end of the year and you see that it’s $1 million, that is a great lesson.
Jeremy: Negative, yeah.
Jason: That is what taught me that we can’t chase that market share and we immediately began flipping to a profit share, a profit-driven strategy. Buying the inventory, liked I talked about, was one of the key elements of that. Because the drop shippers…when you drop ship something, A, the people that are shipping to your customer don’t have as much of a stake in your customer as you do, and B, it costs them a lot more money to do that, so you’re paying more for it, right?
Jeremy: Yeah.
Jason: You don’t get any kind of volume scale or quantity breaks. So it really is a great way to start a business without capital, or at least it was in 2002. I just don’t know if you can do that anymore. Just to sort of put some bookends on that piece to share with your viewers who are in eCommerce now or bootstrapping their company, focus on the profit. Don’t listen to CNBC. Don’t listen to Bloomberg Business Week where these guys are going after market share because unless you have an IPO and unless your stock price is $500 a share and you can go sell stock and raise capital, by the bucket load, that is not a good strategy for you and it’ll end up in your ruin. By the skin of our teeth, we survived, but it was almost too late for us and if I can share anything, please, viewers, remember that.
Jeremy: Yeah. Jason, I appreciate you sharing that and I want to talk about after that happened, what changed, what changes you did make. But before, you said there were six SKUs that were losing money. What was it about it that was losing money? Because obviously, you’re selling them. Was it just you’re buying too high? What were the factors in there?
Jason: Yeah, I think every question that just popped into your head, the answer is, “Yes.” It wasn’t just one thing, it was all of them. One, the cost was too high. The shipping costs were too high. That’s something that on the online world, has become a must-have. You must offer free shipping. So shipping has become a…
Jeremy: You better throw that in.
Jason: A cost of goods for us now, right? So our shipping costs were out of check. The cost of the goods were out of check. Even some of the marketing efforts…we had hired a very talented, six-figure person to come in and run our marketing efforts and it seems like they had spent more money than they had brought in. And so that was another piece of it. So all in, the cost of goods, the shipping expense, the price we were paying to the marketplaces, as well as our own merchant fees, when the sales were coming through our own site, and then the costs to drive that sale were just too high.
How do we do that? You think, “Well, that’s just dumb, Jason. Why did you do that?” You get hooked into it, “I’ve got to sell more.”
Jeremy: Right. I asked you that to break it down, Jason, because I guarantee you this is so common that you just want to get that sale and those specific items of cost get lost.
Jason: You’re 100% right. And the reporting that we have in place, there isn’t a lot of over-the-counter stuff out there that focuses on cost down to that level. So what we did with Josh’s help, who’s our develop guru, is we built a reporting system that will show us all of those costs. I check that report every day. I can see every sale on every SKU and every order and know what the profit margin is on it. And if it’s a negative or it’s a red number, then we’re raising the price, and either pulling the product, raising the price and/or going back to the vendor and the shipping vendor and saying, “We’re out of the market here. If you want this volume to continue, we have to get better pricing.”
When you’re bootstrapping your company, you can’t lose product, you can’t lose money on a sale. There are some people out there, “Well, you need loss leaders to get people in.” I don’t even have loss leaders anymore. We don’t even do that. If I can’t make a profit on it and sell it, it’s not on the site. It’s just not on the site.
Jeremy: Yeah. So is this software internal or it something that you offer to other eCommerce businesses?
Jason: No, I’m sorry to say we don’t offer it to others. But we built it internally only because we couldn’t…there’s a software out there, for sure, that I know will do it, but not price range. We didn’t have any choice. We just had to do it ourselves and it took us about four months to build it. But it’s one of the reasons why we went from $1 million loss, in 2013, to a 20% top line growth and 1,000% profit growth, and we made several hundred thousand in 2014.
Jeremy: Yeah. So what systems and software do you use that people should think about? Obviously, all businesses are different. But just to give people an idea.
