Oct 26 2024
4x Founder Debuts Ecommerce Intel Tool

In late 2020 I interviewed a developer who had launched a Shopify app to send manual text messages to cart abandoners. Eighteen months later we spoke again, this time to discuss his sale of that company and purchase of another, an app for creating upsells in a Shopify checkout.

By early 2023 he had sold the second company and launched a third one, a coupon-leak recovery app.

And that brings me to my fourth conversation with Dennis Hegstad. He has shut down the coupon-leak business and started his fourth, a data provider for the ecommerce industry called Internet Research Unit. What, exactly, is Internet Research Unit? I asked him that question and more when we recently spoke.

The entire audio of our conversation is embedded below. The transcript is edited for clarity and length.

Eric Bandholz: Give us an update on what’s happening in your world.

Dennis Hegstad: In 2021, I sold LiveRecover, our SMS app for Shopify. That was our first exit in ecommerce. Then I sold another app, OrderBump, just 100 days after buying it in 2022. That sale was pretty much luck.

In 2023 I launched Vigilance, a coupon-code leak protection app, but that business failed. Shopify updated its checkout system, ultimately killing Vigilance, so we shut it down. We offered to return the investors’ money, but they said, “Try something else.” That’s when we started building Internet Research Unit earlier this year. Those same Vigilance investors are part of it.

Bandholz: What’s Internet Research Unit?

Hegstad: It’s a data platform for the ecommerce industry. Our primary users are brand owners, agencies, app developers, and financiers. Brands can track competitors’ revenue, units sold, popular SKUs, app stacks, and more. They can set up alerts to track competitors’ sales or app usage changes to guide product launches or strategic decisions. Agencies and app developers can use the data for lead generation — tracking which brands use specific services or technologies, such as Klaviyo, and which don’t. Financiers can assess trends or identify struggling companies they might want to invest in or acquire.

Our product is high-end, priced around $500 a month, so it’s not for beginners. It’s aimed at established companies who want to fine-tune their strategies.

Our data is public; brands cannot hide it from our platform. We can track compliance-related issues, like price manipulation or accessibility compliance, so companies can address potential problems before they lead to lawsuits.

We have ways of accurately estimating sales and breaking it down by SKU. For example, if a brand sells leggings, we can report which colors and sizes are selling best. That way, competitors can focus on high-performing products.

Bandholz: The front-end design of your software apps, including Internet Research Unit, is terrific. What’s your design philosophy?

Hegstad: We don’t use professional designers on the site. My co-founder and I handle design and prioritize aesthetics. Stripe pioneered the trend of beautifully designed SaaS platforms, and we follow that approach. Software should feel exciting to use, not boring or outdated.

We aim for a cyberpunk vibe with Internet Research Unit — something that feels futuristic and appeals to tech-savvy users. We even started selling a bit of merchandise — shirts and hats — with designs inspired by this aesthetic. We did hire a designer to create cyberpunk-inspired shirt art. One says “anti-algorithm” because we feel like everyone’s life is ruled by algorithms these days. It’s a fun way to rebel against that.

We’ve considered other branded products, such as ZYN-style [nicotine-pouch] cans with USB drives inside. But we’re focused on growing the software business before diving deep into merchandise. If the software performs well, we might reinvest some of the profits into the brand side.

Bandholz: Is the platform fully built?

Hegstad: There’s more to come. We launched in March, and we’ve slowly onboarded users. In November, we’ll open it to the public. We want to add funding data so our users can find brands that have raised capital but are underperforming. That would help venture capitalists or merger and acquisition teams identify struggling companies that need help.

We’re not trying to shoot for the stars. We want to build something fun and keep it going. Reaching $5 million in annual revenue would be great. We love the business — it feels challenging, and there’s much to learn.

Bandholz: Where can people support you?

Hegstad: Our website is InternetResearchUnit.com. You can also find me on LinkedIn and X.

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Oct 19 2024
Software Founder Pivots to PPE Manufacturing

I’ve interviewed hundreds of entrepreneurs for this podcast. Most are problem solvers and optimists, confident in their ability to fulfill a need.

Take Lloyd Armbrust. He’s an editor turned software founder, having launched OwnLocal, a Y Combinator-backed portal for local newspapers.

When the pandemic hit, he observed doctors and nurses struggling to get protective gear. He thought, “This is ridiculous. How hard could it be to make these things?”

His solution was Armbrust American, an Austin, Texas-based manufacturer of personal protective equipment, which he launched in May 2020 and remains viable despite the dramatic drop in demand.

He and I recently spoke. He shared his lessons in manufacturing, ecommerce, and family-first priorities. Our entire audio is embedded below. The transcript is edited for clarity and length.

Eric Bandholz: Tell us who you are.

Lloyd Armbrust: My background is in media and software, but most prominently, I started a U.S.-based personal protective equipment manufacturing company in May 2020, at the onset of the pandemic. We produce U.S.-approved surgical masks, KN95 facemasks, and gloves. People said manufacturing couldn’t be done here and had to be in China, but we proved them wrong — though it’s been the hardest thing I’ve ever done.

When the pandemic hit in March 2020, my software business, OwnLocal, was slowing down. I saw how doctors and nurses struggled to get protective gear — some wore raincoats in emergency rooms. I thought, “This is ridiculous. How hard could it be to make these things?” So, I started researching and quickly learned it was much more difficult than I assumed.

I come from a software background, and I often say pushing pixels is easier than pushing atoms. If you want to scale software, click a few buttons on Amazon Web Services, and you’re ready. Manufacturing is a different beast. Yet we launched on Shopify and made a $1 million revenue in the first week, mainly because no one had masks in stock.

Bandholz: Did you have inventory ready, or was it a scramble?

