Chad Rubin has achieved a rare thing among marketplace sellers: a genuine, recognizable brand name that stands for something.
Not only that, his business was built selling on Amazon’s marketplace – a channel that gives sellers little control over how they market themselves. And he did it selling products that seldom get people excited: vacuum cleaner spares and accessories.
In 2013 Chad’s company, Crucial Vacuum, made Inc.’s list of the fastest-growing private companies in the U.S., with $5.1 million in revenue the previous year. Another rare achievement and recognition for a marketplace seller.
I caught up with Chad to talk about ecommerce, branding, marketplaces and his latest project co-founded with Damir Kunovac, Skubana – a brand new ERP system for marketplace sellers.
Andy: How did you get into selling online, and what did you sell at first?
Chad Rubin: My parents owned a vacuum store while I was growing up in New Jersey. I watched them struggle, living credit card to credit card like a lot of Americans do. The last thing I ever wanted to do was (a) be in the vacuum business and (b) be an entrepreneur – I’d seen my parents struggle and it just wasn’t a comfortable lifestyle.
So I was the first generation college graduate, and studied finance which was a deficiency for my parents growing up. Then I went onto Wall Street and started doing equity research. I was providing hedge funds and investors information on whether they should buy, sell or short various stocks. In my last year on Wall Street I was actually covering internet stocks, so Amazon, eBay, Netflix etc. I got laid off in January 2009 while the whole collapse was happening, but what we noticed on Wall Street was that internet stocks were a very defensive position to be in – they were almost recession proof, and were posting solid gains.
While I was on Wall Street I said to my parents, “You guys aren’t doing that well, you’re actually on the verge of bankruptcy, why don’t you sell products on the internet?” They were very hesitant, they were like, “No, we don’t get the internet, we don’t understand it.” And I said, “No, all you’ve got to do is just start posting those products online.” They wanted no part of it.
So I initially bought their products and sold them on the internet. I quickly realized if I wanted to replenish those products I had to go to these distributors, who were middlemen. This was before direct-to-consumer selling was really sexy, before Bonobos, Warby Parker, Dollar Shave Club and Everlane hit the map. All these other direct-to-consumer businesses are now disrupting verticals, but in 2007 when this idea was conceived I had to go repurchase inventory on the open market and the parts were super expensive. Some suppliers didn’t want to sell to me at all.
So I decided, I’m a Wall Street guy, I would love to have an exit strategy. And the exit strategy should be building a brand, a recognizable brand that people identify with, and I would also be able to cut out all the layers in the middle. So direct to the consumer.
How quickly did you move to dealing direct with factories?
I’ve always been trying to carve out my own destiny, and never really took well to following rules. So when distributors said “no” to me, I didn’t take well to it. I saw that I would have to buy a product for 17 and sell it for 24, and still pay for shipping, so there was no margin. I had to find an alternative solution, and I knew I needed to go direct to the consumer. I needed to disrupt this market because it was just stuck in an old way of doing things.
I had to move quick because I needed to pay the rent. I didn’t have a job. I had just had gotten engaged when I was laid off of Wall Street. So I needed to move very, very quick. I couldn’t make money, I couldn’t replenish my stock. I needed to find another way, and the other way was trying to find a factory in China, sourcing the products and building the brand.
I didn’t want to take too much risk, and I wanted to minimize two things. I wanted to minimize “sweat”, which is the time I spend in something, and I also wanted to minimize my “treasure” which is my money. I wanted to be as risk averse as possible, but still be an entrepreneur. So I brought in my first product with my own brand, at a very small sample size. Then I built it after that, it went from one box to two boxes, to a pallet, to two pallets, to three pallets. Now we have over 1,400 products, and 88 containers a year, across various verticals.
Crucial Vacuum was conceived in 2008 and officially incorporated in 2009. In terms of the evolution, when I picked my brand name, I never thought that I would saturate every piece of the vacuum market: vacuum bags, vacuum rollers, vacuum hoses, vacuum filters, vacuum belts. And I did it in such a quick time frame that I needed to find new markets to disrupt. So I built Crucial Air and Crucial Coffee. Now I’m building Think Crucial which is the brand that can house everything else, but with the same fun spirited approach that we’ve kept to in the accessory and replacement market.
Did you start by selling on marketplaces or on your own site?
I started on Amazon. Amazon is great because they’ve enabled me to build a business and build a brand. But as a former person on Wall Street, I thought of my business as a stock. Would you recommend a stock where they only have one customer, which is Amazon? You wouldn’t. So I was always thinking, how do I diversify and how do I sell across all these channels?
