Three Nashville-proud friends, Sam Davidson, Stephen Moseley, and Rob Williams, had the idea to start Batch, a gift company curating items made by artisans from their beloved city.
Initially starting off selling subscription boxes in 2013, Batch switched gears to be a gift company and grew to have its own retail space while generating $1.8 million in sales annually.
In this episode of Shopify Masters, you'll hear from Sam Davidson of Batch on how they validated the concept, work with local makers, and switched their business focus.
The initial concept was just the subscription box, but what we saw with our [early] orders is about half of those were gifts; people either wrote a gift message or it was going to another address.
Tune in to also learn
- How they used a landing page to validate their business idea
- The customer feedback convinced them to open a physical retail store
- The most important questions you should ask your existing customers
Show Notes
- Store: Batch
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Recommendations:
Fiverr, Klaviyo(Shopify app), Stocky(Shopify app), NetSuite
Transcript
Felix: Today I'm joined by Sam Davidson from Batch. Batch is a retail and gift company that specializes in artisan gifts from local makers, sourcing handmade items from the best small businesses in the South and was started in 2013, based out of Nashville, Tennessee and has annual revenues of $1.8 million. Welcome, Sam.
Sam: Hey, thanks for having me.
Felix: Yeah, excited to have you on. So this all started because you were trying to find the best things that are made in Nashville, all under one roof. So, tell us why would you personally need this?
Sam: Yeah, this, like a lot of businesses, I think, it was sort of built or invented or started out of necessity. And one holiday season I was trying to send a Nashville themed gift box to some friends of mine out in Colorado and I really wanted to send them what I considered to be sort of authentic tastes of Nashville, so, the really small-batch chocolate, the coffee that's roasted locally, some pastries.
Sam: But, I had to end up running all around town to different coffee shops or hope that a farmer's market might carry something and that the vendor would be popping up at a festival and ended up taking about half a day and had to go then pack it and wait in line at the post office and I just sort of thought, "man, there's got to be a better way." A couple of months later I was sitting around, sharing this predicament with a couple of friends. We were talking about all the great things we loved about Nashville but all agreed that, yeah you couldn't get these under one roof.
Sam: And, so, we wondered, could we be the team to do that, to consolidate, to find all these goods from these great local makers, small businesses and then put them together and sell them to our customers?
Felix: Yeah, so did you or your founding team, did any of you guys have experience starting businesses?
Sam: Yeah, all of us had and actually I started in different businesses with each of them. So, Stephen Moseley, one of my co-founders, he and I started a business, an e-commerce business back in 2006 and so we were able actually to start selling T-shirts on Shopify back in 08, I believe is when we hopped on the platform. So, we had a little bit of familiarity with that.
Sam: And, then, Rob Williams, my third co-founder, he and I had started a branding and marketing company, which is a little more of our background from the story and strategy standpoint. So, yeah, all three of us had done businesses, be it in the e-commerce space or the marketing space already.
Felix: Got it. Okay, so you knew that you had a problem, and you figured that there might be other people that had this same issue. Talk to us about the very next step. How did you start making progress towards making this a reality in terms of making it into a business?
Sam: Well, we did the math real quick and the idea of having a store with inventory is very cost prohibitive because you've got to sign a lease, you've got to buy a bunch of product, you've got to hire people, you've got to market it and we didn't have that kind of capital on hand.
Sam: What we did notice, back in 2013, was the rise in the subscription box industry. So, Birchbox, Dollar Shave Club, those companies were popular and growing. So, we were curious, could that be replicated for Nashville based makers? And, so we wondered, would people want to subscribe to get four Nashville made items sent to them every month to enjoy as a way for them to easily discover the new, the fun, the great, the delicious things being made in Nashville?
Sam: And, so we spent the summer of 2013 building the website, branding the company. And, our goal when we launched was to get 200 monthly subscribers by our third month. We thought if we did that we'd have a nice little side hustle. This really wasn't intended to be full-time work when we launched and we actually got to that 200 number our very first month. So, in September of 2013, we sent out 216 boxes. Me and my two friends, my co-founders, we got together, packed them in a church basement and we thought, "Hey, this will be fun. We'll just do this once a month, get together."
Sam: But, turns out, once those first boxes in September of 13 got into the hands of our subscribers, they were excited. They took pictures, they shared on social media, we were covered in the local newspaper and by that third month instead of a goal of 200, we actually crossed the 1000 mark and so we immediately had a much bigger idea and concept on our hands.
Felix: That's amazing. So, this was actually the test, right? Or did you have to do some initial testing earlier than that to find out if there was a market for it?
Sam: Yeah, some of the initial testings were really just gauging interest. So, we had just a simple landing page with a short description saying, "Hey, here's what we're trying to do. Drop us your email address if you're interested" and we collected about 200 email addresses that were outside of our own personal networks from the start.
Sam: And, again, it wasn't a commitment to buy. We didn't even list a price at that point but people were at least curious about it. The concept initially was just the subscription box but what we saw with even our initial orders, is about half of those were gifts because people either wrote a gift message or we noticed that it was going to a different address than the buyer's address.
Sam: And, so that was, while we didn't realize it immediately, we really saw that there was a market for this sort of a themed gift in the gift space and so it wasn't just people ... we thought, initially, it was going to be people who wanted to use this at home for themselves. But, very quickly people saw this as an option to give as a gift for someone else.
Felix: Got it. So, definitely want to talk about what you did in response to finding out that information. Before we get there I think a lot of entrepreneurs when they're starting out, they're worried about spending the time on the wrong things, and you guys took an approach of gauge the interest and collect the emails to see if people were ... so talk to us about what that looked like because I think is a very easy you can do. You could probably set something like this up in one day and then start getting people over to it.
Felix: Let's first talk about the setup. What did you put on the page and what's important to put on the page to collect emails when you're just trying to gauge if there is any interest or demand behind an idea that you have?
