How Sanshee Negotiates Licensing Deals to Create Anime and Video Game Merchandise

Geek culture is exploding in popularity. Every new video game, TV show, and anime has the potential to spark a brand new cult following. But how do you license these properties to leverage them as products? On this episode of Shopify Masters, Sarah Fetter from Sanshee, maker of premium merchandise for fans of video games and anime, explains how she finds and negotiates licensing deals to create and sell merchandise.

Geek culture is exploding in popularity. Every new video game, TV show, and anime has the potential to spark a brand new cult following.

But how do you go about licensing these properties to leverage them as products?

On this episode of Shopify Masters, Sarah Fetter from Sanshee, maker of premium merchandise for fans of video games and anime, explains how she finds and negotiates licensing deals to create and sell merchandise.

Listen to Shopify Masters below…

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"Exclusive means that if I sign an exclusive contract with an IP holder, we have the sole ability to create items."

Tune in to learn

• The key deal terms in a licensing contract
• Why shipping terms can trip up a licensing deal
• Why and how to create systems and infrastructure for your business

Show Notes

• Store: Sanshee
• Social Profiles: Facebook, Twitter, Instagram

Transcript:

Felix: Today, I’m joined by Sarah Fetter from Sanshee. Sanshee makes premium merchandise for video games, anime and more and was started in 2012 and based out of Seattle, Washington. Welcome, Sarah.

Sarah: Thank you so much for having me.

Felix: Yeah, so tell us a bit more about the business. What are some of the more popular merchandise that you guys sell?

Sarah: It really varies. Basically, especially with gaming merchandise, what will sell the best is kind of what is most recent out. A lot of the time it’s going to be things like plushes. Those are kind of one of those items that no matter how the game is or, honestly, the TV show or anything like that, those always sell really well. Anything that’s kind of an easy item to create, so like pins and buttons and stuff like that. Those are … They obviously go very well because they’re a low-cost item to both create and produce, and also for people to just pick up on a whim. We see a great deal of different things succeeding, especially depending on what the property is. Video games, you’ll see certain items like plushes or pins and stuff selling better. In anime, you might see things like posters or other items that aren’t necessarily easily obtained, selling well.

Felix: You guys have a ton of items or a ton of different types of products here. I definitely want to go into detail about how you manage the catalog. Before we get there, we were just talking a bit off air about when you joined and how the company began. I would love to hear that story again on air about how the “business” got started back in 2012.

Sarah: Yeah, so the business actually started with three friends who decided that they kind of wanted to make their passion for video games and other items be a real thing, like a tangible thing that other people could also enjoy. They had started it by just making some T-shirt designs and some posters and when that started selling just incredibly well … Because that was really about when conventions started being a huge thing, where you see that spike where conventions started popping up more frequently in different states. So they kind of hit it right at the right point, the sweet point of when conventions were spiking and they managed to get in and got just extremely popular.

Most of the people who started it have either left or no longer working with the company. One of the guys who started it originally now works for Fakku and is on Forbes top 100 people at some point. Then, a couple other people do some other stuff, so it’s really cool. So, that’s kind of how the business got started is basically they made a thing at the right time and it was a high-quality item that a lot of people responded very well to and it just kind of took off, kind of caught up from there.

Felix: Awesome, so when did you join the company and what was your role once you stepped into the company?

Sarah: I joined the company in early 2014. I was originally hired to be the art director’s personal assistant. At that point in time, the other co-owner of the company was looking to pursue other things and kind of wanted to see what else was out there, so I ended up taking on a lot more of his duties. Then he ended up kind of finding what he wanted to do, so I took over the lions share of everything else. So now I kind of do a little bit of everything. I do the general operations of the company, I do a lot of biz dev stuff, talking to clients and arranging meetings and flying out to see people and all that. I oversee a lot of the stuff with conventions and stuff.

We have just a really great team that I get to work with and the handle all the stuff like the setting up of conventions and such and then report back to me, which is really nice because they’re so much more organized.

I think I probably took over basically everything in 2016 and then it’s just been a matter of kind of adjusting my schedule and taking over a little bit more with like the art and creation of products and kind of everything under the sun, basically.

Felix: I would love to hear more about this transition, because I think there are entrepreneurs that are on the other side that are looking to bring on an operator that is in charge of running the business. A lot of entrepreneurs get into or want to start businesses because they have ideas that they want to pursue, but then they come up with the ideas and they just need someone to help execute them on it. Would you say that’s kind of your role or your job is to turn these I guess dreams … or at least originally, you turn these dreams and ideas into reality?

Sarah: Yeah, it’s actually kind of interesting way that I mesh with the company. Obviously with the way the company started, a lot of the stuff wasn’t … I don’t want to say solidified because everything was done, but there was just a lot of things where none of them had come from a corporate background. It was kind of an interesting thing where I’m used to corporate-y things. I’ve worked at huge companies. I’ve worked at small companies. I’ve done all the bureaucratic stuff. So coming into this, it was super interesting to kind of build all of it up from the ground up.

