Consumer loyalty is shifting as shoppers seek better value from brands and retailers. That’s according to a new McKinsey & Company study titled, “State of the Consumer 2024: What’s now and what’s next.”
In January this year, McKinsey surveyed 15,000 consumers in 18 markets comprising 90% of global GDP. Over a third of those consumers had experimented with different brands in the prior three months, and around 40% had switched retailers in pursuit of better prices and discounts.
– In addition, according to the study, in emerging markets such as China, India, and the Middle East, the proportion of consumers planning to boost their spending on wellness products and services is two to three times greater than in advanced markets such as Canada and the United States.
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Moreover, over one-third of consumers in China, Saudia Arabia, India, and the UAE shop directly through social media platforms, much higher than those in Europe and the United States.
Humanity has long sought to tame wood into something more predictable. Sawmills manufacture lumber from trees selected for consistency. Wood is then sawed into standard sizes and dried in kilns to prevent twisting, cupping, or cracking. Generations of craftsmen have employed sophisticated techniques like dovetail joinery, breadboard ends, and pocket flooring to keep wood from distorting in their finished pieces.
But wood is inherently imprecise. Its grain reverses and swirls. Trauma and disease manifest in scars and knots.
Instead of viewing these natural tendencies as liabilities, Achim Menges, an architect and professor at the University of Stuttgart in Germany, sees them as wood’s greatest assets. Menges and his team at the Institute for Computational Design and Construction are uncovering new ways to build with the material by using computational design—which relies on algorithms and data to simulate and predict how wood will behave within a structure long before it is built. He hopes this work will enable architects to create more sustainable and affordable timber buildings by reducing the amount of wood required.
Menges’s recent work has focused on creating “self-shaping” timber structures like the HygroShell, which debuted at the Chicago Architecture Biennial in 2023. Constructed from prefabricated panels of a common building material known as cross-laminated timber, HygroShell morphed over a span of five days, unfurling into a series of interlaced sheets clad with wooden scale-like shingles that stretched to cover the structure as it expanded. Its final form, designed as a proof of concept, is a delicately arched canopy that rises to nearly 33 feet (10 meters) but is only an inch thick. In a time-lapse video, the evolving structure resembles a bird stretching its wings.
HygroShell takes its name from hygroscopicity, a property of wood that causes it to absorb or lose moisture with humidity changes. As the material dries, it contracts and tends to twist and curve. Traditionally, lumber manufacturers have sought to minimize these movements. But through computational design, Menges’s team can predict the changes and structure the material to guide it into the shape they want.
“From the start, I was motivated to understand computation not as something that divides the physical and the digital world but, instead, that deeply connects them.”
Achim Menges, architect and professor, University of Stuttgart in Germany
The result is a predictable and repeatable process that creates tighter curves with less material than what can be attained through traditional construction techniques. Existing curved structures made from cross-laminated timber (also known as mass timber) are limited to custom applications and carry premium prices, Menges says. Self-shaping, in contrast, could offer industrial-scale production of curved mass timber structures for far less cost.
To build HygroShell, the team created digital profiles of hundreds of freshly sawed boards using data about moisture content, grain orientation, and more. Those parameters were fed into modeling software that predicted how the boards were likely to distort as they dried and simulated how to arrange them to achieve the desired structure. Then the team used robotic milling machines to create the joints that held the panels together as the piece unfolded.
“What we’re trying to do is develop design methods that are so sophisticated they meet or match the sophistication of the material we deal with,” Menges says.
Menges views “self-shaping,” as he calls his technique, as a low-energy way of creating complex curved architectures that would otherwise be too difficult to build on most construction sites. Typically, making curves requires extensive machining and a lot more materials, at considerable cost. By letting the wood’s natural properties do the heavy lifting, and using robotic machinery to prefabricate the structures, Menges’s process allows for thin-walled timber construction that saves material and money.
The shape, structure, and construction process of Menges’s HygroShell pavilion are all based on data that shows how different materials change over time.
If they were self-shaped, curved elements could halve the material requirements for certain structural features in a multistory timber building, Menges says. “You would save a lot of material simply because curvature adds stiffness. That’s why we see everything is curved in nature.”
Menges began his career in the late 1990s, at a time when architects had just begun to use powerful new software to design buildings. This shift opened new possibilities, but often those digital designs ran afoul of the material’s physical constraints, he says. It was the tension between the physical and the digital that inspired Menges to pursue computational design.
“From the start, I was motivated to understand computation not as something that divides the physical and the digital world but, instead, that deeply connects them,” he says.
His interest in self-shaping structures was inspired by pinecones, which—long after falling from trees—retain the biological programming to open and expose their seeds as temperatures rise. “That’s a plant motion that does not require any motors, nor does it require any muscles,” Menges says. “It is programmed into the material.”
