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The Foundr Podcast with Nathan Chan
536: He Made $450M Selling TV's for $0.01 | Ruslan Kogan [VIDEO]
01:10:29
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- [00:00]
Nathan Chan
Everyone said, look, online retail is never going to work for big products. Today, tonight came to me and was like, are you really selling TVs for one cent? No reserve. The worst thing you could do is be scared to make a mistake. It's lots of mistakes. Some are small, some are huge clusterfucks. Learn from it. Make sure you're better today than you were yesterday. If you look at retail, the fundamentals over the last 50 or 100 years have barely changed customers. Ultimately, why want more choice, more convenience, better prices. Understand those three pillars very well. Hear the stories, learn the proven methods, and accelerate your growth and future through entrepreneurship. Welcome to the Founder podcast with Nathan Chan.
- [00:55]
Ruslan Kogan
Today we have Ruslan Kogan. He's here in the studio. Kogan is one of the largest online retailers in Australia. He has an amazing story around how he started this business from his bedroom. You know, you started this was like the back off credit cards. Is that right? Like, talk us, talk us through. Like, so welcome. First of all, welcome, Ruslan. Thank you so much for joining us.
- [01:22]
Nathan Chan
Thanks for inviting me. Pleasure to be here. But yeah, it was, look, going back a bit over 18 years now, and, you know, I'd been wheeling and dealing and selling a few things online here and there, and then came across TVs as a, what I thought was a perfect product for E commerce because it's online retail. You want the most amount of value in a small box. So it's a fairly good product because you've got a pretty thin box. And at that time, you had a product worth thousands of dollars in a thin, small bo that you could easily ship around the country. There's better products for E commerce like an iPhone or AirPods that, you know, that's as good as it gets having a $300 product in a tiny box. But I had that idea, but I had no money. I was working at Accenture at the time. You know, I was on a decent wicket there, but didn't really have any startup capital or ability to go to investors and say, hey, I've got this idea. Well, I did go to them, but everyone said, look, online retails for books and CDs, it's ever going to work for big products. And this is in the very early days of E commerce almost. We were the first place in Australia to sell TVs online. So it wasn't, it wasn't easy to get money. And it was before the whole boom of entrepreneurs and the opportunities the Internet created. So, yeah, to fund the business, it was went and got a credit card that were given them out to everyone back then and convinced a few friends to go get credit cards and lend me the money. And then yeah, started it that way and also ran a pre sale. So it was a multi prong approach of getting credit cards, getting mates to get credit cards and then also running pre sales to, to fund the operating cash flow needs of the business.
- [03:17]
Ruslan Kogan
And that was on ebay, right? You started selling TVs on eBay?
- [03:20]
Nathan Chan
Yeah. So I was selling them at $0.01, no reserve. I was listing the TV saying here's the TV, it will be delivered in 45 days.
- [03:28]
Ruslan Kogan
Yep.
- [03:28]
Nathan Chan
And running one day auctions, knowing that as long as there's two people in Australia that want a TV, it's going to get the right price. So yeah, it was getting a lot of attention. It was getting a lot of the time the prices on ebay, even though it was a $0.01, the reserve auction, were finishing for much higher than the price from directly on the website. So I was generating sales and based on that I could control how quickly I sold the TVs knowing that in 30 days time I had to make the balance payment to the factory.
- [04:01]
Ruslan Kogan
Yeah, look, that's very clever. So I remember back in the day using ebay and then there would be these reserves and for whatever reason you would, you know, auctions and you would, you keep bidding the product and at the last minute someone would bid it all the way up. Did you ever have a time where it come undone and just like someone got a TV for like 10 bucks?
- [04:23]
Nathan Chan
Yeah. People were always saying that like, are you crazy? Why are you doing this? For someone to get a TV for 10 bucks means that there was no one in Australia willing to pay 11 bucks. And so it just doesn't happen if you apply the principles of, you know, supply and demand and free market economics. As long as you know that ebay's got an audience, which it did at the time. It was basically all of e commerce in Australia was done through ebay, that that was the platform. You're never going to get a mispriced product. But what you can do is if you set a high reserve price or a reserve price, you can lose the interest of a lot of people. So because I was doing, I think it was $0.01 or $0.99 no reserve auctions, letting them run for a day and the highest bidder gets a tv. They were getting the right price. But it also generated a lot of attention. It was getting the first Today Tonight story which. Well, today tonight's not around anymore. But for those old enough to remember it, in Australia, it was the most viewed show in the country today. Tonight came to me. It's like, are you really selling TVs for one cent, no reserve? I was like, yeah. And explained to them how it worked and that helped the business to get attention and fame. There were blogs and forums online going, have a look. This TV's currently at $4 because it had just listed minutes ago. So it was getting a lot of attention for the business. But knowing economics, it was never really a risk. It's the same as a house. You know, you see a house auction start at $700,000 and then they're bidding, bidding, bidding, bidding. You think it's nearly sold and then it's not, and then it ends for 850,000. If that auction had started at $1, it would still end at 850,000. But I can guarantee you one thing, there would be a lot more people at the auction.
- [06:21]
Ruslan Kogan
That's interesting. Okay, so you grew up in housing commissions, Sarah?
- [06:28]
Nathan Chan
Yeah, in. Here, in Melbourne, in Elstenwick. So the housing commission flats near Salisbury Street, New street, they've just recently been knocked down. They're building some apartment complex there.
- [06:42]
Ruslan Kogan
Yeah. So where did the inspiration come to? Just start a business online, like, like, you know, talk me through, like, what life was like.