They had some processes in place and some things, but none of them had that background in like, here’s all the things we need to do for the hiring process and if we’re going to add employees who aren’t the three guys who started it, this is the process we have to go to. Here is like general reporting things that we would need to do, all of these little things that didn’t matter when they were operating out of their basement and just for fun and doing it as a side gig, but when it started becoming a real thing, they needed someone to kind of come in and say, “Okay, we’re not going to make it very corporate-y, but we do need to have rules and regulations and be able to have a definable process when we create things and accountability in general and paperwork and all of that good stuff.”

Since I was used to that, it was really nice to be able to come in and kind of start clean and basically say, “This is what I’ve seen that’s worked, here’s what I’ve seen that hasn’t. We’ll taste way A and if it doesn’t work we’ll tweak and move on to this.” So it’s just been very nice to have the hands-on approach and build everything from the ground up.

Felix: Mm-hmm (affirmative). And how did they find you or how did you find them?

Sarah: So, I had a friend who was working for them as a freelance artist in LA when they were based out of Boston. I had been working at a marketing firm at the time and my friend who was their artist was like, “Hey, you should apply. They’re looking for a personal assistant. Obviously that’s not really what you want to do, but I think you could probably move up because you have a lot of background that the company doesn’t have and that you probably use.” So I applied … I think I applied on a Tuesday and they said, “Hey, we’ll fly you out this weekend if you want to just come out for an interview.” And apparently they basically nixed all the other resumes and stuff that they had gotten, met me and said, “When can you move?” And so I basically, a month later, drove across the country from Portland, Oregon to move to Boston and facilitated … My big thing, the reason they hired me at that point was to facilitate the move from Boston to Seattle, which is where we are now.

Felix: Awesome, so when you stepped into the business itself, what were the main improvements that you knew you wanted to make immediately?

Sarah: Oh gosh. Well first off, they had been in the office for a very short time and since the company at that time was just three of the guys and they didn’t really need to be in the office that much, since all of the people who were involved at the start of the company also lived together. I was the first person who was basically brought in from the other side of the country, but also not known to all of them. So the biggest thing was … Essentially part of my interview was going to the office and looking at it and the main owner of the company turning to me and going, “Help,” because everything was everywhere. Since they had been operating it as a for fun thing, there wasn’t much organization, there weren’t skews, there weren’t all of these things that you need to kind of make an organized process.

The biggest first step that we did was A, cleaning out the office. Basically, making sure that all the T-shirts were in the same area, all the pins were in the same area, trying to consolidate everything, catching up on any backlog, talking to the person that they had doing orders and figuring out, okay, what is your process, what are the issues that you’ve been encountering and then how do we go through it and fix it and make your job easier and make you more effective.

From there it was just basically building everything from the ground up. Like, okay, well it’s not three friends in an office hours it’s here are the office hours, here’s the scheduled breaks, and here’s all the things that you don’t really think about because maybe you’ve always done them, but if you’re starting something from scratch and you’re all friends you never really implement it. Those were some of the first things that we kind of had to change were like having some structure around thing were done.

Felix: Let’s say somebody is a founder of a company and they hire a general manager or they hire an operator to come in and pretty much put everything in order and run the business and run a big part of the operations of the business, what do you find is the best way for this founder to work with an operator or general manager that they’ve hired?

Sarah: I would say the first step is figuring out what the owner’s background is. The interesting thing I found … Because, like I said, I’ve worked at small start-ups and I’ve also worked at large ones, is what does the owner of the company … I guess what’s their vision? Which sounds like a silly thing to ask, but effectively where are they at now? What do they want to see? Then they need to be able to accurately and effectively communicate that to whoever they’ve hired to do operations. Because as an operations manager, you can’t … I would highly recommend not going in and just kind of doing things how you think they should be done because I’ve found that a lot of owners and such generally … They might not know what they want, but they definitely know what they don’t want when they’ve seen it, and that can kind of cause problems.

I would say once both sides kind of say, “Okay, well here are the goals that we need to meet. Here’s what I want to see. Okay, as an operations manager I’ve seen that, but maybe we implement it in a different way.” Just making sure that you have that line of communication with whoever you’re effectively answering to and that you have the tools that you need to actually implement those things. There’s a saying, and I can’t think of it, but it’s basically promise what you think you can do and try to over deliver, but you need to make sure that you’re both on the same page when you do that so that you’re not going back and trying to retroactively fix something or do something because the owner didn’t agree with how it was done.

Felix: Okay, makes sense. Something you mentioned earlier in the episode was about how the more popular items typically or tend to be the more recent items. Items that you put out or maybe a new show or a new game, there’s a lot of popularity around it. Now, how do you prepare for inventory for something like this or prepare the product development for something like this when it has to be so timely?

