Implementing NetSuite Would Have KILLED my E-comm Business

Why NetSuite Would Have Killed My Business

Implementing NetSuite would have killed my e-commerce business. So let's rewind the clock. I'm 28 years old, I'm CEO of a multi-million-dollar direct-to-consumer company. They're a great example of what this video is about, which is the modern-day e-commerce business and the troubles they face.

We were fast-paced, fast-growth, multichannel. We were managing everything on Google Sheets and point solutions like ShipStation or ClickUp. I became CEO when the company was hitting that critical mass.

What Is Critical Mass?

My belief of critical mass for e-commerce companies is when the complexity of your supply chain is greater than the processes and the software in place to solve them. That's critical mass for your e-commerce company. In other words, it's when you start spinning your wheels on repeat. You just feel like you're caged in — you can't grow.

So what does that actually look like? I'll drop some Yoda wisdom here for you guys. It all starts with bad data. Bad forecasting leads to bad purchasing. Bad purchasing leads to bad inventory control. Bad inventory control leads to suffering — or at least really bad decisions made from bad data, which looks like overpurchasing, underpurchasing, focusing on the wrong channels, defects in production, overselling, overspending on advertising, etc.

The Two Paths

When an e-commerce company experiences this critical mass that I just explained, it will feel like you have two paths to take. Number one is to just ignore all of the new processes or supply chain improvements that you need, and add more products and new revenue streams. Just spray and pray: let's try to grow the business more and ignore everything that's happening. Number two is, “Well, I guess we just need to fix all of our problems and implement NetSuite,” or insert another big, hairy ERP system here.

Now, this is where I found myself as a 28-year-old CEO. I was like, “Oh well, I guess I'm just going to have to implement NetSuite or some massive system to solve all my supply chain issues.”

The Problem With Implementing an ERP Mid-Growth

Here's the problem you face, though, when you're trying to implement an ERP at a fast-paced, fast-growing e-commerce company. It can be summed up by my thoughts at the time: this better solve all of my problems, and it better work, because if it doesn't, the new friction, new processes and massive costs will literally kill my business.

The funny thing is that the other e-commerce people I found living in the area who had chosen to implement NetSuite or another big ERP system came to me and gave me advice. They whispered to me, “Hey, I implemented NetSuite. It was overkill, it was too expensive, it almost killed my business. I'm also stuck right now, and they keep raising prices year over year.”

Here's what I realized as a 28-year-old who had been CEO of a direct-to-consumer brand and had a decent background in supply chain management: people don't understand the modern e-commerce business and why it can get so complex so fast.

Why Modern E-commerce Hits Critical Mass So Fast

So let's actually get to know this modern-day e-commerce business. Who are they? Why do they experience critical mass so quickly? Here are three things that can make a modern e-commerce company experience critical mass so quickly:

1. The ability to go multichannel or omnichannel really fast
2. Extremely multifaceted fulfillment methods
3. Blurred lines between historically rigid lines in the supply chain

Each of these deserves a breakdown, in my opinion, so let's dive in.

1. Going Omnichannel Really Fast

Historically, there have been really rigid lines for brands to go multichannel. For example, let's say there's an inventor, Billy Bob Joe, in the 1990s. He invents this gizmo in his garage and starts selling it. His path to go omnichannel is very rigid, and it's limited by who he can get the product physically in front of. He might start by selling on a street corner, move to a kiosk in the mall, then know a buddy who can get him some specialty retail space, and maybe eventually, once he reaches supply chain level 26, he can actually get into big-box retail like Target, Walmart or Home Depot, whatever his gizmo is.

It was very difficult back in the day to go multichannel, and that progression happened slowly. And it made sense: the antiquated supply chain and retail industry in general prevented you from blowing up like you can nowadays. The progression of your back-end systems to support you going omnichannel also made sense.

Now let's take Billy Bob Joe and put him in 2023. He can come up with a product idea easier than ever, sell it on Shopify, move to Amazon, sell it on Walmart.com, sell wholesale, sell it on Faire.com and sell directly to Target — all before he hits a million dollars in revenue his first year. What? How? It's crazy.

And the worst part about this is that entrepreneurs will typically just say yes, yes, yes, yes, yes to all these channel expansions and new revenue opportunities without even understanding the complexities they just introduced to their data, their fulfillment, their production, etc.