Armbrust: We were producing masks but underestimated how hard fulfillment would be. We didn’t have a shipping system or proper label printers. I bought a label printer from Office Depot and tried to fulfill the first 100 orders. We had thousands of orders coming in, and it felt impossible. It took about three months to catch up.

This wasn’t about money. It was about solving a problem. Our mission from the start was to bring strategic manufacturing back to the U.S. All profits have gone back into the company. Today, consumer demand for masks has dropped significantly. We’re down to about $1.8 million in sales over the last 12 months compared to $7 million in January 2022 alone.

Bandholz: How do you manage a company with such a revenue drop?

Armbrust: It’s tough and demotivating. Scaling up and scaling down require the same skills — cutting costs and being ruthless. In the early days, our system was inefficient. We had 27 assembly machines, with 100 people running them to produce about a million units daily. Now, we’ve got five machines, each run by one person to output 200,000 units daily. So, we went from 27 machines and 100 employees to five machines and five employees, with the same production capacity.

We got lucky with our lease. The facility had been used by a defense contractor. When the pandemic hit, no one was leasing manufacturing space, so we got the space at a fraction of the cost. The owner wanted $50,000 a month for the space. It was really beautiful and big. We started at $5,000 monthly and worked up to $20,000, which they agreed on. Still, it was an 18-month lease. But by the time demand for PPE dropped, we were in prime real estate, right next to Amazon and Elon Musk’s Boring Company. We eventually moved to a facility on my ranch to save costs.

Bandholz: When you built that facility, what were your revenue projections, and where are you now?

Armbrust: We’re down to $1.8 million in annual consumer sales, but that’s only part of our business. We also manufacture for the government and other companies, but those contracts come with tighter margins — about 10-15%. The consumer side is more profitable and keeps us afloat.

When I built the facility, I had no idea where the bottom would be. China sells masks at prices lower than what it costs us to buy raw materials. They deliver masks to the U.S. for 1 cent each, while my raw materials cost more than that. The Chinese government subsidizes their manufacturers, covering costs like machines and even offering rebates. We can’t compete with that on price.

Ninety percent of medical gloves in the U.S. come from Malaysia and China. But before the pandemic, the U.S. didn’t produce any of these critical items.

Bandholz: You run the manufacturing business and OwnLocal, the publishing portal. You have six kids and a wife who also runs a business. How do you manage it all?

Armbrust: It’s all about priorities. My wife is at the top of my list, followed by my kids, and then making sure there’s money in the bank. I rank tasks every morning. I don’t focus on something that isn’t on that list. That can annoy some folks, but it keeps me sane. Work came before everything else in my first marriage, and I was unhappy.

Now, my family comes first. If my daughter wants to sit on my lap during an important business call, she’s in the meeting. I don’t apologize. I’m focused on enjoying life.

Bandholz: Where can people support you and reach out?

Armbrust: Armbrust.com. You can find me on X and LinkedIn.

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Oct 12 2024
Lessons from Changing 3PLs

Scaling down a business is not as fun as scaling up. The issues might be similar, but the process is different.

The last two years have been tough for Beardbrand, my D2C men’s grooming company. I’ve described our challenges repeatedly in this podcast in the hopes of helping other merchants. I’ve covered our just concluded ADA lawsuit, persevering amid declining sales, resetting the business, and more.

In this week’s episode, I address Beardbrand’s recent experience of changing 3PLs — third-party logistics providers. I review it in full in the embedded audio below. The transcript is edited for clarity and length.

Less Volume

Our fulfillment partner was a good fit when we supplied Target. But we no longer work with Target and its large wholesale demands. We needed a smaller, less costly partner.

Switching warehouses was a necessary hassle. We had excess inventory that wasn’t moving. Much of it was unsalable. Unlike scaling up, where there’s a clear path forward, scaling down means figuring out what’s left over. We had hundreds of pallets of products we didn’t want to liquidate through discount stores because of their shelf life. I wanted to control the customer experience and ensure they only got the best products, even as we looked to offload inventory. Ultimately, it wasn’t feasible to keep storing these items, so we destroyed a significant portion of it — around $200,000 in 2024 alone and about $500,000 last year.

Our next step was finding a new fulfillment partner. After evaluating several options, we eventually settled on a warehouse in Milwaukee. It had more space and quoted reasonable prices. It looked like a good fit, and they offered to cover some of our shipping costs for the transition from Texas. We followed our standard practice of sending half of our inventory to the new warehouse while continuing to fulfill orders from the old one.

A New 3PL

However, things quickly went south with the new 3PL. Initially, everything seemed great, but problems cropped up when they began shipping. Customers complained about delayed deliveries, which was unusual for us. Then came the invoice. We had expected to reduce our average shipping cost per order to around $10 based on the quote. We had been paying $13; we thought moving would save a few dollars. Instead, the cost jumped to $14.50. We investigated the details and found that our 3PL had started charging extra fees and marked-up shipping rates. They also used oversized boxes, which inflated shipping costs for smaller items.

We addressed the packaging issues, but the invoice didn’t match the initial quote. We discovered that the 3PL had edited the Google Sheet quote without telling us. Thankfully, my operations manager had printed the original quote, and comparing it to the updated one made it clear there had been changes. The warehouse staff disregarded our concerns, leading us to seek another option.

Back to Texas

Moving warehouses again wasn’t ideal, but we had no choice. Luckily, a friend with a warehouse in Texas accommodated us. That allowed us to return closer to our manufacturer and work with someone who understands our brand. We transitioned in phases again, with half of the inventory moved to Texas while the rest stayed in Wisconsin until we could complete the switch. However, the issues persisted with the Wisconsin partner, who continued mishandling orders and shipping.

