Apr 30, 2019
When sourcing an Amazon business, there are many complex factors that go into finding the right product and getting the right margins. Today’s guest founded Sourcify, a SaaS product that helps people source the product and improve the manufacturing process. Sourcify takes a look at every factor possible when building out margins and lead times to optimize the logistics behind the ordering process. By decreasing costs, revenue increases and therefore the value of your business goes up.
Nathan Resnick started this fast-growing b to b software-driven sourcing company in 2002. His fascination with e-commerce and foreign imports goes back to when he was living in China as a high school exchange student and started importing products to the US, making a few thousand dollars a year. He started a Shopify store at age 19 and reached his first six-figure income year. Nathan became fascinated by the process and the capacity of these factories. Sourcify makes it easy for you to bring products to the marketplace, streamline errors, and cut unit costs.
Episode Highlights:
- How Sourcify’s offices are structured for optimal global presence.
- The current tariff policy issues and how Nathan recently landed in the press.
- Ways a strong team and strong factory relations benefit both sides of the sourcing process.
- IP protection and factory relationships.
- Percentage margins sellers should look for in a factory.
- Shortcuts to avoid with suppliers.
- The importance of having quality control parameters in place before shipment.
- Markets where Nathan sees production increases emerging apart from China.
- One of the most common problems with Amazon business when it comes to inventory management.
- Avoiding duties and taxes via Mexico. The domestic and international laws that can allow for this at certain values.
- Mistakes in creating and retailing that Nathan sees and his tips for going around them on the manufacturing side.
- How important/beneficial it is to visit the factories for e-commerce entrepreneurs.
- Scaling up and understanding the factory’s capacity to match that scale.
Transcription:
Joe: Mark, one of the biggest challenges for startup entrepreneurs much like Amanda talked about on the podcast is sourcing great products. There’s lots of experts out there with podcasts that help and they’re very, very good information but sometimes people need a little bit of a boost; a little hand-holding. And I understand you had Nathan Resnick from Sourcify on the podcast to talk about just that.
Mark: Yeah, absolutely. So he founded Sourcify.com which is a SaaS product. They have thousands of pre-vetted factories, hundreds of product categories, and what they do is they help you source that product and also improve that entire sourcing process. Because there’s a lot of complex factors when it comes to A. finding the right products and then B. making sure that you’re getting the right margins out of those products and getting your timing right. I mean Joe how many Amazon businesses have you looked at where the owner says well if you could just figure out the inventory ordering system because I missed out and ran out of inventory business could have done so much more. It’s like every single business, right?
Joe: Every single one I asked the question have you ever ran out of inventory? The answer is always yes, the follow up question is how much revenue did you lose during that time period and then how do you overcome that? And yeah it’s often working capital, better planning, software, things of that nature. It’s always a challenge though.
Mark: Well, so the software does this. It takes a look at … and he explained this. He says imagine you’re selling watches; you’re not just working with one factory because that factory might be ordering the wristbands from a completely different part of the world and so you need to factor all of this in when you are building out your lead times and also understanding your margins as well. And so we talked a lot about how do you negotiate better rates, when should you negotiate better rates, how do you establish good relationships with your manufacturers and other ways that you can really optimize logistics behind your ordering process. This guy … I’ll just be blunt, he’s way smarter than I am.
Joe: Okay, well that’s not very hard though Mark. Come on now.
Mark: Well, that’s not. That’s like 95% of the people in the podcast.
Joe: I understand he had one really, really cool tip in terms of importing.
Mark: I’m not going to try and explain what it is here on the intro. You’re going to have to wait and listen for it but he talks about using Mexico as a place to import products to be able to save a substantial amount of money on that importing process. So I’m going to let you guys listen to that and tell me … send me an e-mail if you found that tip to be absolutely killer because it literally … like you’ll probably hear me in the interview, he threw me off my normal pacing that I don’t have because I didn’t know where to go. I was like wow that was really an incredible tip. So listen for that and … yeah, a really interesting guy who’s done a lot in just a couple of years.
Joe: Well, I think any tips and tricks that people can learn to decrease their cost increase their discretionary earnings increases the value of their business if and when they ever decided to sell it so I’m looking forward to listening to this one myself. Just a quick reminder everyone, movie quote, if you heard it, if you want to rewind, if you know what it is, drop it in the notes below and we’ll give you a shout out on the next episode.
