How ‘Invest To Test’ Strategy Took One Startup From Zero To $1 Million In Sales In 12 Months
Just months after leaving a high-powered corporate retail career, Mike Zhang dreamed up and launched a brand on the Amazon Marketplace that generated $1 million in sales and turned profitable its first year, a feat achieved by fewer than 1% of Amazon sellers.
In 2020, sales of his Fenrici Brands’ backpacks, thermoses and lunchboxes are tracking to double to $2 million, founder and CEO Zhang said in an interview. His strategy of selling almost exclusively on the Amazon platform—the Fenrici website is primarily a marketing channel—is driven by calculated risk, speed and sales optimization tools, he says.
In 2019, U.S. online sales exceeded $600 billion, an increase of 14.9% over the prior year, according to U.S. Department of Commerce’s report released last week. Fourth quarter 2019 e-commerce sales rose more than 16% over the same quarter in 2018.
Some 25,000 of Amazon’s 2 million Marketplace sellers worldwide exceeded $1 million sales in 2018 but Amazon does not break out how many sellers reached that milestone within their first 12 months of operation, making Fenrici’s achievement notable.
“They took risks,” says Jeff Cohen, vice president of marketing at Seller Labs, which advises and provides software to Amazon Marketplace sellers. “Most sellers would start slower, waiting for sales to drive investment,” he says. “[Fenrici] had inventory and drove sales.”
Zhang, who has a Ph.D. in biochemistry, says his willingness to “invest to test” and his appetite for data fueled the gamble.
Another gambit was speed. Shortly after exiting his job as Lands’ End vice president of digital marketing, Zhang decided in March 2018 to launch Fenrici Brands, find suppliers, approve product samples and start selling just three months later, having already missed half the peak “Back to School” selling season that year.
“I took the opportunity to be fast,” Zhang says. “If sellers are too timid and get data slower, they lose opportunity. There is a cost of being slow. What I love about Amazon is they are fast. They allow you to be fast. Other companies facing challenges often have trouble being fast.”
Some Marketplace sellers object to the speed with which they must decipher and adapt to new Amazon policies and procedures, knowing noncompliance could prompt Amazon to suspend their accounts and shut down business.
Research from Sellers Labs reveals the challenges merchants encounter interpreting Amazon’s ever-changing Terms of Service and knowing what is permitted and what is not:
- 50% of sellers mistakenly believe they can send a coupon code to customers to incentivize future purchases. That’s a violation, according to Amazon’s Terms of Service.
- 83% of sellers are unaware Amazon prohibits sending customer emails containing a link to their detail page or storefront page.
- 50% of sellers don’t realize they are not permitted to ask customers to change product reviews.
Zhang is not unsympathetic. “It can be unsettling to go through a lot of changes,” he says. “Mindset helps.”
Marketplace sellers who accept unpredictability that goes along with a startup culture are best equipped to reap the rewards, he says. “This is what you have to deal with when you are working with a fast-growing entrepreneurial marketplace.”
Amazon acknowledges there are bumps along the way with more to come.
Amazon CEO Jeff Bezos wrote in his letter to shareholders last year, “As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle.”
Zhang says Amazon’s infrastructure, services and tools are key to his new company’s ability to gain traction so fast.
“They have pushed out so many tools to help sellers”—more than 200 in 2019—“but the reality is most sellers don’t use these tools,” Zhang says. “It’s a lot of work. It’s not easy. But there is no ‘passive income.’ You want to grow a business? It’s always hard, a lot of work. There is no easy business.”
The Amazon Marketplace evolves fast and those who fail to stay abreast of changes and adapt find themselves asking, “Who Moved My Cheese?” Zhang says in reference to the 1998 bestseller.
Among the key tools Fenrici uses that Zhang says many sellers fail to exploit is Amazon’s Brand Registry, a free program that helps trademark holders optimize sales and raise brand visibility. “To me,” he says, “that’s a no brainer.” And yet the number of eligible sellers enrolled in Brand Registry is surprisingly low.
Other marketplace tools Zhang uses to raise Fenrici Brands’ profile and drive sales is couponing, Prime Exclusive Discounts, and Vine, a program that helps brands draw product reviews from trusted reviewers vetted by Amazon.
Thus far, Zhang says the coronavirus has not impacted his business, having secured inventory prior to the outbreak. “Right now we are monitoring the situation very closely. However,” he adds, “if the disruption continues beyond May/June, it will impact our peak season.”
Zhang is sanguine even as he reflects on uncertainty launching Fenrici Brands: “I had no clue. I didn’t know if this would sell.” With a commitment to allocate 5% of Amazon sales proceeds to support research and education for rare pediatric diseases, Zhang reasoned that even if his business fails, it will have advanced a cause he and his wife, a pediatric oncologist, support.
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