From Amazon I went to eBay. From eBay I was like, I need my own website – higher margin, I own the customer at the end. And there’s a lot more flexibility on your own site as well.
Now I have eight different channels I sell on. Newegg, Rakuten, Sears, my storefront, Amazon US, Amazon UK, Amazon Canada, Amazon France, that’s eight. Also Amazon Germany, and I just started selling on Etsy.
Etsy surprises me, what do you sell there?
Well, I started with vacuums, but now I’ve since expanded into Crucial Coffee which is replacement coffee filters. Over time you want to evolve and mix what you’re passionate about with your business. For me, I’m passionate about coffee, which is why I moved into the coffee vertical. In terms of selling on Etsy, we have designed and developed our own special coffee filters that fit the third wave of coffee movement that’s happening right now. There’s something called the Aeropress that’s selling like crazy on Amazon, and there’s the Chemex. These are all a third wave “pour over” kind of hipster coffee movement. We’ve been capitalizing on that on Etsy.
What do you use for your own storefront?
I started at first using Volusion. They actually forced me to migrate because I had too much traffic coming to the site. They turned me off literally overnight.
So I had to migrate my platform and I decided to pick Magento Enterprise because I wanted to own my own storefront instead of renting Software as a Service. I went for Enterprise instead of Community because I had to think big. There’s a lot of things you can do with Magento Enterprise, the page feeds are different. I wanted to build it correctly.
What challenges have you had selling on Amazon?
Every marketplace has different challenges. Amazon is a much more advanced marketplace and they drive a lot of sales. If you ask Google who their biggest competitor is, they wouldn’t say Yahoo, they’d say Amazon. 40% of product searches are happening on Amazon right now, so if you’re not on Amazon you’re not relevant.
There’s this balance that sellers need to have with selling on Amazon, and also the support that Amazon gives you as a seller. I used to have somebody in Seattle to go to when there was an issue, but now we are stuck dealing with people that are in other countries when a big issue arises, like a policy violation.
There’s two things that I’ve had a policy warning for and have actually had my account suspended. One is counterfeit items. I don’t counterfeit items. I am a brand that makes replacement accessories and parts to fit appliances. It’s like making an iPad cover to fit the iPad. You have to say it fits the iPad. Big companies contact Amazon and say, “Look, Amazon, you’re a big customer of ours, and if we want to maintain this relationship you have to look at this guy, Crucial Vacuum.” We’re not doing anything wrong.
So I was on vacation and I got a policy warning from Amazon on counterfeiting goods. They don’t give you any granularity, anything to bite on. A lot of my business is driven from Amazon so I had to appeal it, but I didn’t have someone I could just call up. So that was the first policy violation. It would be great to have better support for sellers.
Amazon helps me improve my business too, like the accountability and measures they hold me to. They force me to give 24 hour response times, so now I manage my response times to my customers just like Amazon manages their response times to their customers. They actually make me a better businessman by holding me accountable to those metrics.
Have you seen it happen the other way, with Amazon sellers listing against your product lines?
Since I built the brand it’s changed where people sell generic parts in my branded listings, which is kind of funny. There’s people selling on my listings right now that I’ve had a hard time removing. I don’t sell to any other people. They come in with their private label and sell it in my listing and it’s not legitimate.
There’s sellers that put any name on listings today even though they’re not a real brand, and it’s not trademarked. They throw anything onto a listing, not caring about the details, about the brand, about the images, not having really solid content that differentiates you.
So what’s the difference between a private label and a real brand?
There’s repeat business, number one. I was the first mover going direct from the factory to the consumer in the vacuum filter space. And I was always looking over my shoulder to say, “Oh, someone’s going to copy me, there’s got to be some people that are going to catch up to me. I only have six months.”
It’s like the iPhone. When Apple came out with the iPhone, they only had a six month lead time till Samsung copied it and came out with a touch screen too. So then they had to come out with the iPhone 2 and then the iPhone 3 and now we’re at the iPhone 6. So I was always looking over my shoulder and now there’s people that have moved into this space but they’re not actually building their brand, they’re just privately labeling a few products they find off the shelf to try and see if they can make money on them. So there’s no repeat sales, they’re not a recognizable brand.
Actually not only do I sell on Amazon, but I sell to Amazon as a vendor. And the only way to sell to Amazon is to have a real brand. Amazon approached me and said, “Look, we love your products, customers love your products and we want to sell your products.” So I sell to them directly now.
If you build a brand, nobody can take that from you. It’s a real actual living, breathing entity that has its own personality. So if you look at my website, crucialvacuum.com and you compare it to any vacuum storefront that’s out there today, the difference is like night and day. It’s about doing things differently and doing things uniquely and that’s the difference. A brand has a point of view that a generic or private labeled item doesn’t have.
