

The Andrew Warner Story - merrick33
http://www.quicksprout.com/2009/04/08/the-andrew-warner-story-how-a-21-year-old-created-a-385-million-dollar-business-by-returning-his-jcrew-clothes/

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chops
This interview is great stuff. Some great quotes:

 _"You think the teachers were proud? If a kid wanted to draw or write poetry
or do anything artistic, they were full of praise. But as soon as they found
out what I was doing, they shut me down. Sharing your candy with others is
fine, but there was something disgusting to them about commerce.

...

Ever since elementary school, I wanted to show that businesspeople are the
heroes and encourage others to become entrepreneurs."_

So true! It's rare that a teacher would appreciate the selling of goods at
school. Interestingly, I got busted by my principal in middle school for
selling something regularly (I don't even remember what; soda, probably), but
he wasn't appalled by the selling, so much as just covering his ass. He
actually said he appreciate the entrepreneurial spirit, but that he just can't
allow students to sell stuff to other children. (Maybe he was blowing smoke up
my ass to keep me complacent, but I got the impression he was generally
impressed with the "entrepreneurial spirit")

But I can totally see an elementary school teacher being completely appalled
at a student _selling_ (god forbid) goods, rather than sharing.

This quote in particular really strikes home: _I hate the pansies who whine
that "it takes money to make money." No it doesn’t! It takes a sense of
mission. If you’re on a mission, you’ll find a way._

Sounds very much in tune with being "Relentlessly Resourceful."

~~~
misuba
Maybe that teacher was appalled at the gouging. Ten cents for a stick of gum??

~~~
electromagnetic
That's commerce though. Each stick of gum comes from a sheet that's about as
big as your living room floor and costs them about $10 to make, they then sell
the entire thing for like $10,000.

------
jrnkntl
Lesson learned: There is nothing wrong in copying other peoples ideas, just
make sure you execute it better than they do.

~~~
timr
_"Let’s do the math. We paid webmasters 10 cents every time one of their users
used our greeting card engine. We got paid up to $3 by venture-backed firms
every time we got those users to register for these venture-backed firms’
services. That’s how we got our margins."_

I think the lesson here is that making money on the internet is greatly
facilitated when other people are willing to pay irrationally large amounts of
money for what you're selling. Product quality may have played a role in this
story, but it sure sounds like the critical step was recognizing the
ridiculous inefficiency that existed in the market for eyeballs (i.e. paying
$3 for something acquired for $0.10)

~~~
AndrewWarner
I interviewed Jason Fried of 37 Signals on my site. He told me that his ebook
made hundreds of thousands of dollars. I think his margins were even better
than mine.

What margins like these don't take into account is the years of work that came
before them.

In my answers to Neil, I tried to keep my explanations simple. But I don't
mean to imply that I found a way to turn nickles into dollars by salesmanship
alone.

Thanks for bringing this up timr.

~~~
timr
Let's be clear: I'm not teasing you for your business model, nor suggesting
that it was easy to do what you did. I also don't care that you bought
something for ten cents, and sold it for 30x more than that -- that's
capitalism. You exploited a market inefficiency, and made a lot of money from
it.

I _am_ teasing the OP a little bit, because the comment that "execution" was
responsible for your success is basically useless. I'm going to go out on a
limb and say that the critical ingredient wasn't the quality of your virtual
goods or the writing in your newsletter, but the timing and novelty of your
approach.

~~~
jrnkntl
Isn't timing and approach _part_ of the execution?

~~~
timr
Timing is part of execution, sure. But when people toss around the "execute
better" cliché, the implication is nearly always that you can make your
product better and succeed, even if your timing is abysmal and your approach
is unoriginal.

This story isn't about making the better e-mail newsletter. It's about a guy
who recognized that he could arbitrage traffic for massive gain.

------
merrick33
In case some of you don't know Andrew Warner, he has a ton of great interviews
on:

<http://blog.mixergy.com>

and here is his Hacker News profile:

<http://news.ycombinator.com/user?id=AndrewWarner>

------
condor
“'You don’t understand,' he told me. 'If I ran ads in it, it would taint my
work.'

There were a bunch of email newsletter guys who felt that way. In their
stupidity, I found an opportunity."

Amazing, they're stupid because they care more about the product than making
money off the product. I wish most companies were that stupid, there would be
a lot better products out there.

~~~
ryanwaggoner
_I wish most companies were that stupid, there would be a lot better products
out there._

No, there wouldn't. They'd gradually wither away and die because they're
afraid of making money _from their business_.

I will never understand the reluctance of so-called "entrepreneurs" who have
some philosophical aversion to the idea of making money.

Note: I'm not just talking about condor's comment...I see this attitude
expressed constantly here on HN and throughout the "Web 2.0" world.

~~~
condor
its not an aversion to making money, there's no way to survive without making
it. I will never understand the glorification of making money as an end, its
so obvious, it should go without saying, yet here we are with yet another big
bucks lottery article. the energy and focus should be on making things better,
focusing on refining the product, with the obvious profit constraint.

------
richcollins
"Millions of people used our greeting card engine each month. Venture-backed
firms paid us $1-$3 every time we convinced those users to sign up for their
services."

Kind of reminds me of RockYou's Facebook advertising model. (If there is a
gold rush, sell mining equipment instead of mining)

I wonder what the ROI was on the users "purchased" by the venture backed
startups.

