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Ten lessons learned from accidentally starting a business

Small business owner serving a niche customer

The Money Grower from the Mon£yGrow£rs blog shares some insights on starting a business.

I am always impressed by people who set goals and stick to them. My own life has been less planned, in that wonderful things have happened but more by luck than design.

Some people would call it making the most of opportunities; some would call it sheer good fortune. Either way is OK with me.

In this article, I will tell you how my partner and I accidentally started a business, the ups and downs that have followed, and what I have learned along the way.

From sickness to starting a business

In mid-2003, I had a sudden and severe illness. The repercussions of the illness threw our household out of its normal equilibrium and into financial uncertainty.

Since my health was now my number one focus, I spent large chunks of time researching my condition on the Internet. One day I stumbled across a book by an expert on the subject, which I bought from Amazon. On receiving the book, I knew I had found a way to help me to help myself to get better and went on Amazon and bought all the books the doctor/author had ever written.

Inadvertently, I bought a duplicate copy of one of her books. And that was how our business started.

Instead of returning it to Amazon, I decided to see what would happen if I sold the book on Amazon as a third-party seller. Amazon allows anyone to sell books on the Amazon site and takes a cut of any books you sell.

Within two days, the book sold. Soon I had half our book shelf listed on Amazon – not because I wanted to get rid of my books, particularly, but because I was thrilled at this new way of selling.

Most of the books sold and a few didn’t.

Developing a nose for business

We started going to charity shops and car boot sales where we picked up books for between 50p and £2. Again, most sold and a few didn’t but overall we were well up.

More importantly, we were getting to know our market and refining what we bought.

After a month or so, we discovered remainder books. The best way I can explain remainder books is by giving an example: when the film Star Wars: Phantom Menace came out, the publisher had millions of books printed because they thought the film would be a blockbuster. As it happens, the film was a relative flop and no-one wanted the books so they got shipped off to the remainder warehouses. We wouldn’t touch them either – they were remaindered because no one wanted them.

Conversely, when a book goes to print for say 1,000 copies, the printer may do 1,100 copies to allow for damages. It is cheaper and more efficient for the printer to do one print run with too many books than to do an original run and then another one to compensate for damages or misprints.

Taking the case of the above example, if only five are damaged, that leaves the printer with 95 copies to get rid of – which they send to the remainder warehouse. If the book is a good title and appeals to a niche market then that is exactly what we are looking for. We are value hunters. (Or pigs snouting for truffles, if you prefer your metaphors more graphic!)

From Amazon to an eBay business

A few months later we found some huge remainder warehouses in America that had trade-only online websites. At the time the dollar/ pound exchange rate was approximately £1 = $2, which was fantastic for us as importers.

Our first order was the biggest we ever placed. However although the book prices were very reasonable, we had forgotten freight charges. The quoted freight price was more than double the price of our book order!

Luckily for us, US internal freight charges were more or less included in the book prices. My sister, quite fortuitously, lives near Boston and we had the boxes shipped to her. She then sent them to us via the surface mail, which was dirt-cheap.

Although the boxes took about two months to arrive, we started ordering every two weeks so that once the first two months had elapsed we started getting a steady delivery of boxes through.

A few months after that we started selling on eBay, too, and our earnings from the business outstripped my earnings from my day job.

This all happened within six months of that first book sale.

High rollers (of trolleys)

We were soaring high and gaining every more confidence. I decided that the packing materials we bought from shops on the High Street were a cost that added no value to our customers’ overall experience. Our customers weren’t bothered if we used a 70p envelope or a 30p envelope, as long as their purchases arrived in good condition.

The bloke at our local Post Office told us of a trade-only warehouse that supplied stationery items at wholesale prices. We go through a lot of brown tape and padded envelopes so I rang them up and asked what we needed to open an account. Unfortunately for us, they wanted trade references and headed company notepaper, neither of which we had.

So, during an unusual moment of bravado, I went down to the warehouse and began filling trolleys with heaps of padded envelopes. Padded envelopes are extremely large for their weight, and so our trolleys looked more impressive than they actually were. I banked on them not turning away our business due to our impressive looking haul.

Fortunately, those piles of padded envelopes were enough to persuade them that we were bona fide trade customers, and they signed us up with an account there and then.

There was very little downside in those early days of starting a business. But nothing in life stands still, and we soon found things became more difficult.

Risks to our eBay business

Our Amazon and eBay business does not have any real barriers to entry. Even though we do have a deep knowledge of what books are likely to sell, I am under no illusions that this knowledge can keep us ahead of the pack.

Sure enough, things gradually started to awry:

  • eBay made it very easy to check what other sellers have sold. This is like having ready made market research – great for the competition but not so great for the original seller.
  • One of the remainder warehouses we used decided to sell some of their books on eBay and Amazon themselves. That cut one of our supply lines.
  • My partner chose not to scale our business. In hindsight, I think this was the right decision, because I think it would have been too risky.
  • The dollar started to strengthen against the pound and the books we got from America were not such great value.
  • The surface mail delivery option was scrapped, which meant one of our delivery lines was cut.
  • If you sell on eBay and Amazon, you are somewhat at the mercy of how they choose to order their search results. Their game, their rules: like it or lump it.
  • Charity shops started selling online, too, which meant a further depleted supply line for us.