Does having a brand translate into higher sales? When people compare your products with a generic version, does it make a difference?
There’s a few things that I do as a brand. Number one is about 80% of my filters are washable and reusable, others don’t have that feature. We actually developed a technology that we apply to the filters so that they’re washable and reusable. The second one is free shipping. The third one is free returns. Returns are just a cost of doing business, not a profit center.
Then we actually plant a tree for every 1,000 filters that we sell. There’s a certain uniqueness about our brand and our value proposition that we exhibit, and I think customers respect that. The way we’ve curated our content for our listings, for our own website, and everything else – that’s consistent with the brand. People do research, they don’t just buy just to buy. If you have a can of Coca Cola versus RC Cola, you’re always going to pick Coca Cola because it’s a brand. They have a really nice logo, they have a nice design, they’ve really thought carefully about their product. That is conveyed to the consumer, and that’s the difference.
How important is customer service for branding?
If you have an experience of shopping at The Gap online versus going to Bonobos, there’s certain things that you just know and come to expect at Bonobos – you expect to have a great customer experience. You expect free returns, free shipping, talking to an actual live human being, and I identify that as Bonobos. That’s part of why Bonobos kicks ass, it’s not just because they have really good fitting jeans.
So it’s the same thing for Crucial. If you have a choice between a Crucial Vacuum product and an aftermarket product, and you look at the aftermarket product, there’s no brand. There’s nothing sticky, so people are going to go with the name brand, the Crucial Vacuum brand. We have free returns, free shipping no matter what, no questions asked. We have our phone number on Amazon, upfront on our detail page. You will actually talk to a live human being between the hours of 9:00am and 5:00pm Eastern time. Other people do not offer that. So that’s all part of building a brand. If Bonobos had the best fitting jeans but the worst experience then nobody’s going to come back to it.
You can print return labels at Crucial Vacuum, at the bottom of the page, it’s all self service. You print your shipping label and return it back with free shipping, versus on The Gap, when you return there they charge you $4.99. Am I really going to go shop at The Gap if there’s other companies that are doing it better, faster, cheaper, in a more innovative way?
What have been some of the other challenges with the business over the years?
We figured out the product so in terms of other challenges, it’s always been the people and the process. How do you ship your goods? What’s the best way to ship the goods? How do you comply with all the marketplace metrics? How do you build and run a business operationally?
So how do you design your processes?
It’s an iterative process. My business has really evolved and changed over the past seven or eight years. I first started in my Upper West Side apartment, shipping product, unloading a pallet on the street. Then I moved into a storage facility in Harlem which had no windows. And then I moved to New Jersey to a 3,000 square foot warehouse with 30 foot ceilings, managing 17 warehouse employees with a flexible office attached to it.
Now I’m in a 3PL (third-party logistics) environment, I’ve outsourced my entire warehouse. We have a whole beautiful office that I’ve built for my staff. So my business has really, really evolved over time, to say the least.
I like to innovate quickly. So I’m a marketplace seller that’s managed to outsource the operations of my business, and most marketplace sellers are still trying to manage their own in-house warehouse facility. You should really be focusing on your business, not in your business. Is your core competency managing a warehouse? Probably not. For me my core competency is building a brand and marketing. So I quickly realized, hey, I’m not so good at this area, who can do it better than I can? It’s important for sellers to recognize that very early in the game.
In terms of a 3PL, not only do they do it better than I can ever do it, it forces you to be more efficient. And it forces you to grow up. It forces you to have barcodes on items, to really understand what your overhead costs are. There’s other benefits like access to better pricing, because it’s the aggregate, it’s the collective.
I see these sellers getting 12,000 square foot warehouses and bragging about it. In my head I’m thinking, you know what, you just locked yourself into a five-year fixed cost in a warehouse space. Who knows where you’re going to be in five years from now? I can’t look out even one week. The 3PL environment is a variable cost, it’s not fixed. So it expands and contracts as you grow and as you get smaller and bigger. And you don’t need to deal with 17 more employees, you don’t have to pay payroll taxes on them, and you’re treated as a customer. If things go bad I could really flip out because I’m a customer now. There’s a lot of benefits.
Seven or eight years in, is the business still growing?
January 2015 over January 2014 grew 45%. In 2014 I grew 35% compared to the previous year.
Crucial Vacuum’s the biggest part of the business, and is always going to be. We invest in a lot of new products, so we’re never standing still. In my first year of business I didn’t take an ounce of money out – I reinvested it. So I’ve been able to bootstrap this without any outside investors, it’s 100% mine and it’s been a very disciplined approach to managing capital.