- [06:52]
Nathan Chan
Well, a bit of it is being in the right place at the right time and having the right interests. So. I'd been into tech from a very early age. You know, my parents did it pretty tough and they were always working two or three jobs each. And I remember they used all their savings. For my ninth birthday, I really wanted a computer and I convinced them that I could put it together much cheaper. I was reading the Green Guide, which had all the Green Guide. Yeah. All the different retailers and how much is a motherboard and how much is the RAM and what are the different CPUs and cases? And I used to go to the computer swap meets and look at all the different parts and they used all their savings. Let me put a computer together and, you know, I never looked back. I'd always been into tech and gadgets since then, all through, all through high school, I was into, into technology. So had always really wanted to. Had always really wanted to, you know, have the latest, the latest and greatest gadget and, you know, what, what gadgets are up and coming and so on. So in the very early days, it was LED TVs. I really wanted one and wanted. And wanted to get it for a, for a cheaper price. And that, that is how. That is how the idea for the business came about.
- [08:26]
Ruslan Kogan
And so you said that you were borrowing credit cards off friends and doing all sorts of things. How much did it cost to actually post ebay, like, launch the first version of Kogan? How much did it cost?
- [08:38]
Nathan Chan
It was around $80,000. Was, was the first container.
- [08:42]
Ruslan Kogan
Yep. Okay, so just TVs.
- [08:44]
Nathan Chan
Yeah, but there's, you know, it was just TVs, but it's very. At the time, that was like, that shouldn't have happened. Like, I contacted all these factories, got all these quotes, and I said, look, I'm planning to start a business. I saw the, I was just experimenting the market, and in reality, what I wanted was just like the latest gadget. I, I thought, well, I want a tv. I couldn't afford one. If I factories, then they'll give me their pricing. Maybe I'll be able to just buy a sample and I'll save a lot of money compared to the stores. But when I saw the prices that were coming through, I saw, all right, well, there's a business model here. So I, I then thought, all right, I'm gonna, I'm gonna give this business a go. Made the listings, made the ebay listings, saw the sales were coming through, so did a pretty efficient proof of concept and saw that there's demand. But when I contacted the factory I'd chosen to work with and said, hey, I know you gave me these quotes and I know you said these minimum order sizes, which were in the millions of dollars, but I only want to place one order for one container to get going as a proof of concept. They laughed me off. They basically that, yeah, they're not. They don't deal with small orders. They run massive production runs and production lines. So I then I had this business that I knew it worked. I had very little capital. I can't go and order millions of dollars of TVs. So I, I went and thought, how can I make it into a win win scenario? Like, the best negotiations are when both parts of the equation win when you want. You want everyone involved in the deal to be better after the deal than they were before the deal. And then I thought, all right, well, you've got this factory. They're pretty big. Their documentation's not great. Their pricing spreadsheets are horrible. Their PowerPoint presentations about their factory, about the product, the user manuals, it was all horrendous. So I stayed up for a few days and re. Did all of that for them, sent it back to them and said, look, I may Be placing a small order. There's not much commercial benefit for you from just my small order, but there's other ways in which I can add value to this relationship. So by redoing all of that to them, I sent it to them. They replied almost straight away, accepting my order, thanking me for what I'd done, and they gave me even better prices than they had previously quoted. So they saw from the relationship straight away that, yes, I can pay for the order, but I've got something much more valuable for the relationship than the money that I had at the time. So it enabled the business to start. Like, had that not happened, the business may not have started because they weren't willing to accept my order. They said, it's a tiny order, they don't want it now. You know, we work with much bigger factories placing much bigger orders and none of that's ever an issue. But at the time, yeah, nearly didn't get off the ground for that.
- [12:02]
Ruslan Kogan
Yeah, what a great story. So did Alibaba exist back then? Were you using, like, how did you find factories back then? Because now you can just go on Alibaba. Right?
- [12:10]
Nathan Chan
Alibaba, I think, was just starting. Was not. Was not the dominant one. Yeah, Global sources was global sources.com that they ran all the sourcing fairs, the website. So, yeah, got you. So. So that was the. That was the primary. Primary channel to get in contact with them then.
- [12:33]
Ruslan Kogan
Yeah. Okay. So you started with TVs. Eventually you got off eBay and you launched kogan.com. when was that?
- [12:42]
Nathan Chan
Well, the site was always there. It just had no traffic. So there was, you know, I had Kogan.com with a bit of AdWords around that and selling the TVs through the site as well. Because, you know, ebay charges what they charge, which is a fair, you know, like marketplaces, they charge a fee because they bring you the traffic. So we're still on ebay in a limited capacity for a certain part of our product range, and we're great partners with them. But, yeah, the website was there all the time. But as the brand grew and grew and there was more and more feedback and there was more and more about Kogan in the media, and more people had visited their friend and saw a Kogan tv. It started to grow and our own website started to get a lot of traffic. And then our own website started to sell more than we were doing through ebay. And then our own website started to sell 10 times more than we were doing through ebay, and then a hundred times more than we were doing through ebay. And it became our primary channel through building the brand. And more and more people having experienced a Kogan product.
- [13:54]
Ruslan Kogan
So you would have got to experience. I never got to experience this. The glory days of AdWords. $0.01 a click.
- [14:04]
Nathan Chan
Yeah.
- [14:05]
Ruslan Kogan
Like, was that just extreme arbitrage for you guys back then?
- [14:09]
Nathan Chan
It was very efficient and obviously AdWords gets more and more. More and more competitive. So, yeah, at the time we were doing it, if you would search LED TV or LCD tv at the time, most the ads you see all. They didn't have PLAs, they didn't have the product listing ads. It was all the search ads. But yeah, we would be. We would be the primary. The primary ad showing that. So it was in the very early days. Look, I remember a gift that I would get a lot of friends for their birthday. Used to be. Or one of the gifts I'd get them would be, call them in the morning, mate, happy birthday, you know, wishing all the best, wish them a happy birthday and go open your computer, Google your name, you know, and then they'd Google their name and it'd be like a happy birthday message for them in Google and all that. They're like, that's amazing. That was, you know, such an amazing, thoughtful present. Thank you so much. I was like, yeah, it cost me 4 cents.
- [15:18]
Ruslan Kogan
There you go.
- [15:22]
Nathan Chan
It was very cheap. They're like, oh, this is that cheap? I'm like, well, it's cheap. But also, believe it or not, there's not that many people Googling your name this morning. So, yeah, it was, it was, it was a lot. You know, now that now to be.
