Yellow Octopus founder Derek Sheen always had a love for weird and wonderful gifts. He hunted for unique presents that showed he had put thought into finding just the right gift.
“It gets kind of boring when all you give is wine and socks for Christmas,” he jokes.
He lives in Australia, and he wasn’t able to find the variety he wanted there, so he bought the products online, most often from the UK and US.
The lack of gifts in Australia sparked his idea to start his own novelty gift eCommerce store. He realized if he was looking for these presents, other people must be too. Derek is an engineer by trade, but he’d always wanted to run his own business since he got his first taste of entrepreneurship while running a small cafe in north Melbourne.
He started exploring the idea more deeply and started “Googling everything” related to eCommerce.
He taught himself through online tutorials, discussion boards, and eBooks. He also attended international toy fairs, trade fairs in New York, and an “absolutely massive” gift fair in Hong Kong. There, he saw the products on the market and got to know the industry better, and he felt confident that he should give his idea a spin.
Although he knew nothing about coding or creating a site, he set up a functional site easily using BigCommerce. He decided to name it Yellow Octopus, because octopuses are his favorite animal, and yellow was the only domain left that hadn’t been registered.
Originally, Yellow Octopus stocked just twenty products – a far cry from the 3,000 or so it offers today. But without tons of capital for the minimum order requirements, Derek took what he could get from manufacturers who agreed to sell to him in small quantities.
His only marketing at the start was Google Adwords, and within a weekend, the sales started coming in.
From AdWords to Old-Fashioned Print Ads
AdWords helped the store get exposure, especially in the initial stages when brand awareness was vital. However, he emphasizes that it isn’t necessarily the most cost-effective marketing for one-time purchases.
“You can be at the top of the Google rankings, but it’s very hard to get a return on AdWords because it’s so expensive per click. For us, AdWords is about brand building,” he says.
“We don’t usually make money on the first order someone makes through AdWords, but we deliver good products and good service and they return to us. It’s the second, third, and fourth order that we make money from.”
As AdWords got increasingly expensive, Yellow Octopus took to traditional marketing outlets like magazines, and radio advertising. Although AdWords provided measurable ROI, magazine advertising produced more qualified leads, where the average customer spent more.
“AdWords is great when a customer already knows what they want and is already on their way towards making a purchase, but magazines are effective at the very top of the purchasing funnel by creating desire and enhancing brand recognition.”
And sometimes offline marketing, while harder to measure, results in unexpected connections. In Yellow Octopus’ case, a marketing rep from Coke Rewards happened to buy a gift from them after seeing an ad in a magazine. The rep was impressed with the brand and Coca-Cola approached them to see if they wanted to join the Coke Rewards program. Now, Coke Rewards prizes and gifts can be redeemed through Yellow Octopus (or other Coke Rewards partner companies).
Overcoming Competition Through Customer Loyalty
As Yellow Octopus expands and diversifies, adding gifts in the homeware and pet industries, they’re gaining more competition against dedicated sites selling just homemade or pet products.
“There’s lots of competitors around, and it’s getting more and more difficult with eCommerce. Now, anyone can build a store, but how are you going to get visitors to your store? And once you’ve got the customers onboard buying from you the first time, how are you going to get them back?”
For this, building customer loyalty is crucial. One way they build up their base of loyal customers is by building up their email subscriber list and giving them special offers, like previews of the latest products before they go on the site.
“These customers have already purchased from us, so it’s not that difficult to get them buying again.”
In Yellow Octopus’ case, slow and steady wins the race.
Building a Scaleable Infrastructure & Looking Forward
Another obstacle for many eCommerce stores, especially gift shops, is dealing with holiday season sales. Seasonal spikes around the holidays can be as much as 15 times the normal sales. Building a proper operational infrastructure for this as well as year-round shipping is critical, especially when it comes to upholding high standards of customer service.
While they tried dropshipping in the past, they now hold all the stock themselves. “Dropshipping is just such a nightmare in terms of making sure that the supplier has the stock available, you’re not overselling and they’re dispatching it in the timeframe that you need it. We had no control over when the supplier would ship out the order.”
They’re also considering opening a brick-and-mortar store to gain exposure among those who may not have heard of them before. While they won’t be able to offer anything near the variety they can online, it’s a good way to give floor shoppers a taste of what they can offer and push them online to see more.
The success has been great, but Derek admits there’s definitely been times when raising the company from the ground up nearly entirely by himself was stressful. He says he would sometimes ask himself,“Why am I doing this? If I can make more as an engineer, why am I here doing Yellow Octopus?”
