Surviving in an Industry Where 6 Weeks Is the Equivalent of 6 Months

Some industries move so quickly that products that were innovative yesterday become commodities tomorrow. In these hyper-competitive spaces, being first to market isn't enough. In this episode of Shopify Masters, you’ll learn from two entrepreneurs who built a systematized business that they can adapt quickly to a fast-growing vaping industry that's saturated with competitors. Robert Kayvon and Carlos Garay are the owners of SOURCEvapes: high-quality vaporizer equipment and accessories.

Some industries move so quickly that products that were innovative yesterday become commodities tomorrow. 

In these hyper-competitive spaces, being first to market isn't enough. 

In this episode of Shopify Masters, you’ll learn from two entrepreneurs who built a systematized business where they can quickly adapt to a fast-growing vaping industry that's saturated with competitors.

Robert Kayvon and Carlos Garay are the owners of SOURCEvapes: high-quality vaporizer equipment and accessories.

Success is your worst enemy because once you start getting one right, two right, you think you've got everything right.

Tune in to learn

• Why you should add a clearance section to your store
• How to take advantage of critical reviews
• Why success can be your worst enemy

Listen to Shopify Masters below…

Download this episode on Google Play, iTunes or here!

 

Show Notes

• Store: SOURCEvapes
• Social Profiles: Facebook, Twitter, Instagram
• Recommendations: StitchLabs, Shipstation, Zendesk, Ice Cream Screen Recorder

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Transcript

Felix: Today I’m joined by Robert and Carlos of SOURCEvapes. SOURCEvapes sells high quality vaporizer equipment and accessories and was started in 2013 and based out of Las Vegas, Nevada. Welcome, Robert and Carlos.

Carlos: Thank you for having us here, man. Really excited to be here.

Robert: Thanks for having us.

Felix: Yeah. Excited to have you guys on too. So, yeah. Tell us a bit of some of the most popular products that you sell.

Carlos: Our most popular product is our flagship product, is our Source Orb 4 and the Source Orb Design. That’s basically what launched this really big into the marketplace. Then we’ve added other product lines since then. That was back in 2014. Now we have something like the Source Nail XL and we’ve actually expanded it to about 10 core products now, three different product lines.

Felix: Got it. So, Source Orb 4. Was this the first product that you guys released with or what was the first one that you launched the store with?

Robert: No. We actually, we launched it, I think it was the Source Micro. Basically, the way we started the company was we wanted to make something open source, just have replacements, more affordable replacements for other companies’ products where they were basically just gauging it at super high prices. So, that’s where the term “source” came from. We wanted people to be able to use all the products together. So, we just came up with the Source Micro, which was geared towards micro vaporizers to just have different atomizers. By March 2014, that’s when we released our first Source Orb V1. Then that’s when we launched our own, started branching into our own exclusive products, basically.

Felix: Got it. Yeah. So, I don’t know much about vaporizers. Can you explain a little bit about how your product, you told us something a little bit, but can you explain a little bit further about how your product is different than what the competitors were offering at the time?

Carlos: One thing we wanted to do was create it so all of our products were interchangeable. Each line of our atomizers are cross compatible with various products within the same line.

Robert: So, basically, that got us into the market just by being a more affordable alternative. But then from there, we decided to just keep innovating. We just never stopped. So, we just upped our quality. By then, our quality was better than other people’s. So, when we released, for instance, like we talked about the Source Orb, at the time it was revolutionary, it was the first kind that had double coils, new air flow design, and from there, that’s where we got the idea of instead of releasing multiple vaporizors like other companies do and have the customer have to repurchase a different vaporizer, a different cold kit every single time, we can just sell different atomizer styles, basically you can call it I guess the brain or the engine of the orb based on what powers it is. What deals with the [inaudible 00:03:56]. And just keep releasing new versions of it.

So we did that with our four series line last year. And basically expanded it to having full cross compatibility within our products, so if somebody go and says, buys an orb four last year, this year, when we release new products, new atomizers, they don’t have to go in and repurchase everything else like everyone else, they just go in and have the new atomizer. And then on top of that, stores, because that’s a big factor of what we grow our business into, distribution also our unique products is stores like it because it’s a great upsell item. The more options you have for the customer to keep coming and repurchasing, the better it is.

Felix: That makes sense. So can you say a little bit more about how it is an upsell item that you’re selling as well?