That’s really impressive. Is it just new products driving that growth?
With Crucial Vacuum we built a subscription module into Magento, so customers can constantly reorder. Sales on our website have doubled year over year. We’re spending a lot more time focusing on content that we’re creating to get more traffic.
When I first started Amazon was 100%. Then it was 90%, and since then it’s been brought down significantly. But I’ve always wanted to keep those balances. It’s a check and balance. I want to make sure that I’m diversifying my revenue stream.
Subscription seems like a perfect fit with the vacuum filters and bags, things you know you’re going to need again. Is that completely automatic, they register their credit card with you?
Yeah. We built the module on Magento. There is a subscription module out there but it’s not very good, you’ve got to customize it. You might as well just build it from scratch.
And there is actually a subscription company [Andy: Cratejoy], but they take a percentage of revenue. I’m an avid believer in not paying a percentage of revenue. First of all there’s an implementation fee and then they charge you a percentage forever.
You mentioned Amazon UK and Amazon Germany, are there any other international marketplaces that you sell on? What are the challenges with selling internationally?
We’re also on eBay UK and just got live on Amazon France. Then we built our site, crucialvacuum.co.uk. We’re just finishing that now.
In the UK right now, the acceptance rate for delivery time is literally 48 hours. You guys have 24 hours and then you have 48 hours, those are the two choices. In America the acceptance rate is six days. When you’re shipping from the US to the UK, you’re looking at seven to eight days. And I don’t think that those are acceptable delivery times to people in the UK.
The other thing is, 3PLs don’t get multichannel marketplace selling. They don’t understand it. Most of these 3PLs, they want Nike, they want Under Armour, all these big brands. There’s not a lot of service or love going towards marketplace selling. There’s 1.5 million marketplace sellers in the US alone and nobody’s catering to this business.
So I’m working on that. It gets a little complicated because you have to get your orders from all these channels, and they have these expensive bulky, bloated systems that they spend millions of dollars on, that can’t talk to any of the channels that I sell on. The second issue is FBA. I have to go through explaining to them what FBA is and how we do FBA prep. Most of them aren’t outfitted to do that.
The other issue of course is translation. Just because Amazon offers to translate your products to Germany, it doesn’t mean the translation’s going to be right, where the people in Germany identify with the language that’s there. That’s another challenge for sellers for sure.
I’m doing FBA in Europe, but if you’re doing your own fulfillment then hours of operation for call centers, customer support, all those things have to be sculpted around the culture that you’re selling into.
We still haven’t nailed the UK the way I’d like to, and that’s a very massive focus for our company right now.
So moving on to Skubana, how did you come to start that business?
Well, I’ve been struggling operationally managing inventory across marketplaces. As you grow and your business matures, it gets more complex. And with complexity you need to have the right operational foundation to grow your business. So I’ve had this issue for a very long period of time, which is inventory management. When a product sells on Amazon, Amazon doesn’t tell eBay, “hey, deduct this inventory”.
Now, as a seller, there’s a few companies that say that they do it. But there’s two things that are happening. One is you have these fragmented softwares, and it becomes very expensive to connect them, it’s very inefficient. Even with three softwares, you still need another three to do all these other things. So you end up using seven or eight to run your business and you still need spreadsheets to fill in all the blanks. That’s one issue.
The second issue is that there’s a lot of companies out there that say they do all these things and then you get into the car, you realize that there’s no engine and you cannot drive. You’ve already paid the implementation fee, so you can’t back out – it’s literally a sunk cost. I’ve made a lot of mistakes on implementations and software and I’ve lost a lot of money.
A lot of these Software as a Service companies take a percentage of revenue. It’s really a disservice to the sellers because it doesn’t matter whether your order’s $1 or $1,000, it’s still the same processing power to process that transaction. The server doesn’t care what the dollar value of your order is. These software companies figure out a way to capitalize on taking a piece of your money, your revenue, your sales.
So just like I disrupted the vacuum space, and the air purifier space and the coffee space, I have now focused on disrupting the marketplace selling space on the software side. We have built an all-in-one solution, unifying all the fragmented disbundled softwares into one solution, all in the cloud doing it better than anybody else does it and doing it for a fraction of the cost.
Why do you think only Skubana’s cracked it when a lot of other companies have identified the same problem and built software to handle it?
Number one is you’re just talking about inventory management. Sure, you can build a tool that just does inventory management and that’s all it is, it solves one small problem. But one tool leads to you using seven different tools. So there’s one warehouse management tool, that was built by a seller. And they’re just another piece of fragmented software that still needs to talk to all these other softwares like ChannelAdvisor that takes a percentage of revenue.