Pinecones made him realize that just as robots are programmed to perform certain actions, materials like wood can be manipulated to carry out specific behaviors that are hard-coded in their DNA as a response to a stimulus.
Apart from the HygroShell, Menges has used self-shaping techniques to create proof-of-concept projects like the Urbach Tower, a 45-foot spiraling wood structure overlooking the fields of the Rems Valley near Urbach, Germany. Instead of using energy-intensive mechanical processes that require heavy machinery, the team prefabricated a dozen curved, self-shaped wood panels and assembled them on site, reducing the time it would otherwise take to build such a structure.
And in 2023, his team worked with researchers from Germany’s University of Freiburg to create the livMatS Biomimetic Shell, a structure made from 127 wooden cassettes, each resembling the shape of a honeycomb. Menges used self-shaping to design a system of 3D-printed wooden window blinds that opened and closed in response to changes in relative humidity. Embedded in the wood shell is a solar gate that closes in warm weather, shading the space, and opens during colder months to provide passive solar heating. Compared with a conventional timber building, this structure has half the environmental impact over its life cycle.
Menges’s work is coming at a time when the sustainability of mass timber buildings—those with structural components made from engineered wood instead of steel or concrete—is under scrutiny. Concerns range from where the timber is sourced to whether preserving forests sequesters more carbon than harvesting them for building material, even if building with wood reduces carbon emissions relative to producing concrete and steel. There are also worries about what happens to all the wood left behind during the logging process. Trees may be a renewable resource, but they require decades to mature and are already threatened by climate change. That’s what led Menges and others to advocate for more efficient building practices that don’t waste wood.
The design of the Urbach Tower, a proof-of-concept project, emerged from a new self-shaping process for its curved wood components.
ITECH/ICD/ITKE UNIVERSITY OF STUTTGART
Architects face a dilemma, however. Mass-timber buildings could be built using less wood, but the less material is used, the more susceptible the structure is to fire, says Michael Green, principal of Michael Green Architecture in Vancouver.
“The way we protect wood is by overbuilding it to create a thickness that can resist a certain amount of time under fire,” Green says. The standards depend on the type of building and the variety of wood used, but Green generally adds around 3.6 centimeters (1.4 inches) of extra material to his structures for each hour of required burn time. The more people occupy a building, the longer it is required to resist fire and, in the case of mass-timber buildings, the thicker the wood structure.
Green sees Menges’s work as important foundational research that may lead to breakthroughs influencing wood architecture in decades to come. But he doesn’t see self-shaped architecture being widely deployed outside the towers and pavilions Menges has already designed.
The livMatS Biomimetic Shell features 3D-printed wooden window blinds that open and close in response to changes in relative humidity.
“It’s teaching us less about what we are actually going to build in the next five years and more about what we need to learn so we can develop other products that support that,” he says.
Even without widespread adoption of self-shaping techniques, Menges believes, computational design will continue to unlock new ways of building with wood. He sees a future where the knots, crooks, and branches of trees are viewed not as defects but as construction tools, each with its own unique properties.
“A tree does not have a defect,” he says. “It’s an anatomical feature. What we need to learn is what kind of building systems we develop that integrate these features, and not strive for the homogeneity that is simply not there.”
Pneumatic tubes were touted as something that would revolutionize the world. In science fiction, they were envisioned as a fundamental part of the future—even in dystopias like George Orwell’s 1984, where the main character, Winston Smith, sits in a room peppered with pneumatic tubes that spit out orders for him to alter previously published news stories and historical records to fit the ruling party’s changing narrative.
Abandoned by most industries at midcentury, pneumatic tube systems have become ubiquitous in hospitals.
ALAMY
In real life, the tubes were expected to transform several industries in the late 19th century through the mid-20th. “The possibilities of compressed air are not fully realized in this country,” declared an 1890 article in the New York Tribune. “The pneumatic tube system of communication is, of course, in use in many of the downtown stores, in newspaper offices […] but there exists a great deal of ignorance about the use of compressed air, even among engineering experts.”
Pneumatic tube technology involves moving a cylindrical carrier or capsule through a series of tubes with the aid of a blower that pushes or pulls it into motion. For a while, the United States took up the systems with gusto. Retail stores and banks were especially interested in their potential to move money more efficiently: “Besides this saving of time to the customer the store is relieved of all the annoying bustle and confusion of boys running for cash on the various retail floors,” one 1882 article in the Boston Globe reported. The benefit to the owner, of course, was reduced labor costs, with tube manufacturers claiming that stores would see a return on their investment within a year.
“The motto of the company is to substitute machines for men and for children as carriers, in every possible way,” a 1914 Boston Globe article said about Lamson Service, one of the largest proprietors of tubes at the time, adding, “[President] Emeritus Charles W. Eliot of Harvard says: ‘No man should be employed at a task which a machine can perform,’ and the Lamson Company supplements that statement by this: ‘Because it doesn’t pay.’”