Jason: We were really, really lucky because we have a genius software programmer in the family.
Jeremy: Right.
Jason: By the way, Josh’s nickname is The Beav. Because he was like Leave it to Beaver when we were growing up. He was so curious, always had great questions and just, you look at him as a young boy and he was just pure goodness, he was just like Leave it to Beaver.
Jeremy: Right.
Jason: That was Beav’s nickname. So, Anyway, not everyone is fortunate enough to have someone who is as talented as he is on the staff.
Jeremy: Right.
Jason: I’ll give you one story. We realized when we were doing a lot of drop-shipping that EDI, EDI is Electronic Data Interchange and that’s a way to send orders electronically to the vendor and receive things like inventory updates, etc. So we were looking at service providers for EDI and Josh was on spring break from Berkeley. And I said, “Hey, would you sit it on this call? I’ve got a call with a potential vendor for EDI. We think it’s going to be really helpful for our business.” And so, we’re listening to the sales pitch and the features and benefits of the product and we say, “How much?” They’re like, “Well, it’s going to cost you $100,000 upfront and probably anywhere from $10,000 to $50,000 a year.” And we’re like, “We can’t do that.”
Jeremy: Right.
Jason: “We don’t have the funding to provide that level of cost on an ongoing basis.” So Josh says, “Put them on hold,” and Josh does this thing where he sits back in his chair and he kind of rolls his eyes up to the sky and he goes, “I think I can build that.” And I said, “Build what? The EDI system, the one that these guys are selling for $1 million?” “Yeah. I don’t think it’s that hard. I think I can build that.” And I said “How much time is it going to take you?” “Well, I’ve got another week at spring break. I think I can have it done before I go back to college at Berkeley.” And sure enough, he did. He built it. He built this incredible system. He found a basic open source framework that wasn’t working, took it, and adapted it to work it.
So the reason why I tell you that story is because that’s the kind of talent that we had homegrown…
Jeremy: Right.
Jason: …so much of our systems that we use are built on our own. Our front end of the website, the back end of the website. The API layer that we use to communicate with our database. All built with him and open source. In terms of software, we use some productivity software now. We partnered with a company called Zendesk for our customer service which is a terrific, cost-effective software system. I personally use Evernote like crazy, I use Highrise. I’d be lost without Highrise. Just to help me manage everything from my team, vendors, even some key customers.
We use Google Drive, which I don’t know if you would consider that software. But we have a team in the Philippines now that are doing work for us on product uploads and we use Google Drive constantly. Actually, I think you sent my invite with Google Drive, so I knew what that was.
Jeremy: Yep.
Jason: Those are some of the software pieces that we use. I think everything else…
Jeremy: Internal.
Jason: Everything else started as an open source platform and then we made it our own and built our own. And when I say, “we,” it’s the royal we. Josh built it.
Jeremy: Right. So, Jason, going back, that’s a tough pill to swallow. You see a $1 million loss. What changes did you make after it? Because obviously, you turned things around in a big way.
Jason: I think I lost ten years of my life that year.
Jeremy: Really?
Jason: Every month, we’re wrapping up the books and it’s tens of thousands of dollars lost, $100,000 lost. And it was just really, really hard. I think it’s a testament to my partners, too. We’re losing money by the truckload, but we’re still family. Even…
Jeremy: What’s the conversation like around the table, then?
Jason: No one blamed each other. No one blamed each other. We were nothing but supportive. And we said, “Look, we’ve given this business a go for a long time. We believe in it. We believe that the Internet is a rising tide that’s lifting all boats that we are happy and lucky to be a part of. We can figure this out,” and it just took meeting, after meeting, after meeting, and whiteboard discussion, after whiteboard discussion to pare down what was causing the problem. And the number one problem…actually, two-part number one problem was our cost. We weren’t seeing that 360-degree view down to the order level, down to the SKU level, and we had too much overhead. We had a lot of really expensive staff that quite frankly, they just weren’t paying for themselves. They weren’t generating an ROI.
