January 1, 2019
Why I believe side hustles & direct to consumer businesses are the new asset class worth exploring in 2019
One of my favourite activities as the year closes is debating with my friends about the best rap album of the year. This year it was pretty much unanimous within the hiphop community that Nipsey Hussle’s Victory Lap was No1 on the list. In 2013, Nipsey took the bold move of charging $100 for his debut album entitled “Crenshaw”, which he sold direct to the consumer at a pop-up shop in Los Angeles, called “Hussle in the House”. Jay-Z caught wind of the move, and decided to buy $10,000 worth, in support.
“It isn’t the price of the plastic case and polyurethane disc…it’s the price of Revolution! The price of Rebellion against an industry that has tricked us all into making products that have no soul for fear of not being heard if we don’t…” — Nipsey Hussle (2013)
Fast forward to 2018, the cultural significance of Victory Lap was evident, as Nipsey delivered a classic album celebrating the financial upside of patiently building a music career and merchandise stores over time.
What does this mean for the startup community?
It is safe to say in the past 5 or so years, tech seems to have a monopoly on the term ‘startup’. A number of quick exits have become the definition of startup success, and somewhat taking the limelight away from building sustainable bootstrapped businesses.
My personal thesis is that the ‘direct to consumer’ nature of the internet provides one of the best vehicles for wealth generation over the short to medium term.
So as we head into 2019, I wanted to write a blog on why more people should look to build ecommerce side hustles. I also share the metrics that I believe online shop owners should focus on, in order to win over a 5–10 year period, like Nipsey did.
The global retail spend is $20Trn+ — that is more than the GDP of the United States at $19Trn. According to eMarketer, Ecommerce only makes up 10% of that spend and grew at a rate of 40% last year.Meanwhile the barriers of entry to start an ecommerce shop are diminishing quickly, with technological advancement and platforms like Shopify, Etsy, Amazon and Not on the High Street.
If you are interested to know how to start an online shop, you can let me know by clicking this link , which will start an email thread between us.
Now lets assume you already have an online store — what are the metrics you should be focusing on?
Year on Year revenue growth rate
Formula = (This Year’s revenue — Last Years Revenue)/Last Years Revenue.
With retail there is an easy tried and tested measurement of success which is sales. In this market, optimising for vanity metrics like followers is a waste of time. There is a quick feedback loop between launch and sales, and such a short timeframe makes retail easy to benchmarking against other asset classes and macro economic performance.
Here is how:
- Global GDP has been steadily around 3% since 2010, whilst U.K. GDP has been below 3% — The World Bank
- Most asset classes have delivered below 10% year on year returns — Portfoliovisualiser
A personal rule of mine is if you are delivering double digit growth on annual revenue, you beating most markets. In fact, over the past 8 years your side hustle has the potential to outperform the economic output of the entire planet, and all well established asset classes.
Hyper growth is possible with Direct to Consumer
The World Bank describes rapid growth as delivering compound annual growth between 20% to 40%. A hyper-growth company deliver 40%+.
Here is an example of what a fictitious e-commerce business with not so fictitious 40%* compounding growth return over 8 years, would look like starting with £10,000 turnover in Year 1.
If the founder reinvests all the money back into the most profitable products and effective marketing and sales channels, they would go from £10,000 to £147,578 in revenue — within 8 years.
*40% is feasible, as I have worked with ecom businesses delivering anywhere in the regions of 50–100% YoY revenue growth for 5 years.
“…First you over-dedicate, then you notice that you are great, and you been the whole time…you stacking in your safe, now you got it cracking it was fate/Now you are the definition of laughing to the bank.” — Nipsey Hussle; Young N***a (2018)
TAM, SM and SOM penetration rate
One of the issues side hustlers face is justifying to themselves that there is enough of a market for them to grow. This is made difficult because there are no industry reports for niche markets — which tends to be the type of markets side hustlers need explore.
One way of addressing this issue is using freely available data from Google Trends, Google Keyword Planner or search analytics from your marketplace and begin to quantify demand versus how much of that market you are servicing year on year.
Total Available Market:
- Total Available Market is the total market demand for a product or service: In my wife’s case, specifically through her Etsy shop this is the total number of buyers on Etsy — which in 2017 was 36 million people looking for handmade products.
- Serviceable Market is the segment of the TAM in the market for your product categories. In my wife’s case, it is how many of those people on Etsy are searching for products in her shop — homeware & lifestyle products?
Serviceable Obtainable market
- Serviceable Obtainable Market is the portion of SAM that you can capture — Those who are visiting my wife’s Etsy store.
Below is a tracker I have set up for my wife’ Etsy shop which takes data from Etsy Shareholder reports, Search analytics and her sales report.