Robert: Yeah, of course. So for instance, here’s the thing. Our product range is from 10 dollars not including our sales section, we always have a sales section with our old products, but all the way from 9.95, 10 dollars basically, to our latest product which is 250 dollars. Right? Four different product lines basically at multiple atomizers configurations. So in comparison to other companies in our own market and industry, one per, then go back maybe from atomizer replacements. Maybe they have two or three, most likely they have like one sometimes. And then they’ll come out with another product maybe next year. So you get that customer to purchase that one product and like I said, maybe one, two atomizers within the next six months. So [inaudible 00:05:47] that product price will be about 80 dollars and then that atomizer’s about 20 bucks, so that customer value lifetime is about 100 bucks on average, tops. 120 would be really pushing all of your customers to purchase, year, year and a half.

Us, though, it’s completely different. Our customer lifetime value actually doubles. And get that lifetime value up to 200 dollars and then every time you acquire a customer and hopefully you get a few of them up to that 20 percent, you get more money rather than trying to make a big low profit item with not much repurchase rate from our customer. Our main focus is always repurchase rate, how can we get more customers back and how can we get more money into our store’s hands, basically.

Felix: So how are the competitors doing it differently where they don’t have an upsell component to their product lines?

Robert: Well, the thing is, on average in our industry, I’m gonna say 90 percent, 80 percent of all competing companies with all due respect are just basically copies of each other. There’s very little innovation in our market other than a few of us. We went ahead and basically had a product idea and blueprint to basically, and we did this quietly to make sure, I guess you can say snuck up on everybody and basically by the time this was all out it’s too late for the catch up. But like I said, when you have competing products, since they didn’t think about this atomizer replacement function, they can’t do it, they physically can’t do it and now they’re stuck in these ecosystems that unless they literally reset all of their product line and come up with a new product, which will abandon all their old customers, they just physically cannot.

Felix: Got it. So from the get go, you have a product that can’t accept a component which is the atomizer, so that entire system of products works with each other which is not how your competitors are doing, your competitors are selling almost a closed system where you buy everything all at once and it doesn’t have the ability to add on additional components and in your case, this is the coilless or the five coilless atomizers that you sell?

Robert: Yes, actually, our new product, I would say the way we explain it to people is thinking behind a process kind of like an iPhone and even an iPad, so when you have an iPhone, it just does everything for you, so whenever I see and whenever we see another product on the market that does something, we basically want to incorporate that either equally or better than that. So compared to everyone else, it’s kind of like Apple, you can just be an amoeba and add all this with our Four Series [inaudible 00:09:04], and then we made our Excel series that is basically like an iPad that can play, that can work with the smaller atomizers but also the large ones. So at the biggest, which is our Source Nail, it can work with up to 30 different atomizers, so that’s the main thing that we did and I would recommend to anyone listening to is if you’re getting anything mass produced, made from China, good pricing, good quality, good branding, that’s great, but end of the day, there’s always a bigger fish, so the only solution to start helping you is to design exclusive products and if you can’t, get them patented, because that’s what we did with our system and all the new atomizers.

And once you start doing that, then you basically defend our, you got a pattern, you got a whole system that is not easy to penetrate and beat because if you just keep basically calling China or another factory’s emailed you again and said “Oh, check it out, we got this new thing,” it’s you and a couple of hundred thousand people, couple hundred or thousand people that got the same email.

Felix: Right.

Robert: And you’re one of the one that answers, what do they probably get, one percent [inaudible 00:10:23] rate from Chinese? So you’re gonna get maybe five, 10 companies that have the same thing. So it’s only a matter of time until you all die out because the person that has the power is your manufacturer and they’ll always undercut you once they are running out of money.

Felix: Right, so you’re saying that if you’re not using your own products, you’ll eventually get into some kind of pricing war where you’re all just fighting for the same piece of pie. Now, when you sit down and designed this system, how do you think about the product design differently if you want to create a whole system that works with each other and then is also possible to support future features, essentially?

Robert: We just started with our, to be honest, a lot of the reason we’ve been able to survive because our markets, E6 and all the markets that we are is … I remember I read a quote from another entrepreneur in our industry who said in our industry, six weeks is the equivalent of six months. It moves so quickly and you’ll have companies come and go within six months interval that you think has been like two, three years. So the main thing we’ve been able to survive and the best thing we did is we’re flexible and we maneuver quickly, so sometimes it ruffles feathers with our distributors and wholesalers because we come out with a product three, four months in, we’re like “Have you already got a new version?” We’re always working very well with all of our exclusive distribution partners anytime they have all their stock, we’ll take it back, we’ll replace it with the new ones.

But the main thing is it’s basically trying to follow … basically, we had a blueprint, but you have to be flexible. If you’re very rigid, if you said “I need to do this,” you might break, so a lot of times, we’ve had to change our ideas or product development, our product releases. Just to be able to move and react to the market quickly.

Felix: Can you say more about flexibility? I think this is a really important point that you’re making, how do you add flexibility into your company?

