A one-time vegan grocer, James Marks stumbled into fulfillment when his friend Sean Hurley, the tour manager for Modest Mouse, asked him to help run the band's web store. Marks and Hurley immediately noticed the drawbacks of the industry. Their attempt to shake off the cobwebs has attracted a slew of loyal fans. With a client base consisting mostly of bands, independent music labels, and other small companies, Whiplash Merchandising has grown its revenue to $2 million in 2014--up more than 1,000 percent since 2011--and landed at No. 457 on this year's Inc. 5000. Here, Marks discusses how his company plans to become the Airbnb of fulfillment.
-As told to Etelka Lehoczky
When I was 17, I opened a vegan grocery store that put on punk shows in the basement. I had this idea that we were going to change the world through selling vegan groceries. That store was where I got my MBA, so to speak. I learned you cannot count on your friends to be your customer base. I was thinking, "I've got all these people, this whole hardcore scene, who are going to shop in my grocery store." That's not how it works. Your customers are strangers. That was eye-opening.
Whiplash got its start when Sean and I partnered to run Modest Mouse's web store. We realized that the shipping process was a huge problem--which all of our friends were experiencing--and nobody quite knew what to do about it. There was no inventory control. There were constant mistakes. Companies were doing things like adding their own promotional material to orders.
A lot of the problem with the industry comes down to different generational perspectives. Younger people simply assume that computer systems should talk to each other and everything should be in real time. That's not the way most of the fulfillment industry works. It's big on intense setups. They say it's going to cost $100,000 to get this system set up and there are monthly customer service fees. Basically, you're being evaluated to see if you can be a customer.
We wanted more of a self-service system that anyone could sign up for.
We also decided there would be no employee training. If the employees need training, our software is not good enough. If they can't look at a website, click around, get the correct answer, and do what the customer expects, then we have failed. Likewise, if our customers have to email us to ask us questions, that means we've failed them.
Our customers tend to be a little bit smaller. They're independent companies with staffs of fewer than 100 employees. We like the big companies--Betabrand, Bleep records and Modest Mouse--because they have enough volume to anchor a warehouse. Then we backfill that with smaller clients.
In 2012, we had a huge cash-flow problem. We hit this moment when we couldn't afford to run the company anymore. Finally I said, "We're going to have to fire all our customers, start over, and say it's credit card only. You've got to prepay for a week up front." I had this irrational idea that it was going to destroy our relationships with our customers. But nobody cared. Within a week, we went from being profitable but bankrupt to cash-flow positive--a healthy, organic, growing business. It's one of those moments when you realize you cannot assume you know what's going to happen.
The challenge is holding on to our growth pattern. We're experimenting with a licensing program in London with a partner, so now there's a Whiplash London. We envision being the Airbnb of warehousing, where people with warehouse capabilities can flip a switch and become Whiplash Shanghai. A global network of our clean software could become very powerful. Eventually there may be many, many small Whiplash warehouses that cover the globe.