Lessons from a Decade in E-Commerce — Bootstrapping the World’s Largest Art Site
Part 4 — Why Raise Money for Your E-Commerce Business in 2018?
Read Part 3 of this story before continuing, below, or go all the way back to the beginning.
Why Raise Money?
Why do you need to raise millions of dollars to launch an e-commerce business in 2018?
Back in 2006, when I launched Fine Art America, I had to build every aspect of the business from scratch. I had to build my own e-commerce system in order to be able to process orders. I had to build my own image rendering system in order to display artwork on a variety of products. I had to build my own customer support ticket system, e-mail management system, affiliate management system, … and much, much more.
It took endless months of non-stop programming, and if I wasn’t a programmer, I would have had to pay hundreds of thousands of dollars for that work.
In 2018, you can build your own Fine Art America in less than a day with no programming experience and for a total cost of about $20 per month.
What used to take months of work and hundreds of thousands of dollars can now be done in a matter of hours for just a few bucks.
Do you need an e-commerce website?
No problem. Sign up for a website from Shopify. It only costs about $20 per month.
Do you want to sell framed prints, canvas prints, phone cases, t-shirts, and more from your Shopify site?
OK. Go to the Shopify app store, and then add the Fine Art America Shopify app to your site. You can now sell all of our products (25+ products and counting) directly through your Shopify site, and when a buyer places an order on your site, we’ll take care of fulfilling it for you.
Do you want to build an e-mail list and send out HTML newsletters to all of your past buyers and potential customers?
Use Mailchimp or Constant Contact. They cost just a few dollars per month.
As technology progresses, it’s becoming easier and easier to start an e-commerce business with virtually no overhead, no staff, and very little programming experience.
Back in the early 2000s, I used to charge thousands of dollars to build simple websites with just an “About” page, a “Contact” page, and few other pages. Those days are over. Now — you can build your own website for free using website builders such as Wix, Godaddy, Squarespace, Wordpress, Shopify, and others.
So — getting back to the original question. Why do you need to raise millions of dollars to launch an e-commerce company in 2018?
The answer:
In most cases, you don’t need to raise any money, at all.
A Feature… Not a Company
In 2017, a company called Framebridge raised $17 million dollars to grow their “mail & frame” business.
The business model is very simple. Instead of going to your local frame shop to get something framed (e.g. your diploma, your team jersey, etc.), you just mail it to Framebridge… they frame it… and then they mail it back to you.
In total, Framebridge has raised $37 million dollars in order to get this business off the ground.
It’s a very straight-forward business. Framebridge gives you an online tool to visualize your framed piece before you place your order, and then they save you a trip to the frame shop.
Now — just because it’s a simple business doesn’t mean it’s a bad business. In fact, I think it could be a very good business. Amazon and other home-delivery companies have proven that people don’t like going to stores and will happily pay to have things delivered to them in order to avoid leaving the house (e.g. groceries, toiletries, clothes, etc.) So — it makes perfect sense to launch a business like Framebridge that will let you frame things without leaving your home.
My question is — what is the $37 million going to be used for?
To launch a business like Framebridge, you need an e-commerce website to process your orders and a custom frame shop that can handle all of the framing within a reasonable turn-around time.
That’s it.
There are hundreds of frame shops in the U.S. that can handle the workload. Pick one of them to work with, design your website, and you’re off and running.
I don’t want to trivialize anything here, so let’s stop talking about hypotheticals and start talking real numbers.
Late last year, I went ahead and built a “Mail & Frame” business for Fine Art America to see how long it would take. I was the only programmer, and it took two days to complete. Here it is:
https://fineartamerica.com/custom/mail-and-frame.html
The business is fully functional. It’s a direct competitor to Framebridge, and it’s ready to start taking orders immediately. We’re going to officially announce the business sometime later this month, and when we do, we’ll come right out of the gate with more frames, more mats, and prices that are 30% lower than Framebridge.
