Chapter 8 of 22: Oban

Late one night, after several glasses of Oban whisky, I stumbled across an Air Asia deal on Twitter – return flights to Hong Kong from Melbourne for A$299. It seemed like the perfect opportunity to head over to China in search of a teabag manufacturer. I didn’t like the fact that there was nothing to differentiate my products from anything my competitors were offering. We were all selling the same loose-leaf tea, marketed in the same way, to the same customers. I wanted something different. I wanted my business to stand out on social media. My hope was that I could have teabags made in China and that would be enough of a differentiator.

My plan was to fly to Melbourne and then onto Hong Kong, where I would catch a train over to Guangzhou. From there, I would attend the Canton Fair and a few smaller trade fairs in the Guangdong region. I knew very little about China and spoke no Mandarin, but I had nothing to lose. I had to take a risk. It was either this or I would have to get a job, and no-one wanted that. I had convinced myself that I was unemployable at this point, so I chose China. The only issue was that I had to fly out in under a week if I wanted to attend the second phase of the Canton Fair. “Fuck it,” I said, as I poured myself another generous glass of Oban, “you’re not going to get rewarded in life by being like everyone else.” (There was also the bigger issue here that I needed cheaper products with better margins so I could continue to afford to drink Oban.) Without a second thought, I booked my tickets. It was 1am. I was mildly inebriated at this point and not paying attention to what I was doing. I received the email confirmation for my flights a few minutes later. Melbourne to Hong Kong through Kuala Lumpur. “Kuala Lumpur? Are you fucking kidding me? I have to fly through Malaysia too? I knew this deal was too good to be true!” That’s what you get for being cheap - a 10-hour stopover in a run-down Air Asia terminal, where a guy tries to sell you a used tooth-brush in the men’s bathroom. In his defence, the toothbrush worked great.

To recap, rather than spending $900 on direct 12-hour flights between Auckland to Hong Kong, I thought it was a good idea to spend a few hundred dollars less on three flights that would take twice as long. I would fly from Auckland to Melbourne, Melbourne to Kuala Lumpur, Kuala Lumpur to Hong Kong, and then catch a train from Hong Kong to Guangzhou. From there, I would find a tea supplier. It didn’t once cross my mind that I would come home empty-handed. I was supremely confident. Naivety in business is something to be cherished. When you don’t worry about how things are going to turn out, life generally goes your way. If you obsess over every little detail, you become paralysed and fail to take action. I had no idea how I was going to communicate with anyone in China, let alone potential suppliers. I had no idea how I was going to find a tea supplier in a country with over one billion people. I had no idea where I was going to stay or how I was going to get around.

I didn’t care. All that mattered was that my little business was taking me to China. I could have worked my entire life and never had the opportunity to travel overseas for work. In a matter of months, I had started a company and would soon be on the ground in China sourcing products for my own business. Whose life was I living?

When I awoke the next morning, I was giddy. I sprang out of bed and jumped on my laptop. There was no time to waste. I started doing research into trade fairs and accommodation. Within an hour, I had registered for three trade fairs and booked my accommodation. I knew very little about the geography of Guangzhou, but I read that the region had a reliable subway system, so I chose a trader’s hotel close to a main interchange station. For some reason, none of the more recent reviews on Trip Advisor mentioned that the main entrance to the subway station was closed and undergoing extensive renovations. This meant that I had to sprint across a six-lane highway with no pedestrian crossing to access an alternate entrance each time I ventured out. That was a nice surprise.

Before flying out, I decided to do some research into costs involved in manufacturing teabags. I found three companies in New Zealand that manufactured teabags on an OEM basis and gave each one a call. The conversations were eerily similar to those I had previously had with raw tea suppliers in Australia. “What company do you work for?” was naturally followed by, “What is your annual turnover?” and “How many years have you been in business?” and finally, “Who currently manufactures your teabag range?” When I explained that I didn’t currently have a range and that I had just started my company, there was genuine confusion on the other end of the line – a pause, followed by a drawn out “oh, right.” The downward inflection on the utterance of the word “right” was something I was getting used to. I knew I was a disappointment to these people - another 30 second cold call that didn’t lead to a large sales contract.

