[Teil 2] Die Höhle der Löwen: Produktion und Versand auslagern (outsourcing) – Interview


Ein Interview in einfachem Englisch. Möchtest Du die deutsche Version, dann schreibe mir an info@slowcarb.eu

Vier kurze Hinweise:

  1. Ich habe ein schickes PDF aus dem Post gemacht. Zum drucken und offline anschauen. Du kannst es hier kaufen:
  2. Beachte auch den Post dazu: Wie Deine Homepage mit 67$ online bleibt, während 319.081 Leute darauf zugreifen und Interview und Erfahrungen aus Die Höhle der Löwen – Report von Sebastian Gründer der My Pillow Factory
  3. Wenn jemand wissen möchte, was ich gepitcht habe: hier geht´s zu My Pillow Factory.
  4. Mein tiefer Dank gilt Sony Pictures und VOX für die geniale Erfahrung.

Haven! People love our pillows. We sell more and more. We sell so many pillows that we can´t cover production and shipping anymore by ourselves. Hell. Burn out. Pivot. Shut down or change? Outsourcing! Here I want to talk about how I successfully outsourced production and distribution.

How and where did you start producing pillows?

First at home! It started as a fairy tale. As orders where increasing we first hired some freelancers and finally started outsourcing the production to a professional sewing factory. But there was still a lot of manual work to do. Shipping and storage capacity where the main limitations! This was really a kind of problem if you sell 100 pillows a day having only 3 rooms in small flat. However one person loved that condition: our daughter! She enjoyed climbing between the boxes. And here comes the trouble. Our lovely neighbors did not have Startup blood in their veins. They went mad hammering against everything they could find: the ceiling, the heater, the door. They found many things. Creative folks!

It was exciting every day when the DHL truck came (or not) and we didn´t know where to put all the boxes.  But actually we felt really lucky. We were selling, we were making money… we were nearly BURNED OUT! Family life was suffering a lot. Lots of fights! So the thing started to turn and we missed to concentrate on one important issue. Marketing! We simply didn´t have time for marketing or anything else than just covering the demand, producing pillows and shipping them.

Why didn´t you do marketing?

Because we didn´t have time at all. The whole communication with the customers, the production and shipping took so much time. There was simply no space left for anything else.

And then there was a turning point. Sales suddenly dropped! From one month to the other sales decreased from 30 pillows a day to 3 pillows a day. At the end it has been NO pillow a day. And that´s partly because we missed out one important thing. Marketing.

So why did sales drop?

Because we didn´t do any advertisement.

But how did you get 100 sales a day before?

Before our sales boost we had a lot of time for marketing. I put lots of efforts in marketing and didn´t miss out any event like giving presentations and any networking event.

So how did you do marketing?

My audience is partially offline. I published ads in magazines, we had some small TV cooperation’s, interviews in Radio shows, many interviews in newspaper and startup magazines. We participated in elevator pitches. My biggest marketing campaign was clearly the participation in the TV show „Die Höhle der Löwen“ or dungeons den. All those activities equal a full time job. Sales were coming. We were shortly happy and then exhausted because we couldn´t handle it anymore.

What was the turning point to start outsourcing everything?

We had a big crisis. The family nearly broke apart and we where bankrupt. We nearly couldn´t survive. So we had two options: Quit the business or change the business model drastically! During this hard time I started reading the Book Die 4-Stunden-Woche: Mehr Zeit, mehr Geld, mehr Leben (DE) or The 4-Hour Workweek (EN). And it became my bible. I knew this book before and also similar books. But I did not implement the suggestions. My mindset blocked my from changes: “ Our business was running like this since we started it as a hobby a couple of years ago and it made us happy. So why should we change something?“Well, obviously because it’s not working! BAM! BAM PUFF!

How did the change happen?

So we closed our online store for one month and tried to outsource everything! We contacted many sewing fabrics and distributers. I even searched online for a personal assistant! And Tim Ferris was right! This works! All the production is done now by a sewing factory in Poland. WOW! This is a factory that can produce 10.000 pillows a month. So we can scale the production. Besides that we have found a distributer who is doing mass customization of our pillows. Double WOW! So what we are doing right now is providing the homepage and direct the orders to our distributer.

Was Outsourcing easy?

NO! It was a pain in the A**. To find a sewing company took a lot of time. Teaching them how to sew our 3D shaped pillows also took some time and as well as teaching the distributer how to ship them. What we figured out right at the beginning: Our business model is far too complicated for efficient outsourcing! This is another reason why we failed so early!

I don´t know your pillows. Why is it so complicated?

Our pillows have no standard dimensions and this is the reason why 90% of the sewing companies are out because they are not doing 3D shape. To make it even more complex they are customized. People want to have their names or a picture on it. Luckily our distributer is doing that now!

Where have been the difficulties with outsourcing?