- [15:39]
Ruslan Kogan
There's a couple bucks. Yeah, yeah, at least. At least. Yeah, yeah.
- [15:43]
Nathan Chan
It's become. It's become completely different, but you tackle it in other ways. Like, back then our product range was three products. Now our product range is 50 million products. Massive long tail. The long tail can be extremely efficient in, you know, the marketing channels where a lot of intent is shown, like Google AdWords. So even though back then was a lot cheaper per click, we're making way more money from our direct attribution to search ads now than we were back then.
- [16:19]
Ruslan Kogan
Mm, interesting. So how did the business evolve? When did you start moving away from just TVs, getting into other products? Talk me through that. And then, of course, you started creating your own manufactured branded products as well. So you effectively started white labeling.
- [16:40]
Nathan Chan
So it was from the start. Our first TVs were Kogan TV. So it was all. It was all our own private label from the Start.
- [16:48]
Ruslan Kogan
Okay.
- [16:50]
Nathan Chan
It was, I wouldn't say it was moving away from TVs. It was more business was doing really well. We were growing. We had a, you know, we started with two TVs. It was a 40 inch TV and a 32 inch TV. They were doing really well within. Expanded the range and added a 46 inch TV, added TVs with built in DVD players and I had a range that was doing really well. And then people were wanting sound bars and HDMI cables and started to expand the range. And then we saw, well, we're not really a TV business here. What we've created is a very efficient direct to consumer supply chain because it is the most efficient way to get a product from point of manufacture into the customer's hands. And yes, we just happened to stumble across TVs as our first product. But then we started doing it with GPS units. Back when people didn't have GPS on their phone and had a separate GPS in their car. Yeah. And doing it with digital photo frames and then Blu Ray players. And then before we knew it, the range kept growing and growing and growing. Started doing monitors more and more. Consumer electronics was our first. And then it's like, hey, we've got this really popular direct to consumer, consumer electronics business. Really building a brand. Lots of great feedback online around our brand, lots of people buying. But we're still like, yes, we're good at consumer electronics. Yes, I'm a bit of a tech geek and that's the stuff that I love. But we've got a business model here that's far greater than any category. And then we started. The other beauty of it was that what we had built a profitable and fast growing business in is probably the lowest margin category in retail. So as we started expanding, it only got easier for us because if you can make money selling low margin TVs and monitors and laptops and digital photo frames, it's going to be very easy for you to sell kitchen knives and bed sheets and pillows and a whole heap of other stuff. So as we started expanding into more and more categories, it started to be a very. The flywheel started spinning because, you know, we, we started selling more on our site. So people started to come to our site for more and more things, which meant people were doing more and more searches on our site, which meant that we could then see what are people searching for that we don't yet have and what are lots of people searching for that we don't yet have. So then we became, we were able to very efficiently allocate capital to go like, hey, look what people really, look what people really want here. They're searching for suitcases. The people looking to buy luggage. Let's, let's go and use the exact same methodology that we use to have the best value TVs in the world to make luggage and bedsheets and you know, everything for the kitchen and things like that. So that's how it started to expand through monitoring the consumer demand. It was also interesting that it's having that really valuable insights from your customers is the best market research you can possibly do. I remember it was around the time of 3D TVs and everybody anything you watch on TV was all about how great 3D TVs are. All these 3D titles, 3D TV is going to take over. It's amazing. It's so good. And I was the only person in the media talking it down. I'm like, hey guys, when people sit around a TV it's a social event. Nobody's going to want to put goggles on because eye contact and being around people is one of the most important things socially. So yes, it's pretty fun. Maybe you watch one movie with these glasses on, but people aren't going to be doing that. It's going to ruin their viewing experience and the social element of watching tv. And you know, a few people at the time said I'm wrong, I'm crazy. There were even the TV manufacturers were coming out with statistics like 80% of TVs we sold this year are 3D TVs. 3D TVs the future. I'm like, yeah, well that's because you've now made every One of your TVs a 3D TV. It's not because people were buying it because it's a 3D TV. It just happened that all of them were. And the reason I was able to make these comments is because I could see on our end what people on our side are doing. Nobody was searching for 3D TV but they were searching for TVs with a built in PVR which is a personal video recorder. People wanted to pause live TV and rewind TV and have a digital guide on the TV and things like that. That's the features people people were after. So we spent very little time losing focus and pursuing the 3D TV stuff. We were making TVs that can pause live TV that had built in ability to record things and so on. So it's this being consumer led based on the information your business has and the connection and relationship with Your customers is a very good thing and it guided that expansion.
- [22:32]
Ruslan Kogan
Yeah, look, the closer you can get to the customer it you can't like you can still lose. But it just pays its weight in gold 100%.
- [22:42]
Nathan Chan
Any business, if it loses its customers, it's out of business. So there is nothing more important than that. Like before there was Internet on flights. Before I went to board a flight I would get our team to download a whole heap of random customer service calls and I'd put all the MP3s onto my laptop and I would sit there for the whole flight listening to calls because it's the best thing you can do. You get first hand experience of what customers are saying. What are the happy customers saying, what are the unhappy customers saying? I used to, before that that was a very time efficient way to do it. Prior to that I'd actually sit in the call center myself and take some calls and listen to the customers. But then yeah, when I learned that you could very efficiently I could listen to 50 calls on a flight. It gives you great insight into what your customers are thinking because without them your business doesn't exist.
- [23:47]
Ruslan Kogan
I agree. 110 so I have a friend from Melbourne. You know he's, he started, he started my age, I'm 37. So he started selling TVs online. Say even maybe before you. He got out of that business. He ended up getting crushed by you. And he said it was a very, very hard business. Especially around, I guess I haven't gone into the details but it's a crazy story. But it's a big product, right? And shipping, manufacturing, moving big products generally can be a challenge. Like if you want to start a sauna business or an ice bath business as your first business. Very challenging. Like you know, high moq order prices. Like how did you navigate that?
