Quantum Networks has achieved a huge amount since they launched their ecommerce business in 2010.
The company, which started out selling niche electronics like cell phone signal boosters, has featured multiple times in the Inc. 500 list of the fastest-growing companies in the U.S., reaching $23 million in sales in 2013. They’ve continued to grow since then, selling on five global marketplaces while maintaining a 99% feedback average and shipping 14,000 orders per month.
Which business model have they followed to grow to that size? Well, most of them! Reselling, drop shipping, exclusive brand relationships, managed services, private labeling – they aren’t wedded to any one way of selling online.
But if there is one key to the way Quantum does ecommerce, it’s their focus on finding great brands to work with. They aren’t flipping quick deals or throwing out me-too private label products, Quantum is building long-term relationships with innovative, high-quality manufacturers. They now work with over 200 brands, and the emphasis on quality shows in an average order value of $157.
I caught up with Quantum Networks’ Co-Founder and COO Eytan Wiener, to find out more about this impressive company. He was very open about the business, and generous with his advice for new sellers.
Andy: How did the business get started?
Eytan: I actually went to dental school for a year, but didn’t like it and dropped out. I had a kid on the way, so I needed to do something. I got involved with online marketing, doing SEO and PPC when that whole game began, and it was not that difficult. I worked for a marketing company and discovered that I learned it pretty quickly, and I liked it too.
My first business partner, Ari Zoldan, worked on the same floor of the building. He had a background in telecoms, and had sold some telecoms companies, but now wanted to start fresh online. So, around 2008, we built a website together called Quantum WiMAX, which sold high-end WiMAX and LTE products. We just took every and any relevant product that existed and listed it online, trying to get it indexed by the search engines. We got a lot of leads.
The problem was it was all new to the market. The technology was new, and the licensing was new. We closed some very big deals and made some money, but the sales cycle was very slow with huge projects and government deals. It just wasn’t enough to feed the kids every day.
So we accidentally pivoted into ecommerce. Ari had met some companies with niche products, and we dabbled a bit with selling those. We didn’t want to sell cell phones and TVs and highly competitive stuff like that, because there’s no margin. Instead we were selling cell phone repeaters, amplifiers, boosters and so on. At that time, they were super-hot products. The cell networks weren’t very strong so people just needed them. From rural locations to the middle of New York, you could have dead spots and be out of coverage.
The companies making this equipment were old-school engineer types, and they didn’t really have good marketing, so we marketed it for them. We built a website, listed the products, did pay-per-click ads, and got sales.
We weren’t competing on price; we were just competing on customer service and support. It was a value-added sell because we had to ask, “What’s your zip code? Which carrier do you use?”, and so on, to help them buy the right product. We soon became the quickest-growing resellers for several of these companies, because we had really mastered the online component. We did SEO, videos, webinars, Q&As and all that fun stuff. It’s much more difficult to make an impact with that now, because ecommerce has grown so much and there’s a lot more noise to compete with.
Back then we worked from a small cube, in midtown Manhattan, with me packing the boxes on my own. There was no warehouse or real infrastructure to it. Then my current business partner Jonathan Goldman came along, while he was still in high school. We got into mobile hotspots, then a little into consumer electronics as we went on, and built relationships with some drop ship distributors.
In our first full year of ecommerce in 2010 we did around $300,000 in revenue. We really grew the website, using the Magento platform and some basic marketing. What we were doing wasn’t super-special, but it was a little different and before its time. We had repeat customers and did some installation services, and continued to add more products to the site. In 2011 we did $3 million, and we grew 603% over the next few years.
How did you get started with marketplace selling?
We discovered the whole Amazon jungle first. We had a lot of supplier relationships and great pricing, so we took that into the Amazon realm. We listed all our products, and learned the game before many other people knew how to do it. James Thompson was my dude at Amazon and he was awesome. He pioneered FBA for us, and told us which items we should send in. We worked very closely with him, and that’s why our sales grew so exponentially.
We were doing a lot of drop ship sales, and a lot of FBA sales, even before we had a proper warehouse. Once you’re on Amazon, you can sell anything, so we just jumped on all kinds of different product lines. We were opportunity buyers, just finding stuff to make money on. It wasn’t necessarily a way to build long-term relationships, which is what we do now. We added eBay and international Amazon marketplaces at that point, continued to grow revenue, and got warehouses and operations and systems and software.
What kind of business model do you follow now?
Right now we have three models, one is just a regular buy/sell, the other is exclusive relationships with brands or managed services, and the third is our own private label products.
We started with the regular buy/sell model. We were selling on Amazon, on our website, and on eBay, and getting on their marketing programs, so we could offer a lot of online exposure to manufacturers. We would do custom marketing, videos and other cool stuff for these brands, and we still do that today for higher-end products.