Also, as the years have gone on the price we get for each book has decreased slightly. That’s natural and to be expected when there are now so many competitors in the market place, each willing to take a quid or so less than the next seller. There is nothing we can do about that, so we focus on value.

  • Pricing: Sometimes we see titles that we know will sell. But we also know the prices we can sell our books for. If the price isn’t right, we walk on by. That’s hard sometimes, especially when we are short of stock.
  • Patience: There have been many occasions when we’ve been quoted a price for a book title and it’s been too high for us. That’s fine because we understand that the people at the warehouse want to get the best possible price for their books, too. All of the remainder warehouses know about the Internet but their business is shifting hundreds, if not thousands, of books in one go. They are not interested in selling one-offs here and there. Occasionally, after weeks or months, they will drop their prices to levels we can work with and we will buy.
  • Research! One of the things about the business we are in is that titles that are popular very rarely stay that way. At one time we did a booming trade in an autobiography about Donny Osmond. The books, which we sourced from the USA, were selling at upward of £30. But when the book was republished and the market flooded with new copies, the price plummeted.

10 tips on starting a business

This all leads me nicely onto the lessons I have learned from starting our eBay business:

  1. No one except you cares if your business succeeds or fails. In the early days, you may find your family are keen for you to return to a proper job with a steady salary. (In fact, your business is unlikely to be considered a proper job until you live in a mansion and employ other people).
  2. If you are onto a good thing, enjoy it while it lasts but be aware it’ll only be a matter of time before you have your imitators.
  3. Change happens. Learn to embrace changes especially the changes you can’t control.
  4. Being your own boss brings many rewards but it is hard work. You do everything and are everything to your business.
  5. It’s easy to be motivated when things are going well. It’s when things aren’t going well that you need a backbone to stay motivated.
  6. If you cannot (or don’t want to) scale up, then you must be constantly on the look out for other ways to add value or breadth to your business.
  7. Network with your suppliers, customers and anyone who has a tangential connection with your business. You never know where your next opportunity will come from.
  8. Learn your market, cut costs, strip out the fat or non-productive activities from your time, and provide a service that exceeds your customers’ expectations.
  9. Never underestimate your costs. When we sell a book, we pay eBay fees, postage fees, tax, and packing materials. They add up.
  10. Be prepared to step out of your comfort zone. If you don’t have the stomach for it, self-employment is probably not for you.

So where will we be five years after accidentally starting a business? What about ten years?

I can’t answer that. What I do know is that whatever we have, it won’t look like it does now. Just as we’ve done to-date, we’ll have to bend or else we’ll break, like a tree in the wind.

Check out the Mon£yGrow£rs blog to read more hard won wisdom!

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{ 13 comments… add one }
  • 1 Richard Beddard September 8, 2011, 9:14 am

    But who was the doctor/author whose books were so good you had to buy all of them?

  • 2 DIY Investor September 8, 2011, 12:02 pm

    Richard asks a good question.
    If you are starting on a shoestring the “do everything” point is important. As an executive I never worried about technology. Starting a company made me learn some stuff I wouldn’t have had to otherwise.
    Interesting post. I am in the process of downsizing and was going to sell a bunch of my books for $1 each, went on Amazon and found they were a bit more.

  • 3 Anton Gully September 8, 2011, 1:34 pm

    Managed to find an article I read a while back about the remaindered book business.

    http://publishingperspectives.com/2010/03/the-bargain-book-business-by-the-numbers/

    It provided an interesting perspective at a time when conventional bookstores were folding left and right.

    Second hand book sales, especially as described about, thrive on scarcity from limited print runs, but the rise of e-books are going to make life a lot harder for little ebay businesses. And there’s also the corporate interest developing in this niche, with Amazon, amongst others, getting involved through their subsidiary businesses.

  • 4 ermine September 8, 2011, 3:37 pm

    This chimes with my experience of running a business, though you have more of what it takes 🙂

    In this article on how entrepreneurs think there is a quote “That is not to say entrepreneurs don’t have goals, only that those goals are broad and—like luggage—may shift during flight” which fits with your

    What I do know is that whatever we have, it won’t look like it does now

    I found that stressful – I wanted control, extrapolating a managerial approach from large comapny approaches to business. It was a great insight, even though the answer was I wasn’t the Right Stuff. And thinking of entrepreneurs I know, that flexibility to roll with changing opportunities seems to mark them all out. Good luck with whatever you’ll be doing in the years to come!

  • 5 The Money Grower September 8, 2011, 6:24 pm

    @ Richard – a very good question indeed. But one that I am going to politely decline to answer for privacy reason. 🙂

    @ DIY Investor – totally agree about the “do everything” thing. Years ago, in a moment of self-indulgence/ silliness, my partner and I drew a corporate structure graphic of our one-and-a-bit-man band business. The number of departments we had was quite impressive. 😉

    @ ermine – thank you for your comments and good wishes. I agree that running ones own business is not for everyone and indeed the skill set need to establish a new business is not the same skill set needed for stewarding an established enterprise.