- [24:36]
Nathan Chan
Well, look, it is a very competitive environment and that's wonderful. We love competitive environments because that's what makes us jump out of bed in the morning. That's when business is most fun to run and that's when customers benefit the most as well. So it's like, you know, it's never been a better time to be a customer because you've got so much choice, you've got so much, so many businesses competing across absolutely everything. There are challenges in it, but every challenge is an opportunity. That's you know, if it's challenging it means other people are going to struggle with it. It means if you do it better then you're going to succeed as a business. So one, one of the philosophies internally@kogan.com is there is always a better way. Like, one thing I learned from the corporate world of what not to do is to have these strict processes and procedures, and they're not even up for discussion. And if you need to do something, this is how you do it. Don't talk to me. Just follow the operating manual. Which can be very disheartening for. For exceptional talent, because exceptional talent wants to spread their wings and wants to think outside the box. So I remember back in the corporate world coming up with ideas of doing things better or more efficiently and managers just not even wanting to listen to it. I sort of understand it now because it's a consultancy and it's all about billable hours. So if you actually find a better way to do something, your employer makes less money, which is a crazy type of. Crazy type of business model. But, yeah, having this internal philosophy of there is always a better way, meaning that absolutely everything in our business is up for grabs. Every single process, every single way we do things. And there's no such thing as why do we do that. Oh, well, that's just how we've always done it. So every team member, no matter how junior they are, is allowed to question. Absolutely. Every process is encouraged to question it and say, why we're doing it this way. Why don't we change the way we do it? And we want to breed that innovation culture. So it's, oh, we've got these TV boxes. Well, how do we make the boxes smaller? How do we make the boxes more efficient? If you make a box 10% smaller, it would save you a whole heap in shipping costs. What if we change the sort of materials we use? What if we change the weight of the box, the weight of the product? What if we change the courier companies we use? Like, one of the early inventions in our business was an engine that automatically decided which freight provider to use and which courier company based on the dimensions of the item, where the customer is located and the previous shipping times. And nps, being the net promoter, score the satisfaction of those customers. So taking all those three into account on the fly, the box, you know, this one's going with this provider, this one's gone with this provider, this one's gone with this provider. And you can significantly drive down costs. And then the freight companies would come in and say, hey, we want to win more of your volume. And we'd say, sure, you happy for you to win 100% of our volume. Here's the matrix of every single shipment that We've sent in the last month. Here's the ones you guys got because you've got a good price there. Here's the ones you didn't get. Feel free to provide better prices on these routes or these lanes and so on. So they'd come back and do slightly better prices. Then the ones they won market share from would come to you and say, hey, we want to win more of your business. We'd say the same thing. Sure, we're happy for you to win 100% of our business. Here's where you're not providing the best rates and just driving costs down for our customers like that. By questioning every single process in the business. A less innovative organization would say, oh well you know, one of our big managers got invited to the tennis by this company and he had a really good time there and had a few bevies with their management team and it all went really, really well. And that's who we do our freight with this one company. So it's not the best outcome for the customer. So you've got to have that there's always a better way mentality. The way we do things now is just the best way we've come up with until now. And everything's up for grabs.
- [29:25]
Ruslan Kogan
Yeah, I love that philosophy. So talk to me about China. You spent quite a bit of time in the early years building relationships over there, getting supply chain. Right. Was there a specific moment where I guess you kind of really defined your confidence in working with overseas partners?
- [29:45]
Nathan Chan
Well, for us it was for every single product it was based on where is the most efficient and professional manufacturer of that product. So a lot of it happened to be in China. Like there's, you know, it's impossible to buy a non Chinese made TV. Maybe 20 years ago it was possible because you had a few German brands and things like that. All those German brands are now coming out of China but for different products. Like we had a range of shaving products and razor blades that were coming out of Germany. A lot of our super high tech stuff comes out of Taiwan and South Korea. Ugg boots would come from Australia. So you know you, you go for wherever in the world is, is the best manufacturing capabilities for that product. And then it's all about finding those win win solutions. Like we were chatting about the use of manuals and pricing documentation that I helped the factory with. You know that factory, actually a few weeks after I placed that initial order to start the business with them, contacted me and said, hey, we've just won a massive customer in the U.S. that said, we were by far the most professional factory they had encountered. So really built that win win relationship with the factory. Yeah, they got to do our first small order but because of it they want some massive customers in the US and then every relationship and every manufacturer we've encountered, it's from that approach. We know what they want. They want to manufacture more product, they want to export more product, they want, they want bigger orders, they want to make more money. And every discussion starts with, well, we know what they want, how can we do it? How can we create a better product, how can we do it more efficiently? How can we drive the price down? Hey, if we drive the price down a bit here, you might make less per unit, but you're going to sell way more units or you know, all of these dynamics and that's, and that's with, with every relationship we're looking for, how do we create that win win environment in the transaction? Because what's not sustainable cannot be sustained. So unless a relationship isn't a win win, it's going to end badly. So it's very hard to work towards that, that win win. And now, you know, we've got an office in Shenzhen, we're incredible team there. Our team here locally travels to China quite frequently. We're working with the highest tier of factories there is and as a result lots of customers are very happy. So it's a, it's a very, very important for us to have that philosophy in our sourcing.
- [32:42]
Ruslan Kogan
Look, you guys been sourcing for a long time, right? What advice would you give to anybody that's looking to work with future manufacturers specifically to produce products out of China overseas? Would you use something like. Yeah, what? Like how would you recommend for, to approach if they want to start selling a physical product online?
- [33:02]
Nathan Chan
Well, you know, firstly I'd say the most important part is have the right product. Make sure that all your processes around what you're trying to source fairly tight, that you know that there's demand, you know you're getting the right features, you know how to do quality control around that product, you know how to quality assess the various factories. You know, it can be a bit of a minefield for someone in, in China for the first time because there's a lot of layers to their business environment. Like I remember the very early days where, you know, just even something simple like I'd be sourcing a certain product and you want to make sure you cut out as many of the middlemen as possible because you can have the factory but then you can also have the agents. And if you're sourcing through an agent, they're obviously making a margin on top of the factory. Making a margin.