So when we had that come to Jesus meeting at the beginning of December, we sat down and we said, “Look, we can walk away from this thing that we’ve put our heart and soul into for the last decade, or we can go nuclear and we can shut down the office, and we can let everyone go, and we can do a restart.” We cleared the slate clean and we found of all the SKUs that we had, we had tens of thousands of SKUs at the time, we pared it down to just the ones that were working, we went after lower costs, we started inventory, and we used a third party service for warehousing. Josh built a warehouse management system so we could keep track of inventory all over the country.
So we switched to an inventory model when we didn’t have any capital to do it. I personally made phone calls to all of the vendors, every single one of them, and said, “Look, I know we know you a lot of money. This is what we’ve done, we cut $900,000 in expense off our P&L, off our budget from 2013. We will survive. If you stick with us, you’ll be happy, and I give you my word that we’ll pay you every single penny that we owe you.” And about one third of the vendors that I spoke to said, “Jay, I get it. Everyone has hard times. Thank you for picking up the phone and calling me. And we’ll stick with you. Just pay us something every week until we can get this current.” We had over $1 million in past due payables to our vendors.
Jeremy: Wow.
Jason: Some of them said “Adios. We’ve heard this story before from eCommerce guys and we’re done with you.” So one of the most meaningful things that has happened to me in this business so far is I just came back from a trade show, it’s the Game Tables Billiards Show in Las Vegas. And I personally went up to all of the vendors that stuck with us and I apologized to them for the problems with payment. Everyone is paid off now, everyone is current, and we’re even pre-paying for some inventory to get the best possible pricing.
But I went to everyone, I looked them in the eye, and said, “Thank you for hanging in there with us. We have prioritized your company and companies like you that have stuck with us through the tough times. We’re going to quadruple your business. You are our number one focus for this year and next, and we’re going to reward you now for sticking with us.”
Jeremy: That’s amazing.
Jason: We had to make a lot of hard discussions. There were a lot of tears in those meetings.
Jeremy: Yeah, what was the hardest discussion, you think?
Jason: Easily the hardest discussion is, “We’ve got to let our staff go. We can’t survive and support them. We either let them go now or we go bankrupt and we let them go when we can’t pay their paycheck.”
Jeremy: Right.
Jason: That was the hardest discussion. We built very intense relationships, deep relationships with our staff, and we love them. Even the ones that weren’t performing and doing well, we just love our people and we treat them like family, we’re a family business. I literally was crying when we had that discussion, when we let them all go that day. It was a dark day, and I had recommendation letters ready for all of them when we finished up our final paperwork. I focused with them for the following three to four months to make sure they had all found work, helped them know what to ask for, and we stuck with them. And it wasn’t just a sort of cut the cord and forget about them.
And they all got work and they all are making more money than they were making with us anyways, so it all worked out well. That was easy…
Jeremy: That is a tough time.
Jason: I’m getting emotional just thinking about it because it’s such…these people were not only workers, they were family, and telling them we had let them down was…I’ll never forget that night. I hope [inaudible 00:46:50] to do that again.
Jeremy: Yeah, that is tough. Especially because you can tell you have such pride in relationships.
Jason: It’s critical.
Jeremy: Obviously, you have to keep people, too. How do you decide what the essential staff are to keep? What positions did you end up keeping at that time?
Jason: Of the 12 staff members that we let go, we kept one. A young guy, his name is Carlos Ruiz, a young rock star. He just has a sort of analytical mind. His background was in…he ran a couple of soccer stores and he bought the inventory for the owner of the store. We handed him a category, the exercise and fitness category. At the time, it was doing $10,000 in revenue and we said, “We can’t figure this out. We don’t know what’s going on with exercise and fitness. We can’t get the sales, we don’t know what we’re doing wrong.”