Sarah: It really depends on the client. In some cases, we’re lucky enough that the client has enough advance notice that they’re creating a game. You’ll see that a lot more with games that are not effectively games or shows that are not driven by a very small team. The first step is basically getting all of the asset art or all of the information that’s not necessarily available to the public together and trying to figure out, okay, this is … as people who are passionate about whatever item or whatever IP we’re creating items for, what do we want to see? Because we don’t ever pick up a license or create any merchandise for something that we don’t care about. You can’t make good, effective merch that people actually want to see if you would not wear it or see it or buy it yourself.

So, we basically go through and say, “Here’s a list of all the things that we want to see.” If we were a fan of the game not involved in this process, this is what we would want to see in the world. Then, we obviously pass it back to the client and kind of pare down things from there, and then depending on who the client is and what the IP is we can basically say, “Okay, well, since this is an anime we know that these four items are going to be the best sellers,” based on this prior data that we have sales reports and that’s what we focus our stuff on.

Then, we basically have tiers, so we have the quick, instant kind of instant gratification items that we go through and they have a low price to make them, they have low turnaround time for approvals because usually the clients can say, “Yes, make that.” “No, make that change.” “Make it more blue,” whatever the case may be. They also have a quick turn around time for actually manufacturing and importing. We try to get those items out there as fast as possible and then use that money that we get to basically fund the larger items that have a slower turnaround time and kind of feed the money that we get from the smaller items into the development of the bigger items.

Felix: Mm-hmm (affirmative). Now you mentioned the word clients. Usually when I hear from entrepreneurs that have these licensing deals, that work with brands to potentially license their product to create merchandise around it, the relationship, I guess, is kind of very one way. They purchase the license and they kind of run off and do it, but it sounds like it’s more of a two-way street and kind of collaborative with the type of business that you’re running. Can you talk a little bit about that?

Sarah: Yeah, so a good example would be … Dragon Age which is one of our properties. It’s a game that basically everyone in the office has played. I would say, as a company, we’re lucky enough to have such a great crew of people who are passionate about the products that we can make items that the team that created the game will say yes to, which obviously makes it easier. Also, if I could give one piece of advice or one piece of guidance for people is to really get to know your clients and not just the busdev person that you talk to. Because often times the busdev person might not be as into everything. They might not be the person that writes the fan fiction or does the art or does any of those things that are really important for creating good items. So, getting to know other people on the team is so … it’s so helpful and so important in ways that I didn’t really think about until we actually started talking to them.

I actually went up to go visit one of the clients in Canada a couple months ago, and because I had that background with people like the writers and the artists and stuff I was able to go specific things that they knew that I would be interested in to create better merch for their IP. So having that connection with them just improves everything so much.

Felix: Hm. Now, what’s the process like if you do know a game or show’s coming out and you guys want to work with them. How do you approach these clients, approach these producers and are you competing against other merchandisers?

Sarah: Yes. Well, okay, so first off, yes we are competing against other merchandisers. There’s … not sure about the number. There’s quite a few different companies out there and everyone tends to do different things. It’s interesting though because we’re technically competing against the other people who do what we do with the license designs, but then we’re also competing with Redbubble where literally anybody can say, “I want to make a design of Barney the dinosaur. I’m going to put it on a T-shirt and Redbubble will print one-offs that other people can buy.” There’s no licensing agreement, there’s no oversight, there’s nothing but … “I drew this in MS Paint and now it’s on a T-shirt and people can buy it and I get money.”

So, it’s very interesting because that’s a great business model, obviously, for Redbubble but it’s interesting for us because obviously that stuff’s not license and it does directly effect us, so it’s how do we … We have to stay ahead of that and make sure that we’re monitoring that and seeing what works and what doesn’t. But also, seeing what else our other competition is doing, so the people who actually go through and get the licenses and do all of that, as well.

As far as the process for getting new clients goes, it really varies. I was lucky enough to be, honestly, a giant nerd who went to these conventions to begin with. My mom took me to my first convention when I was like 16 and it just kind of … I’ve always gone to them, so I’ve always felt comfortable just walking up to people and starting a conversation. I’ve always been kind of an outgoing person. It’s very easy for me to kind of adapt, so when I go to a convention and I see a game that I’m like, “Oh, hey, I’ve heard about this. I’ve seen it on Reddit, I’ve seen it on Twitter, whatever the case may be.”

Conventions, in general, gaming conventions especially, make it so easy for you to A, play the game. You might have to wait in a line, but they bring the game and they demo it, but they also bring the team who developed it and you can just have these wonderful, amazing conversations with these people who like … it’s effectively their child. They have worked on this thing for years and years and years and if you show a genuine interest in it and know what you’re talking about and it’s not just like, “Hey, I want to stick a logo on a shirt. Can we do that?” If you show actual, genuine interest and passion for their product, it’s honestly a lot easier to get that conversation started and say, “Hey, I really like the game. I really like what you’re doing. I would love to make X, Y, Z for you. Is there someone I can talk to who would handle that kind of talk? Can we follow up after the convention?” That kind of thing.

Felix: Mm-hmm (affirmative). When you find a client that you want to work with, what do you find that they typically look for in a partner like you guys?