- [34:03]
Ruslan Kogan
Yep.
- [34:04]
Nathan Chan
And so I'd be meeting up with someone that come pick me up from the hotel room that. To take me for a tour of the factory. And I can't read Chinese, but I can tell if two squiggles look similar. And I'd be like, what it says on your business cards, very different to what it says on the factory building. And then, you know, trying to be like, dude, is this really your factory? It's like, yeah, yeah. And then. So, all right, well, can you open that door? And he has to make a few phone calls and call. And then it takes 20 minutes to. You're like, all right, time for us to go back to the hotel room. Because you realize you're dealing with a middleman. So the advice would be, like, I was saying, know your product, know how to do quality control from. For your product, but then also make sure you get as close to the source as possible, because that's how you're going to drive prices down. That's how you're going to do things most efficiently and your customers will benefit.
- [35:02]
Ruslan Kogan
That's great advice. Thank you. So you end up listing kogan.com. when was that? So you IPO'd and. Yeah, talk to me through the challenges there and. And that transition.
- [35:16]
Nathan Chan
Yeah, we IPO'd in 2016.
- [35:19]
Ruslan Kogan
Yep.
- [35:21]
Nathan Chan
So the business at that stage was 10 years old.
- [35:24]
Ruslan Kogan
Yep.
- [35:25]
Nathan Chan
A bit over, you know. Yeah, a bit over 10 years old. So it was. We wanted. We knew we wanted to do it because at that point, David Schaefer, my business partner, and I owned the entire company. But we had this incredible team that were helping us build a business. We want to share a portion of this with them. Yes, you can do it in a private company, but it's got very little liquidity for the team members, so they can't, you know, renovate their houses or, you know, enjoy nicer holidays or things like that. If they have equity in an unlisted company, they can, but it makes it very difficult. Yes. So. So we knew that we want to. We want to share. Share some of that with the incredible team. We also knew we'd never raised any money. So this was. The business was 10 years old, never raised a cent of external funds, so just been all completely organic growth. And we knew that if we had a bit more capital on the balance sheet, we would be able to really accelerate growth because we could see that there's the demand there and we were constrained by the money in the business. So we went through the, through the IPO process and look, I think it was, it was a fairly, you know, you learn, if you learn a lot of things along the way, but a very interesting and fulfilling process to go through and, and all the various committees and DD and building out a board and dealing with investors. I quite enjoyed it. You know, there's a, I remember with the deal roadshow or something like 120 meetings in 10 days. We like. Yeah. Flew a few days in Melbourne, Sydney, back to back meetings, then into Singapore, Hong Kong, then it was in the US and so on. So a really hectic schedule. But this was a hectic schedule of sitting down with people talking about the business and them analyzing your P and L and all of that. Like, I can't think of a better way to, to spend my time. Like, I, I'm in love with this business, so sitting around with people that are trying to get a more deeper understanding of it and understand how the business works. Absolutely love that. It's. There's not many topics I love discussing more than the business. So that, that was good. Everything, everything went well. I. Yeah, it was really like, you know, a maturing of the company and a growing up of the company at that time.
- [38:13]
Ruslan Kogan
Yep. And so what was the transition like? Even from, I guess, private to public.
- [38:23]
Nathan Chan
Culturally, the sort of culture that we have, I think our team actually enjoyed it because there's a lot more scrutiny. There's a lot more, you know, before being public. Yeah, you've got your scorecards and what you're trying to achieve and all of that, but it's all just internal here. All of a sudden, you know, you've got a lot more people watching and you've got the long investors who are cheering you on and then you've got the naysayers in the short sellers who are the opposite side of the equation. So you've, there's plenty of commentary around what you're doing. And the team, the, the team culture that we have, I think, enjoys that additional scrutiny and the pressure of that.
- [39:10]
Ruslan Kogan
Okay, great. So talk to me about, I guess, Covid and what that did for you guys, because that was really, really good for the business.
- [39:19]
Nathan Chan
Yeah.
- [39:22]
Ruslan Kogan
It was good for every online business, basically. Like, you know, we had a boom time as well. Like, it was massive. Online education was massive. Just same with buying, buying products online. Yeah.
- [39:31]
Nathan Chan
I think when you, when the government's just printing lots of money and interest rates are at zero and JobKeeper and money being handed out in each direction. It's a. Yeah. Every industry was, was significantly boosted from the, the money supply at that time. Covid was very interesting because I remember the start of COVID when people like, oh, you know, this is like wartime CEOs time. This is. Yeah, that's the sort of CEO we need. It's like, well, that's. We've been operating the business at that stage. We were a 14 year old company. We've been operating like it's been wartime for 14 years. You know, we had one of the lowest costs of doing business as a percentage out of any listed retailer. We were very lean across the board. We were the only E commerce company in the world paying dividends even prior to Covid. So we always run the business like it's wartime. I'm not, you know, I'm not the fluffy CEO that's going to get up there and give these big motivational speeches and trying to not say it how it is, but get everyone really excited that that's not how I am. And quite frankly, I'd be offended if any of our team fell for that sort of CEO because that's not how we operate. Our, our internal mantra is philosophically we're objectivists. So A equals A. It is what it is. Our team knows you can avoid reality, but you can't avoid the consequences of avoiding reality. So if something's good, we call it good. If something's bad, we call it bad and never manipulated. So it's a. We're a wartime environment at the best of times. So Covid hits it's business as usual for us. We know how to hustle and source different products through all different global supply chains. We were able to, we were the first company to go, all right, we're going to work from home. Even though we're not fans of work from Home, but at the time, you know, no one knew what's going on. There was lack of information, there was, you know, there's just like, hey, there's something out there. It's going to kill us all. So as soon as the, you know, work from Home, we were all in the cloud. It was not an issue for us. We did it straight away. And then we hustled and managed to like a lot of these products that were in short supply globally. We managed to get them for our customers. So while everyone was sold out of sanitizers, we've had it. Everyone was sold out of masks. We had a ppe, we had it. We Monitors. Everyone was sold out. We had it. So we went globally and used our global sourcing capability and we were importing various things from all over the world and sourcing it. So our business went absolutely gangbusters. We were. At one stage, we had more than doubled our sales overnight. And we knew we had to be there for our customers when they needed us most. So demand was booming. We were at $1.2.5 billion company. Yeah.