By 1912, Lamson had over 60,000 customers globally in sectors including retail, banks, insurance offices, courtrooms, libraries, hotels, and industrial plants. The postal service in cities such as Boston, Philadelphia, Chicago, and New York also used tubes to deliver the mail, with at least 45 miles of Lamson tubing in place by 1912.
On the transportation front, New York City’s first attempt at a subway system, in 1870, also ran on a pneumatic system, and the idea of using tubes to move people continues to beguile innovators to this day. (See Elon Musk’s largely abandoned Hyperloop concept of the 2010s.)
But by the mid to late 20th century, use of the technology had largely fallen by the wayside. It had become cheaper to transport mail by truck than by tube, and as transactions moved to credit cards, there was less demand to make change for cash payments. Electrical rail won out over compressed air, paper records and files disappeared in the wake of digitization, and tubes at bank drive-throughs started being replaced by ATMs, while only a fraction of pharmacies used them for their own such services. Pneumatic tube technology became virtually obsolete.
Except in hospitals.
“A pneumatic tube system today for a new hospital that’s being built is ubiquitous. It’s like putting a washing machine or a central AC system in a new home. It just makes too much sense to not do it,” says Cory Kwarta, CEO of Swisslog Healthcare, a corporation that—under its TransLogic company—has provided pneumatic tube systems in health-care facilities for over 50 years. And while the sophistication of these systems has changed over time, the fundamental technology of using pneumatic force to move a capsule from one destination to another has remained the same.
By the turn of the 20th century, health care had become a more scientific endeavor, and different spaces within a hospital were designated for new technologies (like x-rays) or specific procedures (like surgeries). “Instead of having patients in one place, with the doctors and the nurses and everything coming to them, and it’s all happening in the ward, [hospitals] became a bunch of different parts that each had a role,” explains Jeanne Kisacky, an architectural historian who wrote Rise of the Modern Hospital: An Architectural History of Health and Healing, 1870–1940.
Designating different parts of a building for different medical specialties and services, like specimen analysis, also increased the physical footprint of health-care facilities. The result was that nurses and doctors had to spend much of their days moving from one department to another, which was an inefficient use of their time. Pneumatic tube technology provided a solution.
By the 1920s, more and more hospitals started installing tube systems. At first, the capsules primarily moved medical records, prescription orders, and items like money and receipts—similar cargo to what was moved around in banks and retail stores at the time. As early as 1927, however, the systems were also marketed to hospitals as a way to transfer specimens to a central laboratory for analysis.
Two men stand among the 2,000 pneumatic tube canisters in the basement of the Lexington Avenue Post Office in New York City, circa 1915.
In 1955, clubbers at the Reni Ballroom in Berlin exchanged requests for dances via pneumatic tube in a sort of precursor to texting.
In the late 1940s and ’50s, canisters like this one, traveling at around 35 miles an hour, carried as many as 600 letters daily throughout New York City.
The Hospital of the University of Pennsylvania traffics nearly 4,000 specimens daily through its pneumatic tubes.
By the 1960s, pneumatic tubes were becoming standard in health care. As a hospital administrator explained in the January 1960 issue of Modern Hospital, “We are now getting eight hours’ worth of service per day from each nurse, where previously we had been getting about six hours of nursing plus two hours of errand running.”
As computers and credit cards started to become more prevalent in the 1980s, reducing paperwork significantly, the systems shifted to mostly carrying lab specimens, pharmaceuticals, and blood products. Today, lab specimens are roughly 60% of what hospital tube systems carry; pharmaceuticals account for 30%, and blood products for phlebotomy make up 5%.
The carriers or capsules, which can hold up to five pounds, move through piping six inches in diameter—just big enough to hold a 2,000-milliliter IV bag—at speeds of 18 to 24 feet per second, or roughly 12 to 16 miles per hour. The carriers are limited to those speeds to maintain specimen integrity. If blood samples move faster, for example, blood cells can be destroyed.
The pneumatic systems have also gone through major changes in structure in recent years, evolving from fixed routes to networked systems. “It’s like a train system, and you’re on one track and now you have to go to another track,” says Steve Dahl, an executive vice president at Pevco, a manufacturer of these systems.
Exhibition-goers wait to ride the first pneumatic passenger railway in the US at the Exhibition of the American Institute at the New York City Armory in 1867.
GETTY IMAGES
Manufacturers try to get involved early in the hospital design process, says Swisslog’s Kwarta, so “we can talk to the clinical users and say, ‘Hey, what kind of contents do you anticipate sending through this pneumatic tube system, based on your bed count, based on your patient census, and from where and to where do these specimens or materials need to go?’”