We gave it to him as a training exercise knowing that he would fail, and then we’d pick him back up by the bootstraps and say, “It’s okay, no one’s been able to do this,” but he turned it into a multi-million dollar category for us.
Jeremy: Wow.
Jason: A guy like us who believes in the relationship, worked with the vendors to get good pricing. Is smart, analytical, found the areas that where the SKUs were actually making money and we doubled and tripled down on those and brought them in by the truckload, brought them in by the container load, so that we could get that good pricing. And that’s how we dug out of it.
So now, we’ve taken what he did and we’ve expanded it into other categories, some categories that we walked away from that we love. But now, we’re finally getting back into them again and we’re coming at them with this process that we’ve learned internally. Maybe we would have done it without Carlos, but he’s terrific and he’s a key member of our team, still.
Jeremy: It’s amazing, Jason. Because I have all these questions around, “How can we boost sales in these ‘sexy’ questions?” But when it comes down to it, it’s really about paying special attention to your costs.
Jason: Look, Jeremy, if you’re a public company or a private equity-funded company and you’ve got $100 million in the bank, go get the sale. Do it. Grow the market share. Get the name out there. Spend $50 million on an ad campaign, so that everyone knows who you are.
If you’re like us, and you’re bootstrapping your company, and the bank won’t give you a line of credit so that you can buy your inventory, the only thing that you can focus on is your costs. And you have to make sure that you’re making a profit. If you’re not doing that, I hate to say it, you’re just not going to make it. Just not going to make it.
Part of your statement is correct. Cost is infinitely critical. It’s essential if you’re a bootstrapped company. If you’re going to start your own company and you don’t have the financing, or you’ve got some friends and family money. If you don’t want to lose all their money, make sure that you find the thing where there’s a market where you can make a profit. Because until you hit that IPO, you can’t chase that sale. Sales don’t matter.
Someone asked me one time, a friend of mine, “Which would you rather do? Would you rather make $100,000 on $1 million in sales? Or would you rather make $100,000 on $10 million in sales?” And at the time, I said $10 million, man. I want that $10 million.” I think it was year three. “I want that revenue because when I read Bloomberg or when I read Business Week…”
Jeremy: It’s an ego thing.
Jason: “…CNBC, these guys are talking about sales growth.” They’re talking about all that market share they’re eating up. And the close friend said “No, that’s not what you’re about. You need to focus on the $1 million in sales that will make you 10%,” and that’s our profit target [inaudible 00:50:52] at this point. At the end of the day, when all the bills are paid, we want to net 10% of our revenue.
Jeremy: Some people would say, Jason, like you said, you’re going to be releasing 100,000 new SKUs.
Jason: Yeah.
Jeremy: They go, “Well, you have an advantage, right? Because you’ve been doing this for 13 years.” But what do you do…because it’s still a new SKU, right? It’s still a new SKU. What do you do to make sure that that new SKU is successful?
Jason: Well, what’s incredible about the online marketplaces…again, the online marketplaces, we push a data feed to Amazon, to Walmart.com, to Sears.com, Rakuten. I’m forgetting three or four others. When you put up a new SKU, right away, you know if it’s going to be a success.
So here’s the thing. Of the 100,000 or so SKUs that are in our queue with our product team that’s now in the Philippines cranking out copy and images, to put our best forward with each SKU. Not all those are going to stay. Our initial recon of the market, we get a really good scrape within 90 days from the online marketplaces. We say, “Okay, this is selling well. This is not selling well. And why is that?” And then we put it under the microscope and we figure it out.
I just came back from a trade show. I’m going to give you a specific example. Crosley Turntables, you know this company? They sell these LP record turntables?
Jeremy: Mm-hmm.
Jason: We used to do great with that product. We used to great with it. But what’s happened is that Target, and Amazon, and Walmart are selling these things, and they’re duking it out and they’re going after the market share. Who can sell the most of these turntables? When I look at my costs, even if I bring in a container load from where they’re made in Asia and land them and sell them, no matter what I do, I cannot make a profit on it. And I don’t think Target is and I don’t think Amazon is. I’m almost positive they’re not.