The final shipment from Wisconsin was a mess, showing little care in the packaging. We’ve learned from the experience, and now our operations manager frequently visits the Texas warehouse to oversee the setup and work with the staff on how we package and ship. We’re a few weeks into the partnership, and things are running more smoothly. Our costs are now below the initial $10 estimate, and the customer feedback has been positive.

The new Texas setup is going well. We have regained control over the shipping experience, packaging, and customer satisfaction. My operations manager has been invaluable, ensuring we provide a high-quality experience while managing costs. This transition back to Texas could finally put us on the path to profitability, turning Beardbrand from a business that was breaking even to one now sustainable.

Lessons Learned

The experience with the Wisconsin 3PL taught me valuable lessons about vetting new partners and being hands-on during onboarding. I should have spent more time on-site during the transition to catch potential issues early on. I can’t expect a fulfillment partner to care about Beardbrand as much as I do. I must set clear standards and ensure they’re met.

I learned that moving to a new warehouse is more than saving money — it’s about finding a partner that aligns with our values. Beardbrand emphasizes freedom, hunger, and trust. Our new Texas provider shares that ethos in a way our previous one didn’t.

My bookkeeper and I agree that this shift in operations could secure our future. The cost-cutting and improvements in customer experience allow us to make more than we spend. There will always be unexpected challenges — damaged products, for example — but we now have a path to profitability and growth.

Nothing is permanent in business. Stay present and take one day at a time. The Wisconsin chapter was rough, but we’re moving forward. We all have the power to implement changes. If something isn’t working, take the steps to fix it. Learn as you go and become a stronger business.

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Oct 5 2024
Branding Comes First, Says Sharma Brands Owner

To Nik Sharma, companies that pursue short-term profits at the expense of branding face long-term hurdles. They often rely on advertising to gain sales and then struggle when the cost becomes prohibitive.

His agency, Sharma Brands, counsels the opposite: Create a positive name identity first. Affordable acquisition and retention follow.

He and I recently spoke, addressing brand strategies, successful companies, and more. The entire audio of our conversation is embedded below. The transcript is edited for length and clarity.

Eric Bandholz: Tell us about yourself.

Nik Sharma: I run Sharma Brands, a growth agency. We primarily focus on pre-launched brands or those earning over $30 million annually. Our main areas of expertise are website development and customer acquisition and retention.

Companies that succeed over time have strong brand recognition. When you see their logo or ad, you immediately feel something because of their consistent and intentional brand work. Brand perception goes beyond their website and ads. It’s about how people talk about them and whether they evoke a positive reaction.

The brands that thrive today often have invested in building their identity through creators or influencers. On the other hand, brands solely focused on performance and marketing struggle, even if they’ve achieved significant sales through ads. For example, one of our clients generates over $100 million in annual revenue, but they’ve been overly reliant on Meta ads and are now finding it difficult to acquire customers.

Bandholz: What channels are these brands finding success on?

Sharma: The key is figuring out how to become part of the culture. Some brands excel through product placement on television, while others send thousands of products to creators each month. The creators create buzz. Some brands build national events or work with YouTube influencers who become the faces of their campaigns. This kind of content-driven marketing leads to increased brand awareness.

A great example is Waterboy, an Austin-based workout hydration brand with a recognizable presence on TikTok. Their ads succeed because folks already know the brand through organic content and short-form videos. This recognition means they don’t need to take customers through a funnel to build trust — it’s already there.

Brands without this level of awareness, especially those under $10 million in yearly sales, face real challenges. They struggle to scale their customer acquisition and maintain low cost-per-acquisition without a solid product-market fit. Relying on paid media alone is tough if you haven’t established a recognizable brand.

If you’re starting, you can probably reach $100,000 in sales using Meta funnels, but scaling beyond that without solid brand equity becomes difficult. Building a brand is like paving a road. It doesn’t necessarily require spending on reach or billboards, but it’s about associating positive emotions with your brand. Performance marketing is the cars driving on that road. If you haven’t built brand awareness first, it’s a bumpy ride, and you end up paying for it with a higher CPA.

David Protein, a nutritional bar company, is an example of a brand we helped that did it right. They launched with a strong brand presence, reaching out to content creators and seeding many products, creating buzz. They flooded the market with influencers talking about their product, which led to a successful launch.

Bandholz: Did they have those relationships ahead of time?

Sharma: Surprisingly, no. From what I know, much of their success came from cold outreach — just contacting creators and saying, “Hey, we have something new.” Novelty played a role, too. Their bar is 28 grams of protein with 150 calories, which caught people’s attention. The site converts exceptionally well. They also launched a TikTok Shop, which was interesting, on the same day with a flash sale. So they got a bunch of social proof in the first 48 hours on TikTok Shop, which helped, too. They also had big podcasters talk about the product, though I’m unsure if that was through paid partnerships or personal connections.

Jolie, the showerhead brand, is another excellent example. They’ve invested heavily in content creation, focusing on native content that fits the platform. They work with various creators who use the content as ads. Then, Jolie runs some light retargeting stuff on Meta to capture the demand. They’re generous with their influencer program, sending products to creators who may not have massive followings but have influence within their friend groups or local communities.

One of Jolie’s advantages is its subscription model. Every quarter, customers receive an easy-to-replace filter for their showerhead. The subscription ties into their branding — using their filtered showerhead will make you look and feel better. Canceling the subscription means reverting to the unfiltered version of yourself, which no one wants. This angle is a big reason for their low churn rate.

Bandholz: Let’s talk about website design. What seems to be converting well?

Sharma: Speed is still the number one factor. A slow site means losing customers. Beyond that, user experience is crucial. I like to think of websites as a physical store. The home page hero section is like the store’s exterior — it’s the first impression people get before they walk in. The collections page is like the inside of the store, and the product detail page is like the customer picking up an item for a closer look.