I felt like I was going crazy. Each time I got off the phone, I couldn’t help but shake my head. Was I missing something? How can I have strong annual turnover if no company is willing to work with me? How can I have an existing manufacturer if it is a prerequisite that I have a manufacturer before I can get one? It was clear worker-bee logic. Workers will never know what it is like to start a business from scratch, so it is hard for them to be empathetic when fielding calls from upstart companies. It never occurs to them that every company starts somewhere. Many of the biggest companies in the world had humble beginnings, but they all have one thing in common – someone with a lot more influence than them, financially or otherwise, gave them a chance.

The problem for start-ups trying to independently form relationships with manufacturers, is that manufacturers tend to have a one-track mind when it comes to incentivising sales staff. Workers in sales positions don’t get rewarded for identifying talent early on and having the patience and foresight to manage a relationship with a fledgling company. They get financially rewarded for bringing in large customers who place large orders on an ongoing basis. That’s the game. If I had spoken to the founder of any of these businesses, I may have had a different reception, but that’s not how it works. Just as you have to get past recruiters and HR before you can get into the door of a potential employer, you have to get past sales staff before you can get an introduction to the people who matter in business.

I did, however, manage to bypass sales and speak to the production manager at one place. Since the other two companies had brushed me off without giving me any idea of the production costs, I was determined to get at least one answer. After leaving five messages on the production manager’s phone in a 24-hour period, a man named Frank gave me a call. In the first few seconds of the conversation, it was clear that Frank was reluctant to talk to me. It was a courtesy call to shut down any further attempts to contact him. He got straight to the point: “Look, we supply machinery to Bell Tea and handle their overflow production when they’re too busy. We are phasing out contract production, but we can do a run if the order is worth it for us. Minimum the machine can run is 50,000 units. You’re looking at NZ$0.30 a teabag excluding the packaging and raw ingredients which you will have to supply.” I wrote down the numbers as he was speaking and quickly tried to do the math. Before I could get my head around what the numbers meant, Frank ended the call: “give me a call if you would like to go ahead with this. I have a meeting, so I can’t talk further. Bye.” Apart from my initial “Hi, thanks for returning my calls,” I didn’t get the chance to say another word. It felt like Frank was reading from a carefully prepared script to ward off any potential new business. He sounded like an actor going through his lines and any interruption would have completely thrown him off.

While I knew very little about tea, I did know that Bell Tea was largest tea manufacturer in New Zealand. The company makes almost every brand of tea stocked in New Zealand supermarkets and has done so for some time. I looked down at the numbers scrawled across the note pad in front of me: 50,000 units at $0.30 a teabag. I didn’t need a calculator to know that that was $15,000. So, I would need $15,000, plus I would need to supply the ingredients and packaging. I had no idea how I would get teabag grade tea or how much it would cost, but I knew that packaging would likely set me back another $10,000-$15,000. Assuming I could find a tea supplier and design everything myself on my pirated version of Illustrator, my best guess was that the initial production run would cost around $35,000. The figure floored me. I would have packaging left over for future production runs, so the amount was closer to $30,000 but it was a long way from the $1,500 I had put up months earlier.

At that price, the cost per teabag was closer to $0.60. That meant that a bag containing 28 teabags would cost $16.80. Even if I was able to charge $35 for every bag with no discounting, that would leave me with a razor-thin profit margin. That number didn’t take into account tax, shipping, hosting, storage and all of the other costs associated with running an online business and processing orders. There was clearly something wrong with the price I had been quoted. How could supermarkets charge $5 for 100 teabags if they were paying anything close to $0.60 a teabag? That would mean they would lose $55 on the retail price of the tea and a few dollars more than that on the wholesale price. The exercise of calling New Zealand teabag manufacturers proved to be incredibly unhelpful. The only thing I knew before I flew out to China was that it wasn’t worth having anything made in New Zealand.