Sarah: Everyone’s different. It’s actually … I kind of thought it would be a lot more uniform and it would be a lot easier, but everyone’s different. You have clients who want to have you basically put together an entire business proposal and project like, okay, if you’re going to make socks, how many socks do you think you’re going to make in the two years of this license agreement? How much are you gonna sell those socks for? How much are those socks going to cost? How much are you going to … All of these things that, especially with a new product, like something you haven’t delved into, they want all that information up front. They want to know how many you’re expecting to sell in month one through three. How many do you expect to sell in two quarters? And you just kind of have to guess and hope for the best.

In other cases, clients are so happy to be approached that they basically will just say, “Do whatever you want to see out there and we’ll just kind of give approvals and we’re just honestly stoked that you want to work with us,” because a lot of indie companies go in and want to make a game and they don’t think about merchandise until someone at a convention plays it and says, “Hey, I want to buy a T-shirt.” And they go, “Oh.” And there’s that kind of moment of realization where they’re like, “We don’t have any T-shirts.” So, getting that started is obviously really easy because half the time they’re looking for someone to do merchandise, because any time they’re doing a thing like a game or a TV show that’s what they do. Merchandise is usually another whole subsection that they either outsource or will generally just go to a T-shirt printing site and stick their logo on a shirt because that’s all they have the ability to do. Which obviously isn’t a bad thing, because they’re job is to make games or to make the anime or do whatever is in their realm. Merchandise often falls way far out of that.

Felix: Yeah, it seems … I’m going to just assume or guess that there are some licensers that are very happy to work with anybody and everybody and then the ones that are much more conservative and restrictive with who they work with. Now, do you ever start approaching a potential client and then maybe decide that it’s not a good client to work with because of … whether they’re licensing their product out or their image and their brand now to too many licensees?

Sarah: Actually, no. I will say that if they’re a big enough company to be licensing out to multiple licenses … Generally during the licensing process when I’m talking to busdev, we kind of go over, okay, here are all the categories, and categories are things like physical times, so T-shirts, scarves, jewelry, whatever and then here are items like vinyls or CDs, or anything you can think of. What we do is we kind of go through this massive list of everything ever you could create for an IP and then pare it down and I’ll send that over as a proposal like, we want to do plush, we want to do stickers, we want to do lanyards and we want to do a poster. And they’ll say, “Okay, well we already have three vendors that are doing posters, but the other three categories are okay.” So, usually, if they’re big enough to have multiple vendors, they also have someone that’s kind of making sure that nobody’s stepping on anyone else’s toes.

Felix: In a typical licensing deal, what are some key terms or key deal terms that will appear?

Sarah: So the first thing that you’re going to see in any kind of licensing deal is going to be exclusive or non-exclusive. Exclusive means that if I sign an exclusive contract with an IP holder, we have the sole ability to create items. Non-exclusive is going to mean that we are working not with other companies, but in conjunction with other companies. So we might be making plushes at the same time as another company is making T-shirts. Usually, if it’s a medium-sized IP, it won’t be … there won’t be any overlap, but if it’s a bit one, there might be multiple companies making plushes and then we just coordinate with the IP holder to make sure we’re not doing duplicates of anything.

Another thing that you’ll see, royalties. Royalties are basically every quarter we’ll go through and say, “We sold X amount of these items that we created for you at a royalty rate of X percent.” And basically, what we do is we send them what’s effectively a sales report and say, “Here’s all the things that we sold. Here’s the royalty percentage.” And then we wire them the money.

Another term that you’re going to encounter is … trying to think. Those are honestly the biggest ones. Every client is going to be different. We have some that have terms on like shipping and we have some that will only allow us to sell in certain countries, so the licensing deal might include the whole world or we might have to exclude certain countries, basically where you can sell is a big thing that you’ll find especially … With any client that’s outside of the U.S., you generally can’t sell those items in the countries that the IP is kind of held. So, if a person in England is making a game and we sign a contract of them, 95% of the time we aren’t going to be able to sell in that country because they already have somebody who’s doing it locally, and then those people generally don’t sell worldwide.

Felix: So usually these are geographic, too, these deals?

Sarah: Yes. Yeah. Usually the easiest way to do it is, honestly, worldwide. But some, especially the bigger ones, or small companies owned by larger ones might have things that you can only sell in these countries. In some cases, some of the clients will ask us not to sell in certain small countries because the actual process of dealing with shipping to, like we’ll say Singapore I think is one of them that I have a friend who lives there and she can just never get anything. She has to use a mail forwarding service. So sometimes clients will ask you not to sell in those countries because you spend so much time trying to make sure that you get their items. I’ve only seen that once in terms of licensing contracts that people have asked for … I’ve only seen that ever happen once, but it is something that is talked about especially when discussing about worldwide and, okay, how are you going to handle if you send something to a person and they never get it? How does that affect the IP holders bottom line? How does that effect our bottom line? What are the kind of steps that we talk and that’s also in the process.