But they don’t care. Because they have the funding. They have the capital. If Amazon loses too much money on the turntable, they just go sell a few hundred more stock. That’s one where we’re not going back up with that one. It’s something that we’ve been successful with in the past. It’s not a player for us right now. Maybe in the future, if one of those guys wins and they end up and the prices come back to where we can make a profit on it, then we’ll jump in there again. But it’s just one of those things where we’re going to walk.
And I love that product. I think it’s so cool. It’s such a hip product. I love the sound of LP. But I’ve got to let it go, because I can’t make a profit on it.
Jeremy: Right. That is tough. Something that…it’s getting to that next, “What’s going to work next?” Because that’s the scary part is the stuff that worked before may not work in six months.
Jason: Yeah. Well, there’s so much opportunity in just categories where we’re involved, right? Sporting goods, we have many sports that we haven’t filled out, game tables. It’s a pretty full category, but we walked away from some subcategories when we did our cost-cutting and we scaled back our resources. Toys is one that we barely dabbled in. Toys is highly competitive, but there’s some nice areas within toys that work for our brand that I think we can bring to the table. And then backyard and patio is one that we’re barely scratching the surface on.
So there’s so much opportunity out there, and what’s amazing is we’re such a scalable company. We’re having this conversation from my office. I’m telecommuting right now. My offices are now…I don’t know if I told you this, but we just brought on our first equity partner.
Jeremy: Congratulations.
Jason: Thank you. We just inked the deal in May with a company called Quantum Solutions out of Calabasas, California. They bring more than just the money. They bring to the table for us…I always joke that they’ve forgotten more about online marketing than we’ve known, than we know, so they’re really going to help us with that, and also, their technology. They’ve got teams to bear for Josh to employ, to really build out some special features. More brand-specific stuff for us.
Jeremy: How did that work? Did they contact you? Were you reaching out? How did that come to play?
Jason: We didn’t get any offers in 2013. When we lost that $1 million, there weren’t too many…
Jeremy: That was the perfect time for them to grab you, though.
Jason: It was the perfect time, we had some discussions. We had hired an investment banker…actually, a couple investment bankers to bring some potential buyers to the table, and we just weren’t seeing…we knew we had the engine and the driver and we knew how to fix, but we hadn’t fixed it yet.
Jeremy: Right.
Jason: We just didn’t see the value and were going to have to give up too much of our company. But everything changed in 2014. 20% growth with four people and a virtual outsourced army of staff that is cost-effective. And that profit, on the bottom line, changes everything for someone bringing on investors.
So we were able to give up a minority stake of the company in exchange for capital that would really help us catapult and build on that momentum that we started in 2014.
Jeremy: Yeah. So what do you see the biggest challenge is going forward?
Jason: This is one of the things that I both love and hate about eCommerce, is it’s incredibly competitive, incredibly fierce. The things that Amazon is doing and some of these other big guys…I’ve never even thought of some of the things that these guys are doing.
Jeremy: Like what? What’s something that you’ve seen?
Jason: Buying groceries from Amazon. I just had my groceries delivered to my front door this morning and they’re amazing, Amazon Fresh. The things that they’re doing with eCommerce is incredible. They’re building out a services division where they can have anything that you buy assembled for you. Because if my customers are like me, and many of them are, they don’t know how to use a screwdriver.
Jeremy: Forget about it, yeah.
Jason: Forget about it. So the competition, you never know…I never know when I’m going to open up my inbox or go to InternetRetailer.com and see something new that makes a lot of sense that we didn’t think of.
Jeremy: Right.
Jason: So it’s fiercely competitive. There’s an incredible downward pressure on pricing. And I’ll fully admit, the things that helped us get out of the troubles of 2013, and have a successful 2014, and have a monster…we’re at 80% growth right now through this year. The things that have worked, they may not work in six months.
