Broadcasting commerce knowledge through LinkedIn, creating a lot of engagement and pure interest for this industry, Rick Watson has indeed captured our attention in this new episode of the eCommerce Growth Show.

Although COVID-19 has taken everyone aback, Rick insists there are so many opportunities that you can miss out as a retail company right now if you back out. If you’re just beginning to walk the path of D2C (direct-to-consumer), then welcome to this eye-opening session!

The Q&A session was off the charts, by the way.

Who is Rick Watson?

Rick Watson is the CEO and Founder of RMW Commerce Consulting, a boutique strategic eCommerce consultancy based in New York City. He provides advice and guidance to firms across the eCommerce industry, primarily in the areas of Direct-to-Consumer operation build-out for investors and the C-Suite, B2B marketing for software and service firms, and strategy regarding eCommerce marketplaces.

Key takeaways from this episode

Investment levels a D2C can expect

You can spend any amount of money to enter eCommerce. It’s just a fact.

It kind of depends on where you’re coming from. If you’re coming as an entrepreneur and your biggest problem initially is going to be your sourcing. If we’re just talking about website technology it is virtually free. You can probably spend a couple of thousand dollars to set up a store, to start doing it, whether that’s Squarespace or WooCommerce or whatever it is or even WordPress. It’s super cheap to set up a store.

If you are a big fashion brand that is a retailer moving into direct-to-consumer and you need a professional agency with branding and design and videos, the most you’re going to spend on is probably even not the platform itself – even Shopify Plus is not expensive in the grand scheme of things – you’re going to spend a lot more on your agency, your design, your branding and the content for the site.

You can spend as much as several hundred thousand dollars just for that part of the operations. Not to mention, you start adding in all the plugins that are needed – Klaviyo, Yotpo – to complete a site that you’re doing.

But again, it’s like saying, “How much does a car cost?” It depends on what kind of car you want. You can buy a Lamborghini or a Honda and both will get you from point A to point B and that’s so true in eCommerce now too.

Aligning your investors towards your goal

There are two types of investments: one is VC (venture capital) and the other one is friends and family.

  1. Friends and family and maybe angel investors will help you get going. They’re not expecting a big return. They believe in you and your energy and that’s about it. They’re not betting on your business model.
  2. When you start to look at venture capital and private equity firms, it will take a couple of years for anyone to get to the point where they’re comfortable approaching that kind of investor. The reason is this very simple thing that every investor wants to know is, “If I put in a dollar, how much money am I going to get back and when?”

If as an entrepreneur, you cannot answer that question clearly and if you can’t say, “OK, you’re going to give me a million dollars, five million dollars, 10 million dollars whatever the number, can this be a 50 million dollar company? What is the organizational plan lookback? What is my CAC? What is my LTV? What do I see as my purchase frequency? What’s the mix effect? How do I add new products? How am I going to reduce the costs for my fulfillment and suppliers and make sure that operational costs don’t overtake the business?”

If you don’t have good answers to all these questions, it’s simply not time to raise money.

eCommerce requires a lot of investment to scale and a lot of it has to do with the talent that you hire and the money that you put acquiring brands and acquiring customers, introducing your brand to the world – that’s by far the biggest expense that you’re investing time.

Probably over half of your first few years of initial investment will go towards marketing or it should go towards marketing. If it’s going towards operations, you’ll have a well-run site that no one is going to care about because no one will know you exist which probably won’t make your investors too happy.

The trick is getting enough, making your first customers fans, building on that and if getting word of mouth from that and proving that as people buy from you, they become fans and they produce other customers or come back to you. When you’re at the beginning., that’s the only thing that’s important. If you’re not really delighting those customers, then you’re just paying over and over again for the same customers that come back through your site. That’s not an investment business anymore, although ironically, many investors have invested in those sorts of businesses, but they have lost a lot of money doing it, too.

Mixing and choosing your channels

You need to be in all the big players and you can’t exit any of the big channels whether that’s focusing on your SEO, the big paid media channels like Facebook and Google. Most retailers need to think about what they want to do on Amazon and how they want to treat that market. Is it too low end for them? Do they need to be advertising their first-party versus third party if they’re a manufacturer?

The idea that you’re going to exit paid media doesn’t make any sense because, ultimately, there are always new customers to acquire that don’t know you and it gives you a very easy way for you to experiment with new ideas, landing pages and creatives to fund your entire business. 

Early on, most businesses can kind of tell which channels are going to be most important for them, depending on where their audience is and the demographics of their audience. If people are already looking for a solution, Google is going to be great for you because people are typing in something all the time (e.g.: I’m looking for something for my hair that makes it not tangle). Google is great for that kind of stuff because it’s like the database of intentions. If you can capture that stream, it’s really good.

Facebook is really good to introduce a lot of things that people don’t know they need. An audience maybe has a problem but maybe even can’t describe the problem and they’re certainly maybe not looking for products to solve that problem yet. But it still works as an advertising channel to sell products which is great.

When you think about the beginning of a business, if you’re going to hire, if you can do it yourself or you’re going to hire an agency, I think email is always something that’s critical. Email is fundamental to me now. That’s almost the first thing you should do because – I won’t say it’s the easiest, but – it’s the thing you’re most in control over from there, even more than SEO which takes longer to build. Email is something you can do from the jump.

If you can create and get good at email and social and creating good content for those channels, that’s a good foundation. From there, I would say let me pick the biggest paid media channel that most closely matches my demographic. It’s generally between Facebook and Google. There really are only two choices these days. 

If you can’t get Facebook right, then you may not have a business. That’s just the fact. It pays to focus on one that you feel will be your most important channel for whatever reason and to get that right before you go like, “Oh,  I’m going to be an affiliate and TikTok and Pinterest and all these things.” At the end of the day, that’s fine. But some of that is 20 percent, not the 80 percent. If you can’t succeed on Facebook and email, if that’s not your 50 percent at least, then you’re gonna be in trouble, even if Pinterest is taking off.

The next episode will bring our special guest, Denise Purtzer, the VP Partnerships & Alliances of ClearSale, for a discussion about fraud in our current climate and how to grow safely.

Tune in on July 23 at 3 PM UK / 10 AM EDT!