I left for China the following day. After more than 30 hours in transit through Auckland, Melbourne, Kuala Lumpur, and Hong Kong, I made it to Guangzhou. On the final leg of the trip between Hong Kong and the Guangzhou East Railway Station I was seated behind a group of school children from an international school in Hong Kong. The children were young – maybe 10 years old. Each child was dressed in a uniform red polo with their initials monogrammed on the left breast pocket. The children, while well behaved, talked loudly amongst themselves and took turns walking up and down the aisle in groups of three or four, casually interchanging between English, Cantonese, and Mandarin. I caught the tail end of one conversation where a girl, who was clearly new to the group, explained to the other students that she had just moved there from London, but had spent the first few years of her life in Dubai, where she was born. I made the mental note that not only had she lived in Dubai, London, and Hong Kong in the first 10 years of her life but, based on the thickness of her accent, she also clearly had American parents. As a New Zealander, I had never been exposed to anything like it. These children seemed so worldly. The average 10-year-old in New Zealand speaks one language, spends most of their free time playing outside, and is lucky if they have been overseas to Australia on a family vacation. On the other hand, these students travel broadly, speak multiple languages, and frequent museums in their free time.

The students were going to Guangzhou as an observation exercise. They were there to visit sites of economic significance and would return to Hong Kong later that evening. As one of the supervising teachers explained at great length, the children were to write a report in class the following day about how much Guangzhou had changed since their last visit 12 months earlier. When I was 10, the most challenging part of the year was when my class travelled by bus to a nearby dairy farm and we had to draw pictures of cows.

As the train inched towards the Guangzhou East Train Station, I took one final look at the piece of paper on my lap. The paper contained a neatly hand-written list of common Mandarin phrases with an English translation and a phonetic key. I had spent the better part of a day writing down every phrase I thought I needed to know for the trip. At the top of my list was the word “Guangzhou” and the address of my hotel. I gathered we were close to the station because many of the children had zipped up their backpacks and were moving towards the front of the carriage. At several points along the way, I heard the children referring to a place called “Guang-Jo”. I had no idea where it was, but my best guess was that it was a neighbouring city to “Guang-zou”, where we were heading. As the train came to a halt, one of the teachers addressed the children and said “welcome to Guang-Jo.”

“Oh my God. I am in the wrong city.” My mind was racing. “How did I end up in “Guang-Jo? I need to go to Guang-zou, not Guang-Jo. This is a disaster!” I sat in my seat for a few seconds, paralysed, trying to figure out what to do next. “Why did no-one stop me? I had clearly asked to go to Guang-zou when I booked my ticket.” I stood up and tried to compose myself. Irrespective of where I was, I knew I still had to get off the train. While I waited next to my seat for the bottleneck to clear at the door of the carriage, I turned to the woman who had squeezed in beside me and asked her where “Guang-zou” was in relation to “Guang-Jo”. The woman, who wasn’t much older than me, was Chinese, but spoke very good English. I knew this because she was seated behind me and had spent the entire train ride on the phone, having a very personal conversation in English with someone she affectionately referred to as her “yummy man”. She looked confused, “I don’t know. Sorry.” She fixed her gaze forward, making sure to never look my way for fear that I would try to talk to her again. I never was any good at making new friends.

As I stepped off the train onto the narrow platform, one of the school children, who was standing near the stairs, made his way over to me. “Excuse me,” the boy said with a smile, “I couldn’t help but overhear what you asked that lady.” He continued, without a hint of condescension, “You’re pronouncing Guang-Jo incorrectly. When you pronounce words in Mandarin using English letters, they sometimes have a different pronunciation. So, when you see ‘zh’, just change it to a ‘j’ sound. That’s why the city of Guangzhou is pronounced Guang-Jo. So, you’re in the right place.” I thanked him profusely. The boy smiled once more, turned and walked briskly back to his classmates. I couldn’t help but curse New Zealand’s education system for not placing more of an emphasis on learning foreign languages. The incident reminded me of a time months earlier where I had tried to order a Laphroaig whisky at a bar and had used the incorrect pronunciation by asking for a glass of “Lap-Frog.” It was not my finest moment, but thankfully, I was able to blame it on alcohol and mild dyslexia. Unfortunately, I didn’t have alcohol to excuse my ignorance this time.

Looking around the platform, there were no signs of the economic powerhouse I had read so much about. The platform was tired. It looked like it has been tiled in the throes of China’s communist revolution, during a period of economic austerity. A steep non-functioning escalator led up to an immigration area, where I was swiftly processed and ushered through into a modern and expansive room filled with dozens of ticketing windows. “Well”, I thought to myself, “you made it. You are in China.” I placed my bag next to a strong metal column and began to survey the concourse area. It wasn’t overly busy, but it certainly wasn’t quiet. The polished marble flooring and raised panel ceiling echoed the not-so-hushed conversations of passing Chinese travellers.