Jeremy: Right, yeah.
Jason: That’s what I don’t like about it, but that’s also what I really like about it because it keeps us on our toes. We can’t rest on our laurels and say, “Oh, we’ve got an investor. We’re just going to kick back now and count our money.” It just doesn’t work that way online. It’s so fiercely competitive.
Jeremy: Yeah. Jason, how do you evaluate new opportunity? Because like you said, you always have to be looking at what’s next.
Jason: Well, we try to keep it simple and I mentioned the phrase, we turned down the noise. It’s a double-edged sword when you look at what’s new and exciting out there because something that is very exciting on Internet Retailer may be like something that makes perfect sense for us. But if I look at my resources at the time and the projects that are in the queue, we may have to take a pass on it. Which means we’re going to be late, right? We’re going to be later than our competitors. But we’re really focused on keeping the things simple.
Look, we list products for sale on our website. We try to give our customers as much information as possible to help them with their buying decision and we try to have a fair price. Then once they buy, we try to get it to their house in one piece. And we’re constantly focusing on doing those things.
And it seems very simple, right? You can put it on a whiteboard and it’s two lines. But all of the details and points that are required to get that to happen are onerous. So we don’t ever want to take our ball off of that. If we do that and we can’t do the simple things, then no matter what kind of fancy new bell or whistle that we add to our eCommerce platform, our site, it won’t work. So that’s something that we’re also doubling down on is really refocusing constantly and building the processes where we’re constantly improving all of those areas. Something that may work today, it may not work so great later for various reasons.
Jeremy: Mm-hmm. So what’s been the proudest moment? Obviously, we’ve seen a bunch of ups and downs, but what’s been the proudest?
Jason: You know, I think the proudest moments are yet to come. But the proudest moment, to date, I think when we were able to sign that deal in May with really good people, with a lot of expertise that fills in the gaps that we don’t have, and they looked at our business and they said, “We value you guys. And we value you at this.” And we signed that deal. That was really our proudest moment. Followed by looking at the P&L in 2014 and not crying. Actually, I was crying. But I was crying…
Jeremy: In a good way.
Jason: …for a different reason than I was when I looked at it a year prior. Just all of the…the nights and the long nights. In 2014, just to pour salt in the wound, my youngest daughter Ellie, she was born with a kidney defect. So she had to have a partial nephrectomy in March and she developed a bad infection at the hospital in UCLA.
So in the midst of four people running an $8 million business, I had to leave and be with my daughter for three weeks while she got better. And I think it’s just the most difficult year I’ve ever had.
Jeremy: Jeez.
Jason: But those are the things that build character and those…
Jeremy: Right. That’s where the Marines came into play, right?
Jason: That’s where the Marines came into play, they absolutely do. Just when you think you just can’t take anymore…
Jeremy: Jeez. Throw Ellie on there. Just throw that on there. That’s horrible.
Jason: The good news is is that she’s just healthy as can be. You’d never know she had a surgery.
Jeremy: That’s amazing.
Jason: Her and Maddie are just the greatest joys of my life.
Jeremy: Yeah, that’s what matters most.
Jason: You could imagine, I know you’ve got a four-year-old and a two-year-old yourself.
Jeremy: That’s what matters most right there.
Jason: It really does.
Jeremy: Jason, I really appreciate your time, this has been fantastic. I have one last question, but before I ask it, just tell people where should they go? Where should they check out your company?
Jason: Dazadi.com. If you want fun things for your home, if you want to create a staycation, don’t spend $3,000 and go to Hawaii. Spend a couple of grand and put together a game room in your home or a basketball court in your home that you can enjoy every day of the year. And you can go to Dazadi.com, it’s D-A-Z-A-D-I.com. And if you have any questions, you can pick up the phone and you can talk to someone who knows about the produ