Many brands treat conversion rate optimization as simply changing button colors or tweaking text, but it’s more about closing the education gap. You want to make the customer feel foolish not to buy your product. For instance, on David Protein’s website, we break down the cost per gram of protein to show that it’s the most affordable option compared to competitors. This comparison not only justifies the purchase but also increases conversions.

Direct comparisons with competitors can be highly effective if you have a superior product. But if your product isn’t great, such comparisons can backfire, as customers will find better alternatives. We once launched a beverage brand backed by athletes, but it didn’t taste good. Despite the marketing and high-profile endorsements, it struggled post-launch because customers didn’t enjoy the product. No matter how good the branding or marketing is, if the product doesn’t deliver, you can’t rely on repeat purchases.

Bandholz: Where can people follow you?

Sharma: My website is Nik.co. My podcast is Limited Supply. You can find me @Mrsharma on X.

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Sep 28 2024
Beardbrand’s Lawyer Recaps ADA Lawsuit

Last year my company, Beardbrand, was sued for alleged violations of New York laws similar to the  Americans with Disabilities Act. The claim was frivolous.

It’s not in my nature to settle a bogus claim, so I hired Mark Berkowitz, a New York-based lawyer experienced in accessibility matters. We made clear to the plaintiff’s attorney our refusal to pay the claim. The attorney eventually dropped the case.

I asked Mark to recap the process. The entire audio of our conversion is embedded below. The transcript is edited for length and clarity.

Eric Bandholz: Give us a rundown of your work.

Mark Berkowitz: I’m an attorney and partner at Tarter Krinsky & Drogin LLP in New York. I have a background in intellectual property, starting as an electrical engineer before transitioning into a patent attorney and litigator. Over time, I shifted toward trademark litigation and eventually began working extensively with ecommerce merchants, including Amazon sellers, handling various forms of litigation.

Beardbrand was the target of a very common lawsuit involving the Americans with Disabilities Act. Yours was one of 4,000 to 5,000 new cases each year. These lawsuits stem from a series of laws designed to protect disabled individuals, such as those who are blind or use wheelchairs. At some point, certain courts and the U.S. Department of Justice broadened the definition of “public accommodation” to include websites. Websites must meet certain accessibility standards, even though no legal requirement outlines what they must do.

Plaintiffs’ lawyers select an individual to represent a class, claiming that a website doesn’t provide adequate accommodations for disabled people. This is a gray area because no concrete law specifies what constitutes sufficient accessibility. There are guidelines, but nothing definitively says, “You must meet this standard.”

In your case, the plaintiff filed the lawsuit in a New York state court, which is common for these cases. Your options for handling the lawsuit vary depending on whether you’re in federal or state court.

Bandholz: Why is that?

Berkowitz: It depends on the statute they use to sue. In federal court, lawsuits are typically filed under Title III of the Americans with Disabilities Act. This statute doesn’t provide monetary damages but can hold you accountable for litigation costs. The threat in federal cases is that they’ll drag you through a lengthy legal process, forcing you to spend a lot of money, which is why many people choose to settle.

In state court, however, particularly in New York, they’re suing under state and city laws, which allow for monetary damages. Some of these damages can be significant. One key difference in state court cases is that you can argue the plaintiff never reached out to you before filing the lawsuit. They claim they couldn’t use your website, but they didn’t try to notify you before suing.

That approach is common sense — if they had contacted you, you could have helped them. This argument has been accepted in other cases, and we used it in Beardbrand’s defense. We pointed out that the complaint didn’t specify what the plaintiff did beyond visiting the website and suing. When they tried to amend the complaint, they still didn’t address this issue. We pushed even harder at that point, showing they were being litigious without advancing the case. Eventually, they gave up.

Some people would rather have quick finality, pay a set amount, and be done with it. Not everybody has the stomach for what you did. If you’re willing and able to fight, the plaintiff will eventually give up.

Bandholz: As ecommerce operators, we’re willing to fight for our businesses, but these predatory lawyers are not honorable. They started at $75,000. We might have settled if they’d started lower, but their high offer pushed me to fight harder out of principle.

Berkowitz: Exactly. They came down to a certain point, but it was clear they had a floor they didn’t want to go below — whether it was a firm policy or just how they operate. We let the case run for a bit, and then we hit them with some motions, which brought it to an end.

For some people, it’s easier just to pay and move on, but for those willing to fight, the plaintiff’s lawyers often give up when they realize you’re not backing down.

Bandholz: What can ecommerce operators do to avoid these lawsuits?

Berkowitz: The best practice is to make your website as compliant as possible. Most businesses aim for the WCAG 2.0 standard at the intermediate level. Your developer should know these guidelines and how to adjust your website accordingly.

Some basic practices include ensuring good contrast for text, using accessible fonts and colors, adding proper page titles, and enabling screen readers to navigate the site effectively. However, even with all these measures, there will always be something a plaintiff can point to as a flaw. You can use a dozen website scanners — they’ll always find something wrong.

Bandholz: Is it possible to recover attorney fees or counter-sue these plaintiffs?

Berkowitz: Unfortunately, no. There’s no real way to counter-sue in these cases. You could theoretically recover attorney fees if you took the case to trial and won, but that would take years and cost hundreds of thousands of dollars. It’s usually not worth it. If the plaintiffs back down, it’s often best to take it as a win and move on.

Bandholz: Can plaintiff lawyers see that an ecommerce defendant settled?

Berkowitz: To an extent. They can see that the company was sued, and a dismissal was filed. They’re going to assume that a settlement was reached. In most cases, they may not know what happened behind the scenes. In some cases, plaintiff attorneys have been able to get consent judgments, where the defendant admits that their websites were not compliant and would make them compliant in the future. Merchants become a target when they do that.