Robert: Sometimes you know, I’m the one that designs most of the products, like the Eternals, and sometimes I’m adamant about certain things, like I wanted to make a premium kit of our Orbix-L because I liked it. And I remember Walt Disney said this, one of the guys, one of the mentors that I follow, is you’re not building things for yourself, you’re building it for other people. So I’ll shoot out this idea and [inaudible 00:13:13] partner will say “You know what? We prefer travel kits.” And for a night, I’ll grown and rrr, but then think about actually think about what everyone says, a lot of entrepreneurs, I know they said this on Shark Tank, success is your worst enemy. Because once you start getting one right, two right, you think you got everything, but every time someone would say something, even if at the beginning, you’re like “Oh!” You just gotta think about it.

So sometimes I literally nix products just on a conversation with two distributors. And even though we’re moving on it, it’s not a great idea, and sometimes I’m talking to a distributor and actually this happened with our three series line right now, which is our budget line. I was with one of the top sales people at our distributor. Out of nowhere sends me an email and say “Hey, we have inquiries for products of this competing product. I know you guys can make it better, what do you think?” And it was a lower price, more budget friendly, and I literally got off the phone and said “Do you want to rebuy our three series line?” We already had the four series out. Do you wanna buy the three series line, I can make it for you immediately, release it at these price points, and basically beat out these competitors.

Within 48 hours, we already had three different products designed and already in production because that’s what they wanted.

Felix: So this goes back to your point about how you’re able to maneuver quickly. Now, how do you set up your company so that you can also act quickly on these kind of opportunities?

Robert: We keep it [inaudible 00:14:53], that’s the main thing we do. We keep it small, small group of people, very small overhead, like miniature. More than anything is we keep an active connection with our user based fans. We also change the way we release products. We started doing with our Excel series products, really atomizers first, before full kits. So that way, we could see which ones were the most popular rather than our assumption of what we think should be the most popular and then afterwards, make kits from that. So that’s mainly how we do it. Anything like that too, we also have our clearance section which especially if any of you guys that have multiple products, especially older products, a great think to have, just a clearance section. It won’t hurt your retail prices, your wholesaling if it’s older products, but it really brings in that budget purchaser that you can turn it into somebody who comes in for the budget and then converts to a loyal, lifetime customer.

Felix: Right. Now how do you decide what gets sent to the clearance section?

Robert: Anything not current.

Felix: So you would never sell the Source Orb three and the Source Orb four together or I’m not sure if that’s a good example or not, but you would never sell a quote unquote “outdated” version of a product?

Robert: Yeah, outdated versions. So for instance, we have right now the Orb 3 [inaudible 00:16:32] two kit which is premium two. So the premium one is on the clearance section for 50 percent off. So we have new nail attachments which are 70 dollars retail, but with the older glass, so they’re half off. And going with the flexibility, this actually happened with our Source Orb four when we first launched it, it’s magnetic, and we tested it, we used it, but one of the things that we really … that happens is when you release a product, you can test it and use it however many times you want, but most of the people that are testing it are involved in the design or use of it or previous users. So they tend to be a little bit more educated on how to use it, so when you actually release a product to the mass, they’ll basically go through the paces and do things you never thought about.

So the magnet would fall off in your pocket. We figured if you make the atomizers twice as long, the magnet will stay put, so we literally had to change gears, switch gears, manufacture these atomizers twice the size, and then all the short ones, which now fit for other product, we basically put those at 50 percent off. So that way, you can have, especially us because we’re a premium brand, you have a premium brand pricing and everything and all the value that comes with it, but then you also have that great, great clearance section at 50 percent off. So you also stave off, you know, in our market, there’s a lot of competition, lot of Chinese competitors for the lower quality products, so you compete in the clearance section by having something I guess older or lower quality or even keep producing older quality, like older products, like hey, you know there’s still more glass than we could do that, that is older. Keep selling it because you’ll basically fight off all the lower priced people before they even get to it.

Felix: Got it. And the idea behind that as well is that you can win these budget conscious customers through the clearance section and then maybe when they are more willing to invest in buying better equipment or more updated equipment, they’ll come back to you because they’ve been a past customer already.

Robert: Yes, and actually, we have a saying around here, not only that, but everything in our clearance section must be better than every competitor’s product out there. So not even like the cheap products that you just find on Ebay, our clearance section must be better than our full priced, quote unquote “premium brands.” Which we do. So we always try to keep something there that basically every other competitor, you can get it for 50 percent off from us.

