A Product Market Fit Show | Startup Podcast for Founders
00:09:14 · Pablo Srugo, Nazim Ahmed
[00:09:14] S0: Yeah. Before we do, I mean, you mentioned between 2007, when you're doing well in 2009, there's a period where you almost go bankrupt. What’s that story? [00:09:24] S1: There’s various periods where you have to take some sort of leap of faith into something that'll get you to that next level, but you're going to risk your existence. There was a period where DNA11 and CanvasPop were starting to go. The back-end infrastructure was completely collapsing, and we couldn't really run a sustainable business. The only way to do it was – there was nothing, no back-end ERPs for mass customization companies at the time, and to build our own, we had to bring a solid engineering team in-house. Overhead got really expensive, and it took twice as long to build it. We ended up going through any cash that we had accumulated, and then I got to a point where I either needed to take a step back and fire the engineering team and say, geez, this is a horrible mistake, or put a line of credit on my home, bridge us until we can launch the new ERP. I ended up taking the line of credit on my house, which was ridiculous, but anyway, bridged it. We ended up launching ERP, and then, as soon as that happened, we rebuilt the sites. Conversion went up. Speed of the site went up. Efficiency went up. Profitability went up. Then we were able to quickly launch a new product, which drove revenue, but in the back end, it was profitable revenue. That allowed us to continue to build, but there was just periods where you're on your deathbed if you don't take that leap of faith, right?
00:10:46 · Pablo Srugo
[00:10:46] S0: One of the things you mentioned earlier, you have to be in the market to see opportunities. What we say on the show quite often is you have to be in the market to win the market, right? You just don't know where things are going to lead, but until you're there doing things, you just will not be close enough to the opportunities to be able to actually seize them. Maybe walk us through the iPhone comes out. You're doing the DNA printing. It's like an evolution, a pivot, whatever you want to call it, to CanvasPop. Just walk us through how that happens.
00:11:14 · Nazim Ahmed, Pablo Srugo
[00:11:14] S1: I always just looked at each business as a source of cash flow to, A, capitalize on other opportunities, or B, use it to solve my own problems that I was facing, that there was no solution out on the market. My idea was always, okay, if we could create something that would solve our own problems software based, then we can always open it up and give it to other people that are experiencing other – similar problems, and that would drive all sorts of growth and open up new opportunities. One of those examples was the back-end ERP, so once that was built and it was running everything efficiently, then we opened up an API. Then mobile and web applications plugged into us to leverage all of our infrastructure in the back end, both digitally as well as our physical infrastructure of printing and fulfillment. If you look at all of our other competitors that were just putting photos on Canvas and selling through Groupon, they never looked at their businesses that way, and they all ended up dying. It was a way of looking at our business as a source of cash to solve our own problems and then using the solutions that we solve and open it up and leverage it to create more revenue and more opportunities for ourselves. It was a unique way to look at the business, but it ended up paying off in the long run. [00:12:29] S0: What was CanvasPop at the end of the day? I guess, did you shut down DNA11 and then go all in just on CanvasPop, or did they merge and become part of the same thing?
00:12:29 · Pablo Srugo, Nazim Ahmed
[00:12:29] S0: What was CanvasPop at the end of the day? I guess, did you shut down DNA11 and then go all in just on CanvasPop, or did they merge and become part of the same thing? [00:12:40] S1: Yeah, great question. First, I always kept it under the same corporation. These were just product lines, but they're on different websites. Second is, as CanvasPop started to grow, we knew DNA11 didn't have as much growth potential, so we slowly started moving marketing resources towards CanvasPop and trying to grow that while keeping DNA11 on autopilot and not growing but using the cash flow to drive the larger potential business. Then, over time, DNA11 was dropping in revenue, but CanvasPop was accelerating much more. By the time I sold the whole thing, which we can get to, DNA11 was doing maybe 50 grand a year in the background just leveraging all the existing SEO we had, and CanvasPop was doing 15 million a year in revenue. It's a process, but you got to manage the resources very carefully and do everything at the right time. If you put everything on this – the new thing right away and the old thing that's generating cash dies too quickly, then you get yourself into trouble. [00:13:45] S0: Just in simple terms, what was CanvasPop? How did that product work?
00:13:45 · Pablo Srugo, Nazim Ahmed
[00:13:45] S0: Just in simple terms, what was CanvasPop? How did that product work? [00:13:50] S1: Yeah, so you come to our website. It was super simple: upload your photograph, choose your sizing, choose your frame options. Then, once the order is placed, we would print the photograph on canvas, frame it, ship it to you. First we started just in North America. Then we opened up Europe. Then, at the end of it, we were selling in over 50 countries. Before we started outsourcing our stuff, when manufacturing companies got to scale, we actually were doing all of our printing and fulfillment in-house, so I have a 30,000 square foot facility in Las Vegas. We’d ship hundreds of pieces a day out of there, and then, Europe, there was more partnerships. [00:14:29] S0: Was it a competitive space? I’m curious, again, really the beginning when – to get that first million or two in revenue from CanvasPop, just what was that like, and what sort of tactics and strategies did you use to grow demand?
00:14:42 · Nazim Ahmed
[00:14:42] S1: Yeah, great question. The first couple of years it was not very competitive, and we were early movers in the space. We were the only design players in the space, and we focus very much on user experience. We got a head start. Then, over time, then Shutterfly got into the space, and Costco got in the space. Then Walmart got in the space. Then, if you were to look at Walmart and Costco, they didn't look at these as profit centers. They looked at this as an opportunity to drive people into their store. They would sell it online, and then you had the ability to go pick up the canvas or the photo products in store. Then, hopefully, they go there, and they buy other products in store. They could really undercut you, so now it's a race to the bottom. What ended up happening, a lot of our competitors went down that race to the bottom. We took the opposite approach where we invested in innovation and technology and created all of these unique products. For example, we were the first company in the space for you to log in to your Instagram and take directly from your Instagram and have those printed as art shipped to you, and this is early on when Instagram first launched. That was something unique that differentiated us in the space. Over time, we even launched a product that used artificial intelligence to scan your image, and we called these things – called pet portraits. It would recognize if there was a pet in there. It would remove the background. It would add different filters on it. Then, all of a sudden, you have your pet stylized as a piece of artwork, but it was using all this complex technology in the background differentiating us. We focused on innovation, design, user experience, customer service while they focused on a commodity, and that's what allowed us to continue to grow but, more importantly, charge for products at a higher price. It was not a race to the bottom, and we continue to drive profits that way.