Bandholz: How do these plaintiff lawyers decide which ecommerce businesses to target?

Berkowitz: They likely use various tools to identify successful companies. There are public databases that provide estimates of sales volumes for specific websites. They probably also monitor social media and the news for businesses that are getting much attention.

Your company, Beardbrand, had a lot of media coverage, and you were even on Shark Tank. Even if that was years ago, it’s still a sign of success that might catch their attention. Some businesses inadvertently make themselves targets by bragging about their growth or success on social media.

Bandholz: What makes for a good lawyer-client relationship?

Berkowitz: It is crucial to work with a lawyer who understands your situation and goals. Be upfront about what you’re willing to spend and how far you want to take the case. Transparency on both sides is key to a good relationship.

As a client, be honest about any past issues with your website, whether or not you’ve tried to make it accessible. Surprises can be detrimental to your case. As lawyers, we say, “Bad facts, no problem” as long as we know about them. Just be clear about what you want to achieve and any obstacles you’ve faced.

Bandholz: Where can people find you?

Berkowitz: You can find us at TarterKrinsky.com or contact me on LinkedIn.

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Sep 21 2024
The Best Use of AI for Business

Jacob Posel is a software engineer at Common Thread Collective, the ecommerce agency. He focuses on strategies for integrating artificial intelligence into a business. The best use, he says, is to streamline operational processes, those that might otherwise go to virtual assistants or inexpensive labor.

In our recent conversation, he addressed AI versus human creativity, image generation, cost, and more. The entire audio of that discussion is embedded below. The transcript is edited for length and clarity.

Eric Bandholz: Give us a rundown of what you do.

Jacob Posel: I’m a senior software engineer with Common Thread Collective. I spend most of my time integrating artificial intelligence into the creative and commercial process. I’ve been dealing with image generation lately. The work goes across the entire creative operating system.

The best use case for AI is daily business processes, particularly those assigned to virtual assistants or alternative forms of labor. Those tasks are usually well suited to AI. But let me define what I think of as AI right now because it’s become a buzzword.

Most people think of AI as a large language model, but it’s broader than that. For business processes, I’m referring to a system that understands human speech and text and a worldview that’s good enough to develop intuition. I would start by analyzing those processes and then determine how to make yourself and your team more efficient. What tools do you have available? How can you fully automate that process once you’ve nailed down how that fits into your process and business?

Eric Bandholz: Could you offer an example?

Jacob Posel: You can use it to get a more holistic picture of your business. You could pull sales data or reviews, for instance. Pull it into the Google sheet if you want, and then figure out the insight you’re trying to get from that data and the following action items. Explain that to an LLM and the AI. Share the data you’ve pulled in, and explain your thought process. Then, you can ask it to summarize that for you, provide insights, or inform you if there’s something you need to be aware of.

Eric Bandholz: How do we maintain the core skill of human creativity?

Jacob Posel: I read a research paper about this, where they try to train an LLM or an AI model based on its outputs and then see how many iterations of that it would take for the whole process to fail. After about 10 iterations, it was spitting out absolute nonsense. When you think about it, 80% of the code on the internet is AI-written, as is much of the text online. So, a genuine concern is that we’ll run out of training data to develop new models, and these new models will ultimately reach a point where they can’t progress any further.

The models are trying to scrape YouTube and videos to get more juice. But many very smart people are figuring out different techniques to improve these models beyond just the training data. Most models now grab as much training data as possible, spend as much money as possible on computation, and see what they produce. That cannot continue indefinitely.

The overall point is that AI empowers people to build their own software. Right now, you could build whatever you wanted. Even if you’re not technical, spending a little time setting up the best technologies might be frustrating, difficult initially, and imperfect, but you could do it. The future of programming languages won’t be Python, JavaScript, or SQL. The next iteration will be natural language. I think that’s pretty certain at this point.

Eric Bandholz: You’ve been generating images using AI. How are you doing that?

Jacob Posel: The underlying model I’ve been playing with is called Flux. It’s different from the Midjourney model. You’re able to fine-tune your own models. I primarily use Replicate, an interface where you can interact with graphic processing units and fine-tune your own models.

Midjourney is amazing for generating an image based on the text you provided. If you want to produce an image of a random guy sitting in an armchair underneath a tree in a lake, I would use Midjourney. But to create images with something specific within them that exists in the real world — a product or a person — you have to train your own custom model. You can’t do that with Midjourney. That’s why I use Flux.

 One note is that as you get more specific with the product, the model provides less creativity in the background and everything else in the image. So, with a very simple product like a t-shirt, you can put that anywhere on anyone, but when you need to get super specific, the model will hyper-focus on your product, making it difficult to get the rest right.

The training data is very important. If you want a specific angle, make sure you’ve given them a photo from that specific angle, ideally multiple times, and also make sure it’s in high definition.

Eric Bandholz: What does it cost?

Jacob Posel: Video is the most expensive right now. The cost goes from text, image, and video, as you would expect. Runway, for instance, uses a credit system. It’s dollars per credit. The unlimited plan is not terrible. It’s like $100 a month. It’s not the cheapest thing in the world, but it’s not prohibitive. It is expensive in terms of time, and it takes time to master those prompts.

Text-to-image is a bit more complicated because now you’re describing something more clearly. Then, text-to-video shows how many images are all put together. It becomes more expensive and more challenging to get it right. You must develop a sense of the wording used to train these models. You will understand photography and cinematic language as you get more advanced. But that’s why using more advanced tools is more complex and expensive.

The best thing to do is roll up your sleeves and figure it out yourself. That’s ultimately the best way to learn because the AIs have a personality at this point, and you won’t learn everything by reading. That’s how I think of the AIs. You have to understand what makes them tick and how to make them do what you want.