Felix: Got it. Now, this all goes back, we were just saying earlier, it goes back to the idea that you can maneuver quickly, you can product new products quickly, so you can keep on advancing your product line, and you’re able to do this is because you’re keeping things lean. Based on what you’ve seen in other competitors or even other industries, where do you think that there are some places that you guys decided have gone lean where other entrepreneurs might want to take a hard look at to trim some of the fat?

Carlos: You know, some of the things that we do is don’t, we look at the labor market? The taxation, and also the adding of multiple team members. A lot of companies basically just go ahead and say “Yeah, I’m gonna make it, let me rent out this warehouse.” They care a lot, too, on what they look, let me pay for the office, let me get this, like you can always trim, one of the main reasons we’re in Las Vegas, we’re actually based out of Pahrump now. But one of the main reasons we are in Nevada and now in Pahrump is that the taxes. Nevada has no income tax, especially for corporate, we were in Las Vegas, but Clark County started taxing. So we literally moved to Pahrump.

We ship out of Benzonia in Michigan. So while a lot of our competitors turn around and say “I distribute from LA,” that’s great, but then you’re paying California taxes, California minimum wage, everything else, you’re not even counting all the LA taxes, everything else. So for us, it’s better to make strategic partnerships with distributors in certain areas, especially large area distributors. But that’s one of the things we focus on is not basically growing to something … the less things you actually have to pay, in case sales basically drop off, that’s the main thing. You want to be as lean as possible so that later on, you’re not just ballooned up and can’t even keep the lights on.

Felix: Got it. So you’ve mentioned distributors a couple of times now. They have been able to of course get your products out there and also provide very valuable feedback on what the market wants. How did you find your distributors to work with?

Carlos: We went to the best, Robert and I started selling vaporizors before for another company he had, so we had some connections when I was doing sales for him for these top distributors, but I basically, you call them up, I always laugh about this in Shark Tank, they ask people have you called Whole Foods, have you called this, especially when they have a hot product and they’re like “No, I just don’t know how to get ahold of them.” You go ahead and you literally do not stop. I’ll never forget, I was calling Vape World, which is another distributor we used to work with before we went exclusive with another one, but I literally on the phone, nonstop, what’s going on, who can I talk to? Like three, four months, you have to keep going, and if your product, your service or yourself are good enough, you will close the deal.

Felix: Got it. And how do you usually work with, once you’ve established a relationship with a distributor and are working together, what’s actually being done? How do you actually work with this distributors on a day to day basis?

Robert: Well, it’s simpler than that, we just signed an exclusive agreement with two of them between the US and Canada. Told them “Hey, there are the price points, you can’t go lower, we won’t sell to anybody else, you can’t carry certain brands that compete with us.” We signed a long contract, you had to promote us this many times and then they just turn around and distribute to the network. One of our partners has I think over 15 hundred brick and mortar stores that they sell to, so they basically just turn around, send you a PO, buy it, then they go and sell it. So I recommend anybody, if you have a chance to go and through a distributor and it’s not somebody who’s going to, let’s say have big returns or give you an ID or anything like that, it’s always good because you could make more money and we’ve talked about it here, we could make more money if we literally just started doing wholesale ourself, the profit margin, but most people don’t then anticipate the cost with doing that.

In order to have a wholesale team, you need to have dedicated salespeople. Then you’re basically growing, what we’re talking about later, the overhead. And later on, wholesale is weak in March. You’ve got all these wholesale people, you still gotta pay that day, in that whole month. So you gotta pay each one what, 90K? So is your profit margin really gonna be that much higher than turning around and saying “Hey, distributors are making 30 percent, I’m making 30 percent less profit, but here you go, handle it, you move it, you have dedicated salespeople and you already have the stores.” It’s much easier and it’s specializing in what everyone’s best at.

Felix: Right, so you’re moving this potential overhead cost of having in house, wholesale, workers into more of a variable cost by having those distributors that work outside your company.

Carlos: Yes, yes, and you know, we like connections mainly, we like a lot of our working … most, all of our team doesn’t work at an actual, in the warehouse. Customer service team, they just work remotely. So what we like, it’s kind of like you said, wholesale things like that is adding people, actual humans to your system brings downfalls. There’s upsides to it and downfalls and that’s what I’m saying, one of the downfalls is you get a great wholesale person, you get a great person, he’s killing it, but you gotta pay for his staff, you gotta pay for something, and then what happens when he’s sick? What happens when he’s got a baby or they got higher aspirations and they want to get another job? You end up being tied to people’s, other people’s lives, see what I’m saying?