Mark: Nathan thanks so much for joining me.
Nathan: Mark, it’s my pleasure. I’m really excited to be here.
Mark: You and I just met. We met at Prosper Show. We talked for I think like two minutes before I was like you got to be on my podcast. I want you to come on board. And you were very gracious to agree. Would you mind giving everybody just a quick background on who you are, the company you’re with, and why I asked you to come on the podcast?
Nathan: Totally. Yeah, I mean I run a company called Sourcify. We are the fastest growing B2B manufacturing order management system. What we do is enable companies to source out the best factories in the world as well as bring their supply chain online so they can be data driven and understand how their unit cost, lead times, and quality defect rates have been fluctuating per product and per factory. People always ask okay Nathan how did you get in to all this? And really it actually stems 10 years ago. I was living in China as a foreign exchange student with a host family that didn’t speak English, attending a local Chinese high school, and started importing products from different markets in Beijing where I was living. So we import all sorts of products, sell them on e-Bay and Amazon. In high school, I think senior year where you’re just making a few thousand dollars a month and then by the time I turned 19 I had my first low six figure year through my own Shopify store and really just became so fascinated by e-commerce as well as the power of these factories to produce all sorts of products. So about two years ago I started Sourcify and we’ve been on an awesome journey so far. I’m really excited to continue to help organizations streamline and optimize their production overseas.
Mark: Yeah, I just was doing a little bit of show prep here and people that listen to the show are probably going to laugh at that because we don’t do a ton of show prep. That’s why I don’t do the intro. But you’ve gotten some really impressive press with what you’re doing. I saw Forbes publish a piece on you and the growth in Shopify. Share where your offices are right now. You have multiple offices all across the world.
Nathan: Yeah, so I mean kind of crazy [inaudible 00:06:05.0] with us and press was last year, especially with this China trade tariffs. Everyone was talking about how these tariffs are affecting companies that are importing products from China. And for us we have offices in China, Vietnam, and India and run production everywhere from the Philippines to Pakistan; basically every country in Asia. And so we became a hot topic. We were on CNN, CNBC, and nearly all over the news and it was an exciting time and still is. I mean I think really if you looked at China as a whole it’s gotten more expensive and so for us, we’ve got three offices overseas and then in America; we’re headquartered in San Diego and have small offices in Las Vegas as well as [inaudible 06:43.7] Utah, right outside Salt Lake City.
Mark: Yeah the Las Vegas area, that’s got to be just for all the conferences that are held there right?
Nathan: Yeah.
Mark: I mean we’re always out there.
Nathan: Yeah. Not for all the partying.
Mark: Right. I wish I had known this a year ago … or not a year ago but when all the tariffs that was hitting. I had James Thompson who’s the co-founder of Prosper Show. I had him come on the podcast and we were joking that we had to have a Canadian come on the show to explain US policy as it relates to China but cool. How old is Sourcify?
Nathan: So we started in March of 2017 so just about two years old and it’s been a pretty amazing journey. We produce in over 300 product categories; everything from hair extensions to bags to bunk beds. I mean you name it. Our abilities are widespread and really that stems from having a strong sourcing team as well as strong factory relationships. So a lot of times organizations when they work with Sourcify they’re able to increase their margin just by buying in volume through our customers that might be producing similar products and so that’s one of the main benefits I think.
Mark: Yeah, I want to get into a lot of the kind of details of these … of sourcing products and also some of the differentiation. And you kind of … you touched on something that I was going to ask about so I’m going to jump the gun a bit here with this. Is this an open sort of book where you can see some of the other products that are being manufactured here and if so the question [inaudible 00:08:12.1] Joe’s mind is protection of IP through your platform. What does that look like? How do you protect people’s intellectual property?
Nathan: It’s a great question. So first and foremost every customer that uses Sourcify has complete transparency. They can see who the factory is and our goal as a software driven sourcing company is to enable these organizations that work with Sourcify both buyers and factories to have better workflow management and a production process to actually understand what’s going on in the production runs. Right now like pretty much every company we talk to is using e-mail and Excel spread sheets to manage production and that works to an extent but it gets very complex. And so from an IP perspective number one every customer keeps their factories in their own database and number two basically when we talk about IP it’s protected at the borders. So a lot of organizations and a lot of people ask Nathan should we go try to file trademark, should we go try to file patents in China or through Asia and most of the time it’s not going to be worth your money or time to go out and try to file those patents or trademarks in China. But what you should do is file trademarks and patents here in America on your products. So if a company is importing your products under your brand name or trying to sell on Amazon under your brand name a lot of times you can show the Customs and Border Patrol or Amazon themselves and say hey I own this brand, this company is clearly knocking me off. I did not authorize them to import or sell these products on my behalf. And the right thing that these law enforcement agencies or Amazon should do is to give you full control of your products to sell them yourselves.