Start thinking of your business as different systems and processes. Don’t think of creating an ad as one thing. Break it down into the core steps and have that perspective and that foundation in mind because that’s how you build an engineering product. And that’s how AI is going to fit in. Communicating with someone who understands AI and how it integrates into your business will also be important.

Eric Bandholz: Where can people follow you?

Jacob Posel: @Dtcjacob on X, and I’m on LinkedIn.

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Sep 14 2024
Save Time by Managing Less, Says DHH

David Heinemeier Hansson is the creator of the Ruby on Rails software framework, the co-founder of Basecamp, an investor in multiple tech startups, a race car driver, and a family man. He’s a modern-day polymath.

Yet his workday calendar is not full of appointments. He abhors managing employees and attending meetings. His is a maker’s schedule, he says, with much uninterrupted time dedicated to solving problems he cares about.

In our recent conversation, his second in 16 years, Heinemeier Hansson addressed the rise of Rails, Basecamp, and, yes, time management.

The entire audio of our discussion is embedded below. The transcript is edited for clarity and length.

Eric Bandholz: Give us your pitch.

David Heinemeier Hansson: I am a co-owner of 37signals. We make software products. Our original tool is Basecamp, a project management tool we’ve been running for over 20 years. Hey.com is the email service we launched a few years ago and an alternative to Gmail. I also write a lot with my business partner, Jason Fried.

We’ve written four books on starting a business, running a business, and thinking about business. We published “Rework” in 2010, which sold a million copies worldwide. We also wrote “Remote: Office Not Required,” “It Doesn’t Have to be Crazy at Work,” and “Getting Real: The smarter, faster, easier way to build a successful web application.”

As part of building Basecamp in 2003, I created Ruby on Rails, the web framework behind Shopify, GitHub, and Airbnb. It was the original Twitter platform and about a million other prominent websites and applications worldwide.

I still work on that. We’re just putting the final touches on Rails 8, a big upgrade for a framework that’s also been around for 20 years and is powering 10% of worldwide ecommerce. That is what Shopify is responsible for. If you add on whatever else in the ecommerce world runs on Rails, it’s probably a higher number. Shopify is the largest Rails application. It’s 5 million lines of code and a huge portion of all ecommerce worldwide.

In my free time, I like racing cars. I’ve been driving race cars for about 15 years, mainly endurance events. The 24 Hours of Le Mans is my pivotal moment.

Bandholz: How do you prioritize your day?

Heinemeier Hansson: From the outset, Jason and I were on the same page about setting good habits early. We had seen so many entrepreneurs try to do the mode switch and fail. They’ll work 80, 100 hours a week in the early days and get accustomed, if not outright addicted, to that style of working.

We designed the business from the get-go so that we would work 40 hours a week, eight hours a day. That’s plenty. Negative things often happen when you push beyond that when you are so focused on work that you miss other things. You don’t have the right perspective on stuff. And you also think it’s all about input, which it’s not. It’s all about output.

After dropping my three kids off at school in the morning, I have a block of time and make it count. I’ve found and seen repeatedly from entrepreneurs who take pride in bragging about how much they work. It usually means sitting in front of a computer for maybe many hours, but what’s the output of those hours?

The way I make them count is through long stretches of uninterrupted time. I try to be on a maker’s schedule most days of most weeks. That’s not a luxury I can do every day or every week, but it is surprisingly easy to structure your business so that you don’t have a day full of meetings.

When I look at my schedule, very often it’s empty. It’s full of one long, beautiful block of uninterrupted time that I can dedicate to solving the problems I care deeply about, and that requires me to think for more than 20 minutes here or 40 minutes there or whatever crumbs are left over. We’ve designed 37signals not to need that level of constant minding and intervention.

We don’t have status update meetings where we sit around in a circle and tell each other what we’ve done. We use Basecamp’s automated questions. It’ll ask every employee on Monday morning, “What will you work on this week?” They will record it for the whole company to know, not just to their manager, not just to me, not just to Jason, but to everyone.

So the entire staff is in the loop on what’s happening in the business. At the end of every day, the system asks, what have you worked on today? That clock frequency allows me to check in on the business, to develop trust that the people we’ve hired are doing the work we intend for them to do and that they’re going in the right direction without me constantly supervising them.

It is incredible how much time you have in a 40-hour week when no one is constantly bothering you. Forty hours is a luxurious amount of time to make progress, but most people don’t see it that way because they squander it. They cut it into little bits, and then they end up Friday afternoon going, “Oh, man, I was so busy this week. What did I get done?”

Because we don’t work like that, we have room for kids, racing, hobbies, vacations, and time off while still progressing on Basecamp and Hey. We’re working on two new products simultaneously. I’m working on Rails 8, and I write a bunch. I can clear the decks and get stuff done.

Bandholz: How much insight are you looking to get from your team on those daily updates?

Heinemeier Hansson: I’m expecting a story. It can focus on whatever you want to emphasize. This is one of the reasons why we collect this information in an open text field. It’s not derived from what to-dos you’ve checked off or the files you uploaded. It’s not automated. It is an opportunity to reflect on what you did today that was important and that you would like to convey to others. Sometimes, the answer is pretty mundane, “I worked on this same project. Here’s a quick anecdote about an issue I encountered and why it was hard, and why it sucked up a lot of my time.”

Often, those anecdotes become conversation starters in the comment thread for that update. Maybe I’ll chime in. “I hadn’t seen that problem or seen it elsewhere, and here’s how I solved it. Maybe you can do that too.” Or someone else from another part of the business goes, “Actually, we had a customer ask about that.” The updates in Basecamp are public to everyone in the company. If you work in an office and occasionally have that hallway or water cooler conversation, it’s usually contained to your team. When you do it on Basecamp, everyone gets to see everything. We’re 60 people, and it works excellent.