It´s hell more complicated than I ever thought! We had to learn a lot. Learning can be expensive, once 2500€! I did one big mistake. I assumed that all those professional companies are doing a good job and trusted in quality…

At the beginning I visited all the companies that I was working with. And everything was fine. The mistake I did was not checking those companies regularly and simply assuming that they are doing like we discussed. I thought OH THIS ARE PROFESSIONAL COMPANIES they are working with the big brands you can trust them! Oh how foolish was that?? This didn´t work at all! One example. After 1 year of good collaboration my sewing company delivered our bestseller, the puzzle pillows with 30% trash! Upps! Why did this happen? I didn´t show up and make clear that I still really really really do care about the quality! I have to visit them regularly and make sure that I DO care!

Another thing is that we canceled the B2B business. Besides extreme low profit margins, we couldn´t assure delivery times.

Can´t you call the distributer to check the quality?

Somehow yes, but we had some issues there as well. We tried this and prepared a checklist. The problem is that they have no expertise of how to evaluate. This comes with experience. In addition it is expensive. Last time I spend 4 hours checking every single pillow. And, how is the printing? How is the stitch? How well are the pillows filled? This service would cost 500€ for each delivery from Poland. Too expensive!!

So you found a manufacturer who sew your pillows. And then they are delivered to the distributer?


What was the next step to automation?

With the help of Tim Ferris´ Book I tried to reduce customer contact. Why this? Because I did a analysis aiming to figure out why I have so many customers asking things. Fact: If people need to ask something my communication simply is not easy enough! And this consumed an incredible amount of time! My goal is to have my system working so smoothly that customers don´t need to ask anything! Therefore I analyzed the main questions customers have and tried to answer them right before they occurred. Now, we get only 2-3 mails instead of 50 a day!! Now I have three more hours for marketing and business development.

So what did you optimize?

The communication in every case. Last month we had a customer asking where his parcel is. It could not be delivered because of an wrong address. This turned out to be a big issue. In October 2015,  25% of the parcels returned to me because customers entered the wrong address. Holy shit!! This cost me 2500€!!!! Therefore I decided to change my communication this way:

While entering the delivery address in my shop there is a popup coming telling them: „If you enter a invalid address and the parcel is returned to me, I will charge 9€ from you! Because this are the costs that DHL charges me for that service.“ And since that time it works incredibly good reducing returns from 25% to 1%!! I know this is popup message is drastic! And maybe I lose some customers. But it´s worth it!

Patrick Fitzgerald, Author of The Mom Test: How to talk to customers & learn if your business is a good idea when everyone is lying to you told me: If you would have outsourced the support, you would have never figured that out! Some external customer support would have dealt with all the problems. But since you are doing the support yourself you realized that this is really annoying I need to fix that! So you dealt with the real cause and not with the symptom. You run a better business.

I also prepared a FAQ sheet, a worksheet for the distributer to handle all this issues. STRIKE this works! Remember we had the choice of either automating things or quitting the business.

What does your distributer handle? Only textiles? And which logistic brand do they use?

Since our distributor handles nearly every kind of goods and ships them with DHL, I can easily test my other ideas related to food.

Please guide us through your business process. How is it working and what is planned for future?

If we design a new product we usually start with a minimum value product (MCP). Therefore, we design a pillow and test it by offering it for sale to our customers on our homepage and on Facebook to get instant feedback. If this succeeds and people ask of how they can buy it we decide to produce it in a exclusive limited edition in our fabrics in Poland. The ordered pillows will be shipped to my distributer afterwards. The delivered pillows are usually semi-finished to have room left for later customization.

If the item is in our assortment already it will work like this: the customer visits our webpage and orders something. The order is redirected to my distributer. This is the time where the semi-finished pillows become customized and are shipped to all over the world.

This may sound very simple. But it´s not for several reasons:

#1. finding a sewing factory that is willing to produce 3D shaped pillows

#2. it´s a big challenge to teach the sewing company how to produce our 3D designs in large scale at moderate prices.

#3. we have to consider the technical possibilities of the sewing company e.g. for printing.

#4. finding a distributor doing the mass customization.

#5. designing pillows that can be customized with simple methods by our distributor.

Did the distributor also buy the hardware e.g. for printing to do the customization?

No, we supplied all required material to them. The cheapest way of starting. If we have 10 fold sales  we may want to look for a specialized company who has the required machines by themselves.

I wonder if its produced in Poland and finished in Germany wouldn´t it be beneficial to have the „Made in Germany“ label?

Forget about this „Made in Germany“ stuff or „Made in Europe“. At the beginning we had this lovely label „Handmade in Germany“. OHH, my heat was blossoming. The only thing is the customer didn´t care at all! And we had a problem with that, too! Very high production costs and a very small margin. We couldn´t survive. To give you some numbers: We produce for half the price in Poland compared to Germany with equal quality.

How much of the product price goes in your automation? How much does it cost you?

This question has two components: sewing and distribution. After automation sewing costs where sinking. However, distribution costs increased. At the end I charge the customers for automation so that my margin stayed almost constant before and after automation. The shipping costs include already pick and pack and delivery. If people want to have the pillows customized I charge 4,5€. This is the amount my distributer charges me. So I do not benefit on this. One could say I also outsourced the pricing.