Sam: Yeah, we kept it as simple as possible and so we had the company name and we had a short description. I think it was a paragraph. I don't think it was even more than 100 words but we just said, "we're launching this company called Batch. We're going to send four Nashville made items out every month on a subscription model. These are all going to be from small businesses. If you're interested in learning more" ... we were explicit, "this does not commit you to buy, but if you just want to learn more or know when this is ready to buy, just drop us your email address. We're not going to sell it. We're not going to do anything else with it. We're going to send you one email when we're ready that you can then go and subscribe and start paying for this"
Sam: So, that was it. We kept it simple. You know if we had gotten ten people's email addresses, we wouldn't have taken another step. So, we wanted to make sure that we ... our goal was 100 because, again, our 200 subscriber goal wasn't down the road until month three. We thought month one, maybe we'd get 50 subscribers. And, so we want 100 email addresses, hopefully, we could convert half of them and so that was it. We kept it completely simple.
Sam: In retrospect, we probably could have learned more. That group might have told us more information. We could have put a quick three questions, "Hey, you've heard about the concept, how much would you pay for it? What frequency would you want? Monthly, every other month, once a quarter? Tell us what kinds of items you'd be interested in?"
Sam: But, we didn't do any of that. We just wanted to keep it completely simple, a very low level of commitment.
Felix: So, I heard you list a couple of features on there about how often it would be sent, that it's going to be from local makers, how did you know what features you wanted to highlight? Because this doesn't exist at the time, right? It was just an idea. How did you know what kind of features you should put on the landing page to gauge interest?
Sam: Yeah, I mean, a lot of it, like I said, we had a visual identity already. So, again, that's one of my co-founder's backgrounds is in digital marketing, digital design, and so we totally branded the page. So we went ahead and had our company logo up there and again, we had some compelling copy, more than what I've reiterated here, just to try to persuade people to put that email address. And, again, just one field entry is a very low barrier to entry.
Sam: We were sure to have the promise of "look, we're not going to sign you up for some other list and send you a crazy amount of emails. It's just we're going to send you one email. That's it." So, we wanted to be very clear in that and that was just part of our brand voice that we actually determined well before we even had a landing page, was how do we want this company to sound, to act, to feel towards people so they could tell others.
Sam: And, that's really what helped us kick in. Even on that initial idea of collecting email addresses is that other people would share that page just to say, "hey, this seems like a cool thing, go drop your email address so you can know when these guys launch." And, so it's very easy to share because the concept was also pretty crystal clear of what we were trying to do.
Felix: So, you mentioned that you made this look like an established company. You guys have a background in the branding, you said. So, you had a logo already, you had a visual identity already, not everyone has that background so how important is it to, for someone that's trying to go down the same path of validation that you guys went down, how important is it to invest the time or maybe even pay to have something like this done?
Sam: I think it's very important. I don't think you have to go overboard. I don't think you have to pay four or even five figures for something like this, if again, you're just at this sort of pre-product, pre-launch stage, you want to just gauge interest. We also did a couple of this with casual conversations. So, yes, friends and family and people in our network that we knew. At the same time, we were also talking behind the scenes to vendors to make sure this is something they wanted to be a supplier for.
Sam: But, on the web front, because there are so many resources, be it things like fiverr.com or 99designs. I mean there are places that people can go now in 2019 and spend less money and still get a high-quality product from a visual identity standpoint. I think in today's web world you've got to look professional, especially if you're asking people to give you something even as free, as small, but still as sacred as an email address.
Sam: And, so that was something that we knew we didn't want to compromise on. But, I think the person out there that doesn't have those skills and talents themselves in order to do it for "free" I do think they could pay a little amount of money and they're going to get a better uptick, they're going to get better traction, better proof of concept to feel secure about it, about the idea.
Sam: Because I think if you have an unprofessional sort of spammy looking landing page then people will leave without ever giving you anything, even reading the copy. And, so that doesn't tell you anything. It just tells you they didn't like your webpage. It doesn't mean they didn't necessarily like the business concept that you're trying to validate.
Felix: Got it. So you mentioned that you have a super low barrier entry, one field, meaning that you're not even asking for their name. You just want their email.
Sam: Exactly, yeah. At that point, it was just an email address. Now, obviously, over time and as people transact we'd need more info and now if you go to our website, there's a couple of different contact forms that we have based on the different products and services we offer, we ask for more information now because we're further down the line. There's also a lot more you can learn about us. But, because we weren't providing a lot of information at the time, we didn't even have a definitive ship date at that point. All we knew was the name and the concept.
Sam: So, because we couldn't tell people a lot about ourselves, we just didn't know, we couldn't expect a lot in return.
Felix: So, for someone that's doing this, and you mentioned that you guys kept it super quick and short and to the point, is there a danger of over-explaining here because I think that's something that whenever someone has an idea I think a lot of times they want to make sure that it's convincing, so they go through the logical steps of why it's a good idea and kind of walk through everything that's in their head.
Felix: Now you guys obviously did not do that. Was that on purpose or just that you guys wanted to get this out quickly, like what was your reason for keeping it short?
Sam: I think yeah, a couple of reasons. One and I think, like I said, if we had gotten nobody to sign up because we worked hard on the logo, we worked hard on that initial copy and again, if nobody, if 10 people had given us email addresses, then we could have saved ourselves a lot of time, not even need to take another step. Nobody really wants this or at least not enough people to make this idea viable. So, I think that's number one.
Sam: I think number two, the practicality of it was, again, we weren't exactly sure what was going to be in this. Was it going to be four items, five items, weren't entirely sure about that. We didn't know exactly when that first ship date was going to be. So, we kept it short just also because we were still trying to figure that out behind the scenes but we didn't want to waste any more time in trying to get this initial email interest validation.
Sam: And, I would say to folks out there who find themselves explaining more or they sort of a warning goes off in their brain that "gosh, this is a lot of words, am I explaining too much?" It could be that the idea is too complex and so now Batch is known and we're going to talk about later, we're way beyond just a subscription box company. But, that was it when we started. We kept the launch idea so simple to a single SKU that we were selling.