Bandholz: You’re not reading all 60, right?

Heinemeier Hansson: No, I scan. I usually scroll through most of these check-ins daily or weekly. Something will catch my eye, and I can scroll back up. I can consume the status updates of 60 people in about five minutes.

We have zero full-time managers. Out of the 60 people we have, everyone, including Jason and me, treats management as a second job to put on only when necessary.

Bandholz: Where can people follow you?

Heinemeier Hansson: Dhh.dk is my website. I’m also on X, @dhh.

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Sep 7 2024
Client Crash Bankrupts Entrepreneur

Resilience comes to mind when describing Hunter Durham. In eight years, he went from a college graduate to a Facebook employee to a company owner to bankruptcy.

Fortunately for us, he’s willing to share his experience. It’s a helpful case study on borrowing money, riding an ecommerce boom, and relying on a single client.

The entire audio of my conversation with Durham is embedded below. The transcript is edited for length and clarity.

Eric Bandholz: Tell us about your journey.

Hunter Durham: I filed for personal bankruptcy late last year. Since then I’ve helped a friend here in Puerto Rico launch a cocoa business. We raised a couple hundred thousand dollars in financing but ultimately decided the timing wasn’t right. So I’m now looking for my next role.

I’ve had multiple ecommerce and marketing positions. I was a college intern at Red Bull and then Dell in Austin. My first full-time job was at Microsoft during my senior year. I graduated in 2017 and landed at Facebook that year. I was on the advertising team managing ecommerce accounts.

It was a lot of fun. My clients included Johnsonville (sausages), Pacific Life (insurance), and roughly 50 other ecommerce brands. That was back when everything was pretty open on Facebook. I could see top-line revenue, how much they were spending on advertising, and their margins. I did that for about three years before joining one of my largest clients in 2019, a drop shipper out of Canada that has since gone out of business.

I stayed there for about seven months, then Covid hit, and ecommerce blew up. My experience came into heavy demand. I consulted with Sampars, the grocery wholesaler. That position became my agency, Impact Industry Marketing, which grew rapidly during the next few years.

During that time I bought three businesses in the furniture space. Two were shippers — we provided delivery services for furniture retailers. Then, last August, our largest customer ceased operations. They owed us in the high six figures in revenue. It forced me to file for bankruptcy late last year.

So I’m back to square one.

Bandholz: You lost your biggest customer.

Durham: The company was Mitchell Gold + Bob Williams — a giant high-end furniture manufacturer doing $180 million the year before they went out of business. They had been around for 25 years, with about 60 retail locations and an online presence.

When I bought the two shipping companies, Mitchell Gold represented 15% of our revenue, but by the time they shut down, it was 60%, or about $3 million a year. We serviced about 33% of their total shipping volume. When they shut down, our business died.

I had outstanding operating expenses, plus an SBA loan we had taken out to acquire the shipping companies. I couldn’t repay that loan, which I had personally guaranteed. That prompted the bankruptcy filing.

Bandholz: Could you elaborate on the bankruptcy process?

Durham: I had to learn a lot quickly. I had no clue. When we stopped getting paid, I started calling bankruptcy lawyers. It was a crash course.

Mitchell Gold started delaying payments in June 2023, and the company ceased operations in August. I spent the whole summer in crisis mode as it became apparent they would not pay us.

It was a matter of putting one foot in front of the other, letting employees go, and then engaging attorneys to start my bankruptcy.

Bankruptcy is an orderly process that unwinds many bad things. Chapter 11 bankruptcy is restructuring. It ironically costs a lot of money. For example, my bankruptcy attorney required a $250,000 retainer. Bankruptcy attorneys are the first to get paid.

Then you get a restructuring advisor paid for by the debtor (my company) but mandated by the bank. Chapter 7 is liquidation. It’s much cheaper than Chapter 11.

I had a couple of months of savings when I realized I had to file. Bankruptcy is a snapshot in time. It matters when you file and what you file. A bankruptcy lawyer figures that out.

Bandholz: All of that is now behind you. What’s next?

Durham: I’m still exploring. I may return to running an agency, perhaps focusing on clients’ creative and business strategies. Combining artificial intelligence with branded content seems promising.

Bandholz: We look forward to your next moves. Where can people follow you or reach out?

Durham: I’m on X, @Huntercdurham.

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Aug 3 2024
Beardbrand Perseveres Amid Challenges

I host “Ecommerce Conversations” while running Beardbrand, my direct-to-consumer provider of men’s grooming supplies. Periodically I’ll divert an episode to share the details of my business in the hope it helps others. I’ve done that three times in the last year, a challenging period for many ecommerce companies, including mine.

I’ve addressed our initial sales decline, plans for recovery, and, most recently, a year-end recap.

In this episode, I’ll discuss our recent changes at Beardbrand to persevere for better times.

The full audio of my dialog is embedded below. The transcript is edited for clarity and length.

Logistics

Since my last update, we’ve focused on lowering costs. One significant initiative was moving to a new 3PL to get closer to our new manufacturer. The goal was to shorten the time from the completion of manufacturing to shipping products to customers. We’ve been consolidating our manufacturing to one provider, which should help tighten the supply chain.

Our new manufacturer is in the U.S. Midwest. Our 3PL was in Dallas, Texas. We could have shifted fulfillment to the new manufacturer, which offers that service. Instead we opted for another 3PL, one that’s closer to the manufacturing facility.

The direct fulfillment cost would have been roughly the same for the manufacturer or the new 3PL. We chose the latter mainly because the initial setup would be quicker.