So it’s much easier … we like to rely on systems and computers, so we do Shopify, Shopify connects to apps, like Stitch labs, Stich labs connects to shipping station, shipping’s then automatic. Instead of having a person, having to do it, instead we connect to [inaudible 00:26:24], [inaudible 00:26:25] then automatically goes and connects all of the omni channel, ways for customers to connect with us, twitter, Facebook, et cetera, email, phone, and everything you have it documented, easily systematized. So that way, at the end of the day when most entrepreneurs are trying to do is one, pay the bills, but two, most likely have an exit plan. And the main way to have an exit plan and have someone come in and say “You know what? This is a great business, he’s a couple of mill, we’ll buy it up,” is for them to be able to basically come in and be replacing you.

So if they come in and you’re doing everything and we have all these employees and everything like that and all these people are indispensable, that’s a lot of hurdles to people, so they prefer being able to basically do a turnkey business, this is all how it works, it all runs itself, these people when you hire them, we already have a system on how they get trained, they follow this script, these are the answers already preprogrammed, and if one of them needs to be replaced, it’s easily replaced within a day or two.

Things like that we like are the company to basically not rely even on my, whenever I’m doing things, anything important, things like that, I literally make a video of it, record the screen, and we document it. So then our manager can go ahead and copy it and then she can easily show it to all the people when they train. So you want to make it, again, one of the things you want to do is you want to make everything so systematized that you can easily dip in and out, whether it’s vacation, anything like that selling, you want to make it as systematized as possible.

Felix: Got it. So going back to the idea of having the distributor, you’re basically paying into a system, so rather than having an employee, you are buying into a system that if someone, the distributor is sick or leaves the company, they have a system in place already, you’ve purchased into it so that it already has someone to pick it or up or they already have a process, pick it all up so you don’t have to worry about individuals, you already bought into a system that can replace individuals as they come and go or any other changes essentially happen.

Now, when you are looking for distributor, for anyone else out there that, this is sounding very attractive to them, what are some things to pay attention to when you sit down with a distributor to hash out a contract? What are some key terms that you think is are really important to focus on?

Carlos: You want to make sure, one of the things you really want to stick on and I think most novice entrepreneurs will do this, you really want to stick to being able to, first off, your clauses. Breaches of contract, anything like that, have it so if they break the contract, if they do anything at that phase, you can either get money back or be able to break the contract and go to someone else.

So one of the big things you want to do is a minimum advertised price. Agreement. Do not, do not, do not sign a contract unless you’ve basically told them you cannot display our product or basically print or sell our product for lower than this, even wholesale distributor retail, whatever it is. Because there’s been multiple companies, there was actually a distributor in Costa Mesa, they actually went out of business because of course they do business like this, but able to do bad faith, they purchased a bunch of products from this company that sold grinders. And good quality grinders, but then they had a lot of stock and they weren’t selling, they wanted a lower price from the grinder company and they’re like “We can’t, this is our price point,” so they turned around and said “Fine, we’re not gonna carry you anymore.” And they’re like “That’s cool,” and to liquidate their stock, they went ahead and printed on their catalogs, “liquidation pricing,” of the grinders. And you know what happens when you have anything wholesale at a lower price that stores see?

Stores are basically, their job is to run a business, so they’re looking to get it as cheap as possible, this isn’t like a customer, a customer will oversee if they have a cheaper price, they already have a product. Stores turn it around and basically all of them said, “I can get it for this price. I want it for this price or I’m not buying it from you.” And from thereon onward, it’s printed, so now people thought basically half the idea that that is the new price point. Case in point, the grinder company went out of business. Because now your whole business and price points are destroyed, so they basically tanked out their own product and bottomed out their market just because they weren’t gonna carry a product anymore, and that I think is the most dangerous thing because you know, if you say you have to purchase my product, this is the minimum advertised price, and they turn around, they’re not selling? You know, you can always have a clause if they’re not selling this much, then we can dip out.

But that one won’t hurt you long term. You lose time, whatever, but if somebody turns around and undercuts you, especially one of your distributors, you could potentially just lose your business completely.

Felix: Wow, yeah, definitely sounds like a very fatal mistake that could happen from the beginning of your relationship with the distributor. You mentioned earlier that you have gone exclusive with the distributors in the US and in Canada. What’s the benefit behind going exclusive with a distributor?

Carlos: You know, there’s a saying, when everyone’s special, no one’s special? So if you’re in three different distributors, just to give an example, I guess a better example, if you’re a product and you go to Target, you go to Walmart, and all these people are like “Sure, I’ll carry you,” that’s fine, they go ahead and carry you and they put you on the aisle and you’re just like everyone else, hopefully you’ll sell just under a brand alone, et cetera. If you go ahead and then Target turns around and says “I want you exclusive,” the distributor and/or Target, whatever, now thinks they’re special, and since they only have it, they’ve put you front and center. So if you can find someone, even if it’s a little bit smaller, but they go ahead and give you basically the VIP treatment, it’s much, much, much better to make an exclusive partnership like that because then you benefit not only from the sales, but the marketing and their expertise to basically push you. Because now they tie their growth to you. So you basically become symbiotic.