Sam: And, so I think at the launch phase a lot of entrepreneurs are better served, even if they have big dreams, to boiling it down to its simplest component so that you can explain it in 100 words or less. If you can't it might that your idea is too complex to launch in a reasonable manner.
Felix: Right. Because I think what you're getting at is that you can have these big dreams and visions for things years down the road but when you're first launching keep it simple. You mentioned boiling it down. How do you do this? How do you know what is, what should, what you should distill your vision down to that is in the size that's compact enough to launch with?
Sam: Well, some of it is based on what resources do you have in front of you? And so, for us, there were three of us, there were three guys. So, what can three guys handle from a business concept standpoint? One was physical space, we weren't selling a digital product, we had real, physical goods that have to go in real, tangible boxes and get on a truck and be mailed to real people's homes or businesses.
Sam: And, so we had space considerations that we had to think about. But, then also, a resource that everybody knows, capital. Cash, what kind of income, what kind of liquid did we need to be able to get done what we needed to get done? Yeah, the idea of a store popped into our heads but we had no way to access the kind of capital that we needed to sign a lease and really go all in.
Sam: The other reason a subscription box was appealing to us because we didn't need to pay for inventory until we already had committed sales and so, we didn't write a check to a vendor until we already had money in the bank from those first subscribers. We knew that when we had 200 we would only need to buy 200 of each unit in that box. And, so that, also kept it simple for us, of just being realistic and pragmatic of, "Hey, what can we actually get done?"
Sam: Because I think any business gets into trouble, no matter how long it's been around when they start to outgrow their infrastructure and our infrastructure at that point in time were just three friends who had some business acumen but not much else and were at least willing to try a very small idea. What we thought was a small idea at the time, to get it off the ground.
Felix: Now when you think about the early days do you find that it's more dangerous for an entrepreneur, especially early on, to overestimate or underestimate their resources and abilities?
Sam: Initially I would say overestimate because that can lead you down a road where you're making too many promises that the business can't cash, and I think when you over promise and under deliver to customers it's very hard to get them back. On the reverse side, I think if you under promise then selling out ... I mean selling out of, like running out of something, not selling out to the man, but running out of product is okay. It creates scarcity. Scarcity can create popularity. So, I think it's better to start small and run out of something because then you can develop wait lists, and you have customers who are curious and are eager to hear about the next time there is some availability.
Sam: So, I think scarcity is way better of a problem to have as a new business owner than is sort of overproduction and trying to go too big, too fast.
Felix: Yeah, I think a part of this, I guess the reason why this is happening is I think a lot of times people think that they're trying to catch lightning in a bottle where this is your only chance to get it right, you're not going to be able to get this opportunity again. But, do you find that that's not usually the case, that there are usually multiple opportunities to not necessarily launch but to sell, even if you don't have enough inventory at first?
Sam: Oh, I completely agree because I think really what you're trying to capture isn't just sales or transactions or a certain profit margin. I think if you measure everything in terms of numbers, or you're only looking at your business in terms of this sort of transactional nature, you miss out on the entire benefit of relationships.
Sam: I think relationships, especially we've learned this, in today's economy matters so much. And, so really what you're trying to do is develop relationships with people. Relationships are built on trust. So, if customers, potential customers, can't trust that you're going to fulfill on what you say you can then they're not going to come back and that, when I say that, it's because you've promised too much not because you've promised too little.
Sam: So, they'll come back if they just didn't get somewhere quick enough to buy what was there. Our second month of subscriptions, I told you we started with 200, month three was 1000. Month two could have been more, but we had to limit it to 600. When the first box went out people started signing up, and we immediately, kind of overnight, had to call our vendors that were committed to that second shipment and let them know, "what is your capacity?" Because we thought it'd be another 200, so we just told them 200 and so we had to get on the phone and say, "Hey, we've got orders coming in."
Sam: And, so very quickly we had to push people from, once we hit that 600 limit we had to say, folks were still coming, and we said, "sorry, you can't get next months. I know it's 30 days from shipment, but it's already sold out, but we can put you on the October one." And, so we didn't lose any sales. I mean, again, maybe we lost a handful but because our third month was even more popular than our second it worked to be able to tell people, "hey, we have hit our capacity. We're working with small makers, small businesses, they have a limit. Sorry about that. But, we'll take care of you for the third month and beyond."
Felix: Yeah, I think, and to what you said this kind of urgency is beneficial for a business when you do have this inventory that's selling out and now you have a waiting list and it's a real waiting list, not something that's manufactured. You actually don't have any supply left. I think it is actually an advantage for business early on to have that kind of hype build-up. So, obviously, you have this landing page set up, what do you do to actually get people to show up on the site? How do you drive traffic to the landing page?
Sam: So, it was, a lot of it was built on our own personal networks. And, so it was reaching out to everybody who was connected to us on LinkedIn or on Facebook or Twitter. It was, at the time I was blogging fairly regularly, had a little bit of a readership. So, it was putting it out there and just then asking people to share it. And, so while some of those initial emails were folks that we did know, the majority were not ones that at least we didn't easily recognize.
Sam: So, it really started there and that was some of the benefit of three of us doing this together, as that's three personal and professional networks that we can leverage. I think for the individual out there still starting personal with that personal network. I'm a big believer, I tell folks that you build your network before you need it. And, so if you're waiting to finally connect to a lot of people now that you have a business idea, I think you've done those in the wrong order.
Sam: I think there's always time to connect with others and then when you've got an idea for launch, something you're trying to sell, now you've got folks that you can mention it to. Not in a selly, spammy way, but just in a way where you let them know that this is what you're putting out into the world. And, so I think if you can do that first, then launch, then you'll be able to get some attention.
Felix: How long did it take to get to those 200 emails?
Sam: It took a couple of weeks. Again, initially, you know, some friends would go put their email address in and some, because they were genuinely interested. I mean, it was clear, I think in those Facebook posts to say, look don't give me your email address just I'm telling you to give me your ... I probably have your email address. Go here because you actually want to hear about the product and so it took a couple of weeks, about three weeks, I think to get to that 200 number and then that coincided with when we were pretty much ready to launch and start sales.