So why don´t you charge more for customization?

Our pillows cost nearly 60€. Price testing’s have shown that above this level, sales decrease.

But you have costs for marketing!

Marketing costs are already covered by the product price.

Sounds like you have an easy life. How about customer acquisition?

There is one big difference from before and after automation. It´s not the working hours they stayed constant. It´s the things I focus on. Now I having time for marketing! A full time job! Since outsourcing in June I learned a lot about the instruments required to acquire customers like building landing pages, Google analytics, Facebook marketing. Facebook marketing is a big issue for me because I figured out that I can acquire customers at low costs like 3€ for a new customer. So I can reach more people with the same amount of money now!

Actually I am spending much too little on marketing! I just have 3€ per pillow for that! Currently I am trying to get the feeling and test a lot of campaigns. My main focus is to have more steady sales because we have big spikes in sales from 0 to 100 pillows a day.

When did you start your pillow business?

At the End of 2012. I paused my PhD and started the pillow business. Excited! Just to figure out it doesn´t work the way I thought. And to spend a whole year (2013) in learning (and recovering from physical disorders) of how a business could be run. What is marketing? Who is my customer? What is a business plan? Do I need that? So after obsessive learning I felt ready! Happy 2014, let’s get started! BAM! This was one sales peak after the other. Then in 2015 things got wild. Perfect Christmas and excellent valentines sales leading to a drastic decline in sales to 1/3 of the original sales. We struggled and slowly recovered until August leading to a boost in September with the TV broadcast.

Was the TV show „Die Höhle der Löwen“ before or after automation?

It was recorded in March before automation and broadcasted in September after automation. So the things we spoke during the broadcast have already been obsolete. This led to a fun situation.

In TV, the jury members criticized our handmade based business model and recommended to quit our business. It’s just a hobby and you can´t scale it. At this moment it really hurt because they found our weak point immediately. At this moment we couldn´t even argue, Yes you are right I know. We are working on this BUT Tim Ferris will help us on this :))) But it took us only 2 months to change.

Lessons learned?

Two main things:

We grew too fast without having the structures for it. Within a year we grew and nearly collapsed because of that.

And we have been to emotional. At the beginning we didn´t want to source anything out. We knew all the books before hand but we couldn´t do it. Our heart belonged to „do everything by yourself“ including „Handmade in Germany“. Later on we wanted to outsource but couldn´t make it because we were too small.

When I now start other projects I first ask myself How can I automate processes?

What are your next steps? Atomize marketing?

This would be nice! I found some tools being useful for this like Adespresso but I think marketing is not something that should be outsourced at my current state. I want to test everything. I observed that over the years my customers have been changing from teenagers to 40 years old success people. The market and trends are changing so rapidly. If I run a Facebook ad than I can observe that the picture that worked last month is not working this month anymore. It´s always like that. You find an awesome channel and it works only a limited time. Then you have to change maybe the medium like from Facebook to Instagram.

Can you outsource marketing more than right now e.g. by hiring sales person?

You can use Email programs like Mailchimp. Just keep in touch with your customers on a regular basis. If there is a new subscriber to the newsletter then we have atomized mail chimp newsletters. But this is after they signed in.

One possibility may be to have content marketing on a blog outsourced to freelancers who write for you. Guest posts in your blog is another option. That should work fine. Kissmetrics did this so well. They started a Blog themselves and from the very beginning they were willing to spend money. So they hired writers and designers to make info graphics for them. This cost them like 2000 $  per Blog Post but each Blog Post was like a hit in their industry. Everyone talked about it. They got a lot of traffic and a lot of subscribers. And then what they did is the started inviting guest posts. Now they have Blog with 20 Posts a week that they never write. This has made them rich! But you need traffic before. No one is going to guest post if you have no traffic. You have to build the original frame yourself and then you can start opening it up. How to maintain quality? This is difficult and always an issue.

Story Rob Fitzpatrick: I had this project running. I tried to automate production and distribution because it made only a little money but it was not making enough money worth to spend all my time. I was trying to talk to publishers and distributors. They either wanted me to pay so much that it is going to be a vanity project or they wouldn´t take me seriously. They were like: You are not a designer why should I waste my time taking the risk on your product. So alternatively we run a Kickstarter campaign. We didn´t make a ton of sales but we made 60K through Kickstarter. And then we went back to the publishers and we were like we are taking care of everything. So we just gave them the account and handed over the password for the Kickstarter campaign. And now every quarter they send us a check. So we couldn´t automate it at first without spending a ton of money. But once we have proved a little bit of traction it is like suddenly the partners are everywhere. We worked really hard during the Kickstarter. We have done a lot of marketing.

Do you plan to grow your business and be present in new markets in 5 or 10 years?

One year ago I would have definitely agreed to grow like hell. Now I want to have a passive income and focus on additional businesses. After all the experiences and learning’s from our pillow business are great! But I figured out that it is probably not the biggest cash cow on earth.