And it also, I guess you can say, as a deadman switch, gives you a symbiotic relationship which they are now tied to your growth. So with a little bit of safety knowing that one, it’d better be a good distributor, but two, if they are, you have to … I mean, as long as you focus on yourself, which is making good products, good branding, you will be successful because they will be successful and you are their golden child.

Robert: Could we just add on with the distributors as well, getting inside a couple of exclusive distributors doesn’t really block you from other distributors that are out there because they may stop distributing to them as well, so our distributors are sub distributing a product others, so you still end up getting a lot more locations but on our end too, on the operational end, ends up being less work, less things to deal with, less orders to deal with, and they kind of handle distributing to other distributors.

Felix: Got it, so you work with just a select few people and they do the rest of the job of getting it out to more folks like these sub distributors. So I want to talk a little bit more of the systems that you guys have created. What would you say are, maybe is the number one aspect of your business that you’ve systematized that has had the biggest impact on the success of your business?

Robert: Customer service. I think both customer service and actually inventory and stock sales. Customer service things to Zendesk and then the inventory and customer service management on basically what we call our “brain,” which is Stitch labs. But basically those two just make things much, much easier. We used to just have a, anybody listening, go get a Zendesk, I think it’s free, whatever or something like it. But we used to just have people email us and then you sit there and you got to respond to every single email, it takes 10 times more, you don’t know what the customer said earlier, everything like that, you want things much connected as possible, but those two things have been the best things we’ve done so far, business-wise.

Carlos: And I would say for systematization, another thing that’s really helped is doing the recording of the videos. Most of them we use ice cream screen recorder, which is just as basic desktop app, and the thing is you’ll see a lot of people that are starting out companies, they end up retraining people over and over again for the same jobs, someone new comes in and you’re sitting there on the computer, a lot of people are doing share screens over and over again, but there’s really no reason to do that. It can all be done on a computer, record what it is, and it used to be we had to train an agent who would take a couple weeks, now an agent comes in, someone new comes in, they sit there, they watch the videos for a few days and they know most of it. And that systematization of the videos and really relying more on videos than sitting there and doing in person training, takes a lot of load of the system, takes a lot of load off the team leads and isn’t just another easy systematization.

Felix: Love it. So another automation that I see added to your site is with the Yacht Pull reviews which I believe sends out automated email to your customer after they’ve purchased or at a set interval and ask them to review and you guys have over 7000 certified reviews on your site. What is, how did you I guess begin soliciting or encouraging customers to come and write reviews? Because 7000 is amazing, helps with the SEO, helps with of course the trust factor for new customers when they’re vising, so how were you able to get over 7000 reviews on your site?

Carlos: You know, John Lasseter from Pixar always said “The best marketing is to make a great product.” And that’s how we started and to be perfectly honest, we started putting up the reviews once we had a great product. Because your first launch of anything, even to this day our newer products, you will always have bugs. The guy from LinkedIn always says if your product is perfect and you love your product, you released too late. And so that’s what happened in the beginning, we released stuff, it was great, it was okay to good, not great, due to customers complaining and things like that but there was no reviews, we always made sure.

Once you have it basically dialed in, boom, then you go ahead and add those reviews because that’s where the word of mouth comes. The average customer, you could tell them anything, people nowadays, especially with the political climate, the news et cetera don’t believe anything, even reviews, we still get people like “Oh, it’s not … [inaudible 00:37:51] verified that.” But it gives them that extra confidence from other people, nobody wants to listen to a review, nobody trusts IGN, CNN, half the people know that it’s just a paper route. So the real core early adopters, especially a lot of things that we talk about Robert and I, it’s mainly I guess you can say tech based, arts, clothing, that’s all different, but anything that is more tech related, more that can be compared to stats for a machine or whatever.

Robert: Specs or whatever.

Carlos: Yeah. Those things? It’s just better when real customers review it.

Felix: Got it. Was this just off the back of sending these automated emails out or because I’ve seen other stores do things like they offer a discount code or something if someone writes a review, was there any other ways that you’ve been able to encourage past customers to come to the site and write a review?

