Understand your customer. I’ve mentioned this throughout this interview, but it’s critical. Many brands claim to understand their customer but very few actually deeply understand their customer. Literally everyone in retail knows the story where someone returned a tire that they didn’t even buy at Nordstrom, but Nordstrom processed the return. Nordstrom deeply understood that their customer has a higher disposable income and are willing to pay extra overtime for amazing service that makes them look great.
As part of our series about the future of retail, I had the pleasure of interviewing Joseph Heller, CEO & Founder of The/Studio Technologies, which operates TheStudio.com and SuppliedShop.com. Joseph founded The/Studio based on his experience of living in China and working in the consumer products manufacturing sector. The/Studio is a Silicon Valley venture backed startup that is focused on democratizing manufacturing and supply chain for SMBs. TheStudio.com makes it easy for companies to make custom manufactured products and SuppliedShop.com helps small retail stores buy inventory directly from factories.
Thank you so much for joining us in this interview series! Before we dive in, our readers would love to “get to know you” a bit better. Can you tell us a bit about your ‘backstory’ and how you got started?
Since as far back as I can remember, I’ve always been an entrepreneur. When I was in elementary and middle school, I sold candy at school to my peers — and even got suspended for undercutting the school cafeteria by buying candy from Costco and selling it cheaper than the school cafeteria. In high school, I built websites for small businesses as a side hustle.
That streak continued while a student at UC Berkeley, when I raised angel money to create a platform to allow small artisans the ability to easily sell their products online. The company actually received a decent amount of traction, but we were unable to raise more money because of the dotcom bust. Having dropped out of Berkeley to start this business, I went back to Berkeley.
Still in need of a side gig, I opened up two kiosks at a local shopping mall, buying my inventory from Chinese-American wholesale vendors in Los Angeles, which piqued my interests in China. This interest was taken further by an economics professor I had who’d done a lot of work in China in the nineties. Watching his videos about his work, I was fascinated by this place teeming with entrepreneurs.
When I finally graduated from Berkeley, I decided to teach English in China for a year as a way to get exposure to the country. I ended up staying and starting an import and export business there. Our customers were mostly large companies, and after several years of running this business, I became very disinterested in working with them anymore — very bureaucratic and bland.
But at around this time we started to have a lot of small businesses that were contacting us for my company’s help sourcing products from factories in China. I realized that Shopify was democratizing the ability for companies to sell their products anywhere in the world and Facebook and Instagram were democratizing entrepreneur’s ability to market their products anywhere, hence the increased demand. But unlike an ecommerce and marketing platform, setting up the required sort of distribution and marketing would cost a small business millions of dollars. What was the point in being able to afford the ecommerce and marketing end if you couldn’t afford the supply chain?
Entrepreneurs had to scour Alibaba to find a factory and when they did find a factory they had to deal with language barriers, product quality issues. Even paying the factories was a challenge!
As a result, I started The/Studio with the vision of democratizing manufacturing — to make it easy for small businesses to have the same access to factories that large companies had, on-demand and without hassle. In 2020, in the middle of the pandemic we launched Supplied to help small businesses gain similar access to the world’s supply chains.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lessons or ‘takeaways’ you learned from that?
When I first started my company in China, I hired all of my friends from college to work for me in China. Then, I hired my brother and a lot of his friends. We had a very fraternity-like culture in the beginning and I would take everyone out to drink every weekend. It was really fun for a few years, I admit, but definitely not scalable for a professionally-run business. But it did create a fun atmosphere — and it brought on hires who I could normally not have afforded to hire but were looking to enjoy the experience of living and working in China for a few years.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story?
One of the most inspirational people in my life was the former president of my company, a gentleman who now sits on our board. He is about twenty years my senior and he was the first “real adult” that I hired in the company. He had over two decades of management experience when I hired him — and at the time I really struggled with managing people. I generally was short tempered and impatient, having grown up with a father where instructions were never communicated to you, but always yelled out to you. That’s how I managed my company.
He showed me that you could lead with heart and that you could get more out of people that way — by inspiring them and truly caring about them. I saw how loyal his teams were to him and it really inspired me to emulate his style. Doing so made me a better leader and happier person.
Is there a particular book, podcast, or film that made a significant impact on you? Can you share a story or explain why it resonated with you so much?
Two podcasters that really had a significant impact on me were James Altucher and Tim Ferris. Both are focused around peak performance and analyzing successful people from different backgrounds. These podcasts always make me think about how I can be better — and it gives me real life examples for how to do that.