Felix: So you mentioned royalties before. Are there advantages or disadvantages between a contract that’s royalties based versus I guess not royalty based, or do you prefer one or the other?

Sarah: So there’s two ways you can go about it. There might be others, but the two general ways that we deal with it, is that there are the royalty system where every quarter we just pay them whatever we sell. Then there’s the minimum guarantee system. I personally don’t like the minimum guarantee system, especially if it’s a new client. Minimum guarantees are basically when you go to the client and say, “I expect that we’re going to sell $20,000 worth of product at a rate of X percent royalty rate, essentially. So you’re going to make X amount per quarter.” And then you pay that before you even start making merchandise.

Obviously, in some cases if it’s like a huge client, you’re like, oh okay, that’s fine. I know I’m going to make more than that. That’s totally okay. But if you’ve got a new client and you kind of don’t know how their approvals process is or how responsive they’re going to be to new designs or any of that, you could effectively just be throwing money into a pit and hoping that you get it back. So my advice is to always go with the royalty system. Usually what it means if you opt out of the minimum guarantee but do the royalty system instead, you often pay a higher royalty percentage. But it’s honestly safer in my opinion, unless you’ve worked with them before and know how kind of their approvals process work.

Felix: Now, in all your experience working all these contracts, what would you say is the most ideal licensing contract that you would come up with? Tell us all the deal terms that you would love to have in every single licensing contract.

Sarah: Oh my gosh. Licensed property, so basically everything spelled out. They give us the logo, the trademark, the artwork, any information, things like this character is something that someone owned and we brought into the game, but it was never in any of their game, just like the weird legal things that you come up on. All of that spelled out in advance is such an amazing thing to have and half the time it doesn’t occur to people because they’re not familiar with legal terms or any kind of legal paperwork whatsoever. So any of the trademark, any of the logo artwork, anything about any characters that we need to know, or any likenesses that we need to have.

In an ideal world, having the ability to create anything ever that we wanted to make, whether it’s apparel or jewelry or plushes or vinyls or accessories, whatever it is, just having them say, “Go wild, you can make whatever you want.”

Licensing terms, auto-renewal. My favorite thing in the world, so you don’t have to renegotiate contracts.

Felix: How long do the contracts typically last?

Sarah: They can … it depends. I like to go for a year to two years because usually that’s like the peak time, so you’ll see kind of that stuff be popular for that amount of time and then either a new show will come out or a new game will come out and then, you know, whatever the case may be. That’s like the sweet spot of when you’re going to create stuff. Unless it’s something that’s got a lot of longevity like for a TV show like Battlestar Galactica. You can probably go in and make old school Battlestar Galactica stuff and it would sell like hot cakes because conventions weren’t as popular back when that was airing. You obviously had some, but you have all the older crew who have disposable income and who get that kind of nostalgia bomb and they’re like, “Oh my gosh, I couldn’t own this when I was 18, but I can own it now.” So having that is often really nice.

So yeah, two years is kind of where I like to go with licensing terms. Auto-renewal is always good. License territory including the whole world is beautiful and just makes me so happy. A royalty percentage that basically … I negotiate it differently with every client. With indie clients, I like to give them a higher royalty percentage because they technically won’t make as much money because they’re a little bit smaller, so I like to try and make it a better deal for them.

As far as copyright, trademark, legal notices, any weird stuff that they have on their legal team, if they have a legal team, getting that done.

Licenser deliverables, things like we agree to promote the item that you’ve created for us within X amount of time. Any kind of deliverables on either side just getting sorted out in the actual licensing agreement is great.

And then, having a full suite of just all of the assets that I could ever hope for, whether it’s a copy of the game or backgrounds on the characters if it’s not out already. Any of the artistic stuff or character items that we would need to know all of that basically placed in … it’s exhibit A for our contracts. But, basically, any of that stuff that we need to know in there on the day that we sign the license. If I got that every time I would cry, I would be so happy.

Felix: Now, do you approach the negotiation table asking for all of this or how do you figure out what you should start with when you are approaching a client to create a licensing deal?

Sarah: I approach everyone differently. If I try to approach an indie client, an indie client being someone who maybe they made a game and it got popular out of nowhere and now they’re all over Twitter and they’re all over Facebook and people are interviewing them and they’re just dealing with like the scary, “Oh, God. I’m popular. What do I do?” I approach them differently than I would someone who is kind of corporate-y.

If I’m approaching somebody who’s an indie company, I basically will not even bring the contract into it. I’ll go over everything and kind of present like a watered down version and say, “Hey, we would like to make merch for you. Here’s the items we’d like to make. Here’s the royalty and kind of what you can expect every quarter. Here’s the process that we go through for approvals. If you can provide me with any kind of copyright information you have, great. If not, I’ll work together with you and our lawyer and we’ll kind of get all of that stuff together,” and effectively handhold them through it so they’re not overwhelmed and go, “I don’t want to do anything.”

