Last week’s Shopify earnings report was one more example of how much the pandemic e-commerce boom and consumer goods economy has slowed, with the e-commerce giant announcing it was laying off 20% of its staff and selling its logistics and order-fulfillment operations to Flexport.
Shopify president Harley Finkelstein said in an interview with CNBC that after going on a “side quest,” the company — which represents 10% of all e-commerce sales in the U.S. — needed to focus on what it did best, “which is building incredible software for e-commerce.”
Shopify CEO Tobi Lütke had written in a memo to employees explaining the decisions that “Side quests are always distracting because the company has to split focus. Sometimes this can be worth it, especially when engaging the side quest creates the conditions by which the main quest can become more successful.”
But Finkelstein also had another side business on his mind last week in an interview that had been pre-taped for CNBC’s Small Business Playbook event, the loose-leaf tea side hustle, Firebelly Tea, that he co-founded as an independent entrepreneur.
He shared a few lessons he has learned firsthand from running his side hustle and impressed one big lesson on other retail startups: don’t allow chasing big-name influencers on Alphabet’s YouTube, Meta Platform’s Instagram and TikTok to become a version of your own side quest in seeking success. Spend the time to learn about the micro-influencers across social media, including those on subReddits and Pinterest boards who are driving engagement in niches key to your business demographic. Finkelstein said it will be cheaper and also likely a more effective way to grow a new business.
The creator economy is changing the way business success is generated, Finkelstein said, with the old “Field of Dreams” model — “If you build, it, they will come” — no longer enough.
“You can have a great product and still not be a success,” he said.
But that does not mean every small business owner with a great product should be chasing MrBeast or Emma Chamberlain for product endorsements. Social media micro-influencers may have a community that only numbers in the “few thousands,” Finkelstein said, but their relationship with those followers is deep and results in high engagement, which is why he advises small business owners to look across the entire market of internet personalities.
“If you’re selling kitchenware or silverware and want to find a great influencer, rather than look for the most subscribers on YouTube, look for small channels that have great engagement,” Finkelstein said. “It takes more time, but those are the people to go after, less expensive and you may see a higher return on investment.”
Finkelstein and his co-founder David Segal started Firebelly during the pandemic and if he were starting the brand today, he said he would take the same approach: not going after the biggest tea and coffee influencers but identifying the “small but engaged” micro-influencers building online communities. One way to track that is by seeing how often these micro-influencers are responding to tweets and comments, as well as the frequency of their posts across platforms.
“Those are the things that have been working best for us,” he said. “You mind find some alpha, some arbitrage opportunity on a sub-Reddit or Discord group all of your competitors are ignoring, and it changes the entirety of your business.”
That’s not to say he downplayed the importance of the big influencers and platforms. He cited the TikTok hashtag “TikTok Made Me Buy It” which has 50 billion impressions. But Finkelstein also stressed that at a time when the U.S. government is threatening to ban the Chinese-owned social media giant, entrepreneurs should be focused on an omnichannel sales strategy.
“If TikTok or Instagram no longer exists in a way Myspace doesn’t, the brands that will build the most impressive companies will be channel agnostic,” he said.
And that goes beyond the internet. After a pandemic boom that pulled forward five years of e-commerce growth into one year, the rate of growth is back to 2018-2019 levels, Finkelstein said, with the lasting difference being a much higher baseline. But the end of the boom reiterates a cautionary tale retailers lived through in prior eras, such as when the 1980s and 1990s traditional shopping mall experience became less popular and less relevant than brands having their own flagship stories and pop-up experiences. “The same lesson applies. You have to try to be everywhere consumers are,” he said, “online, offline, social media and anywhere in between,” he added.
“You may have a customer today that wants to buy in a store or online or at a farmer’s market, you need to sell across surface area and reducing friction in those surface areas matters,” Finkelstein said, adding that Shopify is thinking about itself today as more of a retail operating system than e-commerce company specifically.
To find out where your customers are, business owners have to go back to the most basic option in the book: “Just ask them,” he said.
Whether engaging on Instagram or TikTok, or Spotify, where Shopify has an artist merchandise partnership, Finkelstein said entrepreneurs need to take advantage of the “hyper-real response” that is available.
“Asking what they want to see more and less of is the easiest and least expensive way of marketing,” he said.
Even as he warned that a great product is no longer enough for success, he stressed that as consumers become more discerning with their dollars it is as critical as ever to be known as No. 1 in your brand niche. “We are seeing a lot more intentionality about buying,” Finkelstein said. “Rather than five pairs of sweatpants, it’s the one highest-quality pair,” he said.