The transition from our previous to the new 3PL went pretty well. There were some hiccups, but I’ve got a good team member who managed the process well. We’ll wait to determine how much savings, if any, the new 3PL achieves.

ADA Lawsuit

Beardbrand has been dealing with an ADA lawsuit for allegedly having an inaccessible ecommerce site. Many industry colleagues recommended that we settle and move on. I couldn’t do that on principle. The plaintiff was suing 50 companies simultaneously and never reached out to us to respond to its complaints. The plaintiff falsely claimed we had no alt tags on images, for example. It was a money grab, and I didn’t want to reward that behavior.

Settling the lawsuit might save money, but it has downsides. If all entrepreneurs and operators fought bogus lawsuits and lawyers rather than settling, the problem would lessen. By settling, we encourage them to continue. If you have the means to fight the lawsuit, do it. We’re going to fight it.

Sales

Sales continue to be soft. We’re in our slow season — around September, it typically starts to improve. Meta has historically been our main customer acquisition channel, but our efforts there lately have been mostly unsuccessful.

Last week, we brought on X as a marketing platform. We’ll see how it performs.

We’re launching new products to counter the slowdown. We have a new, natural, aluminum-free deodorant in the works. Hopefully, it’ll be available by the end of the year. We’ll also be releasing new products on Amazon. I have a lot of ideas for new products, but we’re focusing on one of our core areas of expertise: small-batch fragrance development.

The raw materials costs for some of our products have gone through the roof. It’s forcing us to decide whether to raise prices to customers or reformulate the products. We’ve always developed products based purely on quality. I’m questioning that approach for the first time in 12 years, asking myself if an ingredient is worth the premium investment. My answer is no. We have to evolve. We’ll test, get prototypes to our customers, and see if they meet their expectations. If not, we will explore the higher price point.

YouTube

Traffic to Bearbrand’s videos on YouTube has declined. Since about 2019, we’ve seen a dramatic drop in organic views. We’ve devised new approaches. We now have two channels, and we’re tweaking how we film. Nothing seems to work. Our videos no longer seem to resonate with our audience or the algorithm. We’ve had several good hits on YouTube Shorts, Instagram, and TikTok, but they don’t build the same affinity with our audience as long-form versions.

We now plan to host regular livestreams to get back to the basics of connecting authentically with our audience. That sort of direct communication with customers is critical. I’m excited to get it going.

Moving Forward

Despite our challenges over the past two years, I am encouraged and optimistic about our changes. A business needs to be sustainable. It has to make money. Dealing with shrinking sales is no fun, but entrepreneurs do not get to choose their problems. We prioritize, align resources, and move forward. That’s how we succeed over the long term.

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Jul 27 2024
Mystic Gum Sees Early DTC Success

Braxton Manley first appeared on the podcast in 2021. As a college student, he had launched Braxley Bands, a maker of Apple Watch bands. Last year he returned with an update on that business after operational and sales challenges.

He’s back, having launched his latest company, Mystic, a direct-to-consumer maker of health-focused chewing gum. In our recent conversation, we discuss the origins of Mystic, marketing plans, early successes, and more.

The entire audio is embedded below. The transcript is edited for length and clarity.

Eric Bandholz: How’s business?

Braxton Manley: Braxley Bands, our Apple Watch band company, is surviving in a challenging climate. We’re operating from a profit-first mentality. We grow as much as possible and, based on the prior month’s profit-and-loss statement, scale back if needed. It’s multiple scale-ups, then pull-backs. My brother Zach and I run the business, working remotely. We haven’t taken a salary in a while and are focused on the business’s long-term stability.

I’m involved with three direct-to-consumer ecommerce businesses now. My fiance, Maddie, started Peace Love Hormones about three years ago. It’s a direct-to-consumer supplement brand for women’s hormone health. I have an executive role there, functioning as CEO so that Maddie can pursue her doctorate in herbal medicine and focus on the product. I focus on the marketing and operations.

Our third business, Mystic, just launched. It’s chewing gum for women made with sap from a mastic tree, which grows on a Greek island and has a ton of health benefits.

We’re trying to build a family holding company to operate multiple DTC businesses. At this point, they’re all relatively humble — six and seven figures in annual revenue.

Bandholz: Tell me about Mystic.

Manley: It’s square chunks of organic gum. It costs $38 for a can. It’s a beauty product for women and is categorized that way on TikTok. It’s different from regular gum. It’s not sweet at all. It’s palate-cleansing. It relieves indigestion and promotes oral health. You can develop an appreciation for the flavor.

The business is six months old. We’ve been fulfilling orders for just a week. The beginning stage was figuring out what the logo would look like. We did a beta test last year. We invested about $3,000 and ended up selling $20,000 worth. We realized we had a viable product.

We then raised $90,000 from friends and family. We developed custom packaging and produced 5,000 gum units — enough to make our first $200,000 in revenue.

Bandholz: How are you marketing the product?

Manley: Well, we’re a week into fulfilling orders. So it is fresh. We’ve spent much time on a TikTok Shop. We believe TikTok is a good product fit.

Affiliates are important to us too. Maddie, my finance, is an Instagram creator in the health and wellness space. She has an incredible community, which produced our first Mystic orders — about $5,000 in revenue. By Q4, we’ll be doing six figures monthly. This can scale quickly.

We sell recurring orders, but we’re not using the terms “subscribers” or “subscriptions.” Instead, we sell memberships to a gum-chewing club. We have cool hats, a club logo, and patches. The idea is to build a culture. We will charge more for our first subscription and less for renewals. It’s $38 for a one-time order or $30 to join the club for recurring shipments.

Bandholz: Where can people buy the gum and follow you?

Manley: Go to MysticGum.com. You can follow me on X, @Braxtonmanley, or LinkedIn.

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