The Next Big Thing discusses topics that other hardware entrepreneurs will find useful, such as prototyping and manufacturing, tools the companies use to keep moving forward, sales channels that have been effective (as well as others that have been complete failures), and managing cash flow.
In Episode 7 we discuss with owner, Sam Huebner, how Parker Baby is able prioritize product development, vet their manufacturers and acquire customers.
Product: Practical baby products to make parents’ lives easier
Sales Channels: 100% online
Sales / month: $300k
Margins: 17% net
Location: Parker, CO (HQ); China, Cambodia, India (manufacturing); Kentucky (fulfillment)
Team: 2 full time, 2 part time
What does Parker Baby sell and how did the company come into being?
We sell baby products–primarily textiles. We sell whatever my wife comes up with that might make our lives a little bit easier. Back in 2015 my wife and I had twins. I was working in investment banking and we were spending a lot of money on baby products. My wife had some ideas to improve on some of the products that we were buying and using every day with our twins. We started off with some very simple bibs that my wife designed.
We put the order into a manufacturer in India who we continue to use today. They just kind of took off. We continued to put out new designs, moved on to a couple of new products and about a year later I quit my job in investment banking and pursued Parker Baby full time. We’ve gone from those first few SKUs to about 45 SKUs today and grown our team from just my wife and I, to still my wife and I, one other full time employee and another a part time employee. We actually have four kids under the age of five so we’re still able to come up with product ideas pretty regularly because we’re in the thick of it. I think that gives us a little bit of an advantage in that we really do use every product that we design and sell daily.
Was it an active choice to keep your products to one-size-fits-all, rather than having multiple sizes per SKU?
Our original goal, and we still pursue this to a certain extent, is that our product line would grow as our kids grow. We have started offering toddler sized items and we’re going to continue to develop some of those as our kids get older and we see needs for products that are similar to baby products that we already have that we can develop quickly and easily. We still have a laundry list of product ideas that we want to pursue some day. Fortunately one of our part time employees is pregnant and we tell our employees that whenever they have an idea for a new product, or a way to improve a product, that we’re all ears because you’ve got to stay on top of trends with baby products.
How do you take that laundry list of product ideas and decide what you want to bring to market?
We try to prioritize products that we believe have a larger market and that’s because I feel there’s less risk if we’re launching a product that is proven to sell by competitors and we know the volume is there. My wife will be able to tell me if she thinks a product would be useful as a parent or how much a mom would be willing to spend on a product or how many of her friends are using this or would use that.
The next thing we focus on is how quickly are we going to be able to develop this product and how complex it is. Do we have a supplier that we already use? And if we do, we put that to the top of the list. Depending on who the supplier is and what is their minimum order quantity, can we get away with a low minimum order and develop this product to test the waters? And then if it ends up being a home run, can we quickly scramble to make more of it?
Our supplier relationships are really important when we consider new products because we’ve developed some good relationships with our suppliers and have a lot of trust with them. They know how our process works as we develop a new product. It really allows us to get products to market quicker and more efficiently.
How do you go about vetting your manufacturers?
It’s a process that has evolved over time. When I was doing this as a side business we found our first manufacturer, who does our bibs and several other of our products, on Alibaba. We got lucky with him. He’s been super easy to work with. I flew out and visited him face to face last year for the first time. More recently it’s been largely referrals. We’ve hired a consultant as a product developer and she has had relationships with factories overseas with some other brands that she’s worked with in the past.
We’ve been able to use those relationships to build out some of our products. It’s always great when you can get a referral from someone who’s worked with the factory because you don’t really know what to expect when you are interacting via email or even on a phone call. You hate surprises in the product development process and as you get to know and develop these relationships with suppliers you can minimize those headaches. Now I try and visit every factory face to face.
I think meeting face to face is incredibly important. I understand there are people who have never met their manufacturers face to face and it works for them. But I really like to see who I’m doing business with, see their operation, see how they operate, and see how they treat their employees. All that stuff is super important to us and I think it really is mutual. I think they value those relationships where you take the time and effort to get over and visit them. I’ve found that the best suppliers are really proud of what they’ve built. They’re proud of the businesses they run, which is no different from how we operate.
A lot of online brands are starting to veer away from Facebook and Instagram as User Acquisition channels because of the cost. Are you still using those channels?
We’re definitely feeling the same pressure that everyone else is. I think the only thing that might be different on the social media side is that we’ve always felt this pressure. The baby market is saturated on social media and it’s always been pretty expensive for us to advertise on those platforms. It’s no secret that our target market, being moms, spend a lot of time on social media. In the past year we’ve adjusted our priorities and how we’re spending our advertising budget to focus more on Google ads and Google product searches.