Penn Medicine’s University City Medical District in Philadelphia opened up the state-of-the-art Pavilion in 2021. It has three pneumatic systems: the main one is for items directly related to health care, like specimens, and two separate ones handle linen and trash. The main system runs over 12 miles of pipe and completes more than 6,000 transactions on an average day. Sending a capsule between the two farthest points of the system—a distance of multiple city blocks—takes just under five minutes. Walking that distance would take around 20 minutes, not including getting to the floor where the item needs to go.
Michigan Medicine has a system dedicated solely for use in nuclear medicine, which relies on radioactive materials for treatment. Getting the materials where they need to go is a five- to eight-minute walk—too long given their short shelf life. With the tubes, it gets there—in a lead-lined capsule—in less than a minute.
Steven Fox, who leads the electrical engineering team for the pneumatic tubes at Michigan Medicine, describes the scale of the materials his system moves in terms of African elephants, which weigh about six tons. “We try to keep [a carrier’s] load to five pounds apiece,” he says. “So we could probably transport about 30,000 pounds per day. That’s two and a half African elephants that we transport from one side of the hospital to the other every day.”
The equipment to maintain these labyrinthian highways is vast. Michigan and Penn have between 150 and 200 stations where doctors, nurses, and technicians can pick up a capsule or send one off. Keeping those systems moving also requires around 30 blowers and over 150 transfer units to shift carriers to different tube lines as needed. At Michigan Medicine, moving an item from one end of the system to another requires 20 to 25 pieces of equipment.
Before the turn of the century, triggering the blower to move a capsule from point A to point B would be accomplished by someone turning or pressing an electronic or magnetic switch. In the 2000s, technicians managed the systems on DOS; these days, the latest systems run on programs that monitor every capsule in real time and allow adjustments based on the level of traffic, the priority level of a capsule, and the demand for additional carriers. The systems run 24 hours a day, every day.
“We treat [the tube system] no different than electricity, steam, water, gas. It’s a utility,” says Frank Connelly, an assistant hospital director at Penn. “Without that, you can’t provide services to people that need it in a hospital.”
“You’re nervous—you just got blood taken,” he continues. “‘How long is it going to be before I get my results back?’ Imagine if they had to wait all that extra time because you’re not sending one person for every vial—they’re going to wait awhile until they get a basket full and then walk to the lab. Nowadays they fill up the tube and send it to the lab. And I think that helps patient care.”
Vanessa Armstrong is a freelance writer whose work has appeared in the New York Times, Atlas Obscura, Travel + Leisure, and elsewhere.
The definition of an “ecommerce” company varies depending on the source. Should “ecommerce” include only companies that sell their own inventory? Or does it also include platforms and tech providers that serve those sellers?
To Similarweb, “Ecommerce & Shopping” companies include retailers, marketplaces, and tech platforms. Here are Similarweb’s estimates of the most visited sites in that category.
With 2.3 billion visits in May 2024, Amazon.com was by far the most widely visited ecommerce site in the world. eBay was second at roughly 708 million.
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Moreover, Amazon.com’s dominance in the United States remained clear.
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With 132 million visits, Taobao was China’s most popular ecommerce site in May 2024.
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Amazon.co.uk held the top spot in May as the most visited ecommerce site in the United Kingdom, with Ebay.co.uk coming in second.
Bill D’Alessandro is a 14-year ecommerce owner. Natural Dog Company, an omnichannel seller of canine health products, is his eighth brand. “My niche is acquisition entrepreneurship,” he told me. “I’ll buy a small brand, grow it, improve it, and eventually sell it.”
Along the way, he’s learned lessons such as focus, industry selection, and product pricing.
He and I recently discussed those experiences and more. The entire audio of our conversation is embedded below. The transcript is edited for length and clarity.
Eric Bandholz: Tell our listeners what you’re doing.
Bill D’Alessandro: I am the CEO of Natural Dog Company. We sell dog supplements, fish oils, and topicals on Amazon, our website, and in about 6,000 retail stores. I’ve been in ecommerce for 14 years. This is my eighth brand. My niche is acquisition entrepreneurship. I’ll buy a small brand, grow it, improve it, and eventually sell it. I’ve done that seven times now, and Natural Dog Company is what I’m working on now.
At the peak, I owned eight brands at once. We had 62 people in the company, which was not enough. Owners with one brand frequently have the idea to buy another. You might have all the employees, the third-party fulfillment provider, and the infrastructure. It seems pretty easy. But it underestimates how it fractures your focus. You do two, and then you do three, and then you do eight, and before you know it, you’re surface level on everything, and you can’t go deep.