When did you diversify from that “traditional” reselling model to exclusive relationships with manufacturers?
It started over the last three years or so, with one or two companies where we got to be the exclusive distributor for all their products in the U.S. They were overseas companies from countries like Japan, and had no clue about online retail in the U.S. We would list their products online, and sell to other retailers once we had built up the product. We helped these foreign companies navigate U.S. waters.
But it led to this new model, which is to work on building exclusive relationships. For up-and-coming startups, or mid-sized brands that don’t really know the online game, or are not in the U.S., or don’t have enough time, we’ll go for an exclusive deal. We manage and grow their brand on Amazon and other online marketplaces. With that comes more than just buy/sell. As Amazon grew, we began doing Amazon ads, we would create A+ content, make the pages look nice, add videos, and generally optimize them. We send them reports, manage the logistics, and manage the returns. It’s really like being a full-service shop for them, so they can focus on building their products while we do the sales.
Today we have 25+ exclusive brands, and a lot more in the hopper. These guys have great innovative products, but they don’t understand the market. There are also a lot of companies abroad who want to sell to the U.S. but have no clue about how to do it.
We have a team of about 25, with some people doing outreach to new brands, and others working as buyers and brand managers. Then we have people who do content development, brand development, marketplace ads and all that fun stuff.
Where does private labeling fit into the business?
We launched a new site called Blucoil, which is a little more lifestyle, a little sexier, for these new brands. We create a nice presence and story for them, like Amazon Launchpad. With the website, we also wanted to diversify and hedge against any problems that might come up with our Amazon selling account. Then – and this is where private labeling comes in – we used it to launch a line of Blucoil-branded accessories.
We sell a lot of high-end audio brands, and often bundle them with our own line of accessories. We have items like hard drive cases, headphone splitters and LP accessories manufactured in China, and labeled with our own brand. We’ve started with accessories, lower-priced fun stuff, and bundles. Now we are getting into real products, like headphones and specialty gadgets. Private label is a little overdone these days, but we do it in a specific way that’s a little more conservative and long-term.
Do you sell on Amazon for other companies?
We know a lot of high-end brands that do $50+ million a year, and we find that they’re super-frustrated with Amazon because when they sell first-party [direct to Amazon], Amazon doesn’t really manage them properly because they have a million other brands to look after. These large brands get charged a lot for marketing and they don’t see the ROI or understand where their money is going.
Then Amazon messes around with the pricing, and adds on chargeback fees. Despite all that, most of the brands themselves still view Amazon as just another retailer, like BestBuy or Costco. But Amazon isn’t like that. It’s a super-dynamic multi-variable complex platform where you need to be working it all the time. It’s always changing, and a lot of brands can’t keep up and make the most of the opportunity.
So, we’re starting to provide a managed service where we handle every aspect of selling on Amazon for big brands. One company we’re talking to started selling first-party to Amazon, and kind of got screwed over – Amazon wasn’t respecting their brand integrity. Then they sold to multiple third-parties, but couldn’t control MAP pricing and unauthorized sellers. We’re offering a service where they sell third-party, but we manage their account, and optimize all their products, photos and marketplace ads. Instead of a buy/sell model, we charge a percentage of sales.
It’s like being an agency. We know how to do all the Amazon stuff through our other models. We help them ship into FBA and handle returns, which we also have down tight. We’re focusing on exclusive deals here as well, because the margin’s higher if you aren’t competing with other sellers. The margin’s still lower than reselling, but the risk is lower too. And the upside is huge. The brands we are working with are making 15% more profit than they were when selling to Amazon direct, or offering their products to multiple third-party sellers.
We have brands that we already know from our reselling relationships, who we’re now talking to about managed services. They only talk to us because we’ve dealt with them before. A lot of brands have had bad experiences of selling to Amazon first-party, and end up in a mess. Taking it over involves a lot of clean-up, getting Brand Registry and all their listings straightened out, and getting rid of unauthorized sellers.
That’s where we’re at today: exclusives, private label, managed services, and continuing some of the buy/sell model strategically with existing brands. We’re trying to build a unique Amazon model, focusing on the profitable and long-term, rather than just being like everyone else flipping a quick deal or private label product. There’s a lot of work to do – a lot of change – but it’s working well.
If a seller is trying to get into that business model, what should they look for in their first supplier? Do you have any advice?