What do you think makes your company stand out? Can you share a story?
There are two things that really make us stand out. First is that we are a truly diverse organization. A lot of companies preach diversity, but very few companies are truly diverse to their core. As someone that is half-black and half-Jewish, I felt that I never fit in wherever I was — but that I could also understand anyone all at the same time.
When I moved to China, I found that many foreigners found it difficult living in China for that same reason: you’re an outsider. Being used to it already, I didn’t feel that it was that difficult to fit in, at least comparatively; but I always strived to make an environment where no one felt that way based on who they were. As a result, when you look at our organization, we now have team members that work from the US, China, Philippines, Romania, Nigeria and Ghana! It’s almost a 50–50 split between male and female managers, our executive team is racially diverse but also comes from different backgrounds and industries, et cetera. I’m proud this reality is founded in a natural company trait of inclusion in our hiring processes as we look for the best talent.
The other thing that makes our company unique is that we are doing something very difficult that hasn’t really been done before. Supply chain and operations-heavy businesses are notoriously difficult to manage. Winning here is big news and has spawned some of our decade’s biggest names: Amazon, Instacart, and even Uber. But these are last-mile companies: Amazon, who perfected warehousing and delivery; Instarcart, who perfected delivering to your home on-demand. Uber perfected efficient use of highly decentralized transportation of humans — and food!
But nobody has really digitized the first mile that Amazon’s built on, which is manufacturing. The only company that has even come close is Alibab. Although they started off as a manufacturing platform, they realized it was too difficult to scale, so they pivoted into e-commerce. Our contrarian view of the world at The/Studio is that there is a trillion dollar outcome if manufacturing can be digitized and small businesses can easily access factories like they can ecommerce and marketing platforms.
This is an extremely powerful idea, but it’s extremely hard. Most startups aren’t trying to tackle problems with this level of complexity.
Which tips would you recommend to your colleagues in your industry to help them to thrive and not “burn out”?
You have to take care of your physical health. I work out everyday; I try to eat clean; I take walks regularly. I’m working on better prioritizing my sleep. You have to work very hard to be successful, but you also need to stay in the most optimal shape that you can to be long-term effective.
Ok super. Now let’s jump to the main questions of our interview. The so-called “Retail Apocalypse” has been going on for about a decade. The Pandemic only made things much worse for retailers in general. While many retailers are struggling, some retailers, like Lululemon, Kroger, and Costco are quite profitable. Can you share a few lessons that other retailers can learn from the success of profitable retailers?
For retailers to be successful, they need to do two things really well:
One, they need to truly understand their customer and offer a truly unique experience that their customers can’t get anywhere else.
Two, they need to control their costs. There is no limit to the amount of options that consumers have today. What can you offer your customer that literally nobody else can offer? That’s far more affordable than offering everything (and Amazon does that better, anyway).
Lululemon, for example, really does offer the most comfortable clothing out there. They truly understand fabric, the human body and the spiritual aspiration to be happy and to be fit. Amazon offers reliable 1–2 day delivery on any product that you could ever imagine at a reasonable price with extreme convenience. Etsy has the world’s largest selection of handmade, artisan and vintage products. Apple provides the most beautiful technology products in the world. Trader Joe’s offers a curated selection of high quality and unique food at very affordable prices. I could go on and on, but many retailers are getting it right.
J.C. Penney, on the other hand, offers nothing that is unique. Kohls offers nothing unique. Big 5 offers nothing unique. All of these companies will be bankrupted into oblivion, eventually, unless they change.
But there’s the other important requirement: controlling your costs. Retail is a tough business. It’s highly competitive and the best retailers know how to provide an excellent experience, affordably but also manage their costs.
It’s ultimately why I don’t think many great online retailers come from San Francisco. San Francisco has a culture that is very extravagant because companies from the Bay have been drunk off of SaaS margins for the past 10+ years. They are running businesses with 90% margins and recurring revenue; retail has margins that range from 1% to 30%. You may have inventory that may not sell, inventory that becomes obsolete, massive rent costs and operational costs. And you need to convince someone to come back to their store each and every time, something software upgrades all but ensure. The only way you can be successful in this environment is if you can achieve operational excellence while reducing costs.
Amazon is going to exert pressure on all of retail for the foreseeable future. New Direct-To-Consumer companies based in China are emerging that offer prices that are much cheaper than US and European brands. What would you advise retail companies and eCommerce companies, for them to be successful in the face of such strong competition?