With a AAA, or with anything that’s huge and sold worldwide and they have an actual team, they want that. They want me to basically spell everything out in the most detailed legalese humanly possible and they want to know every little thing and they want it provided all at once because they are super busy and they don’t have time to go over everything. That’s kind of nice, in a different way, because at least you don’t have to worry about explaining things to them. They already know what they’re doing and what they want and they generally don’t deviate from their terms. So, game company A is going to have different set terms that they will not deviate from than game company B.

Felix: What deal terms can end up tripping a licensee up when working with a licenser to create licensing agreement?

Sarah: I would say the biggest thing that can kind of trip us up would be any sort of shipping guidelines. Those are always a fun thing. A lot of the times, if it’s a huge client, you’re going to find that they don’t do their own shipping. They have a game company and then they outsource basically everything else. So, having to deal with the game company or the anime company or whoever it might be, the IP holder, and they’ll have their specifications, but the busdev person that you’re talking to might not know what new terms their shipping agency has. They’re shipping agency might be working with someone else to do fulfillment through another thing and their importing company. You end up talking to like 12 different people and basically having to kind of go through and figure everything out piecemeal, I guess, is the best way to put it. You just kind of have to put everything together and hope for the best.

So, deal terms where it’s basically like, “We are just going to send you X amount of items. We’re going to send them to this location and that’s it.” That is an ideal situation because when you get into importing and specifications and requirements it becomes really complicated, especially when you’re trying to do fulfillment.

Felix: Mm-hmm (affirmative). Now, you mentioned a little bit about this earlier. When you are preparing to produce merchandise and you’re ramping up to launch it, how does the client work with you to promote the merchandise?

Sarah: Everyone’s going to be different. Basically what will happen is … A lot of the time the marketing team is going to be the same as the approvals team, or at least the art team will work with the approvals and marketing team and everyone pretty much communicates pretty well. So, by the time … Let’s say I’m making a plush … by the time that plush has hit final approvals and whatever other things that need to happen, we’ve already kind of started working on the marketing process and we basically have to send everything over to the client.

So here’s the steps that we want to take for marketing. We’re going to post it on Twitter. We’re going to post it on Facebook. We’re going to post it on Tumblr. We’re going to post it on Reddit. Here are the things that we want to post. Here are the pictures that are going to be posted. Here is the exact text that is going to be posted. Here are the times that they’re going to be posted. Sometimes they want to know who’s posting it because they need to be able to reach out … If for some reason something happens, they need to be able to reach out to you really fast and say, “Hey, change this. Hey, take this down.” Sometimes you’ll encounter that, especially with the big companies where maybe one side will approve of something but then someone who’s associated with the company but doesn’t necessarily handle this is like, “Oh, no. Actually, we want to phrase this a different way.” You have to take everything down. Even though they weren’t technical part of the approvals process, you might encounter that. So just being able to make sure that you have that communication line open and they know who to reach out to is super important.

Once we’ve kind of cleared everything, we’ll post everything and then, generally, we like to have the client retweet it or repost it or basically bolster our audience with their own. Because a lot of the time … merch versus the IP holder’s a little bit different. You’re not going to see people who want your autograph for doing a T-shirt whereas a writer would get autographs. So you’re not going to have the same viewership or the same followers or the same passion around it as you would a game company, so having them come through and kind of promote us makes it a lot easier as well. All of those dates and stuff need to be worked out in advance of launching the actual product.

Felix: Now, do you try and nail all this down during the licensing agreement, as well, or is that something you can kind of table until after getting through the licensing deal?

Sarah: Usually it’s … In the actual licensing agreement we try to do something like, “Hey, if we’re going … ” if it’s an easy licensing deal and there’s not like a bunch of hoops to jump through it’s like, “Hey, within two weeks of us creating a new item, we’d like that you promote us.” Something like that. That’s really the only time it’s debated during the licensing agreement, because usually during the licensing agreement, especially if it’s for something that hasn’t come out yet, you don’t know what you’re going to make exactly. You kind of have an idea, like, okay, well I know I’m going to make a couple T-shirts. I know I’m going to probably make a couple pins. I know I’m going to make a couple plushes. But you don’t really know who the character is going to be or what exactly you’re going to be creating at that point in time. Usually that stuff is done after you’ve gotten final approvals and when the manufacturing is happening, because manufacturing usually takes about a week to a month, so that’s a sweet spot of time to hash out all of that.

Felix: Mm-hmm (affirmative). Now you mentioned something to me in the pre-interview questions which is about cross-promotion. Is that what you’re referring to, working with your clients to promote-

Sarah: Yes.

Felix: Got you. Now when you were first starting out, when the business was first starting out, did you have difficulties getting these more established companies to cross-promote with you? Did you find ways around that issue when you’re a small company working with a much more established brand, to do a cross-promotion?