You have to trust the owner, so it’s really good to meet the people in person. Make sure you know who you’re dealing with, even if it’s overseas. Sometimes we order stuff and they don’t ship it. Another time we were dealing with a guy who had a great product, and we promoted the heck out of it, but he just couldn’t deliver. You have to be really careful, understanding their financial position and the sensitivities and volatility of the situation. You make mistakes and pick the wrong ones, but it’s experience and you improve the science of finding the right one.
You also have to study the competition. You have to study what the company’s currently doing and how you could add value for them. Sometimes it’s just a gut feeling too.
What other marketplaces do you sell on, both in the U.S. and internationally?
Amazon’s obviously the biggest player, and we always start there for new brands that have never been online or are moving from first-party.
We have very close relationships with Amazon, and go there probably four or five times a year and make an effort to meet people. They keep changing their account management style, and this year they started a paid program where you have to pay for account management. Then new people come in all the time, so I always want to be in the loop and know about beta programs and things like that. It’s all about relationships for us at the end of the day.
Once we have Amazon down, we’ll list on eBay, Walmart and Newegg. It’s a small percentage of sales but it adds up so it’s important to be there too. They’re all decent channels but it’s hard to really increase sales. But some of the deals, like lightning deals and blasts can do it. Even though eBay’s market share is going down, their deals are very strong.
Walmart has a different type of customer, so home-based products do well there. On Newegg, it’s very hard to sell some of the lifestyle stuff we have but electronics do well. Amazon’s the biggest, but other sites will become more important as traditional retail declines and more marketplaces open.
I think Walmart is turning the corner. They’re doing a good job, although I’ve been through different iterations of their support and platform and it’s been brutal. eBay is its own animal.
As far as Europe is concerned, almost 30% of our revenue was in Europe three years ago, through Amazon, eBay, and other places. Now it’s closer to 5%. If our suppliers don’t have existing agreements or channel issues, then we can offer their products in Europe too. We know how to do all the cross-border stuff and the returns management. But with a new brand there’s a lot of work to do at the start, so we focus on the U.S. first.
That’s a lot of international sales, particularly for a U.S. company. Why do you think it’s lower now?
Maybe the competition changed, or the UK got tighter as the currency became devalued. There’s a lot of different issues with plugs and adaptability and European laws, so it’s hard work. There may have been a little luck and a lack of competition. I want to reignite that but it’s about having the time to manage it all and focusing on what’s closer to the money.
There’s a lot of opportunity though. You have to know the game here in the U.S. first, and understand your margins. Then understand VAT registration, tax IDs, shipping costs and liabilities. You have to understand returns too. Even if you have a warehouse in the buyer’s country for them to send it to, the cost to ship it back could still be more than the profit you make on the product. You really have to understand the logistical component.
We dabble in China and India, but it’s super-complex. You really must research everything: company registration, shipping, and customer demand. But if you do that, depending on the product you’re selling, there’s a ton of opportunity. Ecommerce is blowing up in China, it’s tremendous, but it’s very difficult to get in there. You need to set up your own company, or you can do it through a third party but it’s a little more difficult.
It’s a very high barrier to entry, but I like that because it means there’s opportunity. If you don’t have the stomach for it, I wouldn’t touch it because it might be more liability than opportunity. But if you’re willing to sweat it out, and maybe not make money while you learn, then it can be a good ride. If you’re not in every country, then someone else will go there and take over. Amazon’s opening in Southeast Asia and in Australia, and those are great markets. But you have to do a lot of legwork first, and not just jump into it.
Does your business model shelter you a little from the various issues around counterfeit and brands, and all the different listing takedowns and account suspensions that are pretty rampant on Amazon at the moment?
You’re never fully sheltered. When you make your own branded products or have exclusives, it’s a little easier because you’re the only one, but people do copy it and piggyback on your listing. For the brands we represent, they want to know that we’re controlling it and doing that clean-up. When they get a claim, they need our help to respond. Or if Amazon says it’s a Hazmat product or a medicinal product, then you have to know how to handle it.
It’s always scary because there’s a lot riding on it. I’ve seen people get suspended for ridiculous reasons. Sometimes they get reinstated, and sometimes they don’t. But when we’re managing multiple accounts for other companies, you have to be on top of it. For our own account, we sometimes have issues with performance because vendors don’t ship on time. That’s always an issue, even if you do a lot of FBA, and we also have issues with products getting taken down all the time for irregular complaints.
Here’s one example. We are very big sellers for a company in the CE space, and someone wrote in a review that the product caught on fire – that they saw a red wire and then there was a fire. We spoke with the manufacturer and they said, “It’s impossible because there is no red wire. I guess it could have caught on fire but it’s very, very, very hard to believe.”