Mark: Okay cool. So let’s talk about you’ve already mentioned that some of these guys are kind of they’re starting out with these in Excel spreadsheets and to control the manufacturing process and it works for an extent. I would love to know because in our world we’re helping people prepare their businesses for sale. We run into this all the time. We have people who come to us with all the metrics that they think they should be presenting and all the metrics that they think are important when it comes to selling and then we have to kind of adjust their mindset as to alright that’s a good start here’s what we should be doing. So let’s start with this, how do you find people mostly attack that product sourcing and product development?
Nathan: Yeah I mean I think first and foremost it stems from a vendor analysis. Are you actually working with the right factory that should be producing your product? Hopefully, you’ve done enough due diligence with your supply chain to understand if you’re working with a factory or trading company or wholesaler or agent. Best bet is you’re working with a factory that’s great, that’s fantastic. Hopefully, you haven’t outgrown them. There’s a lot of organizations that we see haven’t renegotiated their terms or prices in two or three years and you’ve 10X the production volume that you’re buying at and you’re still paying a higher rate. I mean the smart thing you do is go renegotiate those existing contracts and prices with that factory. If you do an analysis and you find out you are working with a trading company or agent number one you’ve got to understand okay how much margin do I think this trading company or agent is making. We see a lot of organizations that a rep will say we see the factory numbers they’re only making 1% or 2% on my production run. I mean unless they’re a really large scale facility that’s trying to just take up but like keep their production line going there’s no business that’s going to run off of a 1 or 2% margin. I mean you can’t even put bread on the table with a 1% margin in most organizations. And so when you come with that perspective in mind and you think that you’ve out negotiated everyone and really have a strong factory it’s not to say that they’re not strong factory it’s just to say that I mean I don’t even think you should try to get your factory to run on a 1% margin because it’s just not sustainable. They’ll probably be even making quality cuts or messing up the lead times or working with the wrong vendors because I think what a lot of people and supply chain team members don’t necessarily understand about manufacturing is that most of these facilities that are exporting products to America or Europe or wherever your products are going are dealing with a lot of sub suppliers. So they have suppliers that handle the different components that make up your products. So, for example, let’s say you’re producing watches. Those watch factories are going to have the watch strap, the watch taste, the watch movement, the watch hands; all of these little pieces that make up that watch are assembled and put together by the factory that you’re working with. And until you get to a scale where you’re spending at least a few hundred thousand dollars probably more so a few million dollars on production overseas you aren’t going to dive into those sub-suppliers and really understand okay how much is each little component costing. And even then building relationships with those sub-suppliers to cut costs is not going to be worth your time until you’re spending a significant amount of money on production overseas.
Mark: Yeah. So what margin should people be expecting there? You said 1% is probably not realistic. What should they be expecting?
Nathan: I mean we’ve had the opportunity actually to invest and buy factories at Sourcify and we haven’t done that and I don’t think we will in the near future. But I mean most factories that are attractive to us are running on at least 15 to 30% gross margins and I think that’s sustainable. I think as a business you want to have some margin to reinvest in new machines. You want to have the margin to invest in your team. You’ve got to have margin there to grow and create a good environment. And I think that’s a key dynamic of any business let alone factories and especially even factories when sometimes especially as your brand might grow you try to sell into larger retailers like Walmart or Disney or whatever it may be. Those larger retailers have their own requirements of your facilities to be able to sell your products in that retailer. So if your factory can’t pass a Walmart cert or a Disney cert you’re not even going to have the opportunity to sell into those larger retailers.
Mark: Yeah, so that makes sense to just be investing and making sure that … I think that the mindset that I hear sometimes from both buyers and then also some of the owners of these businesses when they’re renegotiating these contracts over and over with their suppliers is forgetting that on the other side there’s somebody still trying to run a business and it affects that downstream quality. I’m sure it’s downstream, probably upstream quality of the product that you’re getting in return and trying to sell which leads nicely into my next question which would be what are some things that people should be looking out for with their current supply chain and maybe trends over time? Everything starts out good with the first batch of products you receive and everything is going well, what should things that would people be looking for on a regular basis from their suppliers?