Felix: Got it. So you weren't reaching out to people individually. You were just like posting to your LinkedIn, to, I guess, your public LinkedIn page or your Facebook page and then you could see who would click on it.
Sam: Exactly.
Felix: Okay. Now from the landing page or let's say from getting those 200 emails which took a few weeks like you mentioned to actually having a box ready to ship, how long did that take?
Sam: It took about four weeks to get that together. So, from the time that we had the live website where people could go transact and subscribe, that officially kind of went open there, August 1 and then we had our first shipment go out the first Tuesday of, right after Labor Day, so Tuesday in September.
Felix: Okay. So, there was a stage in between collecting those emails and realize okay, this is, this has potential, let's move, let's take this, let's move this to the next state and actually building the site as well. So, there is a time between those two stages?
Sam: Exactly. And, we knew that we would make money even on one box, based on the price. Even if we had gotten 200 email addresses, felt good about it but only gotten one of those 200 to convert and subscribe, we knew that we would then only need to buy one of each unit that was going to be in there so it would have made, again, not a lot of money. Not enough probably even to pay for the domain name and things like that. So, that was what was good about the model early on, on a small scale that "hey we can take this risk" because, again, we haven't taken out second mortgages on our homes to buy inventory, for example, or machinery. Like this is pretty, we only going to buy what it is we end up selling.
Sam: So, yeah, we felt pretty good, even before the end of that kind of three-ish week period of collecting email addresses. We, as they started coming in, even like a week and a half in when we're getting 50 and 75, we said, okay, we think there'll be enough of those folks we can convert to really make this thing go to see if it's viable. So, that's when we started then talking to vendors to make sure we could source products for this. Figuring out where we're going to buy boxes, where we're going to pack this thing. So we started doing some planning, even as those email addresses were still rolling in before we ever made a sale.
Felix: Got it. I think this is an important point for people that are trying to be scrappy and don't have a lot to invest upfront, you were basically selling this and then when you need to fulfill it was when you would actually go out and bought inventory from these vendors, at least at a much smaller scale.
Sam: Yeah. One hundred percent was we would be able to tell a vendor, "Hey, we need exactly this many." Because that's exactly how many we sold. Now there was still a little bit of a dance there where we had to kind of buy a little bit of extra inventory because these small makers they need some heads up on to go make their goods because they may not have 200 of what they make sitting around so they need to go roast the coffee. They need to go mill the pancake mix. They need to go harvest the honey. Our first box was breakfast-themed.
Sam: And, so they would need time to go do that and so we cut off sales really about the 20th of August and so that way we could tell our vendors a number but then also project out, "hey we think" ... so we had to give our vendors a number by the 20th of August. But, that number we gave them was what we had sold up to that point plus an extra dozen or so that we hoped would come in to round out that order.
Felix: Got it. Okay, so when you're talking to these vendors what was that like? Was there any reason why a vendor would not want to be involved?
Sam: We didn't think so but part of our initial research was just asking them, "Hey, does this make sense?" A lot of vendors were facing the problem of "hey, how do I get my product into more hands because if the only place I sell is at this farmers market every Sunday afternoon that limits the amount of people that I can actually get this in front of." At the time, most of them did not have their own e-commerce operations. Some of them were wholesaling to grocery stores or other larger retailers. But, by and large, they were kind of at the whim, at the mercy of festivals, fairs, pop-ups, whatever they could kind of find.
Sam: Their passion, for most of these folks is not in sales, it's in making the thing that they make and so this seemed like a really kind of easy win where we would come in with a large order. Hopefully large to them and pay for it and ship it out and then once it's in the hand of what they saw as 200 or more new customers and hopefully those folks would seek them out at the market or would, for those who had an e-commerce store, would hop online and replenish their stock because they discovered it through us.
Sam: So, it kind of worked out for them. We were asking for a discount and so we said, "listen, in exchange for a higher volume order than you might normally sell, so that you can get some scale, some efficiency there in your cogs, and because you're going to be in the hands of presumably new customers and because then we're going to tell our audience about you through our social platforms and through a dedicated print piece inside the box, can you discount your normal wholesale rate?" And, most, if not all, were happy to do that because they saw the marketing benefit.
Felix: Got it. So, is there like a reasonable break that you can or should ask for, for someone out there that is looking to do something similar where they're sourcing from local makers, like you don't want to come in and obviously offend them by putting ... by bringing up a price point that's so low, but, what's a good starting point?
Sam: Yeah, I think a good starting point is ... I mean you can always start with half of their normal wholesale price to see if they can do it. It's going to vary by maker. What we learned real quick was that nobody can do it for free. Nobody could do it for free and a lot of these mega-subscription boxes, I mean, they're working with global billion-dollar brands who can donate 100,000 sampler units. But, our makers, they make in one size. Nobody makes a sample jar of honey, they're all making six ounces in a glass jar and they're buying 100 jars at a time so they're not getting a price break on their cost of goods and so it was very difficult for them to do anything for free, absolutely.
Sam: Some would do, "hey, look if you buy 100 units, I'll give you 10 units for free" which is essentially sort of a 10% discount. So, it just ranged and some folks we just said, "Hey, look what's the best you can do?" We stated our case of the benefits and some of them could do the math and say, "yeah, this beats paying $500 for an ad somewhere digitally or in print and so this is a great way to get in front of people."
Felix: Did you find that the businesses that had an e-commerce presence more likely to be involved or more interested, more excited about it, or was it more people that were trying to get into e-commerce for the first time, these vendors that is?
Sam: A little of both. I mean we have worked with vendors, not just then, but since then who have kind of been all over the map. What I mean by that is some are very new businesses, period. So, not just new to e-commerce, they're just new to their own business idea. And, so they definitely don't have anything set up because they just launched their company, filed their paperwork to be incorporated. Others have been around 15 years, just again, selling at these markets or to some select retailers and so they were thinking about going online.