In 2024, ecommerce is hard. It’s data and keyword-intensive. Ranking on Amazon is tough. There’s a lot of competition. Dividing time across multiple brands is how you get smoked. One plus one does not equal two. It equals one and a half. It took me years to realize that.
Running a single business is hard enough. Something goes catastrophically wrong at least once a year, and you have to fix it. If you own eight businesses, something goes catastrophically wrong every six weeks. There’s constant firefighting and reacting if you’re trying to be CEO of all the businesses.
You need to install highly competent, highly compensated management. You can’t be CEO of eight. You need CEOs for each of them. They will make $150, $200 grand a year or more. The business has to be big enough to accommodate that overhead.
Bandholz: How do you pick the right industry?
D’Alessandro: Bigger businesses are easier but require bigger markets. And that was what I realized. We had eight brands — seven were collectively 25% of revenue, and one was 75%.
It was the 80-20 Pareto principle in real life. These other brands sold, like, natural sunscreen and athletic detergent. I didn’t see the potential. But a ton of people are getting dogs. That market is growing. So I said, “If I’m gonna spend my time, my one precious life here, I want to focus where I have the most headroom to grow.”
There are other components beyond the industry. We had a business with an average order value of $14. That’s harder to make work. By the time you ship it and pay Amazon fees, there’s not a lot of room left. But a price point of $100, $200, or $800, that’s a lot easier. To me, the perfect price point is $70 to $170. It’s low enough to convince somebody to buy quickly but high enough to cover shipping and customer acquisition costs.
Bandholz: You’re omnichannel now with digital and in-person sales.
D’Alessandro: A couple of years ago it was clear ecommerce was getting harder. In-person retail was attracting more interest. It’s different than getting on Amazon, where you hustle for a week, set up the listing, and you’re done.
A retail store or chain might have a line review once a year, perhaps in October for on-shelf placement in April. If you wait until October, you’ve missed the review for an entire year. And don’t expect approval on the first pitch.
Big retailers such as Walmart want proof it will work. They only have a few feet of shelf space for a product line — each inch of shelf space could be worth millions of dollars a year in sales. The best way to convince them is to show results from other retailers. We started in the most accessible places: independent mom-and-pop pet stores.
We scraped Google Maps and started calling pet stores. We said, “We’re a natural dog food company. We’d love to send you some samples.”
We built our entire funnel that way. We called, sent samples, and followed up. We got better over several years, eventually selling in thousands of independent locations. It was a grind. Once we were in 2,000 or so, we started pulling data. We learned about average monthly sales, unit sales, etcetera. Then we approached small chains.
Smaller chains don’t typically have as rigid review cycles. We went ad hoc with those guys. After that, we approached big regionals, those with 300 or 400 locations, using data from the smaller outlets. Only then did we approach national chains.
We climbed the ladder. Our product works, and it’s selling through. That’s how we did it.
For years Brandon Eley’s online shoe company, 2BigFeet, prospered by reselling prominent brands. But the profit margins slowly narrowed as did the sources for large footwear sizes, Eley’s niche.
The solution is Michael Ellis Footwear, Eley’s direct-to-consumer brand, launched in 2021. “We finally decided to take matters into our own hands,” he told me.
In this second appearance on the podcast, he and I discussed the evolution of 2BigFeet, the launch of Michael Ellis, custom manufacturing, and more. Our entire audio is embedded below. The transcript is edited for clarity and length.
Eric Bandholz: Tell us about your business.
Brandon Eley: I started a company 24 years ago that sells shoes to guys with big feet, up to size 21. It’s called 2BigFeet. Our most popular sizes are 16, 17, and 18.
We added Michael Ellis Footwear, our own shoe brand, in 2021. We have been selling roughly 40 other brands for years. It’s always been a struggle to find items that our customers want. We beg and plead with manufacturers, these big national, international brands, multi-billion dollar companies. But they will not invest in extreme sizes and widths for the popular style. After years of begging, we finally decided to take matters into our own hands.
Bandholz: Are custom shoes an option for extreme sizes?
Eley: The cheapest custom shoes we’ve seen are around $600 a pair. They’re handmade leather soles, hand-stitched with hand-cut leathers. The manufacturers make cardboard templates and cut the leather by hand. It takes a long time, many months. They’re ugly shoes, not anything a young guy would want to wear.
Parents call us desperate to find shoes for their kids. Clothing is a problem if you’re 6’8″, 300 pounds, with an enormous foot. It’s hard on a lot of these kids going to school. We empathize with them. Those sizes — 21 and higher — are not huge moneymakers, but we want to say we’ve got shoes for everybody.
Bandholz: So anyone sized 21 and up has a limited choice.