Nathan: Definitely. I mean I think first and foremost there’s a lot of people that I think try to take short cuts in their supply chain. I think the biggest short cut that I see people taking is not booking quality control inspections before shipment and before you pay that production balance. I mean you can get a quality control inspection done through our partner for QC is Asia Inspection. They just rebranded to Qima. They charge under $300 or around $300 to send a person to the factory to inspect those products before shipment and before you pay that deposit. And if you don’t have a quality control inspection process or program in place you’re going to be getting a container load that might have defective products or might all be wrong and there’s no reason for you not to put those checks and balances in place on every single production run. I mean I don’t care if you’ve been working with the factory for two or three years there’s always going to be some products that might be defective. And I’m not saying these QC teams are going to check every single product. They might check 10, 20, 30% of the products depending on the size of the production run but at least you have images and an analysis of what’s going on with those products. And sometimes these are very simple mistakes or quality defects where like for example on … I know one of the production runs that we had going on this week there was threads that hadn’t been cut on these bags. There were loose threads. We said hey before these are shipped we like all these threads to be cut. We don’t want these bags coming into America with these threads hanging out. So sometimes it’s very simple quality control metrics and other times you find out the code being on certain furniture or certain lamp is wrong whatever it may be. And so having that in place I think is really just a must. I mean there’s no reason not to have quality control in place before shipment because you don’t want your products showing up at an FBA warehouse or your own warehouse and you find out oh wow the 30% of these products are defective. So you’ve got to have checks and balances in place before shipment and then also one of the things that we do at Sourcify that I recommend everyone do if they can depending on their buying power is say to their factories and put in contracts, say we aren’t going to pay for defective products. If the products don’t meet our quality control inspection we aren’t going to pay for them and we’re going to discount them from our purchase order. So let’s say 3% of your products have quality control defects, well now you’re saving 3% of your PO because those products are defective. And so putting that in writing, making sure that’s clear with the factory is really I think the biggest kind of misstep I see companies doing when they’re producing products overseas. And then when we talk about trends it was really the last year it still is right now but transitioning and diversifying supply chains outside of China is huge. I mean so many companies literally every single day are talking to us about producing products in Vietnam, India, Bangladesh, with Philippines. I mean all across Asia. I was on a flight last quarter the Philippines back to Guangzhou from Manila and on my right and on my left were two Chinese factory owners that have just transitioned some of their facility to the outskirts of Manila to start factories in the Philippines. And the reason being is labor rates are more affordable in the Philippines and other parts of Southeast Asia. The biggest challenge stems from the operations of a factory which these Chinese factory owners already know how to operate a factory effectively and you know really just the raw material where do these raw materials come from or produce these products. These factory owners in China have that figured out and there are some free economic zones in certain parts of Southeast Asia where you can actually import products from other countries into this free economic zone, manufacture the product in that economic zone and then export it for free. The benefit of the country is just to really increase labor rates in that area. And so that’s I think really the biggest trend and kind of what’s most overlooked in current companies that are producing products overseas.
Mark: Yeah, you anticipated one of my questions which was the different markets where you’re seeing production increase. I know with the tariffs were being threatened and imposed there was a lot of question about well where can we go if these prices rise up? And dump tell that in with some of the reality of the issues that Amazon sellers are dealing with producing China, right? This three month kind of standard lead times if you’re shipping on an ocean it makes it really difficult for people to manage their inventory. So on this side of the ocean what countries are you seeing emerge at this point as potential viable players if any?