Then you still need to talk to shipping software, then you still have inventory latency between all the fragmented softwares. If you’re doing drop shipping you need to use another company for the drop shipping. If you have a 3PL, then you need another company, if you need purchase orders, you need another. Then you need QuickBooks on top of it. And you still need spreadsheets, and you’re like “am I making money or am I losing money?”
So the first step is that we’ve been able to unify all these softwares in one place. There’s no latency between inventory, so you can never oversell. We have the most sophisticated prevention mechanism for overselling, and it’s out there right now.
Some of the softwares are built by people who just graduated with their MBA. They raised some capital and they were like, “We raised some money, I have my MBA, I’ve identified a challenge”. It’s almost comical because the software they build on isn’t enterprise grade, which means it can’t handle the kind if order volume I do. I do 60,000 orders a month. One company I approached said, “No, your orders would literally cause our system to crumble.”
For an ERP dealing in the ecommerce space it’s very computationally heavy transactions. You need to make sure that you’ve built your software on good solid technology. We have built our software on the highest grade technology that exists today which is Java Enterprise, the same thing that Wall Street uses to run their algorithms and their prop trading desks.
The third piece of it, is that it’s not been built just by me as a seller, but many other sellers out there. So it’s not a push process, it’s a pull process. We’re pulling feedback and solving real live business challenges of all these marketplace sellers. So we combine the power of something like ShipStation plus a host of all these other companies that provide functions like dropshipping and FBA analytics. We combine it all together because there’s no reason to have it separate.
If you ask any ecommerce business how many softwares they are using to run their business today, it’s more than any other industry. It’s because ecommerce has evolved, but the technology to support it has not. I just came back from the ChannelAdvisor conference [Catalyst], some sellers are still using two decades old Stone Edge software to run their business. They can’t migrate because there’s nothing out there that can support their business that’s affordable. And so we have taken software that’s only available to enterprise sellers and we’re democratizing it to everybody, in a true Software as a Service model. It’s literally a software that’s a service, you pay for what you use when you use it. And it’s pennies per transaction.
I get your approach of having a single solution but how do you decide where to stop? There has to be some boundary, doesn’t there?
Right now, Skubana is focused on everything after the checkout, operationally. We wanted to go after where there is the most blood loss. You can put up a listing, there’s so many listing tools out there, that’s not the problem. The problem is how do you run and operate your entire business end to end after the checkout process. So that’s our core focus right now for sure.
In terms of obscure APIs with crazy marketplaces that have just been started, we support imports on the orders, so you can import through a spreadsheet file. We’re tackling everything that needs to happen after the checkout, so any way you fulfill. Some people print shipping labels, some people drop ship. Some have their own warehouse but they also have a 3PL on the West Coast, or the East Coast. Some people do multichannel fulfillment and some people do FBA. And some people mix and match all these different things for their business. So we do all those things and we do it all in one, that’s on the fulfillment side.
Then we started working on inventory where we support all the inventory and make sure you don’t oversell across all the different ways you fulfill. And then we did purchase orders, so to buy your product if necessary. We have very, very smart automated purchasing rules, where you can create your purchase orders.
And then we have analytics. So that’s everything you need to run your business after the checkout. The other thing I think that’s unique to us is that there’s no six month implementation, where people fly to you and they have to sit with you to understand your business. You don’t have to train your warehouse on our software, it’s intuitive and it’s sexy. And it’s all out of the box, it’s all self-service. The channel integrations are already done, the shipping integrations are all done already. There’s no hidden fees or extra costs or training hours you need to pay for. And that’s why it’s ground-breaking.
What’s the status of Skubana at the moment, is it fully released?
Right now we’re in beta. We have customers lined up and then we also have a wait list. We have people waiting to get onto the software and we’re staggering them as we onboard more. We will be ready for everybody by the Internet Retailer Conference, so fully operational and functional by June 2nd to the 5th. We will have a booth at the IRCE [2015, in Chicago].
What have been the biggest challenges in developing the software?
The biggest challenge was finding the right developer and then getting the employees squared away. Any business has these same issues, finding the right people to make the vision happen. I also raised capital for this business, so we had an angel round of funding and we really wanted to be selective about who we brought in to invest. We’ve got an ex-Amazon employee that’s invested, Brian Lee’s venture fund invested which is essentially the guy that started The Honest Company and LegalZoom. So we wanted to be very selective with bringing people who understand ecommerce and can help us scale.
Chad, thank you for telling us so much about Crucial Vacuum and Skubana. It’s an inspiring story and I hope your success continues.