Dessi and Malcolm Bell started working on online sportswear business Zaggora in 2011, launching their trademarked hotpants product that aims to help people lose weight.
The online-only business was a rocket ship and the founders generated $17m in revenue in their first 18 months - a trajectory that saw them nearly go bankrupt because they had more orders than they could service.
Here Malcolm talks about how he uses KPIs to support the business’s growth and what he learned from the Zaggora roller-coaster ride.
I started Zaggora with my wife. It was bootstrapped, with no debt and no investors to this day. We’re single focus, pure play online, and we have five different websites for different locations.
We don’t have forecasts because we don’t have investor - it’s our money, our business. We don’t budget what we have to spend in terms of online marketing. We don’t have forecasts of what we want revenue to be each month. Instead, we just want to grow monthly revenue by at least 10% month-on-month.
Our daily revenue is a function of the amount of traffic we get, multiplied by the conversion rate, multiplied by the average order value. We look at each and ask what’s happening; if one has fallen, why is that?
If traffic has dropped it might be because we didn’t get the reach or distribution on Facebook ads, because most of the traffic we drive is using performance marketing, word of mouth and press. If it’s conversion rate, have we made any particular changes to the website? If it’s average order value, supply is the most important thing - if we’re out of stock it’s going to be zero.
We monitor revenue on a daily basis. We don’t get two weeks into the month and think ‘shit, we’re 20% off where we want to be’. It’s literally every day. If the first day of the month is less than the first day of the previous month we ask ‘why is that?’ We take a deeper dive.
We have weekly business metrics, which are things like cash at hand, cash conversion cycle [how long it takes to monetise stock from suppliers] and supply chain lead time because that’s key for the cash conversion cycle.
How do you manage to bootstrap to $17m in sales with a $40,000 investment? The secret was that we financed the business through the supply chain. We had a negative working capital model; our customers paid us before we paid our suppliers. How can we delay paying our suppliers? By paying them 30 days after they shipped the goods to us. In the first 18 months, the customers basically pre-ordered our products and had to wait four-five weeks to receive them.
We were lucky in that we were able to design a bespoke supply chain. For all intents and purposes, we manufacture our own products, it’s an exclusive third party. Other businesses have their garments made by manufacturers that service a number of suppliers. They could be ordering millions, so we would be at the back of the queue. The turnaround time for us was really fast.
KPI advice for startups
If you’re an ecommerce company you really live or die based on revenue per visitor. That’s a function of traffic times conversion times average order value. You have to monitor those key metrics to understand what your performance is like; what can you do to impact conversion rates, to increase repeat customers. Those processes are quite simple, but it takes a lot of discipline and time to set them up. The simpler the process the better, otherwise you end up with a mess of Google Docs everywhere.
For any ecommerce startup, I start with the basics; take three days and spend a day on each metric. What can you do to increase traffic? Etc. that will then give you lots of ideas to go off and test. Then you need a structure to test those ideas methodically. It takes months because you should only change one thing at a time.
The biggest investment you can make is in planning. The more that you can plan, the more methodology, the more process around testing those key metrics the better.
Cashflow is really key. It’s amazing how many startups don’t have a simple model mapping out revenues over six-to-12 months. Typically we work six months out.
It’s amazing how many startups don’t do Purchase Orders (PO). A PO is created whenever they buy something, that goes into the accounts department who then books it. We didn’t do that either in the first six-to-12 months. But we found it very useful, especially after we almost went bust.
That was because we basically oversold. We sold more products than we could make. We had 40,000 more orders than we had in stock. Having a very simple PO system, it goes into the accounts department and they know it’s going to be payable somewhere down the line. It’s also very useful to guard against fraud, for instance from fake suppliers.
The interview with Malcolm Bell features in a comprehensive guide to setting health check KPIs for your business, produced in association with the team at 9 Spokes. You can download the complete guide for free here.
Journalist and editor with nine years' experience covering small businesses and entrepreneurship (ChrisGoodfellow.net). Follow his personal twitter account @CPGoodfellow and his events business @Box2Media. He has written for a wide range of publications in the UK, Ireland and Canada, including The Financial Times, The Guardian, The Independent and Vice magazine.