My concentration was broken when a taxi driver approached me and made a steering wheel motion in the air. I forcefully shook my head. Taxi-drivers who are prepared to accost people for business at train stations can smell weakness. I usually try to pretend that I am a local, but I got the feeling that that strategy wouldn’t have worked this time. The diminutive driver must have been able to read my unwelcoming body language and quickly moved on. On a short trip to Rome after high school, I was scammed by a taxi driver who approached me at the Roma Termini railway station and offered to take me to my hotel. It was night time and I had no context for taxi prices in Europe. The taxi drove me around in circles before charging me €50 for a trip that I later learned should have cost less than a third of that. I didn’t think the charge was outrageous at the time because it seemed on par with what taxis in New Zealand would have charged. Thank goodness for Uber.

I picked up my bag and decided to look for the exit. My lethargy was overwhelming my adrenalin at this point. I just wanted to get to the hotel and into bed before my legs gave out from under me. After walking around in circles for a few minutes, a young Chinese woman stopped me and asked if I needed help. Her accent was American and English was flawless. Fearing that I would get lost, she walked with me down to the subway area and gave me a detailed rundown of how the train system worked. She then very kindly paid for my fair after the ticketing machine refused my notes. After bidding her farewell and walking through the turnstiles, I knew I was on my own. From there on out I would have to make my own luck if I didn’t want to come home empty-handed. 

The following day I woke up early, showered, and got dressed before heading down to the hotel lobby. The hotel offered a complimentary shuttle to the Canton Fair and I was the first aboard. The shuttle soon filled up with Chinese and Russian businessmen in their late 40s or early 50s. I was clearly the youngest person on the shuttle. Aside from the obvious age difference, I was also the only one on the shuttle without a carry-on sized suitcase. Rookie mistake. I couldn’t, for the life of me, understand why someone would want to wheel a suitcase around all day. I simply assumed that everyone on the shuttle was in the luggage industry. I remember thinking to myself that they were obviously taking their sample suitcases to the Canton Fair to get quotes on a production run. It wasn’t until I arrived and saw that everyone had one that I realised that the suitcases were needed to carry samples and heavy exhibitor magazines.

The venue for the Canton Fair was a 25-minute drive from my hotel - 25 terrifying minutes. China’s road laws seem to be a work in progress. Cars routinely swerved in front of the shuttle bus with no warning and for no apparent reason. I gathered that it was to prevent the shuttle bus from moving a few meters ahead of them in a lane they had no interest in being in. It’s human nature, I suppose. Our driver’s left hand stayed in a fixed position resting on top of the oversized horn. Every minute, without fail, the driver would lean on the horn for 5-10 seconds in an attempt to part the static sea of cars in front of him. There was no way for them to move of course, but that didn’t seem to matter. On more than one occasion, he got into a half-squat position so he could put all of his weight behind the horn, as though doing so would somehow make it louder and more effective. It was third-world driving in a first-world setting.

Arriving at the fair, I rushed out of the shuttle and made my way to the ID area to collect my identification card. After going through security, I walked briskly past the armed ceremonial guard stationed at the entrance, and into the main hall. I didn’t take anything in in that moment because I only had one thing on my mind: I needed a selfie with that guard. I walked back out of the hall, took the picture, and then re-entered. Enough playing around, it was business time. I wish I could say that I stood triumphantly at the top of the stairs overlooking the hordes of people and the acres of exhibition space and thought about how far I had come in business in such a short period of time. Instead, I casually walked down the stairs and made my way into the first of the four enormous exhibition halls to my left, as though it was the most natural thing in the world for me. A few weeks before, I had no idea that trade fairs existed; now, I was strolling the aisles of the world’s largest trade fair, rubbing shoulders with buyers from Walmart, Amazon, and Target.