The Mail & Frame business model is what’s known in tech circles as a “feature, not a company”. Any online art company can get into the mail & frame business with just a little programming effort.
Framebridge has raised $37 million, presumably, to tell the same old Silicon Valley story about exponential growth, disrupting an industry, and finding profits sometime down the road.
What happens when Fine Art America enters the market with a better product offering, a lower price point, and more fulfillment locations all over the world?
Make sure that your business is an actual, stand-alone business — not just a feature of some larger business.
No Barrier to Entry
Framebridge also demonstrates the perils of launching a business with such a low barrier to entry.
At Fine Art America, we have to ability to give anyone in the world their very own Framebridge, for free.
We’ve been “white-labeling” our technology for other companies for almost a decade.
For example, we just partnered with Conde Nast to power the print-on-demand sales for many of their iconic brands, including: Vanity Fair, Vogue, The New Yorker, Wired, GQ, and many others.
Here’s the website that we created for them:
That site is really just a version of Fine Art America that has been white-labeled with a new header, homepage, and footer.
If you’re interested in getting into the mail & frame business, all you have to do is contact us. If you’re a smart business person (or a team of smart business people) with a clear marketing plan, we can white-label our technology and give you your very own mail & frame business… ready to go… for $0.
There’s absolutely no need to raise $37 million to launch this type of business in 2018. We launched one in two days, and we can help anyone launch their own just as quickly — for free.
Too Small to Fail
The most dangerous companies in the world are those that don’t have to make money.
Amazon is the perfect example. They don’t actually make a profit running Amazon.com. Free shipping isn’t actually free, and Amazon loses millions of dollars each year shipping billions of packages “for free” to buyers all over the world.
They’re able to do that for two main reasons.
1. They raised a lot of money from investors, and therefore, they can continue to lose money each year until those investment dollars run out (which isn’t anytime soon).
2. They are profitable in other areas of their business outside of Amazon.com. Their Amazon Web Services, for example, are hugely profitable. They’re able to take profits from those business segments and use them to subsidize the unprofitable ones.
By now, the Amazon strategy is pretty clear to most people. Amazon is changing consumer behavior by convincing people to buy products on Amazon and have them delivered to their homes “for free” instead of going out to the store. Over time, Amazon will improve their profit margins on home deliveries by delivering products via drones, launching their own shipping competitor to UPS / FedEx, and shipping products to hyperlocal distribution centers such a Whole Foods.
The story is fairly easy to follow. It’s the typical Silicon Valley story, and for Amazon, it’s probably going to work as planned. They’re spending a lot of money now to take over an entire industry, crush their competitors, and, eventually, become profitable.
What makes them dangerous is that they don’t need to be profitable for a very, very long time. As a result, they can continue to offer free shipping… they can continue to sell products at significant losses… and they can continue to wreak havoc on traditional retailers by pushing unsustainable prices for years without concerns about profits.
Is there any way to be that dangerous without raising a bunch of money?
Yes.
You have to be lean, automated, and highly diversified.
Let’s go back to the Framebridge example (above). I built our Mail & Frame business (i.e. our Framebridge competitor) in two days. So — there was essentially no cost to build the business. In addition, we already have all of the infrastructure in place to start accepting and processing orders. We’re going to be sending the Mail & Frame orders to the exact same fulfillment centers that produce all of our other framed prints.
FAA is a highly diversified business — we operate in 18 distinct market segments and sell our products through FAA, Amazon, Shopify, brick-and-mortar retailers, and more.
We were profitable before I built the Mail & Frame business, and we’ll continue to be profitable even if this new business doesn’t generate a single sale.
Since we’re diversified, we don’t need to make any profit on the Mail & Frame business, at all. It didn’t cost us anything to get into the Mail & Frame business, and we didn’t have to add any overhead to run the Mail & Frame business. Therefore, we can sell all of our Mail & Frame products at just above our cost and be the most competitive Mail & Frame business in the world — forever.
That makes us the most dangerous business in the mail & frame industry.