Sarah: Not necessarily. Usually, since there’s all that paperwork that has to go into creating licensed items for them, they have a vested interest in making sure that you sell things. It actually works out really nicely because they want you to do well because it means more money for them. So usually there’s not too much of an issue, with the actually cross-promotion. They’re usually happy to do it, especially …

Actually, I’m going to segway here, get to know whoever is doing your social media for the IP. Like, make sure that you’re their best friend, because it is so much easier to know who is doing their social media and community management and any of that, and be able to say, “Hey, I just submitted this to the marketing team. Heads up, can you push this through.” Obviously that only works if you have a good relationship with them, but getting to know them helps so much and makes everything so much faster.

Felix: Nice, that’s a great tip. I want to talk a little bit about the product development and the manufacturing behind all of this. So once the deal term has been signed and you guys are good to go, you have the green light to start producing the merchandise, what are the first steps? What needs to be put into motion immediately.

Sarah: Watching it. Playing it. Basically familiarizing ourselves with what it is. I would say we go about things a little bit differently. We try to stay away from things like a logo on a shirt that … If a game has a red R, we don’t want to put that on a shirt. Generally, that’s going to be taken care of because that’s an easy to produce item. We want to say, okay, we’ve familiarized ourselves with the product. We’ve played this game and there’s a character who has a shield that has a very specific insignia and that character is a fan favorite. We need to put that insignia on something or we need to put that character on something. Basically going in and familiarizing ourselves with what fans want or even what we want. That’s pretty much the most important thing because you can make a logo on a shirt or you can make a thing for a main character, but if that character’s not a fan favorite, you’re not going to sell as much.

Fandom is kind of weird that way where … a good example is there’s a client who had a video game where you could romance a bunch of people, you had like nine romance options, and half of the people into this game were like, “Why can’t you romance this one side character? I want to … ” romancing being you can have your fictional character date that other character. There’s a whole subplot behind it. Why can’t I date that character? And it was never into the code and nobody had any idea that people would be like, “Oh, no but I want that one.” Making sure that we’re familiar with the products help so much because then we can say, “Oh, everybody likes that character. That’s what we’re going to make merch for. That’s going to be the first thing that we’re going to use to establish ourselves. That’s our leaping off point is this is what is super popular in fandom right now, and that’s what we want to make.”

Felix: Now, do you have in-house designers that are creating the plushes or the T-shirts or the stickers? What’s involved in the creative side.

Sarah: Yeah, we work with freelancers and we have in-house people. I don’t actually have an art background, but I’ve also created items because a lot of it … China is one of the manufacturers. Not China is one of the manufacturers, but we use manufacturers in China and they’re often used to someone who necessarily might not have as great of art skills as somebody else. It’s actually pretty easy to get things done there. Obviously it helps so much more and it’s so much more time effective if you have an in-house designer, but, as someone who can reliably draw stick figures and that’s about it, you can still create products as long as you know what you want to create and you follow whatever terms that manufacturer has for submissions.

Felix: Now, it seems like the plush toys are very popular or at least predominantly displayed on your site. So I want to talk a little bit about these, the plush. What are the assets that you need to give to or to get to the manufacturers to create a plush toy?

Sarah: It’s going to differ actually depending on the manufacturer. We actually work with a bunch of different ones. For example, we have a plush that talks, so we need to provide them with a front view, a side view, a back view, a top view, a bottom view, all of that stuff so they can kind of plot it out. Then, we also need to provide them with specifications for, okay, well the voice box needs to contain this kind of batteries. It needs to go through these kinds of specifications and tests to make sure they’re not going to explode.

Then we need to actually provide them with the lines from the character and that’s where you get into interesting things like if you want something voice acted, you often have to pay fees for the voice actor to come back and rerecord the lines, because you can’t use the lines form the game or the anime, whatever the case may be. Then when they go and record that, that’s an added expense you’re going to have to kind of factor into everything and then making sure that the company that’s doing the voice acting actually provides you with a format that China can use and that you can send it over in a way that China won’t block. Especially when you’re doing manufacturing there, you have to send … the file can’t be too large sometimes and you can’t send it … certain sites might be blocked, so navigating around the interesting things that China might have blocked is always kind of an adventure.

Felix: Yeah, I never thought about that as an issue, but it makes a lot of sense now that you explain it. Another thing that you mentioned in the pre-interview questionnaire was about how you should never skip steps when creating your business. Make sure that you have everything in line properly and create you have infrastructure that you know you’re going to need going forward and don’t want until a later time because it’s not important right now. So tell us a little bit about this. What kind of systems or infrastructure did you feel the company need to create once you stepped into your role?

Sarah: I think my situation’s probably going to be different than a lot of people’s, but we’re a super small company so there’s no HR team. HR is basically me. Busdev is me. All of these other things kind of funnel into me. Since they had only ever hired friends before me, there was no HR department. So, making sure that you are familiar with the hiring processes, what paperwork you need to file, all of these things that you don’t really think about when you start a business with friends, all of that stuff is going to come into play as soon as you start expanding and growing and “becoming a real company.”