Carlos: Yeah, we give a five dollar coupon code if they write a review. Five dollars off coupon code. 10 dollars off if they go ahead and share that review on social media that they wrote, and then we also have our source rewards loyalty program which is phenomenal and best one in the industry but we go ahead and give customers just a thousand points just for signing up which gives them free shipping, maybe ten dollars off I think on the first order, 20 percent off. But then they can go ahead and just amass, and they can get points just by referring friends. And then they can also go all the way to get 50 percent off or 100 dollars off of our store, so we get a lot of customers just on that, they prefer to purchase our stuff and tell other customers because then they go ahead and save money as they spend it. People like to, you basically get like a gamification by becoming …

Felix: Got it. Now, where are, how are people finding out about your products? I can understand the distributors getting it out into the retail stores, so people are seeing it as they’re going shopping, but for your online only customers, how are you able to reach them?

Carlos: We do a lot of social media. A lot of email advertising, but one of the things that have been the most successful, CPC, cost per click, some advertising is good mainly because our market is so niche. There’s niche advertising networks because we have to be 18 plus. So Mantis. If we were doing Google AdSense, I don’t know, I couldn’t tell you if that’s better because it’s such a board … but Mantis, all of these things that are very niche, it’s easier to advertise, so if you advertise on High Times, you know the market is coming. But I think the best ROI, best return on investment we’ve gotten is influence. Especially YouTube influencers. YouTube influencers to go ahead and just use the product, give your honest review, and sometimes we even have to tell them “Tell me something wrong about it. Tell me what’s great, but give an honest review,” because a lot of companies will basically just say “Hey, review this, and go ahead and say this and act like it’s the best thing on Earth.” And then the customers will see through the lie.

Felix: Mm-hmm (affirmative).

Carlos: So if you just go ahead and give them an honest review and say “This product does this, it’s great, it’s amazing, but it’s not perfect,” that’s where you get the most brand loyalty and that’s been the best thing we’ve done in finding people is YouTube influencers just give honest and real reviews.

Felix: Got it. So you almost want the influencers to be a bit critical because it makes it, or not makes it, but it shows that it’s an honest review that’s not biased or that’s not forced onto them with a script.

Carlos: Yes, and you know how we said earlier how we’re very flexible? This goes with it, because I tell them, if you tell me what’s wrong, we go ahead and fix it. So we’re not like those companies when they tell you “Oh, this is horrible, it overheats or something,” they go ahead and try to hide the review. Like someone says “This could be better if they did it,” next iteration, we literally fix it. We try to fix it ASAP, as soon as possible by either having something extra the customer can purchase or by the next revision, we already have that upgrade. So basically, by the next time, because here’s the thing too, it doesn’t just make it real, but if it’s something that could be fixed by the next iteration, by the time the next one comes in and the same person reviews it, you basically already said “Hey, remember how this was great? We made it even better because we fixed that one thing they complained about.”

Felix: Got it, so do you try to go back to influencers that might have given you some constructive criticism? You’ve gone back and improved the product and then you try to come back to ask them to review it again?

Carlos: Always, always, and to be honest, the reviewers that just say everybody’s special and perfect, those are the ones we pay less attention to. Obviously the ones, end of the day, most views, most viral, that’s what matters, but the ones that realistically have rankings, have a point system that are honest and legit, those are the best value, because it does give you a point to compete with. It gives you a finish line and say “Okay, this is what’s wrong, these are what my competitors are doing that I have to meet” and then that’s why we have so many products because like I said, when we see something going on and something from another company is successful, I try every competitor’s product, so when I try something and I like it, how can I take this and bring it to mine? Basically, again, with everything we do, we think of the iPhone. You look at the Galaxy, it has something good, next thing you know, the iPhone has it but better. So anything we do like that, we try and incorporate it.

Felix: Got it. So you look for reviewers on YouTube that are critical, that are taking reviews seriously by having some kind of point system or some actual quantitative way to assess the product, so other than looking for that type of content, are there other things that you look at to decide what kind of reviewers to look at? Are there any tools or specific data that you reference to determine if it’s an influencer that you want to work with?

Carlos: No, you know, we mainly look at their views, look at the comments to make sure that they’re legit. The views, the comments, we look at the interaction, because some of them just have YouTube some of them just have Instagram, like alright large following there. We always want to make sure that they also match with our brand, obviously. You don’t want somebody that doesn’t match the branding you’re trying to give, review your product, but that’s basically it. And a lot of it is just a hunch. Sometimes you see, you’ll find a reviewer or an influencer who, we always try to comment, diamond in the rough, it’s very easy, it’s the easiest thing is to find the reviewers at the very top and obviously everyone knows the influencers and reviewers will start charging basically for their time, which is perfectly fine. A lot of people complain, saying that it’s like you’re buying a review, but then if you actually did it yourself and did review products, you’d figure out it takes so long. We’re basically just compensating for their time.