So let's sum this up: there are almost no barriers to entry to go multichannel today. Young companies can exponentially increase their channel streams without much effort, and extremely young and inexperienced companies are running into issues as they go omnichannel.

2. Multifaceted Fulfillment

Again, let's go to our entrepreneur example, Billy Bob Joe. He's in the '90s, and let's say this time he owns a $10-million-a-year brand, so it's already scaled. What does that normally look like? His distribution is probably pretty straightforward. He's fulfilling retail POs from the same retailer over and over again on the same products, and he's most likely just using a third-party distribution service that packages and sends everything off at the standard required for these retail stores.

The distribution is pretty straightforward: get a PO from a big-box retail store, buy from China, send to the distribution center, send to retail customers. Rinse and repeat. Super predictable.

Nowadays, the rise of multichannel selling and the adoption of 3PLs at a very young age for these e-commerce companies has opened the door to complex, multifaceted fulfillment at a very young age.

So imagine Billy Bob Joe is transplanted into 2023 with that same $10-million-a-year business. It's multichannel. He's now chosen to outsource direct-to-consumer fulfillment to a 3PL. He also decided to sell FBA. He also decided to start selling wholesale to specialty retailers, and he chooses to do that fulfillment in-house, where he has his own warehouse, so he can have control over that wholesale allocation. Also, let's just throw some international Amazon selling into the mix — most brands try to do this nowadays.

Holy cow, look at the complexity you just introduced to your order routing, your min/maxes, your forecasting, your replenishment. It's insane. What in the actual… Now go and try to build me a forecast for all of this. Good luck.

3. Blurred Lines in the Supply Chain

Number three: blurred lines in the supply chain. This is how the shift to e-commerce has blurred historically rigid supply chains. Let's pull up this basic chart that illustrates the flow of goods from the factory to the consumer. As you can see, everything was super predictable and rigid. It starts with a factory, maybe goes to an importer, maybe goes to a distributor, wholesaler, retailer. Super predictable.

The modern e-commerce brand has now blurred every single one of these lines. In decades past, specific entities, even businesses, existed to handle these checkpoints in the supply chain. Now, the modern-day e-commerce brand can do any one of these things. They routinely have direct relationships with their factory. They'll even just start selling wholesale on a whim. They've of course bypassed the big-box retail business and sell direct to their consumer.

This of course introduces complexity into the supply chain. One example is that direct-to-consumer brands will routinely choose to purchase raw components and do some sort of light assembly manufacturing, just to save costs and gain control of their supply chain. This introduces a lot of issues into the supply chain.

Why NetSuite Isn't Built for the Modern Brand

To sum all this up, no wonder people's advice when you hit critical mass as an e-commerce company is to just go to NetSuite, or Acumatica, SAP, Dynamics 365, or build your own custom system. They don't even know of any other solution that could service all of these needs for a reasonable cost. It doesn't exist.

The only reason NetSuite can technically handle this type of supply chain is because it was built to service the whole gamut of this old, antiquated supply chain. But it wasn't built for the modern brand. That's the point. You have to superglue five different functionalities from 20 different separate modules so that it can actually work. It's super clunky, it costs tons of money, and most importantly, they don't understand you or your business's evolution.

How Luminous Is Different

Luminous is the supply chain software we're building with the experience of the modern-day e-commerce brand front of mind. We want software that gives you all the benefits of a massive system without introducing all the friction that comes with it.

We also want to help you make this decision at the right time. In other words, we will work with you to make sure that the friction and processes you're introducing with this new system actually make sense for you and your business. We don't want you to overcommit.

Why I'm Making This Content

My goal in starting to produce content is also to simply provide value to e-commerce founders and operators. My belief is that most e-commerce founders and operators, like me, make tech decisions out of ignorance or just misguided advice. I feel like I have a unique background in supply chain and e-commerce ops, and now I'm very deep into the supply chain software space. I feel like my experience can help somebody in some way.

Follow along if you want me to highlight some cool, cost-effective tools that you didn't even know existed, or if you just want to follow the journey of Luminous as we grow. Also, book a call with me if you think you're a good fit for Luminous. Would love to chat. Thanks, guys. Peace.