Things like the licensing deals … Licensing deals are going to change over time, especially when you look at your first … If I look at our first licensing deal and then I compared it to the one five years from then, aka now, it’s completely different. There are so many little things that I’ve learned to include and then basically go over with the lawyer and say, “Hey, I want to include this. Is this actually legally feasible?” And then making sure that’s implemented all further deals. But basically not leaving anything for later. So if I notice that my default licensing contract needs to have a thing where the client promises to promote us within two weeks, that gets added right away. That’s not something like, “Oh, I’ll add it when we approach a new client.” I’m not going to remember that. I’ve got so much else on my plate that it needs to be done right away.

Same with HR stuff. Okay, well I know that we’re moving from Boston to Seattle. What’s different? What hiring changes do I need to make? The minimum wage is going to be different. If I go over a certain amount of employees, at what point do I need to change things? If I get insurance for the entire company, I can’t just say, “Oh, well, I’m going to get insurance for everyone and we’ll figure it out later.” I need to figure out, okay, what rates are we going to provide? How much are people going to pay out of their paycheck? How much is the company going to pay? Factoring all of that into your budget before you just kind of do it … I feel like it’s a thing that most would be like, “Oh, I do that already,” but in some cases it’s never done. So, making sure that you plan for all of those things and get them down as soon as come upon them helps so much and will save you so much trouble.

Felix: Makes sense. Now, when you are approaching building this infrastructure or system, how do you document all of this? How do you keep track of all of the infrastructure that you want to create?

Sarah: I would say … Well, we started off using Google Docs, because that was kind of the easiest system. The best way that I could think to go about it was essentially building the skeleton. So, in Google Drive, I know from experience that I’m going to need folders for clients. In those folders for clients I know I’m going to need art assets, I’m going to need copyright information, I’m going to need our licensing agreements, I’m going to need contact information for whoever I’m talking to, I’m going to need a place to dump all the emails and correspondence that we have and I’m also going to need things like a folder for any concepts we have and a folder for first, second, third approvals. Basically, building all of that out in Google Drive or your whatever server you use or whatever equivalent there is, making sure that you have that structure in place right to begin with and then making sure that you file everything when you get it.

That’s the biggest step because then you can go through and say, "Okay, well I know in my HR folder I have all of my employees information, so they’re hiring information, the dates that they were hired, the NDAs that they’ve signed, the other special NDAs they’ve signed for specific things they’ve done, all of this random stuff, and then you’ve kind of build around that. So, when I do my hiring process I now know I’m going to have to do this for minimum wage. I know I’m going to do this for the insurance. And I have all of that stuff readily on hand and I know where it’s at in the folder so when I have to pull it it’s just a matter of yanking it out and then having a single document that basically says, okay, for new hires here’s the hiring process and all the things I have to do. Here’s the ramp up, here’s the orientation process, all of that.

For item creation, here are the 97 steps we go through and here’s everything we need to know for everything that we do, I basically try to make a process around it. Here are the steps that we do and here’s the process that goes behind it and here’s the reasoning behind it. And that is what we have to follow.

If you’re going into a company that doesn’t have this to begin with, it can be a little bit of a tough pill to swallow, because if you’re used to doing things kind of haphazardly and someone comes in and says, “Nope, we’re going to do structure.” It can be a little hard for people to adjust to, so starting small and building your way up, and building around that is the best way to do it, just so that people aren’t instantly overwhelmed with corporate-ness.

Felix: Makes sense. Awesome. Thank you so much, Sarah. So Sanshee.com, again, is the website. S-A-N-S-H-E-E .com. Where do you personally want to see the business be this time next year? What are the main goals that you as a company want to focus on.

Sarah: Oh, gosh. There’s actually a lot. I want to explore things like books. I’m a veracious reader, so having physical items for the books I like … Game of Thrones is a perfect example. Obviously it’s a TV show now, so merchandising is a lot easier, but these books that I’ve grown up on that are super popular, but merchandising is so hard because you don’t have a tangible thing. or, I’m sorry, a thing to look at. So creating items around that is always very interesting and I would love to explore that and work with the people I respected as a child or as a teenager and work with them to create their vision in physical form. That’s something I’m really passionate about.

Same with TV shows. I would love to get more into … we’ve kind of started doing that, but getting more into TV shows and creating items there. Honestly, I would love to see us with a fulfillment center that’s not in our office. Having the fulfillment center in the office is great right now, but I would love to see us get to a point where we have so much stuff that we have an outside fulfillment center. That’s where I’d like to see us go.

Felix: Nice. Awesome. So excited to see where you guys take the business next. Thank you again so much, Sarah.

Sarah: Thank you so much for having me.

Felix: Here’s a sneak peek of what’s in store for the next Shopify Masters episode.

Speaker 3: Telling that story really helps resonate with my audience, because a lot of my audience are also young mom’s who also might have a small hobby business.

Felix: Thanks for listening to Shopify Masters, the e-commerce marketing podcast for ambitious entrepreneurs. To start your store today visit shopify.com/masters to claim your extended 30-day free trial.

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