Nathan: Definitely, I mean I think right off the bat I want to touch on the inventory side in terms of inventory planning. I think we’re both friends with Chad at Skubana. I think they do a great job of inventory management and helping you manage that across different channels. One of the key components that I think a lot of companies fall short on is how do you tie that data into factory lead times. And so when you can take lead time data from Sourcify and tie it into you inventory analytics that you have through a tool like Skubana that’s a lot of powerful insight that you can put together. And when you’re starting to diversify your supply chain outside of China you’ve got to understand that now the raw materials are potentially coming from a different country than your products should be manufactured in. So for example in Vietnam, we work with a pretty high end apparel brand and they get their fabric from Taiwan. It’s about a two week lead time to get the fabric from Taiwan and put it to their facility in Vietnam and all the cut and sew there and so another timeline that they have to put into their analytics and planning. I mean I think forecasting is a huge challenge with any e-commerce business. Ad I think in any … I mean you probably see this all the time in any Amazon business or any e-commerce business a lot of times when you’re going through a high growth period there’s going to be a time where you’re almost running out of inventory or you did run out of inventory either because you misplanned or because you’re going to have to cash to put in the inventory. And so I think it’s a crazy dance that these e-commerce companies play when they’re trying to understand okay how much money should I put in the inventory, how much should I spend on paid acquisition. It’s a balance that’s really hard to figure out on the early days and until you have the data to forecast more effectively you’re going to be playing that dance. And I don’t know if there is like a one size fits all answer. I mean you might know … have a bit more insight in regards to that than I do but I’d be interested to hear your thoughts on that.
Mark: No. Honestly again I mean as I know a lot of the people that listen to the podcast here are looking for their own acquisitions and they’re trying … they look to this podcast for some insights and if you can figure this one part out this is the number one problem that we … no maybe not the number one problem but one of the most common problems I see with Amazon businesses is that most have some level of seasonality; typically Q4 unless … but I mean not always but some have some sort of seasonality. And so we see one of two things happen either they run out of inventory at the most crucial time of the year on some of their best sellers or they overbuy or their shipment dates miss the seasonal period. And so let’s say that you overbuy and you have a seasonal product where you’re hitting December … November and December for that Q4 Christmas rush now January hits and you got to sit on a whole bunch of inventory for a year. Or even worse … and again this happens more often than people might want to admit, they get those shipments late. They get them the second week of January. And it could be even more difficult if you have spring seasonality because you have Chinese New Year in there. And if you get caught up in that well you can completely miss all of your windows there. So the idea of combining something like Skubana; yes Chad is a friend. I had him on the podcast. A great guy. Super smart. Combining that with Sourcify, anyone who figures that part out most of the businesses that we list are undervalued in some way given that they’ve missed their hot periods one way or another.
Nathan: Yeah I mean I think that ship times there is something that you should be able to control in terms of planning at an early stage. That could be a bit challenging, I could see. But in terms of your ship times I mean that’s something that you should really have under control and under wraps with your freight forwarder and with your factory. What’s crazy to me just talking about ship time briefly is that even a lot of freight forwarders they’re getting looped into factories over e-mail and trying to go back and forth to schedule a freight pickup. I mean all of that should be able to be effectively synced up and e-mail is a fine channel to do that but I mean I think there’s got to be a better method. I mean a lot of companies that use Sourcify they link in their freight forwarders so they communicate directly with their factory online and track what’s going on. But otherwise it’s just a bunch of people CC’ed on different emails and it’s actually kind of entertaining sometimes to see the back and forth between a factory and a freight forwarder got to figure out when they can schedule a pick-up of products.
Mark: That’s fascinating. Alright, I’m not going to skip on the other question though about this side of the ocean countries and emerging markets if any and maybe you are going to say this—
Nathan: Oh in terms of like North America?
Mark: North America or even South America, but [crosstalk 00:23:42.8] three month sort of lead time.