Even though less than 0.5% of Etsy buyers are aware of my wife’s shop at any given year, by improving her SEO and shop conversion rate, we are making the most of those >0.5%, and thus delivering hyper growth Year on Year.
It is easy to look at your turnover in the beginning and be disappointed, but metrics like TAM, SM and SOM can give you real indication of your progress.
“…it’s all beautiful when you get rich in it/ …Money grows faster than ni***s could spend the sh*t / Open more businesses with you and your ni***s/That’s watching your vision and being more generous/F**k a Ford dealership, we up in Forbes…”— Nipsey Hussle — Young N***a ft Puff Daddy
I posted the below tweet earlier this week around how the average salary in ones country is a good signpost for side hustlers or lifestyle business owners. Varying data has shown that one of the key reasons people start a side hustle is to not be solely reliant on their job — in some cases it is described as the ‘F*** You’ fund for unhappy employees.
The key point in my above statement is — profit permitting, and this is something that first time entrepreneurs lose sight off. It is not what you make, it is how much of that you can keep.
What is Gross Margin?
Gross margin is the difference between revenue and cost of goods sold divided by revenue. Gross margin is expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of goods sold. Gross Margin is often used interchangeably with Gross Profit, but the terms are different. Wikipedia
This is essentially the markup that one is making on the product they are providing to the market. This impacts your pricing strategy and it is important that you are on top of this and constantly reviewing the supply chain and negotiating with suppliers to achieve economies of scale as you grow.
“…They didn’t see in due time, I will be making mills/ Bossed up in this game, I been making deals/ Get your lawyer on the phone, we can make it real…” — Nipsey Hussle; Victory Lap (intro)
I touch on how we increased pricing and still delivered 100% YoY growth on my wife’s business in 2017.
Business continuity tracker
“I am integrated vertically, y’all N***s blew it…”— Nipsey Hussle; Victory Lap (intro)
What is vertical integration?
In microeconomics and management, vertical integration is an arrangement in which the supply chain of a company is owned by that company. Usually each member of the supply chain produces a different product or service, and the products combine to satisfy a common need.
One of the benefits of the internet is that individuals now have the power to outsource a lot of the supply chain, and only deliver value through the point of sale. This is something until the 21st century only the big corporations could do. A mistake a lot businesses make — even major corporations — is badly assess and manage the risk created by the moving parts of their business.
Below is a screenshot of the risk scorecard I use for my businesses and clients to help manage external risks against delivering the business growth ambitions.
I will be making this open source early in 2019, so email me by clicking here if you would like to be notified.
Self-care & gratitude tracker
The most important tracker of all is personal wellbeing and the reminder that your business success or failure is not a reflection of you as a human.
Although this is dependent on each individual, here are some of the ways my family & friends keep track of their wellbeing and keeping a state of gratitude on their journey.
- Date Nights — my wife makes sure we make time at least once a month where we go on a date and don’t discuss any of our businesses or work
- Gratitude Journal — my bro Andy Ayim, keeps a gratitude journal of things he is grateful throughout the year — here is his 2018 summary
- Safe space — Alex from Comuzi and Andy Davis from Backstage London, host a fortnightly group for entrepreneurs have a safe space to talk about difficulties they are facing on their journey
- Purpose Intersection — Every year, my friends and I ask each-other what three areas would they say make up their interests/passions. We do this to help each-other get closer to a sense of purpose
“…Find your purpose or you wasting air…Eyes open I can see it clear/They don’t make it where I’m from, they don’t take it here…” — Nipsey Hussle; Victory Lap (intro)
The below Venn is one I designed for myself after reflecting, on my journey over the past 12 months — I using Meta-charts.
One insight about my Venns is over the past 5 years — data and culture have remained constant, with Product being a new entrant previously occupied by storytelling and tech in the past.
There you have it, a brief reason why I think D2C is the future and 5 metrics or trackers that I think those in D2C retail should focus on.
This thesis is one of the reasons why I started Building Class, helping those at the ideation stage to later stage startups in the ecommerce & retail space.
You can join the mailing list at the footer of the link below, if you are interested in receiving more articles like these.
Until next time, I wish you and yours a Happy New Year, and remember that wealth like Life is a marathon not a sprint.
‘Ran a couple of marathons just to get established, to make it happen you got to have Dedication, hard work plus patience. The sum of my sacrifice, I am done waiting.” — Nipsey Hussle; Dedication.
June 18, 2019
Queening: What Rihanna's wealth means for the culture
“Pay me what you owe me, don’t act like you forgot...B**ch better have my money…” - Rihanna (2015) B**ch better have my Money. I wake up one morning and I look to my left and my wife is not there and I can hear the above lyrics coming from speakers in the hallway....
July 8, 2018
5 Lessons I learned from JayZ lyrics about starting and growing a business
Everything from identifying a problem, finding an audience and acceptance.