This is truly a relevant question. Competition is coming from all sides, and of course, Amazon is very challenging to compete with because they are supply chain experts and have figured out how to deliver products to their customers in 1–2 days, free, which is something few others have mastered.
And yes, at the same time Chinese companies have perfected the ability to sell products inexpensively to American consumers. Furthermore, it was arrogantly always assumed that Chinese couldn’t create brands that could sway American customers to buy from them. But Chinese companies are showing that they can create brands that resonate with American customers.
Here’s an example: previously, Fashion Nova and Forever 21 dominated the American fast-fashion market that went after minority women between the ages of 18 and 30. But recently, a completely Chinese brand called Shein has emerged out of nowhere to compete with both of them and succeeding. Shein has the advantage of costs, yes, but they have also been able to create a real brand that is relevant and eye-catching. In a few years, Shein went from obscurity to now having the same amount of Instagram followers as Fashion Nova, about eighteen million.
Fortunately, there are supply chain tools that are at least giving American retailers the opportunity to compete with Amazon and Chinese e-commerce players. These tools include warehousing and shipping players that can now match Amazon’s 1–2 day shipping offer. Furthermore, products like our Supplied marketplace allow our customers to get products directly from the factory as if they were a major retailer and at the same wholesale prices. And our manufacturing marketplace The/Studio allows our customers to purchase custom products directly from the factory for a truly unique brand. In effect, American companies can have the exact same advantages as Amazon or a Chinese D2C firm, but with the advantages of intimately knowing their customers!
Let me be clear: once you have used these tools to at least be on par with Amazon and Chinese DTC supply chain competencies, you need to realize that you shouldn’t try to compete with Amazon or Chinese companies on price. It’s a losing battle and not worth the effort. The challenge that Amazon will always have, as well as these Chinese DTC brands, is they have trouble truly understanding their customer and telling a unique and compelling story.
If you, on the other hand, have firmly outlined a niche and deeply understand your customer — and can provide a product that uniquely serves their needs, you will be able to compete with Amazon and Chinese DTC brands. You must be unique.
Otherwise, you are just a more expensive option with a less efficient supply chain, and customers will follow the money.
What are the most common mistakes you have seen CEOs & founders make when they start a retail business? What can be done to avoid those errors?
The biggest mistake is not deeply understanding your customer. Even large companies often don’t understand their customers. The ones that do are cultural giants: Apple, Nike, Erewhon, Trader Joe’s. They build a direct relationship with their customer and tie it directly into product design and advertising. It’s almost impossible for a competitor to encroach on that relationship.
This might be intuitive, but I think it’s helpful to specifically articulate it. In your words, can you share a few reasons why great customer service and a great customer experience is essential for success in business in general and for retail in particular?
You are right — it is intuitive, yet so many brands do it incorrectly. Our company understood the risk of not providing excellent customer service. The risks of not doing that are numerous: customers don’t come back, they disparage you online, they tell their friends. Plus, poor customer service makes you operationally complacent.
As a result, we believe that excellent customer service is just a cost of doing business. We long ago accepted that this means we will sometimes lose money, short-term, as a cost of excellence. We build this assumption into our budgets. When you build excellent customer service into your costs structure, you realize that the only way to reduce your costs of serving your customer is to have an excellent product, an excellent experience, and excellent operations. It incentivizes good business decisions.
The customer wins in the short-term, but you win, too, in the long-term. We think this philosophy should be accepted by all retailers.
We have all had times either in a store, or online, when we’ve had a very poor experience as a customer or user. If the importance of a good customer experience is so intuitive, and apparent, where is the disconnect? How is it that so many companies do not make this a priority?
As I alluded to in the previous question, companies start by looking at customer service as a cost to be avoided, instead of building it in from the start as a cost of doing business. When you start from this assumption, you focus on reducing costs by reducing your level of service and not paying attention to the root cause of why the customer is coming to your customer service anyway. It saves money, short-term, and many retailers nowadays focus on surviving the year.
Customers will put up with the inconvenience… until Amazon advertises to them about the same products, cheaper, with A-grade customer service and delivery.
Can you share with us a story from your experience about a customer who was “Wowed” by the experience you provided?
Recently, we failed to deliver a product on time to our customer because our FedEx partner was delayed because of COVID. The customer needed these products for her store opening in a few days and the products weren’t going to get to her in time.