    I do notice that many people deemed to have and ‘entrepreneurial spirit’ seem to share a common trait of having cut their teeth as young people at the school of ‘life experience’. Perhaps this early experience encourages proactivity and resilience that is necessary for other aspects of business.

    TMG

  • 6 Ben September 9, 2011, 9:02 am

    Does anyone have any experience of how much commision gets rebated with alliance trust ISA or SIPP?

    I’m wondering whether the rebate is worth more than the annual management charge?

    currently the AT charges are 25 for the ISA and 125 for the SIPP (ex VAT)

    E.g. for my HL portfolio of half a dozen or so L&G and HSBC index trackers, what sort of rebate would I see if I held the same portfolio in Alliance Trust? The portfolios worth approx 10k

    Just trying to get an idea of ballpark figures if anyones got them?

    I prefer the idea of an annual management fee and commision rebates as it seems a bit more ‘honest’ but not sure whether I’d be better or worse off…

    Apologies for posting on the wrong thread but I can’t remember where this was originally discussed

  • 7 The Investor September 9, 2011, 9:58 am

    A great article from The Money Grower — thanks again for a super contribution!

    It´s true you need to try being in business for yourself before you can really understand some of the difficulties (clue — many are moer fiddly than you first supposed!) When you go from working for yourself to employing others, there´s another learning curve again (clue — it´s all about the people!)

    I sold my 500 odd CDs back in 2004 via Amazon when I saw the writing on the wall for recorded digital music. The entire process was easy and I made a few grand back. Books were already more competitive though, even back then. I imagine both are pretty saturated on Amazon now, unless you´re hunting out the specialities that TMG trades in.

  • 8 MrLittle September 9, 2011, 2:58 pm

    Interesting overview, I think it is a good demonstration of how things change over time and how this affects how a business grows. It is how we deal with things that aren’t in our plan that are the test. I find it helpful to look at other businesses locally and in the same industry and learn from their knowledge.

  • 9 The Money Grower September 9, 2011, 7:38 pm

    Thank you, Mr Monevator.

    You are right about choosing the book sector. We avoid fiction for the very reason you mentioned – market saturation.

    Some people obviously manage it (hence the saturation) but it’s not something we think will provide a good return on investment for the time that we would need to spend learning the fiction titles worth having. For that reason, we avoid.

    TMG

  • 10 The Money Grower September 9, 2011, 7:42 pm

    @ anton gully

    You are right – the e-book sector has introduced a new competitor.

    We try to shield ourselves from that by focussing on books that have, what we call, the ‘flick factor’ ie books that are not a straight read from start to finish but may involve some element of flicking between pages.

    TMG

  • 11 pkora94 September 11, 2011, 4:29 am

    Got any ideas on franchises that may be worth a look, self employment fron scratch seems like a nightmare and the odds seem stacked up against you from the moment you start.

  • 12 LiberalThug September 13, 2011, 6:19 am

    Great article!

    I also do something similar, though on a much smaller scale – I love rooting around in second hand shops, and usually come away with a collection of cheap, rare old books which I then sell on Amazon. Sure, I may have to wait a year or two for them to clear, but when you pay $1 for a book that sells for $30, you can’t complain 😉

  • 13 darren August 21, 2012, 10:05 pm

    I’m the process of my first foray into eBay, having been a customer of plenty of other people’s e-shops and lurking/reading up on the subject of selling myself.

    It’s interesting what you say about scaling up and considering the risks, because I am actually running this eBay venture alongside other business endeavours and am more or less keeping them separate from one another, yet using my general knowledge for all of them (3 businesses in total), while doing it all on a shoestring budget. I guess this caution and compartmentalisation is my way of testing the markets before making big financial decisions.

    For my eBay endeavour, I’m going to be selling hand painted artwork, using a manufacturing style method to cut costs and save time. I’ve got my packaging costs to under £1 but must also consider delivery on top of that and with fees, taxes etc as you pointed out, it does indeed mount up, While I won’t be scaling up massively I will be adding that “breadth” you mention, which for me is simply excellent service, attention to detail and making the most of the subjective value of original canvas artwork. I suppose one analogy is feeding and strengthening the rootstock of a plant rather than worrying about whether the leaves are bushy enough.

    I do hope I can find a warehouse or cash and carry that can supply my padded envelopes, canvas corner protectors etc because I will always be working on getting the costs down. So far, my materials are coming from eBay with the exception of the high quality canvases which I am sourcing locally.

    Finally, I’ve noticed also that many of the eBay sellers are in fact online divisions of high street retailers who perhaps already have their economy of scale in their bricks and mortar business. I saw that TopShop (I think) were listing hooded tops not so long ago, brand new, which sparked the idea for me to buy up sale or end of line items from their high street retail premises and sell them online, similar to your books business.

    Brilliant article by the way: really interesting and relevant to me. Just need to think of ways to fight off those potential future imitators.

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