Eley: Yes. To my knowledge, Bogs is the only company besides us that makes a 21. The rumor is it’s for Shaquille O’Neal, the basketball player. He’s reportedly a 23, but that’s in Nike, and they’re not true-to-size. Shaq, or somebody like Shaq, wanted a pair of hunting boots, and Bogs made them. They already went to 18 and now have sizes 19, 20, and 21. But that’s it. And it’s only in medium width.
We make ours in four widths: medium, wide, extra wide, and extra-extra wide. And then each whole size up to 25.
Bandholz: How do you know they won’t sit in inventory, unsold?
Eley: We order only a few pairs of each color, size, and width. We know the customers who will buy them. It takes a while to manufacture those units, and then they sit on a boat for a month and a half. We don’t want to be out of stock for long, but we’re also not going to order a dozen pairs of each.
It’s a small market. There’s a good chance we’ll never recoup our initial mold costs on sizes 22, 23, 24, and 25. Again, that’s not the goal. We want to be known as the company that has shoes for everybody with big feet.
Bandholz: You’ve found a niche.
Eley: We fell into it. My former business partner has big feet. It was a struggle for him, but that was the idea for our business. Building a successful footwear company targeting everybody, all sizes, would be much more difficult. There are thousands of those brands. Many are venture-backed and spend millions of dollars on advertising.
We’ve worked at our Michael Ellis brand for several years. It’s a slow and expensive process, and we’ve invested a lot of money. It’s a risky proposition, but we saw the margins shrinking in reselling name-brand products. We’ve been in business for 24 years. At about 18 years, making a decent profit with pure retail started getting harder. We’re a small family-owned business with fewer than 10 employees.
Bandholz: What are the lessons thus far with an in-house brand?
Eley: We started our manufacturing journey in India. We had intermediaries between us and the factory, not knowing what we didn’t know. We skipped a few steps in quality control and then tossed a good portion of the first container of merchandise. The quality was bad, and the sizing was off at least a third. And then the delays with the back-and-forth on creating samples, testing sizes, and, again, quality control.
We missed much of our fourth-quarter sales last year with our sneaker launch. The container got here on Cyber Monday. It easily cost us $150,000 in revenue. We still made money on them, but it will take time to turn that inventory because the first half of the year is much slower. That means less cash flow going into other styles.
We quickly learned the importance of personal relationships at the factories. The factories we work with now, in China and Brazil, are second- and third-generation owners, and the founders, their children, and their grandchildren are active in the business. They employ high-skilled workers — craftsmen and artisans.
In 1962 Arto Alajian arrived in the U.S., having fled Egypt and his shoe-manufacturing business. He became a milkman in Los Angeles, and then a ceramic tile installer, and then, in 1966, a tile maker.
Fast forward to 2024, and ARTO, the company, is a global supplier of handcrafted ceramic, porcelain, and concrete products. Armen Alajian, the founder’s son, now co-owns the business.
He and I recently spoke, addressing the challenges and rewards of generational, family-owned companies. The audio of our entire conversation is below. The transcript is edited for length and clarity.
Eric Bandholz: What do you do?
Armen Alajian: I’m the co-owner of a company called ARTO. We make rustic and elegant handmade ceramic and concrete tiles. We manufacture in California and sell online and in showrooms in Los Angeles, nationwide, and globally.
My dad, Arto Alajian, started the business. He and my mom had a factory in Egypt. They made leather shoes there, but the government took their business. So in 1962 they came to the U.S. My dad was a milkman in the morning and went to school at night to be an airplane mechanic.
He eventually met a woman who made ceramics. She did mission restoration work. On his milk route, my dad would take her ceramic bricks to restaurants and moms in El Segundo and Santa Monica and return on weekends to install them. That’s how he started, in 1966. His first product was a clay brick.
My brother Varoujan and I started installing at a young age. My parents divorced when I was 10, and I was estranged from my father. He fired me five times, and I quit five times. We argued about the business.
Later on, we made peace, and we grew. My dad called me and said, let’s figure it out. And we did. He respected me, and I respected him. Before he passed, we were partners and friends.
My brother is an owner. I’m learning how to be a CEO. I’ve always been a partner. My brother is a full-on partner and owner, and we discuss strategy.
He has one kid. I have eight. We’re thinking about the next generation. Being in charge of your destiny is the trick, controlling your income and liberty. He wants that for his kid; I want it for my kids.
We can only offer our children an opportunity. We can’t force them. Generational businesses are nothing more than being a family.
Bandholz: Are your kids interested in the business?
Alajian: Yes. I let my kids work in the business when they were younger. I’m a salesman. When we traveled the country in a van and saw customers, we homeschooled. The kids would walk in, shake the person’s hand, and say, “Hello, my name is Adam,” or, “My name is Sarah.” So, they’ve all been around business. They love business. But I forced them all to leave and work for other people, too.
They have since returned. They all want a role in the company. I insist they come in early and leave late — the old-fashioned style of working. And then find your place. I want the kids, at the end of the day, to be owners. They don’t have to be operators.