We could have easily and correctly blamed this one on FedEx. But when you have a culture of making sure the customer is wholly taken care of, you never think of doing this. We sprung into action, reshipped the products to the customer overnight at our cost using a different courier and we wrote the customer a handwritten note apologizing for the inconvenience. We made sure our team bought things from her store to support her business, using our funds.
We clearly lost money on this. But in the culture we built, there wasn’t another option. Now, if we looked at amazing service as a cost to be avoided, we could have blamed FedEx and continued business as usual.
Instead, we had to eat the cost. We realized that the only long-term solution so that we wouldn’t have to eat these costs in the future was to figure out a way that our shipping partners would never be late shipping products to customers. We’re working on solving this root problem and in the future will save money on not having to provide this costly — but excellent — service again.
Did that Wow! experience have any long term ripple effects? Can you share the story?
In addition to incentivizing internal growth, this customer is a lifetime advocate for us. She even posts several times a week on social media telling the world how great we are as a partner, and that’s worth its weight in advertising dollars.
A fantastic retail experience isn’t just one specific thing. It can be a composite of many different subtle elements fused together. Can you help us break down and identify the different ingredients that come together to create a “fantastic retail experience”?
We’ve already discussed how important it is to deeply understand your customer and provide a unique experience for them. There’s one more ingredient: ensure that the entire experience is seamless. I’ll give you one very clear example of what that means and a company that does it right.
Amazon understands that its customers want an effortless experience. But like every company, Amazon hates returns. They are cost blackholes. Now, most retailers claim to love their customers, but they make returns extremely painful — even many luxury brands fall into this category. Returns are expensive no matter what you’re selling.
But Amazon doesn’t spite its customers for returning a product. They make the experience just as effortless as placing an order. This is an example of maintaining consistency even when it’s difficult. And internally, they incentivize reducing returns so they don’t have to provide this “costly excellence” as often.
Ok super. Here is the main question of our interview. Based on your experience and success, what are the five most important things one should know in order to create a fantastic retail experience that keeps bringing customers back for more? Please share a story or an example for each.
Number one: understand your customer. I’ve mentioned this throughout this interview, but it’s critical. Many brands claim to understand their customer but very few actually deeply understand their customer. Literally everyone in retail knows the story where someone returned a tire that they didn’t even buy at Nordstrom, but Nordstrom processed the return. Nordstrom deeply understood that their customer has a higher disposable income and are willing to pay extra overtime for amazing service that makes them look great.
Number two: Have a vision for what the world will look like in the future. Lululemon knew that women who cared about their health would represent a massive category years before this was apparent. The funder had deep insight into the future and built a brand around a market that hadn’t really been created yet. This allowed Lululemon to create brand loyalty before anyone was even thinking about this market and gain a massive advantage. In fact, they defined this market and became synonymous with the 30–45 year-old woman who was successful, confident and prioritized her health.
Number three: be unique and quirky. You need to understand your customer to be able to pull this off. Trader Joe’s is a great example of this and so is Ikea. If you said that you would create a small grocery store, less than a quarter the size of the average supermarket, featuring nonsensical names on the food, employees that wore Hawaiin shirts, and a quirky ocean-faring ambience, you would never get investors. If you said you were going to build a retail store where people had to put together their own furniture (and there’d be meatballs), you would see people raising their hands to buy in. But the founders in both cases had unique insights into their customers and knew how to craft the quirky cultures to promote a thriving, unique identity.
Number four: consistency of experience. We touched on this already, but it is critical, too. The entire customer experience needs to be consistent and effortless, even the “negative” (for you) parts. Amazon is really a perfect example here. Like all retailers, they hate returns, but they make the entire experience painless for customers — even the parts that are costly for them.
Number five: Give customers a reason to come back. This is why Ross, Trader Joe’s, Supreme, LV and Cost Plus have been successful. The customer is constantly delighted with new reasons to constantly come back and see what’s new. They’re fun places to shop.
Thank you for all of that. We are nearly done. Here is our final ‘meaty’ question. You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂
The movement I’d like to start is exactly what we are doing at The/Studio and Supplied: create more equality in the world by giving everyone powerful access to the tools needed for creating a successful business.
Globalization and technology have created an unsustainable trend where the wealthy have such an unfair advantage over everyday folks. This is bad for democracy, it’s bad for social stability — and it’s also bad for capitalism. We believe that the most innovative ideas in retail are going to come from stay-at-home moms and the disenfranchised. Empowering them will create generational wealth and social stability.
How can our readers further follow your work?
This was very inspiring. Thank you so much for the time you spent with this!