Sam: So, it really ran the gamut, but I will say, as opposed to how long they had been around, the better question was how much were they growth focused? And, so some wanted ... they ran a hobby business we would say and they wanted to keep it a hobby business to something they did on the side or a couple of hours a day so they could live a certain lifestyle. But, others that we met are focused on high growth. They wanted to be the barbecue sauce king of the South and so they wanted to absolutely sell as much sauce to as many people who wanted it and that was their goal.
Sam: So, it was really focused more around their growth goals as to who had an e-commerce presence, who was already experimenting with selling on other channels like Amazon or a Walmart, at the time. So, that was kind of the core differentiator.
Felix: Got it. Okay. So, I want to talk now about the realization that you had pretty quick which was that half of the purchases were gifts and you also mentioned to us that it got you into the corporate gifting space. Talk to us about that. What did you guys change once you recognized that people were putting gift messages, and sending it to other shipping addresses that were not their billing address? Like what did you guys change about the business, the messaging, the branding?
Sam: Yeah, so when we launched we did utilize in the Shopify kind of template there, there is a chance for folks to write in a gift note and part of our brand early on, we still carry this on six years later, all of our notes are handwritten. Those that do our e-commerce or our subscription orders and so we pride ourselves on that. That's just the effort, the touch that we wanted. Well, and we did notice that was a high volume. Like I said, about 50% of those first boxes were folks that filled out a gift note and/or it was going to a different address than the buyer's address.
Sam: And, so that was interesting. Again, it wasn't something we were totally surprised by because we included that feature in the first e-commerce iteration and part of my problem was I was sending these things as a gift, originally. But, it only took off from there. The one red flag we got as a subscription company at the time was, wait a second, how are we going to get these people to renew? So, if somebody had bought a one or a three-month subscription, if you're getting that, that's nice but could you be persuaded to keep buying it for yourself?
Sam: And, so we were worried about our renewal rates when we started to see that. The upside was, about that third month in, we had our first call from a company in Nashville who called. We were only doing subscription boxes. They said, "Hey, we need 30 boxes." I took the call, I said, "great. The next one goes out in three weeks. I can add your addresses." They said, "no, no, no, we need these next week. It's for an event." And, that's when the light bulb went off to sort of say, "well, wait a second. It's the same stuff. It's the same products. We're putting them in a box. Now we're just changing the frequency. So, we've just got to find the labor to fulfill that, and can make better margin than the subscription and this could open a whole new market for us for folks who are buying in even more high volume than our subscriptions were trending at the time."
Sam: So, we kind of saw those two things by month three that individuals were using it as a gift and then companies who wanted the gifts in high volume.
Felix: Got it. So tell us more about this. So these companies that were buying, you're saying that they were buying it just like for a one time, for like an event, so like how were they purchasing the subscription from you?
Sam: Yeah, so we didn't sell them a subscription. We just said, "yeah, what's your budget?" And they would say, "Hey, we can spend $20, $30, $50 a box. We want you to have some great Nashville made items, some treats in there. We'll give them to our conference attendees or the speakers. Deliver them on this date to this event venue." And then they would pay for those all at once. So, we didn't force them into the subscription model. That was kind of our first, I won't call it a pivot, but an expansion to say, "Hey, we're a subscription box company and a corporate gift company now."
Felix: Got it. So, let's talk about this. Once you get into the corporate gifting space, what needs to change about your fulfillment, like the actual like behind, the back office work that's required to support something like that?
Sam: Yeah. I would say, yeah, two things. So, one, operationally. So, one, yes, we're going to need to fulfill on a different schedule. Before when it was just three of us packing all these boxes we could plan that out in advance, know where we were going to do it. But, now, knowing that an order could kind of come in for high volume, which at the time, for us, would have been more than a dozen or two. We need somewhere to know that we can receive inventory and pack these and so it led us to start looking for a warehouse to lease where we could actually do our own fulfillment.
Sam: Then, obviously, we need bodies. So, we need labor to help pack those boxes. So, that did, we did have to get set up a little bit different just from an operational standpoint. And, then back of the house, yeah, we had to have a way to process invoices now, rather than just e-commerce transactions that were on demand. We had to have a way to bill a company and based on their size they might have to route it through accounting and go to somewhere that's not even in Nashville to get paid and fulfilled. So, we needed to make sure we were able to take checks or then have a way to build those if they're using a corporate credit card, send those in.
Sam: Companies were asking for net 30 terms, so we would have to navigate that, figure out, do we have the cash on hand? How do we front those agreements? So, yeah, there were quite a few things that we had to start thinking about from an infrastructure standpoint.
Felix: So, early on, your messaging probably was not targeted towards corporate gifting at all. How do you think that they found you?
Sam: Yeah, I think the corporate customer found us because of the success we were having on the subscription side. So, whether it was people who received the box said, "oh my gosh, I've got an event coming up. My friend gave me this for my birthday. I could actually use these for my company." A lot of realtors used us as closing gifts and so the good thing about being a gift company was that our product was going to touch two people or more with each transaction. So, it wasn't just the buyer but it was the person who was getting it too. So, there was sort of like that built-in marketing.
Sam: Even now, six years in, when people check out if they want they can say how they heard about Batch and our number one answer is always that "I received Batch as a gift." And, so that was something that was sort of built-in that was not pre-planned but that's a lot how folks heard about us. Once we started dipping our toe into that corporate market, then we wanted to put our whole foot in and so we said, "all right, where, what networking events do we need to go to? If we're selling to this hotel how do we sell to three more hotels? Where do the hotel people get together? How do we get in front of them?"
Sam: So, we started to be able to be more strategic on the corporate side about three or four months into selling to the corporate buyer.
Felix: Yeah, I've heard the same thing about other companies that have launched businesses and all of a sudden they just fall into the corporate gifting space because at the end of the day the people that are buying your products they probably work at a company. Right? And, they might have roles where they are touching ... because of the role ... or they do have a role of buying these corporate gifts for their clients they want to buy things for. So, it seems like very organic, I guess progression if your product makes sense.
Felix: So, when you recognize that ... I want to talk about marketing? So, have you changed anything in your messaging, your marketing? I guess, more so, about your messaging. We'll talk about marketing in a bit but have you changed anything about the way that you talk about your products to capture more corporate customers?