Bandholz: I intend to give my kids ownership if the business interests them.
Alajian: A business becomes generational when operators are separated from owners. My kids who become operators will be treated like executives and compensated well if they perform. But owners have a separate mentality, whether working the business or not. That’s the way to extend it to the third or fourth generation.
But the key is to give kids the option to be operators, owners, or both. Don’t force one or the other.
My goal used to be achieving generational wealth. But no more. My wealth isn’t money. True wealth is that my kids’ kids know and love each other. Money is a tool to help you keep a family together. Wealth isn’t actual cash. It is experience and the ability to survive the next generation because liberty comes from having capital in your pocket.
Bandholz: Where can folks buy your tiles and bricks?
Before Shopify, YouTube, and Facebook, there was OverstockArt. David Sasson launched the company on the Yahoo Store platform in 2002 in Wichita, Kansas. It sells original, hand-painted reproductions of works by Van Gogh, Monet, and more.
Much has changed since 2002, but not Sasson’s passion and resilience. He has faced legal crises, replatforms, and competitors. Yet OverstockArt thrives.
In our recent conversation, he shared his journey, outlook, and advice for budding entrepreneurs. The entire audio is embedded below. The transcript is edited for clarity and length.
Eric Bandholz: Tell us about yourself.
David Sasson: I’m the co-founder and CEO of OverstockArt.com. We launched in 2002. We’re an ancient company by ecommerce standards. We sell art online. Our main product line is hand-painted oil reproductions of works by Van Gogh, Monet, Renoir, and artists of that caliber. We reproduce them by hand, and customers can choose the frame. We do all the framing in our facility in Kansas and ship to consumers nationwide.
Bandholz: How does copyright come into play?
Sasson: Everything we deal with is in the public domain. Copyright law is complicated. I’m not a lawyer, but the vast majority of art in the U.S. is in the public domain if produced before 1923.
There are global limitations due to treaties among countries. For instance, there’s art in the public domain in the United States but not in Europe. We stick to art produced before 1923.
Bandholz: How does your operational system work?
Sasson: We work directly with studios overseas. We built our own supply chain software, which we use to create orders for the studios. The orders include imagery, part numbers, and the quantity to make. The studio produces the reproduction and uploads a photo. We then approve or reject it. Once we approve it, the studio will prepare the shipment to our facility here in Kansas.
Our site shows photos of the reproductions, not the originals. Once customers place an order, it will usually ship the next day for three- or four-day delivery. Selling art requires holding very broad and very shallow inventory. We have a lot of variety. We anticipate what will sell and how many to hold of each piece.
We’ve built a fairly sophisticated supply chain and demand planning tool that tells us how many to order for each painting. The model helps us hold stock profitably. It’s not simple.
With Prime, Amazon changed consumers’ delivery expectations. Now everyone wants an item in two days. The closer we get to that, the better we are, although customers understand longer waits for custom orders.
Bandholz: You’ve seen many changes since 2002.
Sasson: In 2013, we almost went out of business due to copyright claims. We had to take down a lot of questionable art, including Picassos. We paid attorneys and others — the stress was heavy.
We had a strong 2012, and our studios struggled to meet the demand. We started 2013 at the same pace and suddenly faced a copyright legal crisis. We had to remove a considerable percentage of our stock, plus many of those items were in transit from our suppliers. So I’m paying for a product that I can’t sell, and I don’t have suitable replacements.
Our sales dropped by 50%, but our costs stayed the same. We went through all our cash, and I had to put money back into the company. We couldn’t focus on increasing sales because of legal problems. For a time, I was convinced we would go under.
We finally turned a corner in 2016. By 2017 we saw real success. By the 2017 holiday season, we were suddenly flush with cash and doing what we wanted, not what we had to.
I believed in our mission, and we came through, but it wasn’t without doubts and difficulties. If you’re a new business owner, be ready because these situations can happen. It can be challenging in the moment, but it will get easier.
Bandholz: Have you considered selling OverstockArt?
Sasson: An entrepreneur’s goal should be to build a great business. If you’re having fun, why not keep doing it? If I sold the company, I would probably start another one. It’s what I do. If the perfect opportunity presents itself, I might sell, but I’m not seeking it. I want to build a great company. If founders set out to create something amazing, everything flows from there. I don’t see a reason to do something else.
Every decision in life has consequences, especially for business owners. Many folks don’t want the responsibility, and it’s common to run into problems. But if we are willing to step up, do the work, and believe in ourselves, we can push through obstacles.
My number one suggestion to newer entrepreneurs is to take time to think. I spend much of every Friday away from the office, often at a coffee shop. I’ll bring paper and write. I’ll think of a question or a topic, start writing, and read what I wrote. That’s how I come up with solutions to problems. Entrepreneurs seek action. We see something and go after it. But we can improve and develop an edge by pausing to reflect and brainstorm.