But it’s really easy to get the top ones. You really want to try to find somebody who’s gonna be on the [inaudible 00:45:47], basically, kind of like an emerging artist. And we do that sometimes, we’ll find someone who’s got maybe a couple thousand views, but the quality of their video or whatever they do is so good that it’s worth it to stick out with them, they’re free or cheap, but on top of that, during their growth, you become a really good partner with them and you help them grow because you were the bigger partner, so now you have kind of relationship.

So I used to do kind of music with DJ so that’s kind of what we also have in mind, when we look for influencers. It’s kind of like you’re trying to find a bunch of small influencers, you cast a wide net, you have a bunch of them try out and then hopefully a few of them will turn into quote unquote “influence superstars” and now you basically you are their biggest partner.

Robert: A good way to find people that want to review your type of product search competing products that are reviewed. So pretty much search competing product title, review, and you’ll find on YouTube that are searching, people that are doing similar ones, then when you find the reviewers, take a look at their view count, look at the subscriber count and make sure that the view count looks fairly realistic compared to the likes and dislikes and comments and if those line up, then you know it’s more likely it’s real, there are some reviewers out there that just buy themselves a bunch of views and ends up not getting the type of impact you’re looking for, but make sure those ratios are correct and you’ll find good reviewers.

Felix: Got it. So YouTube’s been known as one of the platforms that have had the most, maybe this is too friendly of a word, but most critical commentors on the videos, more than any other platforms. Do you experience this in the reviews, people that are coming in, and of course they’re anonymous and dropping comments that aren’t helpful in any way?

Carlos: Yeah, you know, it happens all the time. Again, not to drop a lot of rules, but the internet rule that they have is one nine ninety rule, I don’t know if you guys know, which is 90 percent of the internet is just lurkers, people who just read, interact, but don’t actually do anything. Nine percent of them basically comment once or twice here and there on forums, obviously social media’s different, but then only one percent literally of the people that go on average into a forum, et cetera, are the ones that comment. So one of the things that ends up happening is you will end up selling a thousand products and you’ve got 10 people mad and out of those 10 people, three of them basically did it themselves and no matter what you do, they’re not gonna be happy, guess what? Those three people in your videos that have five comments, boom, boom, boom.

So what can you do? You know, we’ve actually learned that the best thing to do is just make sure your customer’s always happy. Even if sometimes you lose more money, you end up losing more money by having a customer irate and turn around and giving you a bad Yelp review about something, costs more money in the long run than just letting it go. It really sucks, it’s a little bit like being held hostage sometimes, especially the bigger you are and the more comments or something, then it can just wade into the bottom, you can start ignoring them, but the smaller you are, they always kind of have you hostage. You get that email that says … nobody cares about calling the Better Business Bureau, but if they turn around and say “I’m gonna make a YouTube video of your product and I’m gonna say it’s garbage if you don’t refund my money,” ugh, you know, you’re kind of stuck between a rock and a hard place. You might be in the right, according to you, but it’s a pyrrhic victory at the end of the day, you end up losing out.

So sometimes you just have to give ’em whatever you want, especially if it’s something, somebody you can figure out what the problem is, even if it’s just giving them their money back and you lost money on that old deal, because you gave them the free product, who cares? It’s gonna cost way more money to try to fix it later.

Robert: Yeah, if you just have two people that are turned off to buy just from that one comment, that two people from those products is already gonna cost you more than whatever it is, replacing 100 percent or refunding that person.

Felix: Got it. So you might lose out money on that one individual, but you might be able to recover the cost of everyone else that might see it that might be turned off by it, so certainly, invest the time and money into making sure the customer’s always happy, it makes a lot of sense. So where do you guys want to see the business go next? Where do you want to take the business next?

Robert: You know, we’re waiting to see how the market’s growing. There’s since we are in a more controlled market, waiting for FDA approval, legislation, regulations, so we’re hoping for not too much government regulation, but enough to protect users and customers from lower quality branding, but other than that, we’re really excited just for growth itself and you know, maybe later on, which I think is most entrepreneurs’ goals is maybe seel a portion of it or have a clear exit, once you grow it enough, with another strategic partner we can hopefully later on find out.

Felix: Awesome, thank you so much, Carlos and Robert. So sourcevapes.com again is the website, thank you so much for coming on, guys.

Carlos: Thank you so much, man.

Robert: Thank you guys.

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

Speaker 5: I owned the buy books for iPhones and Samsung, so I was getting a lot of sales, so be like a 10 to 20 sales a day.

Felix: Thanks for listening to Shopify Masters, the eCommerce marketing podcast for ambitious entrepreneurs. To start your store today, visit shopify.com/masters to claim your extended 30 day free trial. Also, for this episode’s show notes, head over to shopify.com/blog.

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