~~~
AndrewWarner
So one of our VC-backed clients accidentally showed me his investment deck.
Turns out his investors were valuing his company at $7.50 times number of
members.

It's part of a game that some VC-backed startups are involved with.

I bet their VC's had numbers that showed they could take the company public at
$10 times number of members.

------
AndrewWarner
I'm much rather have a business I care about than clothes I look good in.

------
Goronmon
Sounds like he owes a lot to his brother.

~~~
AndrewWarner
I owe him more than I can say. It's not just that he's an incredible
developer. In the early days, I had to deal with a lot of rejection when I
pitched our company. Michael helped me stay optimistic.

~~~
simplegeek
Just curious was he a co-founder?

EDITED TO ADD: Just noticed, I guess his brother replied in one of threads
below.

------
mr_justin
> I’m amazed that you noticed our margins Neil.

Why is that amazing? Isn't it plainly obvious?

~~~
AndrewWarner
I'm surprised that people don't look at financials beyond the top and/or
bottom line.

~~~
mr_justin
But at that point in the interview you've just mentioned that you made $1-$3
per user, with millions of users active each month, and you were paying 10
cents for a portion of those users. Of course the first thing people are going
to is the math and realize there's a lot of money right there.

But back to why I posted my original comment, it was more the condescending
tone of the "I'm amazed" part of that sentence. My gut reaction would be: "Why
yes, I can multiply in my head and it is amazing, Andrew."

Thanks for your reply though, nice to see you in this discussion.

~~~
antiismist
Wasn't it that they paid $.10 per user, and then, if they converted, got
$1-$3? Without knowing the conversion ratio you wouldn't be able to say what
the margin was.

~~~
AndrewWarner
Great point. We didn't have 100% conversion.

I kept things simple to explain how the business worked. There were other
factors like this at play.

By the way, a big one was fraud. I remember seeing my first washed check.
That's where someone took a check our company made out for $25 or so. Washed
our ink of it, and rewrote the check for much more money.

Crazy.

~~~
antiismist
Supposedly there are special inks that help with that. But even so checks are
hard to control, and the company I worked for switched to paypal for
international payments.

------
mikeyur
Andrew, I had a similar experience in elementary school. I was in elementary
school during the whole pokemon phase, so about 8 years ago.

I sold pokemon cards on the playground. Now, you'd usually go to the corner
store and pay $3-5 for a pack of cards. I had the idea when I was at an asian
night market that I could buy a box of cards for a lot less (I think about
$1.50 a pack) and then resell those.

So I started out just selling packs for $2.50 or $3, a bit below the regular
stores with a decent return. Which was pretty awesome at the time. I sold
about 2 full boxes then realized there was more money selling single cards.

So I bought another box and some card protector sleeves and started ripping
open packs. I found a bunch of valuable cards that gathered over $10 each. In
total I spent about $60 on supplies and made a bit over $450 in a 3 week span.

And then I got busted by a teacher who confiscated my earnings for a day and a
binder of cards. I was told that if they caught me selling anything ever again
I would be suspended.

I understand that they can't allow others to sell stuff to the students, but
it really hurt my entrepreneurial spirit at the time. Until I got to
highschool and started reselling illegal fireworks, but that story didn't end
as well, although I made a lot more money ;)

~~~
run4yourlives
_And then I got busted by a teacher who confiscated my earnings for a day and
a binder of cards. I was told that if they caught me selling anything ever
again I would be suspended._

Confiscated your earnings? The word is _stole_ your earnings. The crap that
goes on in school sometimes drives me insane.

------
pavel_lishin
And here I thought the story was about some sort of return & refund scam...

~~~
AndrewWarner
I cleared with J Crew. I told them I wore the clothes. Their policy was that
you could return clothes any time in any condition. I don't think they
expected anyone to take them up on it.

Laziness and embarrassment are two characteristics entrepreneurs don't have.

~~~
melvinram
Amen to that last sentence. You gotta do what you gotta do to make shit
happen!

~~~
padmanabhan01
okay. I am starting to JC penny right now.

------
10ren
I always assumed those greeting card websites sold their mailing lists to
spammers - and was irritated when someone sent me one. In retrospect, that's
pretty cynical, bitter and curmudgeonly of me.

------
davidmurphy
I love Andrew's interviews and it's nice to hear more about his story.

I love the J Crew story.

I've returned Christmas gifts (electronics) to fund my startup, but I may have
to look through the closet now, too... LOL

------
zacharydanger
Andrew's sister is "the Girl" of Keith and the Girl, the wildly popular
podcast. So, the whole lot of them seem to be ridiculously talented.

------
ableal
"businesspeople are the heroes"

No. Just no. Businesspeople are useful, but, by definition, not heroic. Heroic
is something else: not counting the cost.

There is also an important difference between hacker and huckster.