- [43:09]
Ruslan Kogan
Market cap.
- [43:09]
Nathan Chan
Market cap, yeah.
- [43:10]
Ruslan Kogan
And what was revenue? Half.
- [43:12]
Nathan Chan
It was. I think it got to gross sales. Would have got. Yeah, well over a billion dollars. So it's still gross sales. Yeah, roughly that. But it was. It was, you know, you had five years of growth in the space of. The space of a few months. And we had an incredibly, incredibly huge period of growth. Incredibly profitable, outplayed everyone in the space, and did very well as a business. There was so much demand that we were achieving all of that with one hand tied behind our back. So we knew. We knew that if we had more inventory, we would do even better. So we made a call. It was the wrong call to massively increase our inventory to deal with that. To deal with that demand. Shortly after all of that inventory started arriving, that huge boom that we all saw through Covid started to die off as things started to open up. People getting out and about. They were spending money on travel, restaurants and so on. And people were thankfully not stuck in their house anymore. So the demand started to drop off as we saw globally amongst all retailers. But we had all this inventory coming in. We actually even couldn't fit it into our warehouses anymore. We had to scale to temporary warehouses. We went from something like 13 to 38 warehouses within the space of three months. We broke the record for demurrage charges at the ports, which is when a ship arrives with a container, but you delay picking up the container because you've got nowhere to put it. You pay a daily penalty for it. Yes, we smashed the Australian record for that. So it was a highly inefficient time. And we made the wrong call with that. And then obviously, we had a bit of trouble in the year that followed where we were clearing through all that information. Because how do you clear inventory? You reduce prices. So it's a massive impact of profitability still. Okay for the top line, but it's not fun operating a business where you're clearing inventory because your focus is on reducing how much bad stuff you're doing rather than focusing on how much good stuff you're doing.
- [45:42]
Ruslan Kogan
So that was super stressful. Time for you. Right? Like, but this call that you made, a lot of businesses made that call, right? Like I even remember myself, I was on a hiring spree because everyone thought that this was going to continue.
- [45:56]
Nathan Chan
Well that was definitely all the news in the media is like hey, vaccines are five years away. It's never been closer than that. We're going to be in lockdown for five years. This is a transformation of the world and all of that. And yeah, it was in high with the benefit of hindsight. You know it's benefit of hindsight's wonderful. I don't know if you watch south park, there's Captain Hindsight pops up every now and then. They're wonderful scenes. If anyone's there, Google or on YouTube go look up Captain Hindsight so we can all talk with about it with a benefit of hindsight. But yeah, it was, it was the, the wrong decision. But where I credit our team is that we were one of the first to make a call and say hey, this is the wrong decision. We're going to call it out now and let's change course. Let's quickly clear this inventory. Let's quickly re engineer our business. So the interesting thing is that I think today even though our market cap is a fraction of what it used to be in the height of COVID we're a far better business because we went and re engineered our business because we said oh, inventory is great for when it's, you know, your competitive advantage and all of that. But inventory can also be very dangerous. How do we learn from this mistake and make sure it never happens to us again? And we've re engineered our business now where the majority of our sales come from subscription and platform like revenue. So the majority of our sales and profitability is not related to any inventory that we hold. We've made our inventory way more efficient. So you know, we had at the height of COVID we had well over $200 million of inventory. Now we've got around $40 million of inventory inventory. So a fraction of what it is before but in the most high demand categories. So in the with all products with super proven demand, sort of what, you know, went back to our roots of how it used to be done in the early days but then also massive marketplace. Kogan Mobile is bigger than it was Kogan first subscription model. So the majority of our sales are now happening without any inventory at all. So the quality of revenue and quality of earnings we have is far stronger than it's ever been. And had we not gone through that Tough time. We probably wouldn't have known to get to where we are right now as quickly and as aggressively as we did.
- [48:49]
Ruslan Kogan
So do you think that, that, that challenge, so that speed hump that you guys had on making that call, do you think that's like a rite of passage where if you're not making mistakes, if you're not falling on your face to an extent with your business, you're not pushing hard enough and you're not going to get to that goal or to those realizations? Like when you look at businesses, yeah.
- [49:17]
Nathan Chan
For sure, 100% it's making mistakes is a very important part of business. You know, it's even like you look at in the non business world. It's like I could tell my daughter as many times and with whatever tone and voice, you know, don't run on the wet tiles, they're slippery, you know you're going to slip over. You can say that as many times as you want, but the only time they're going to not run on wet tiles is once they fall over, bruise themselves and they'll go, oh, okay, or don't touch the hot stove. Like, yeah, sounds great in theory. But it's through making those mistakes that people learn and built upon their collective knowledge. So, you know, as a business and business leaders, we probably make, I don't know, a thousand decisions a day and we probably get 100 of them wrong. And that's great because it's the ones that you get wrong that teach you the most. And the important thing is, is not to beat yourself up over the ones get wrong. But it's to go, all right, why did I make that decision? What can I change to make sure that decision doesn't happen again? And let's add it to the bank. And so you as a business person and a company is one of the biggest assets a company has is all the mistakes it's ever made and all the learnings that it's learned from those mistakes. And so I encourage our team to not be scared of mistakes. Let's make lots of mistakes, but let's not make mistakes. And like some organizations do, cover them up or pretend that they were the right decision. Let's make mistakes. If we have the data that it's a mistake, you call it a mistake, you learn from it, you make sure it doesn't happen again and you just become better and better and better. It's like any scientist that steps up to the plate today is the beneficiary of everything that has been proven in the past. They're the beneficiary of every failed experiment and every successful experiment. Every bit of knowledge that was proven, every bit of knowledge that was disproven, you're the beneficiary of that. And you don't have to invent the wheel today. So that's the same for organizations. So when you make these mistakes, it's important to, as soon as you realize it is a mistake, call it for what it is, because it's very easy. You know, 97.4% of people make up their own statistics. You look at reports, it's so easy to find a report or a graph or a chart that can justify any decision or any operation or anything. So that's not how we operate though. That's, you know, completely not tolerated in our organization. We're truth seekers and we call it for what it is and improve from our mistakes. And that's what makes you better today than you were yesterday.