According to McKinsey & Company’s March 2024 survey, global executives are less optimistic about demand for their companies’ goods or services than in 2023.
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However, respondents maintain a generally positive outlook regarding their companies’ profitability.
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Most surveyed executives anticipate that the size of their companies’ workforces will remain unchanged over the next six months.
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The McKinsey March 2024 survey also queried respondents on their economic outlook for the coming year.
The post-Covid ecommerce hangover has hit Roman Kahn. He launched his first direct-to-consumer brand in 2013, acquired others, and in 2021 founded Peak 21, an aggregator with equity investors. The outlook was good.
Fast forward to 2024, and many ecommerce companies are struggling. Mergers and acquisitions have cratered. Yet Kahn perseveres. His team reviews dozens of purchase candidates every month, albeit cautiously.
In our recent conversation, Kahn shared his investment criteria, current market conditions, and predictions for a recovery. The entire audio is embedded below. The transcript is edited for clarity and length.
Eric Bandholz: Give us a rundown of what you do.
Roman Khan: I’m the founder and president of an ecommerce holding company called Peak 21. We buy, grow, and sell direct-to-consumer brands. My DTC experience began in 2013 when my wife, Jennifer, and I started Linjer. We sold leather bags but now it’s mostly jewelry. We launched it on Indiegogo.
By 2016, we were doing a couple of million in annual revenue — big enough for Jennifer and me to quit our jobs to work on it full-time. In 2017, Linjer produced $1 million in EBITDA — earnings before interest, taxes, depreciation, and amortization. By then we had raised quite a bit of money on Kickstarter and Indiegogo and built up street cred. Folks were reaching out, asking us how we did it. We decided to diversify. We needed more brands, and Meta ads were working well.
I took that $1 million of cash, our street cred, and combined sweat equity with cash to invest in three other DTC companies. Each was doing less than $1 million in revenue annually. By 2019, we were doing $50 million in sales as a group.
When Covid hit in 2020, revenue ballooned to $100 million annually. In 2021, investors were knocking on our door, particularly Jeffrey Yan, whose family owned Forbes Media up until this year. He came to my office and said I needed to take on external capital to buy more prominent companies.
We set up a special purpose acquisition company — a blank check company — called Peak 21. Jeffrey Yan and others invested eight figures in equity. We’re now using that SPAC to buy companies. We seek brands doing $5 to $50 million in annual sales.
Bandholz: What’s an ideal acquisition candidate?
Khan: The pool is shrinking. I’ve spoken with many owners. My acquisitions team talks to 100-plus businesses every month. Only about 10% have a product-market fit that can grow with low budgets. Our main criterion now is size. We look at the fundamentals. What’s the customer acquisition cost? And the repeat buyer rate? The best scenario is 70% of first-time buyers repeat in the first quarter. We know the investment will likely work out at the rate.
Two, we look at customers’ buying habits. For instance, we own a company called Nutrition Kitchen. It’s a daily meal delivery service. Daily rather than weekly or monthly habits play a significant role.
Beyond consumables, we look at contribution margins on three levels.
First, we calculate revenue (net of taxes and coupon-driven sales) and shipping fees collected at checkout. That leaves us with “profit contribution one” — PC1.
Then, we deduct roughly 10 variable costs, such as warehouse storage, pick-and-pack, shipping fees, returns, and exchanges. That results in profit contribution two — PC2.
Lastly, we deduct marketing to determine PC3.
From PC3 we subtract operating expenses to arrive at EBITDA.
A key acquisition metric is a 50% or higher PC2 while maintaining a competitive suggested retail price.
Bandholz: A hundred candidates a month is a lot to review.
Roman: Many ecommerce companies are struggling now. Revenue and EBITDA are down. Out of our six main brands, two are struggling massively. Overall we’re okay. We’re growing with a diversified portfolio. But those two are a nightmare. We have lent over $1 million to each one in the last 24 months. So it’s been hard. Many founders are holding out until 2025 or 2026 to sell.
We buy companies in four ways. One is cash. Two is seller financing. Three is using debt, where we borrow the money against the acquired company’s value. That avenue, I should add, is very challenging now. The fourth method is an equity swap wherein we acquire a company with Peak 21 stock. Cash is scarce right now. Our willingness to pay a lot of cash upfront is low to non-existent. We’re often the only real buyers when talking to a company.
For the market to improve, two things need to happen. First, investors must get over the losses from aggregators, such as Perch, Thrasio, and others. Second, interest rates have to come down. Once that happens, liquidity will loosen up, and hopefully, the market will return, likely by Q1 2026 in my estimation.
