Anatomy of a Bootstrapped Startup

Idea

So I had this idea for a startup I wanted to bootstrap: A different kind of experience for shopping, that is more game-like and fluid – you view one product at a time (via a mobile app), and swipe it to the left and right (like or dislike) .“Tinder for shopping”, if you will.

The site will make money from affiliating – i.e. refer visitors who click “Buy now” to external sites, where they buy the product and I get a commission from it.

I thought this would substantially increase the chances customers will buy something. I talked to a few people. Some liked it, some didn’t. However, the best way is to prove or disprove my hypothesis is by doing experiments.

Problems

So before even writing a single line of code, I wrote down what are the potential problems such a venture could have (ordered by importance and difficulty):

  1. Income – not profitable enough and needs a huge traffic volume.
  2. Conversion Rate – maybe this shopping experience doesn’t really improve conversion rates.
  3. Marketing – how will people hear about the site?
  4. Choosing the Right Market – It doesn’t fit any scenario where the customer is looking for a specific product. It could fit clothes/apparels, art, gadgets, (a “window-shopping” / casual product browsing experience)…

Solutions

First, I should note I decided to start experimenting with the women’s clothing market – this seemed like a good fit for the “window shopping” experience (afterwards, if this doesn’t seem like a good choice, I would try other markets).

Income

This was a fun task. I researched the various affiliate programs for fashion and women’s clothing and found out the following:

Average commission – 5% to 8% per sale
Average sale size (I looked at dresses) – $40 to $150
Income per sale = $60 x 7% = $4.2

The “standard” conversion rate (=percentage of visitors who buy) for e-commerce websites is around 1.5% (of course this changes greatly between successful and unsuccessful sites).

Assuming this shopping experience will deliver better results, we assume at least a 2.5% conversion rate:

10,000 visitors per month = $4.2 x 2.5% x 10,000 = $1050 / month
100,000 visitors per month = $10,500 / month
1,000,000 visitors per month = $105,000 / month

For me, as an individual running a bootstrapped startup, the sweet spot is getting 100k visitors per month. For a funded startup (especially if it’s VC funded), these numbers wouldn’t impress anyone (the VCs are looking for a “billion-dollar” market).

Getting 100k visitors a month is not an easy task, but it seems feasible (assuming this type of shopping experience works better) – of course, this relates to problem #3 (marketing).

So, problem #1 is solved.

Time spent: A few hours

Conversion Rate

For this, I’ll need to do some leg-work: Let’s design an experiment:

Two groups of 500 potential customers each – I use Facebook ads to advertise to women, aged 22-35, living in the States who liked several women’s clothing brand names (for product I offer in the website).

One group is directed to the Tinder-like website that advertises women’s dresses (but when you click the “Buy now” button, you are redirected to an external website for buying the product).

The other group is directed to a “classic” website (has a grid-like layout of products) with the same products as the other website.

For both groups we measure the following:

  • Bounce rate (how many customers immediately left the website); 
  • Average time on site
  • Number of products clicked/viewed
  • Number of times the “Buy now” button was clicked
  • Number of purchases made (in the external website) – we know this because we’re registered as an affiliate

In order to prove that this shopping experience is better, all of the above metrics must be substantially better.

However,this wasn’t simple and straightforward as I initially thought – Initial conversion rates really sucked – so I have to do several pivots on the shopping experience – will update in a separate post once I have clearer results.

Time spent: 2 days for initial website + 2 days of experimentation (note: this is the net time – it was actually stretched out over a period of around six weeks).

Marketing

Although I haven’t reached this stage yet (need to prove that this idea is viable on a smaller scale first), I still had to think about solutions to this most important problem – So after brainstorming with friends, a few nice ideas came up:

1. White label – approach shopping websites, and offer the website as a branded & exclusive shopping website, that will redirect shoppers to their website. There would be no integration since it’s an external website (but with their pre-approved theme, branding, etc.). Their responsibility would be to market the website – whether it’s by placing a link on their website, sending emails or buying ads.
Why would they agree to this? If we prove that the conversion rates are much higher (compared to “regular” shopping experience), and all they do is pay standard affiliate commissions – there’s a greater chance of them agreeing. Additionally, the statistics of how many customers liked/disliked each product could be very interesting to them.

2. Content websites (e.g. blogs) – offer an in-site widget that displays products agreed upon by the website owner, and split the revenue from the commissions with the website owner. This could provide an additional revenue stream to blog owners, etc.
The main problem with this solution is that content website owners are being approached all the time for monetization solutions and this requires more development and technical integration.

3. Social – when a user likes a few products – we offer her to compare her taste in clothes with her friends (via Facebook/Email/Twitter); or ask them for their opinions.

That’s it for now. It’s an ongoing process, so I’ll keep you posted as I progress – in the mean time, I’d love to hear what you think 🙂

 

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