- [52:22]
Ruslan Kogan
Yeah, I love that philosophy. I love, I love a lot of your philosophies around just, just calling it as what it is. So talk to me. I'd love to unpack a little more. You said the business you believe is like much stronger now and you've diversified revenue spread. Talk to me about the subscription, how all of that works. And you said that, you know, a lot of margin is made from people not even purchasing a product now.
- [52:52]
Nathan Chan
Yeah. So take one of our biggest divisions, for instance, our biggest non retail divisions being Kogan Mobile. So first I'd say if you're not on Kogan Mobile, you're paying too much for your phone. It's objectively, if you do the research at any time, the best deal in the market or at a minimum, one of the best deals in the market. So Kogan Mobile started close to 10 years ago now, whereby we had, you know, we had a retail business, we had lots of customers, we had a huge amount of traffic come to our website. And our thinking was that, look, we're a trusted brand with lots of traffic, we can market products to our customers very efficiently. And there's lots of people out there who spend a lot on marketing. So we'd see for instance, how much the telco industries would spend on cost of acquisition and marketing. And then we knew that spent a lot of money on building out infrastructure around the country. So we went and ran a tender and spoke to many of them and said, hey look, you guys are spending all of this money on marketing to pay off your massive infrastructure cost. You're looking for more and more customers We've got a lot of customers, but we're only showing our customers deals if they're incredible and the best in, pardon me, best in the market. So we ran this massive negotiation on behalf of our customers, launched Kogan Mobile, where the thinking is, hey, we don't have to spend all this additional money on marketing because our customers are there and trust our brand. We partnered with Vodafone and launched this Challenger brand in the market that's been incredibly successful and has become one of the biggest telcos in the country. Then we went and did the same philosophy with nbn. We went and did the same thing with credit cards and we've got the Kogan money credit card and so on. So they're all subscription business units that leverage the power of the huge audience that we have in both directions. Because it's. When you go to, when you go to negotiate with these infrastructure service owners, you're like, hey, we've got millions of customers and that's valuable to you and you've got what's valuable to them. And how do you create that win win? And that's where a lot of our service, that's the philosophy behind our expansion into services, which is a very important part of our business.
- [55:38]
Ruslan Kogan
Yeah, thank you for sharing. There's so much I could go through with you, but we have to work towards wrapping up. So I have to ask you one thing. So I've, you know, I started founder a decade ago and I've always seen you in the industry and also in the news. You're very, very good with pr. I'm sure people have told you that. Right? Like, you get out there and you always a great spokesperson for Kogan and, and oftentimes as the underdog, the champion of, of kind of this David and Goliath, right? Like, you know, the Harvey Norman piece. Can you talk us through why you use the media or why you constantly are in the media or often using the media as a great way to be a spokesperson for your brand and then getting your brand on the map, but then also showcasing, I guess, the reason why people should get behind like a young dog, like a Kogan compared to a Harvey Norman and, or an Amazon or like, you know what I mean?
- [56:39]
Nathan Chan
Very early on in our journey, I realized that, you know, businesses and the media should have a win win relationship, especially businesses that are providing lots of value to customers and driving prices down, making lots of customers happy and have nothing to hide. It should be a win win relationship. And I realized that just as much as a young Brand with a very small marketing budget has a story to tell. Journalists need content. Right. So realizing that early on I was like, well, we're a challenger brand in this space. We've got a story to tell. We're up against some of the biggest brands out there and the journalist needs content and they need, and they need news. So making myself available to tell the story, to explain what we do to any journalist, like any journalists in the retail space know they can give me a buzz and I'll explain how any dynamic in, in retail works and so on. So trying, trying my best to create a win, win relationship for, for everyone there. So, yeah, the other part of it is that every challenger brand has an enemy. So that's the whole reason the challenger brand starts, because there's some incumbents in the industry that are maybe making margins that have been protected or margins that are too high. They've got a bit lazy, they've rested on their laurels, they're not adapting to change and they're taking customers for granted. And whenever that happens, it enables a challenger brand to launch into the space and to get attention. So, you know, it's happened nearly every industry. You've got Subway doing it to McDonald's, you've got Apple doing it to IBM and Microsoft. You've got all of these industries where someone new comes along and is a challenger. So we were the challenger brand in our space and we knew the exact position. We knew what we're trying to cut out and what we're trying to stop and how we want the industry changed and how we want to drive prices down. And we spoke about it loudly and proudly. And you know, the, the media wanted to hear about it.
- [59:25]
Ruslan Kogan
Yeah. Okay, awesome. Because just looking from, from an outsider looking in, over the years, you would have generated tens of millions of dollars worth of free PR for no doubt about it.
- [59:35]
Nathan Chan
Yeah. So it's by telling, telling our story. And when I meet with young and aspiring entrepreneurs, I tell them the exact same thing. It's a, well, firstly, who's your enemy? Who's the, you're the challenger brand. Who are you disrupting? Who's had it too good for too long in your industry? How are customers going to benefit out of it? And go climb onto a rooftop and start shouting about it like, go, go, go explain. Go explain your story.
- [60:05]
Ruslan Kogan
Yeah. Thank you for sharing. So when I just go back, looking back, you've been a founder entrepreneur over 20 years now. Pretty much. What's one mistake that significantly shaped your approach to business? And how did you Turn it into a learning opportunity.