Nathan: Yeah. So I’ve actually been doing a lot of research into Mexico. We’re headquartered in San Diego and so there is a huge amount of opportunity in Mexico just south of the border here. And I think it stems from … basically, it’s kind of a similar dance that these companies play that are transitioning production outside of China is where does the raw material come from. There’s a lot of … not a lot of raw material sources in Mexico and so a lot of those facilities that are doing injection molds or cut and sew are importing those products from other countries. But there are a lot of companies that are producing products in Mexico and I think it’s a growing opportunity. The other dynamic that I want to touch on that a lot of e-commerce companies are starting to look into and I think it’s a huge trend is actually handling their warehousing and fulfillment right out of Mexico just across the border from San Diego. And you can actually if you’re doing pick and pack B2C shipments directly to consumers you can actually avoid duties and tariffs no matter where the product was produced. And I’ll walk you through in how this works. So basically you can avoid duties and tariffs by handling your fulfillment and warehousing in Mexico while having the same experience as if these products were fulfilled from California. And the way that that works is there’s two laws you have to know of. Number one is Section 321 which is an American law that says when you’re importing a product that’s valued under $800 you don’t have to pay duties or tariffs and that product. The law number two that you need to know is the IMX program which is part of NAFTA; the North American Free Trade Agreement, and what that enables our organization to do is import a product into Mexico and export a product back into America without having to pay any duties or tariffs between America and Mexico. And so the way that this works is that you import your products from China or Vietnam or any country that are producing these products to import them in bond into the port of Long Beach, have them trucked down in bond across the border, warehouses directly across the border from San Diego, your warehouse and pick and pack your products out of there. Every time you have a customer and buy a product in your website it’s pre-labeled in Mexico and there’s trucks going across the border every single day and under Section 321 because those products are pre-labeled and each under $800 in value you don’t have to pay duties and tariffs on those products. And it’s basically these trucks go across the border every day, drop these products off at USPS, UPS, FedEx, there’s distribution centers literally right across the border from Mexico and San Diego and it’s been incredible doing research and exploring that dynamic down there. And there’s companies that are literally wiping off millions of dollars in duties and tariffs from their balance sheets just by handling fulfillment and logistics out of Mexico. And there’s a lot of big companies that we all know like Taylor Guitars, Bombas Socks, these hundred plus million dollar organizations have been doing fulfillment and warehousing in Mexico for three plus years now. I mean it’s really a robust operation and there is one provider that I know of called Baja Fulfillment that handles mid to smaller sized e-commerce companies. But for the most part, most of these organizations are focused on larger enterprises because that’s where you’re going to get the volume.
Mark: That is phenomenal. It’s actually such good information you knocked me completely off my game as to the other questions I wanted to ask.
Nathan: Well, I mean we can answer questions in regards to this because a lot of people don’t necessarily understand the dynamics and how it works. It’s nothing necessarily new but here’s the key dynamic. So every drop shipping entrepreneur that’s drop shipping products from China into America they’re using Section 321. That’s how these e-packet shipments work because you don’t pay duties and tariffs on those products because each one is pre-labeled and pre-sold and shipped over via China Postal Service and then USPS into America. And the reason why those products are so cheap is number one those shipments are subsidized by our government. There’s a lot in the air in regards of those if that’s going to change but Section 321 is here to stay. I mean that’s a law that’s been passed through Congress even if something were to happen … would happen with our current Trump administration I mean he wouldn’t be able to change it himself is basically what I’m saying. And so there are millions of packets that come into America every single quarter that are based on Section 321. The key dynamic here is instead of having to warehouse your products in China or wherever you’re producing your products you can actually import the container duty free, truck it down to Mexico in bond, and then you’re basically picking and packing those products out of Mexico with the same fulfillment experience as if it was out of California because these trucks are going across the border every single day. So it’s pretty crazy dynamic and there’s not many providers or even e-commerce companies that are really doing it right now. But being here in San Diego it’s something that I’ve been spending a lot of time on and really just become very interested in.
Mark: That’s fantastic; I’m going to completely shift gears mainly because I don’t have any questions on that. That was a phenomenal bit of advice. I want to talk a little bit about that product manufacturing process and developing new products. Obviously most e-commerce businesses you need to be continually releasing new products or at least variations on that. What are some of the mistakes that you see from people creating and retailing some of these proprietary products in that process of looking for the factory, the manufacturer, and maybe shortening up that exchange that happens between the manufacturer and eventually getting it out to retail?
Nathan: Yeah definitely. That’s a great question. I would say if it’s a product under IP protection what a lot of companies do is have one piece made at one facility, another piece made at another facility, and then either have one of the facilities assemble it or assemble it here in America. I would not suggest really assembling domestically just the labor cost and headache is going to be too much. But sometimes it doesn’t make sense to diversify your supply chain to have more IP protection under place. I think at the end of the day a lot of this IP protection in China really revolves around your factory relationship and dynamic with them. But then again if it’s a really, really hot selling product like these fidget spinners or the inflatable chairs that came out the other year; those things shot up like a rocket ship and literally everyone was claiming to sell them and invent them and all this is craziness. So I think really when it comes IP protection it still stems from having that dialed in here domestically but overseas it’s a matter sometimes of diversifying your supply chain, building a relationship with your factory, and I would also recommend visit them face to face. I mean I’m in China once a month at our office in Guangzhou and in Vietnam and it’s a lot of travel but it really helps us establish a brand and connection overseas.