Sam: Absolutely. Early on, people would say what is Batch? The answer, the first descriptor was we are a subscription company and so now that's not part of it all. Now we say, we're a gift company. So, that was number one for us. I think the other way that we position it is thinking through our item selection. So, early on, on the subscription side, you think yeah what would an individual like to use at home if they were buying this for themselves or getting it? So, soaps and candles and lotions and leather goods and obviously, things for their pantry that they can make, snacks.
Sam: It's a little bit different on the corporate side. While gifts are usually still going to individuals we would have corporate customers, for example, ask for gifts that they're giving to a whole office. So, we need this gift to be able to apply to or benefit a dozen people in an office. Well, then you can't send somebody a candle because how do they divide that up? So, that makes us think things like snacks that are sharable that can be enjoyed at the workplace. So, it's affected us, not just in what we showcase, but what we actually source from the beginning. Can this thing be gifted in a corporate setting? Is this an appropriate gift to give in a B2B setting?
Sam: So, it's allowed us to think through those things. But, in terms of also how we talk about it, we think in terms of gift-giving occasions and so not just the ones that we think about, Christmas, Hanukkah, Valentine's Day, Mother's Day, Father's Day, but really why else would you give someone a gift? Because they got a promotion, because they've been in a company for ten years, because they just closed a big deal, on and on and on. What are those corporate gift-giving occasions that aren't calendar-based, that are milestone-based? So, that's how we also plant that seed in our corporate customer's head.
Felix: Right. So, it almost sounds like you almost have two businesses, right? Because you have two types of customers and I'm assuming it's at least double the work now. How do you balance between the needs of the individuals that are buying it for themselves or buying for others versus and then also supporting the corporate side? How do you guys manage both of those?
Sam: Yeah, so we also early on, our first hire for the company was someone who could start selling to the corporate market. So, about six months into the business we hired our first full-time employee and it was someone who could network with and then sell to, cater to, pitch to the corporate buyer.
Sam: The e-commerce side, we could still do that, us three co-founders, in terms of what we put up online. Because at this point about four months in, we started selling more than just subscriptions online, as well. We were selling individual gift sets and that was really customer-driven. Most of the way that Batch has grown is because customers have requested, asked for something. We validated that, meaning it's more than just this one person who wants this and so customers who were getting our subscription box said, "Hey, I really love the bread mix you sent in this month. Where can I get more? I want two more of those." And so we said, "well, hey, we can sell that to you." And, so we set up kind of the traditional e-commerce presence.
Sam: So, we were doing that and fulfilling that on-demand, still packing subscriptions once a month but we said, "we need somebody who can not just go after the corporate customer but when we get that call or that email that says" ... where somebody asks, they give us their budget, their quantity, their date, someone can follow us and say, "great, here's a proposal. How does it look?" And then once it's sold, get it to fulfillment. So, we started to, yeah, not run two different companies but definitely think in terms of employees and specialization, I'd say. How do we specialize in each of these areas for the most success in the eyes of our customers?
Felix: I think when you're first starting out you're kind of just bumbling around trying to find where your customers are but then you guys are recognizing and started being really methodical about getting in front of the right people, especially on the corporate gifting side. So, tell us about that. How do you answer those questions that you posed earlier about, where are they, how do we sell to more of the same type of customers? How did you answer those questions?
Sam: So, some of it was just asking that same customer. So when we got our first order from a hotel I, then offered to take the general manager to lunch and say, "Hey, why did you call us? What is it that was appealing about using us as your corporate gift solution? What did your recipients think about it? How can I get in front of more hotels? So what are the industry events or where does someone like you at the other property look when they have a need like we can meet?"
Sam: So a lot of it was just asking, talking to customers. I think businesses of any type need to do that more and more and more and more. Typically, we just think, "oh well, let's just put up a survey, people fill out a survey, give them a ... have a gift card drawing and we'll get what we need." But, I think, especially if it's a market you want to specialize in, go deeper and really have some success, nothing can beat that either in person or over the phone, real, human to human conversation. So, that was it. We would just ask people the questions we wanted to answer. Sort of, you know we didn't know any better but because people liked what we were doing, they trusted us, they would give us time or time over coffee or a lunch or a ten minute phone call so we could feel good about the decisions we were making and if we got different information, make a different decision.
Felix: I like this because I think that there is a handicap that some person might give themselves, which is that they want to appear like they know what they're doing, too much, and are afraid to ask these kind of questions because when you do ask these questions you are kind of being vulnerable, right, because you're saying I don't the answer to this, I don't know everything I need to know about my business, can you, as a customer, tell me about how to run my business, essentially. I think it's a step outside the comfort zone for a lot of people. But, you're saying it's really led you guys to shortcut the process of learning how to get in front of the right customer and obviously expand into a brand new market for yourselves.
Felix: So, let's talk about this concept that you mentioned about letting the customers tell you guys where to take your company in terms of what kind of products to offer, how to talk to them. Now when you're getting this kind of feedback back I'm assuming not every feedback, not every email that you get is of the same quality, right? There's certain things, certain ones that you might rank above others. Certain kind of feedback that you might pursue more than others. How do you differentiate between what is good feedback that you guys should pursue versus the ones that maybe you don't do or you put on the back burner?
Sam: Yeah, first of all, we read every email that we get, again, still to this day, and we reply to everyone. That's important to us that that's consistent with our brand and our values. How we would prioritize them, one is if we notice ... really, again, we take the same amount of time to say, "what's going on here?" I mean when you are a gift company people really rely on you to make an impression for them. So, if you're giving a gift to a friend or in a work setting if it shows up broken or poorly packed that's not just a bad reflection on Batch, it's a bad reflection on Felix and so I think that's what we had to realize from the start is that when people do reach out because let's say they've had a bad experience, there's gravity behind it. It's just that they didn't get something that they wanted, a new pair of shoes to wear to the thing they wanted to wear them to on time but this gift didn't get there on the birthday. It didn't get there on the birthday. And, so, we would take that very seriously.