Now, Amazon always trusts the customer, and it’s interesting because Amazon didn’t get a claim from the customer, they just returned it. They didn’t contact us either. But Amazon scraped the review and picked up on the word “fire” and obviously, Amazon doesn’t want to get sued, and they don’t want someone’s house to burn down like with the hover boards. So, all of a sudden, they took down the SKU. We had hundreds of thousands of dollars of those hard drives in FBA and they just sat there for at least four months, while we tried to figure out what to do.
We were able to match the review to a sale so I tried to contact the customer. They did not reply. We got a letter from the manufacturer saying that it was not really possible for a fire to start that way. But Amazon doesn’t want to hear that, they want a plan of action for how you’re going to fix it. So we explained, “We’re going through all the products, and we’re checking for these wires. We are also going to test any related products from this vendor. Here’s an attached letter from the manufacturer, taking responsibility.” There was only so much we could do, that’s the crazy part. I don’t believe it was a legitimate claim, but I had to say what we would do even when there probably wasn’t a real problem.
We explained to Amazon that we would test all the units or withdraw them from FBA, whatever they wanted, and they were happy with that. But it’s a flip of a coin sometimes. In another case, they weren’t happy with what we said, and we just had to remove the inventory and figure out how to sell it elsewhere or return it to the vendor.
So the whole Amazon craziness does affect us. That was one of the more extreme cases and there was a lot of money on the line, but it happens all the time. All you can do is to always be on top of it. Stay on top of the new rules and regulations. Whenever you get this stuff you always have to reply, even if Amazon says, “Hey, you did this. By the way, watch out.” People will think, “Okay, I’ll watch out.” But you actually have to reply and say, “Okay, thank you for letting me know. We’re on top of it. We’re watching out.” Because if you don’t reply to one, two or three of these and then you get a suspension, they’ll look at your record and say, “Hey, you didn’t reply.” They don’t tell you that, they just assume you should know.
That’s the downfall of a lot of people. Around two years ago, they got rid of a lot of vitamin sellers, because there was a scare about a toxic ingredient. Anyone selling this product had their accounts suspended right away, because Amazon were super-worried on the legal side. They were rash about it, and a lot of the accounts they suspended had Amazon loans. There was no way the sellers could have known in advance, and take their listings down. They just decided to close 150 accounts. Some people got their accounts back, and some didn’t.
Even for a company like us who is diverse, even for a $100 million seller account, your account is just like a SKU to Amazon. You are a product. If someone says your product is bad, that the product is defective, then it’s the same as saying the seller is defective. If the product is hazardous, then that seller is hazardous. For customer experience and for legal repercussions, Amazon will take down a seller in a second. They do not care how much money you’re bringing in, and they don’t care how big your account is, or if they have a loan to you.
I’ve seen it countless times. And it’s hard to believe but it’s true. Whenever I speak to people outside of the industry and they get involved, they just don’t understand how you could put all your eggs into a business that’s so tenuous.
How many people are in the team at Quantum? What’s it like working there?
We have about 20 people in our midtown office. We used to have our own warehouse in New Jersey with another 8-10 people, but we went to third party fulfillment so those are not our employees anymore. Then we have a couple of remote sales consulting people. It’s about 25 people in total.
It’s a really great team of young, aggressive, and energetic people. We have a very upbeat vibe, like an exciting, techie, start-up feel. A lot of these up-and-coming brands like us because we’re different. Even the big brands like that we have a cool vibe, and that we know what we’re doing. We’re not just in a basement listing products online and nobody knows who we are.
We do a lot of team events, barbecues and dinners, and try to treat everyone as well as we can. We have a great reputation because of that, and it’s all about reputation. It can be a rollercoaster, but the tough times and the great times help glue it all together.
We’re always looking for more good people. That’s the hardest thing to find. We have been interviewing for buyers, brand managers and even just regular assistants. We interview a lot of people because we’re very selective. When we find the right person it’s just amazing. We were outsourcing design for a while, and nothing ever got done. Then we hired a designer in-house and he’s unbelievable. That has changed the game, and we’re so much more efficient now.
Human capital is very difficult but super-important to us. We have a whole internship program, and a lot of the interns who went through it are now current employees in logistics and programming. So we try to keep that program going. You need team, you need people, you need communication and you always have to work at it. I learned that the hard way too many times.
You are doing so much already, but what are your future plans? What’s next for Quantum?
We’ll continue working on the managed service side of things, and continue building our internal software tools.
We’ll continue with the accessories and manufacturing too, and building our website. But it’s about getting time in the day. We have to think about how we prioritize things and use our time best. Trying to figure that all out keeps me busy. But that’s the overall vision for the future, and the things that I want to focus on this year. Everything ties together.
Eytan, thank you so much for your time and for being so open. You and your partners have built a great business and I hope your success continues!