- [60:26]
Nathan Chan
Yeah, I think it would be wrong for me to call out any one mistake. I think it's in line with what we were discussing earlier. It's lots of mistakes and some are small, some are medium, some are huge clusterfucks. Like the, you know, the having too much inventory that we were discussing and being held at ports and going from 13 warehouses to 38. Huge inefficiency, wasting millions of dollars. And you, you really learn from it. The benefit of the bigger mistakes is you probably have the biggest lessons learned from, from the biggest mistakes. I love encouraging our team to be not scared of making a mistake. I think the worst thing you could do is be scared to make a mistake. You know, you hear that expression often, the, you know, the perfection is the enemy of progress or something along those lines. There can't be any truer words than that because as a business you should be trying lots of things. Some are going to work, some aren't. Learn from it. What did you learn? Collect the data. Stop doing the bad stuff. Keep doing more of the good stuff. Think of some more experiments to run and just keep iterating. Make sure you're better today than you were yesterday. The biggest mistake a business could make is create a culture. Or most businesses is create a culture where people are scared to make mistakes. It's probably a good approach. If you're making airplanes or running hospital life support systems or things like that, it's like, yeah, there's no mistakes in that sort of environment. It's tested a hundred times and then do it. But in most other businesses it's make sure that you've got a culture where people aren't scared to make mistakes as long as they learn from it. And that learning becomes part of your balance sheet.
- [62:28]
Ruslan Kogan
Yeah, I love that philosophy. All right, one last question. We work towards wrapping future of E commerce. Where do you see the future of E commerce? Selling physical products online in the next five to ten years.
- [62:39]
Nathan Chan
Interesting question. I think that if you look at, if you look at retail like let's not even just say e commerce, but retail in general, the fundamentals over the last 50 or 100 years have barely changed, even though the way retail is done has changed significantly. So you know, we've had the mega stores and the Walmarts, we've had E commerce and marketplaces and so on. So there's been some significant change to retail. But the fundamentals of customers ultimately want more choice, more convenience, better prices. That has not changed. So if you're in retail, you've got to understand those three pillars very well. You know, more choice, more convenience, better prices. And it's very hard for any one retailer to be absolutely brilliant across all three. I can't think of a single retailer in the world that has got all three sorted. But name me any successful retailer in the world and they've got one of them completely locked down. And I think that's important to understand. And, you know, like for, for instance, at Kogan, we're all about price. We're driving efficiency, supply chains, trying to make it as efficient as possible to drive the price down. How's our choice? It's decent. We've got 50 million products on our site, not 50 billion products on our site. How's our convenience? It's pretty good. If you need your TV urgently today, we're not the retailer for you. You, you should probably get in the car and drive somewhere. But if you're happy with your TV tomorrow, we've got a good enough delivery philosophy. We do a very good job of delivery and service, but price, that's what we're focused on. If you're going to buy something from Kogan, it's very likely the best value in the world. You won't find a TV anywhere in the world for better value than you can get at Kogan. So be. We're pretty clear on that. The area that I think will change the most in the, in the next five to 10 years, especially related to AI, is the concept of choice. Because while there is the idea of giving customers more choice, there's also the paradigm of like, hey, we know what you like. We've scanned so much information and we know which products you've liked in the past and not liked in the past. And we've helped you with your decision because ultimately, while people want choice, they also want the decision to be made as easy as possible for them. So I remember one experiment we ran at Kogan, going back a few years now, where, you know, we've got. It was around 10 million people on our database and we send a lot of EDMs and promotions and this particular day we were promoting USB memory sticks and from memory it was like we had a 16 gig for $19, 32 gig for $29 and a 64 gig for $39. And we went and sent half our database, all three options, and the other half of our database just a 32 gig USB stick. And the 32 gig massively outperformed the rest because you've got, you know, cognitive overload on one hand. You're saying to someone, do you need a USB stick? If so, how many gigabytes do you want? And here's the price of each of the gigabyte options. So you ask the customers that have to look, oh, well, am I going to store music on it or documents? And what sort of documents will have movies? What am I going to use? Like all of that. The other one says to a customer with just a 32 gig, do you need a USB stick? If the answer is yes, you're one click away from buying it. So, you know, people want choice, but they also want their decisions to be made easier. With AI, imagine things like, yes, we can collect all this information. Like, you go onto our site, they'll currently probably be a thousand different USB sticks and lots of them. Probably some have 50 reviews, some have 100, some have a thousand. You're not going to sit there and read the reviews of every single one. AI could very easily summarize the reviews on every single product. It could then very easily compare the different reviews between different products and go, well, you know, you like high storage or fast speed based on your previous products and things and, and help you make the decision. So that thing around most choice is going to start becoming more about how can retailers use technology to help you with the information you need to make an easy decision. So I think that we're going to see a lot of competition around that.
- [68:24]
Ruslan Kogan
Yeah, look, it's. It's crazy that, like, chat, GPT and open Air and all those innovations that only came about close to 24 months ago and how, like, I use it in my day to day, how everyone does and how much it's shaping the world. So thank you so much. Ruslan. This was a fantastic interview. Look, congratulations on all of your success thus far. I've loved watching your journey from afar, and it's great to finally have you give back on our platform and to our community. So thank you again.
- [68:57]
Nathan Chan
Thank you for having me. It's been a pleasure to chat.
- [68:59]
Ruslan Kogan
All right, so if you love this episode, make sure to check out my interview with Alex Hormozi on how he scales companies from zero straight to $2 million a month in less than a year.
- [69:11]
C
You were like, how have you cheap.
- [69:12]
Nathan Chan
You cheap.
- [69:13]
C
But, like, there's five years of my life that disappeared. In fact, I lost all the money, which I talk about in the book. I had all the gyms, I did the turnarounds, and then I had $0 five years later because of mistakes that I made. But the things that I was gaining was not the money. It was the skills. It was the character traits and the beliefs.