Sam: Early on and so to this day, somewhat, but early on as we're learning how to ship in high volume, for example, we isolated emails to let's say, yeah, is this a logistics problem? So a time and transit problem? Something arrived damaged, broken, so like we can isolate that. Is this a product quality problem? And so the goods we sent just weren't up to their expectations from a taste or a functionality standpoint. And, then is this a customer service problem? So, they didn't get the shipping confirmation like they thought they would or something wasn't clear as to what they were buying.
Sam: So, we kind of isolated those to see where we needed help overall and then we could dedicate resources, time, education to making sure that we could keep those customers happy. For us, we believe just like if you get a Batch then you're more likely to buy one but if you buy one, had a great experience, then you can trust us for all your gift-giving needs, not just your sister's birthday, but all the birthdays in your friends and family. Come back to us, we've got different stuff to offer all those folks.
Sam: So, if we can really win a customer over the first time, do what we said we were going to do, we think that they'll be a long time customer for us.
Felix: So you mentioned to us that leveraging a sense of place can be good for business. Tell us about this. What does it mean to leverage a sense of place?
Sam: So, I think people are proud of where they're from and where they're from can mean where they're born, it can mean where they live now, but there's a sense of identity that people are anchored to. It's usually one of the first questions you ask when you get to know somebody personally, professionally. Name, where you work, about your family, where you're from. And, so there's a sense of pride that can be built up there. For us, as hard as we've worked and we're thankful for a lot of our success, a lot of it also due to the growth of Nashville as a popular destination for people to move to, start a business, to vacation in, to have a conference or meeting in and so we definitely understand that people want Nashville.
Sam: Well, you can't ship an entire city but I can send you a taste of the city. But, that's not just true about Nashville. Nashville's not the only one that has that kind of special sauce but towns big and small all across America, all across the world have that same kind of identity. So, for us, when we say leverage a sense of place, yeah, we're in Nashville now and we'd love to be in other cities one day but it's understanding what is it that makes this place unique and then how is that uniqueness captured in the goods that are made here by people who live here that we can send to people no matter where they live.
Sam: And, so I think it's first, identifying what makes this place special. When I say place it could be Nashville, it can be Tulsa, Chicago, Brooklyn, Indianapolis, it doesn't matter, pick a city and you can find what's special about that. And, then you've got to find out well who's connected to that specialness. So, it's the people who live here, it's the people whose company is based here and they're proud to be based here. It's the people who went to school here. And I think all of that can be true, again, no matter the size or the popularity of the city.
Felix: Is this a question that you're just constantly asking yourself or is this something that someone can, I guess, more research what makes a city special?
Sam: I think both. I mean I think some of that is that ... before I started Batch I was, most of my income came from being a professional speaker so I was on the road about 100 nights a year, traveling to all kinds of different cities and towns. Whenever I was in a place and I wanted to get something to eat, get something to drink, figure out where to hang out, bring home a souvenir, I didn't want ... I wanted to go to what is unique. Give me the local restaurant, the local brewery, a local bookstore. That's just sort of who I am and what made it interesting to me.
Sam: And, so a lot of that happens through discovery on your own two feet. Is getting out and walking around a town. And, yeah, obviously, we have a lot of digital tools now to find out what restaurants are great and who to ask. But, that's what made that trip different than going to the next city because you can stay in the same hotel and you can eat at the same chain restaurant. You didn't get to experience the city. So, some of that research is done by walking around and talking to the people that live there. But, some of it can also be found definitely online and by folks who live there and blog about a certain place or who have written about a certain place, how somewhere has been covered. It can all be found out, absolutely, but it just takes a little bit of time.
Felix: Got it. So I want to talk a little bit about the supply chain, and the inventory management because I think that you have a particularly challenging type of business where you're not selling one thing but you're selling multiple things and there's going to be turnover where you're changing things out. So, tell us about this, like what is the scale of the inventory that you guys have on hand at any given point and how often does this change?
Sam: Yeah, so one thing I think that changed ... that led to a lot of the change and the challenges but in a good way was the year in, again, this was totally customer-driven, that first year people were starting to write, to call and say, "Hey, I need a box. I need a gift but I need it today so I can't wait for it to be shipped to me. Where's your store?" We'd explain we didn't have a store and so we would either have them come to the warehouse, which was hard to tell people how to get there, or we'd meet, like, "Where are you? We'll come to, we're driving nearby there on the way home, we'll meet you at this Starbucks."
Sam: So, a year in we had the chance to open a brick and mortar store and so our flagship retail store is located in Nashville, Tennessee at the Farmer's Market, which is just north of downtown. We're open seven days a week and when we opened our store, we thought it would just be kind of that sort of thing. People didn't want to shop online, come in here if you're local, and you get it and it's also, we can pack some things there, and it can be like where we meet people. But now that retail store is half of our annual revenue and that's on an annualized basis. On a given month it's about 75% in a non Q4 month. And, so, now we are in that place. Where the original idea of hey we can't do a store, now we a store and we do it pretty well and pretty big and so because of that you've got to maintain a certain inventory carry and products on hand.
Sam: Then you've got to have enough product for the corporate order that comes in today and says, "Hey, I need this three days from now. Do you have 80 units of this?" And, so that lets us say, "well, if we don't have it in house let's call the maker, do they have 80 units in their storage? Can they make 80 units three days from now that we can actually use and pack." And then online is probably the easiest to predict in all honesty because now we've got six years of data to look at, "Hey, what do August sales look like? What are people normally buying?" And we can buy it for that.
Sam: And, so starting out like a store you sort of just say, "let's try our best" but then if you're smart about analyzing your sales data you can see what is going to be most popular, when, so we know what we need to stock up on certain times of the year. Sauces and things you need to grill, they do not do well during the winter months, but we go heavy on them in the summer and so we do that for nearly all of our products. We currently carry close to 2000 different SKUs from 200 different vendors, so it's definitely a lot to keep track of.