I spent the first hour observing the behaviour of the other attendees and listening in on their conversations with exhibitors. While I was there for one reason, to find a teabag supplier, I found it hard not to get sucked into the hurried excitement of the day. Backpacks that were being sold for $70 in New Zealand stores could be purchased for less than $3 a unit; hover boards (before they became popular) were available for $20 a unit and could be sold for upwards of $500; high-end bracelets that would retail for several hundred dollars could be custom-made for $3-5 a unit. It felt like a going-out-of-business sale for every consumer product company on the planet. I didn’t understand how it was worth it for the manufacturers; I didn’t understand how they were making any money; I didn’t care. I wanted to become rich and there were opportunities all around me. I walked past a large booth for a Swedish company that sold China-made Scandinavian furniture and struck up a conversation with a well-dressed man named Anders, who claimed to be the owner. Before I knew it, I was seated at a table in the centre of the booth perusing the company’s catalogue and having a serious discussion about pricing and order quantities. I had completely forgotten my station in life. Within hours of arriving at the fair, I had changed. I entered as a timid first-time business owner from a tiny country few people have heard of and quickly morphed into a big swinging dick, ready to take over the world. I was now a deal-maker. I knew nothing about furniture, but if anyone could sell 50 identical couches, it was me.

I quickly found comfort in the persona I developed when meeting new suppliers. I had no reason to talk to a hand-bag manufacturer, but I did it anyway. I played the role of someone who had money and a distribution network in place, when in fact I had neither. My mind-set at the time was very much focused on product acquisition; it felt like the hardest part of doing business in an isolated country like New Zealand. If I could get these suppliers to agree to supply me with products, I naively thought that I could sell them. I didn’t know how, but just that I could. Sales and marketing were foreign concepts to me. Like most first-time business owners, I was more concerned about getting a warehouse full of stock than I was about how I was going to sell that stock. Something that has become clearer to me over time is that just because you can execute something, doesn’t mean that you should. Anyone can find a supplier by going online or attending a trade fair. That’s the easy part. The hard part is being able to access a market.

The thing that makes ecommerce appealing to so many people is that it is possible to access customers from all over the world, without having to establish a physical presence in each country. A company from New Zealand, a country that is left off most world maps can, in theory, access customers from every country on earth. There’s real power in that. The limitations of traditional retail are nowhere to be seen. In the past, the only way to make money from products was through traditional distribution or by setting up a physical retail space.

Distribution is a model that is built on long-standing, tightly-controlled relationships. Anyone can create a competitor to Red Bull that is healthier and more effective with a better taste profile, but that’s not the challenge. The challenge, in the first instance, is getting the product stocked. If you try to convince a petrol station owner to allocate fridge space for your new drink, they will likely explain two things to you: firstly, that they can’t make individual buying decisions and secondly, even if they could, the fridges were supplied by The Coca-Cola Company or Pepsi or Red Bull and can’t contain off-brand beverages. Your best option now is to find a distributer who might have pre-existing relationships that can be exploited to get your product stocked. Even if you do find a distributer and that distributer manages to find a place that will stock your products, that’s just the beginning. Consumers then have to find the drink and purchase it, which is why brand marketing is so important. If it’s popular at a consumer level and the stockists make enough money, they may place another order. The goal with most distributed consumer products is to make something once and sell it over and over. The problem is that it’s a living relationship and it has to be mutually beneficial at all times. As soon as sales fall and stockists aren’t adequately incentivised to push the product in stores, the relationship starts to die.

There are so many moving parts when it comes to distribution. How much power you have as a business depends on the stockists. If you have something stocked at Whole Foods or Walmart, they will have a lot of say over how your product is packaged and how it is made. If you only have it stocked at smaller retailers, you don’t have to worry about the same issues, but you don’t stand to make anywhere near as much money. There is no single formula for distribution. It’s different for every industry in every country for every product offering. The most important thing is learning to ask the right questions so you can identify problems before they arise. My biggest mistake in business was making decisions based on assumptions. Taking the Red Bull example above, I was the type of person who would use flawed reasoning to make decisions: Red Bull sells over one billion cans a year, so there is clearly demand for energy drinks and if I can take just a small percentage of that market, I will make a fortune. It was this very same logic that pushed me to start OMGTEA. If I can do X then the outcome will surely be Y.