It’s been a battle, but that being said, our social media presence is a huge part of our branding and it’s a huge part of how we validate ourselves as a business and how our customers are able to validate us. So we put a lot of time and effort into our social media accounts. We use it as a way to engage and interact with our customers.
What percentage of your sales come from Google, Organic, Social or other channels?
In terms of paid traffic, Google accounts for at least as much as our social media traffic. Email marketing has been incredibly effective for us and we’re going to spend some time next year really trying to focus on optimizing our email marketing. I think we’ll start to see our social media advertising start to drop and hopefully our email is able to pick up on that.
Since your target market is moms, have you found Pinterest to be useful?
We have tried some paid advertising and we’ve found that it just does not convert. People had warned me about that with Pinterest. It [Pinterest] is more idea based rather than looking for something to purchase or to spend money on to really convert. We haven’t spent a ton of money on it because we worked with their team for a long time to try to get it to work and it just did not end up being effective.
Do you think Pinterest doesn’t work because the users are too early in their purchase journey (they are just looking for ideas) or because the platform is restrictive?
That’s a really good question. I don’t think it’s the actual platform. I think it really is the user base. I just don’t think people who browse Pinterest are inherently buyers. Whereas on the Google search console or Amazon you’re more likely to have that intent to purchase.
What ROI are you seeing from your paid channels?
It really varies in the three to five [multiple] range. The low end being social media but it varies throughout the year. In the fourth quarter we’ve seen a lot of pressure that’s been limiting us on the ROA [Return On Assets] side of things, whereas email is always pretty steady. On Google shopping we have been steadily improving, taking advantage of some smart shopping campaigns this year that really took a few months to get going. The first couple of months were tough, but they’ve really started to improve and even in fourth quarter have continued to improve, so we’re optimistic about those going into 2020.
Have you had any channels that are a complete flameout?
We dabbled on eBay for a little while, but from a branding standpoint, it just didn’t feel like it was a good fit. Amazon has always been our bread and butter but we’ve recently seen a lot more pressure, as has everyone else, on Amazon [with] a lot more competition.
Do you feel there is an undercurrent of merchants turning their backs on Amazon due to the experience?
I don’t know that I would have ever described it as a great experience. It’s been serviceable. It’s hard to complain because we are able to grow our business quickly. Because of Amazon, we didn’t have to hire customer service right away and we didn’t have to have a warehouse where we were fulfilling hundreds of orders every day right away. From that side of things it’s really tough to beat Amazon as a seller. But in the last 12 to 18 months things have gotten worse because they made it very apparent that they’re just going to nickel and dime sellers.
I feel like there was a fundamental shift right around a year ago toward prioritizing the cheapest items in their algorithm. That’s been a tough change for us because we’re an American business and we are not the cheapest. We’re not selling directly from the factory. We’re not selling the cheapest baby products out there. We are fully compliant with our product safety testing which isn’t cheap. We don’t hire overseas. We hire everyone here in the US and so we have these additional costs and Amazon has made it very apparent that they’re going to prioritize the cheaper items. That’s been a tough, tough battle for us over the last 12 months.
What tools does Parker Baby use to keep the company moving forward?
Inventory Planner: Frankly, we just haven’t done a great job of managing inventory and forecasting sales, and it’s been a really effective tool for us to make sure that we’re minimizing our stockouts, which as you probably know can be detrimental on marketplaces like Amazon.
Gorgias: We use it for all our customer support. It’s been really affordable for a business our size.
Easypost: On the fulfillment side of things we have been using Easypost for over a year now. We had some issues on black Friday 2018 with a lot of our orders because of the sheer volume but this year we did even more volume and we didn’t have any hiccups. They figured things out and we’ve been really pleased with how they’ve been managing the fulfillment for us.
What advice would you give to someone who’s just starting an e-commerce business?
I’m going to be a little biased because I come from a finance background, but it is incredibly important to know your numbers. I’m amazed at how many small businesses just don’t do a good job of staying on top of their books. Early on I think we did waste money in places, that if I had been more diligent about keeping up with our books, that could have been avoided.
What is your net profit margin goal for next year? What is your sales goal for next year? If you are going to cut back on your advertising, how is that going to affect your margins? How is that going to affect your sales? And if you are going to see a decline in sales, how is that going to affect your purchasing capacity and your ability to get better pricing on your products? Understanding all that stuff is really hard for entrepreneurs without a finance background. Definitely spend some time learning that side of the business, using the resources that are available to you to really get a grasp on the finances.
Interested in getting financing to fund growth like Parker Baby? Connect with the team here.