Mark: How important do you think that is? Because I’ve had clients play on both sides where they are there at least once a year, I’ve had other people say I visited once like five years ago and I just don’t see the need to visit more frequently.
Nathan: Yeah I mean I don’t think it’s necessarily a need. I think it depends on your business. For us, we’ve got a subsidiary in China. We have a dozen or so full time employees in China and more in Vietnam and in India. And the dynamic there is mostly just our business puts me in a position where it’s a lot of management and making sure things are operating smoothly there. But if I was an e-commerce entrepreneur I mean as long as I have my checks and balances in place, communication is fluid, and everything is going smoothly, there’s not necessary a reason to go over there. All you’re going to do is see the facility, probably have some tea at the facility, grab dinner, maybe drink some bijou or something and basically break bread with your factory which is awesome. It’s a great experience and really a cool culture dynamic. But I think if you just … if you’re really going over to optimize costs or really negotiate in person I mean that could be beneficial especially if you’re having a challenge with kind of things getting lost in translation between communications with your supplier. So I think it depends on the business. I mean I know eight figure e-commerce companies where the founders have never met their suppliers before and do exceptionally well and I know eight figure founders that don’t go … that go over once a quarter or pretty often. So it depends, I mean I don’t think there’s a one size fits all answer to that. I just think it depends how your supplier has been performing and I think it’s the key question that you have to ask.
Mark: I want to talk real quick about scaling and also scaling up with the factory and their ability to match scale. Have you seen clients run into problems with that where they scaled so quickly manufacturers simply can’t keep up and finding quality factories to be able to backfill that demand?
Nathan: Definitely. I mean I think there’s two key ways for Amazon businesses to scale up. Number one is just increasing paid acquisition or ranking higher for keywords, the other is to diversify your product offering; start selling products and product categories that you weren’t selling in before. And there’s different strategies, I mean if you’re selling products in new product categories you’re going to have to do a lot of sourcing work to make sure you’re getting those products made effectively and that’s … it takes a lot of work and a lot of time. Whereas if you’re scaling up with the same products every factory that you work with if you say hey I’m going to order 10 times the number of units they’re going to be thrilled. They’re going to be very excited. Does that mean that all those products can be produced at their own facility? Maybe not, there could be a dynamic where they produce products with sub-contracting factories that might not have the cleanest facilities, might have a higher quality defect rate. And so that’s something to be aware of as really understand okay, what is my actual true factory capacity? That’s hard to understand without actually going to visit the facility but there is … I think kind of the key way to understand that is what I call just the kind of white paper trick where you could basically have the rep that you talk with at the factory write your name and date on a piece of paper and have them go around the facility filming a video with that piece of paper in the video or pictures so you can actually see what that facility looks like without going there. And that way you know at least this rep that you’re talking to you has theaccess to that facility. Who knows if it’s the actual factory that is producing your products or not or maybe you’d be able to see your products on the production line but at least you know that that rep has access to that facility.
Mark: This has been really useful and we’re unfortunately running out of time. So let’s end it with this and I’m … you’ve offered a ton of useful information so let’s talk real quick about Sourcify and the particular benefit that Amazon sellers are going to see from it. You touched on it at the beginning but this is a kind of chance to be maybe a little more direct with that.
Nathan: Yeah totally. I mean our goal is to enable organizations to optimize our supply chain. Typically when a company works with Sourcify, they save anywhere from 10 to 50% of their costs overall in their supply chain. The way we do that is either by enabling them to work more effectively with their existing factories through our software, diversify their supply chain across Asia, or diversify the vendors that they’re working with in China if they’re just producing products in China. So we got boots on the ground here. You’re more than welcome to come visit us and we’d be happy to connect online. You can find me on LinkedIn [inaudible 00:35:18.8] just Nathan Resnick or if you go to Sourcify.com that’s where we’re at.
Mark: Very cool. Thanks so much for coming on and a huge shout out to John Corcoran and Jeremy from Rise 25 for connecting us actually at Prosper Show. I think I was talking to Jeremy and he’s like hey you got to meet this guy. He’s great you’re going to love him. And he was right. So thank you guys for the introduction. Thanks for coming on and yeah I’m sure I’ll be talking in the future.
Nathan: Awesome. Thank you.
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