When we imitate, we can only see what’s on the surface. We base decisions on incomplete information. The most successful small business owners I know all have one thing in common – they do something that is natural to them. They don’t follow trends, they create them. They don’t sit on their hands waiting for a competitor to do something before they act; they act with a complete disregard for what their competitors are doing. For the first few years of my business, I fell into the imitation trap. I would wait for competitors to do something and would then do the exact same thing, expecting the same outcome. I tried to copy everything from the packaging design and website layout right down to the products themselves. I didn’t start to gain any real traction in business until I stopped imitating and started thinking for myself.

I never actively pursued distribution as part of my business model; it didn’t feel like the right fit for the brand I was trying to create, or the products that I was hoping to release. By selling directly to consumers, I was able to charge a premium and, more importantly, I was able to control the end-to-end customer experience. There was something incredibly empowering about selling exclusively through a website. I didn’t have to worry about having enough stock to merchandise a store. I didn’t have to worry about how I would pay for a lease. I didn’t have to worry about retailers not paying for stock. I could just focus on the two things that mattered – products and direct-to-consumer marketing.

If there is one drawback about having an online-only strategy, it is discoverability. When a consumer goes to a physical retail outlet, they will invariably come across other stores in the immediate vicinity that they can enter. If I go to the Nike store at my local mall to purchase a pair of shoes, odds are that I will also walk into two or three other stores nearby that I had no intention of going into. These stores didn’t have to advertise to get me to go inside; they simply had to be in an area of high visibility near the store I was planning to enter. Consumers can’t discover products in the same way when they shop online. If I go to the Nike website to purchase a pair of shoes rather than going to my local shopping mall, there is no way for me to stumble across other companies. I simply purchase the pair of shoes and close the browser window. Google’s Adword’s platform does a good job at improving discoverability for related products, but isn’t a perfect substitute for an in-person retail experience. At a mall, I might buy a box of candy from See’s Candies and a shampoo from the Body Shop on my way to the Nike store. Google would never show me ads for See’s Candies or the Body Shop if I did a search for the Nike shoes; the algorithm would have the impossible task of predicting my desire for shampoo and candy based on a search for a completely unrelated product.  

The reality is that we often don’t know what we want until we see it. We like to be prompted, which is why discoverability is so important. Having individual brand and company websites scattered across the internet is a hugely flawed part of the ecommerce experience. The solution is an obvious one – amalgamate brands under a single domain to create a unified shopping channel. This is exactly what companies like Amazon and TMall have done so effectively. I can go on to buy a bamboo toothbrush and end up purchasing a book about trees, an electric toothbrush, and a biodegradable lunch box container, all from different retailers and fulfilled by Amazon. The discoverability issues that plague individual brands are no-where to be seen. Creating multiple fulfilment hubs around the world that contain millions of products from hundreds of thousands of different companies is unfathomably difficult to execute. It is, however, the future of online commerce.

While it is currently a free-for-all and everyone can set up an online store, I would expect this to change in the near future as online marketing costs increase. Companies like Facebook and Google have a strangle-hold over online advertising. Their algorithms are designed to bleed companies of cash with a complete disregard for how it affects a business’ bottom line. The bidding system these companies use is based on a skewed version of reality – almost like it was designed by people who have never been in business. The idea is that if a company is willing to pay more for a particular ad spot, their ad will be shown to prospective customers before other ads are presented. More often than not, bids get driven up by smaller companies that spend 200% of their revenue on advertising in the hopes that it will boost sales or that they will be able to hook consumers into a subscription; it never works out this way and these companies ultimately go out of business, only to be replaced by other companies who themselves drive up bids and quickly fail. For every company that fails, there are 1,000 other small businesses starting up every day that will take their place. This leaves responsible ecommerce stores in a no-win position – either play the game and pay a fortune to match the bids or get no visitors to your store. In a world where everyone sells through Amazon or TMall, these problems don’t exist. Inflated online marketing costs would be driven down as a result of improved discoverability.

The importance of discoverability first became apparent to me at the Canton Fair. I went there to find a tea supplier and ended up talking to exhibitors from a broad range of industries – something that would not have been possible if I had visited individual tea suppliers’ offices rather than attending the fair. If I had been able to identify an opportunity for something other than tea, I may very well have chosen a different path in business. Like most people with a consumer mind-set, I was only limited by my imagination (and my bank balance).