Felix: Got it. I'm seeing a theme here where you guys are really, really have your ear to your customers and what they're saying and take a lot of their guidance to do things like open a store, you know, that's a big move. It's not just buying or having different sources, different inventory that you're sourcing and different types of products, you're opening up a retail space, which obviously is a big risk, big investment, obviously it paid off. I want to talk about, are there any potential cons here? Have you ever either misinterpreted feedback that has led you into a path where you had to backtrack from or maybe interpreted correctly but just didn't make sense for the business as a whole and had to backtrack from? Are there any stories of the opposite effect if you want when you're listening to customers?
Sam: Oh, 100% and that would have to do with our expansion into other cities. So, early on, about a year or so in, we also, people would hear about us and say, "hey, I'm in Kansas City, do a Batch in Kansas City. Do a Batch in Austin, a Batch in Charleston, South Carolina. I would love it." And, so while we would gauge those things and say, "okay, we've heard from 19 people in Texas who want a Texas kind of a Batch concept. Should we launch there?" While it wasn't necessarily a bad idea, it wasn't the best idea. And, so we did, for a time, offer monthly subscriptions for Memphis, Tennessee, Austin, Texas, Charleston, South Carolina, in addition to Nashville.
Sam: And, while we had a little bit of traction in those markets, ranging from a couple of dozen to 100 or so per city on any given month, it took our focus off of what we could have been building at the time in our own backyard. And, so I think we chased that geographic expansion too soon. Even though there was a customer base there, it wasn't big enough to cover all the costs that we needed. So for a time Nashville and its operations were subsidizing some other city operations before they should have.
Sam: I think we'll be at a point in time because especially with what we've done with our retail store, where we could replicate the entire model in another city but we're not doing that this year. We've since pulled out of those cities while we still do source products from those cities and if a corporate customer wanted a Charleston themed gift, we can handle that, no problem. There's also value in focus, as much value as there can be in growth and focusing on learning more and perfecting more, then expand versus expanding just because the numbers could say so. In our case, customer conversations. There you also want to look at what is the cost of growing into that.
Felix: So, the issue is going wide too quickly instead of going deeper and delving down on what has worked for you already. Now how do you know when to make that switch? How do you know when you are ready to now kind of pause on the going deep, maybe you've gone deep enough and let's start replicating this outwards and going wide?
Sam: It's scale. It's knowing that, particularly since I and then one of my co-founders, we still work in the business full time and so when we are able to take our eyes and attention off of, in this case, Nashville, and then put it somewhere else. And, the reason we would take our eyes off Nashville is because there are the systems and the personnel in place and meaning that those systems and personnel are creating value instead of draining value. Once that's ready and we can kind of take our hands and our eyes off of it because it's a great model that's growing, that's thriving, that's automated to an extent, then, now we can go create something new somewhere else.
Sam: So, this year for Batch has been really a lot of internal focus with a lot of internal manuals and documentation of processes to some more powerful software on the accounting and inventory side that allows us to scale with our different, our warehouse, corporate fulfillment is under a different roof than our retail store and our online fulfillment. So, being able to understand the systems and where those efficiencies are, once we feel like we've got a handle on those and there's proof that, as I said, those are creating value, then we can focus and look at expanding more broadly instead of expanding more deeply.
Felix: So, what kind of apps or services do you rely on today to systematize or automate or outsource parts of the business?
Sam: So, we use, I mean, obviously, Shopify is our point of sale and our e-commerce engine. Our email marketing, so I would say that probably one of our most valuable assets is our email list that is past customers who have signed up but also folks who just go to our website and sign up and want to hear from us. So, we use Klaviyo as our email provider of choice to send out those marketing emails. It ties in really nicely with Shopify.
Sam: We've been using Stocky as an app that we use for our purchase order creation, as well. And, then we use some accounting software, we're switching over to a bigger platform now called NetSuite that combines a CRM, a customer relationship management software, with accounting, corporate invoicing so we can really grow that corporate side. So, yeah, we definitely have kind of looked all over the landscape and figured out where the best apps that we need to build on to what we're currently using that we know is working.
Felix: Awesome. So, batchusa.com is the website and I'll leave you with this last question. What would you say is going to be ... what do you say is going to be the biggest challenge you guys think you'll come up against this year?
Sam: So, I think this year, for us ... so, we are, like I said, you've heard we're a gift company and that really manifests itself in the fourth quarter. So, we do half of our annual revenue in Q4. We do half of that number between Black Friday and Christmas Eve. This is the first year of our six year existence where it is the shortest shipping window that we can possibly face between Thanksgiving and Christmas.
Sam: So, Thanksgiving is the latest it can possibly be since that date always changes, it's always the fourth Thursday. So, it's the 28th this year. Which means when folks get back from Thanksgiving break, especially our corporate buyer, it'll already be well into December and then when Christmas falls, so we are going to have to, more than we ever have ... the good thing is we've got more data than we ever have ... but more than we ever have, we're going to have to predict what those corporate and online customers are going to want and buy and do as much of that work as we can to either sell it and commit it in November as possible or to be ready to hit the ground running.
Sam: So that is, from a labor standpoint, we'll be running two shifts out of the warehouse. We'll be heavily leveraging our partnership with FedEx to make sure stuff is shipped when it needs to be and relying on their knowledge and expertise. So, we essentially double in size every fourth quarter anyway as a company but now we're going to have to condense that even more. Last year we had the luxury where Thanksgiving was the earliest it could possibly be. So, we had sort of, I want to say, sort of an extra week in there to produce and pack and ship. So, that's what we're learning, the sort of ebbs and flows and the pendulum swings of being a gift company, through and through. We'll really feel it this year. Thankfully, we've got some more powerful, particularly digital and software tools to help us on the production side so we can focus and make sure we win the holidays this year.
Felix: That's awesome. Yeah, I've never really thought about or considered the implications of when Thanksgiving falls and the impact it has on a business, especially one like yours so definitely enlightening. Again, thank you so much for coming on, Sam. Again, Batch is the company, batchusa.com is the website. Thank you so much for coming on and sharing your experience.
Sam: Thank you, this was fun. I appreciate being asked.