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I don’t pretend to be an expert in the T-shirt business, and I admit that I don’t know much about its manufacturing process.  In fact, I myself only purchase a T-shirt once in a while.   However, I can see that the custom print T-shirt business is huge in the States; there are hundreds of posts everyday on the t-shirt forum.  In fact, it seems like a custom print t-shirt market is strong enough to stand alone from a mass channel t-shirt market.

One thing that I feel uncomfortable is that people would still like to apply the principle from the mass channel t-shirt to the custom print t-shirt market. I am afraid this basically has missed The Long Tail Age.

I would like to share with you my observations of and experiences with custom businesses.  I know of a group of people who have successfully turned traditional Chinese ladies’ underwear into customizable Western ladies’ party wear.  Meanwhile, I am inviting experts in the custom print T-shirt business to share with us creative idea that we can turn custom t-shirt into a real standalone industry. We hope one day nobody will compare the pirce of a well design custom t-shirt to a plain t-shirt from Wal-Mart.

Hidden Treasures: Ancient Women

So let us start with Hidden Treasures: Ancient Women’s Underwear.  This has been around for thousands of years.  But just recently, it’s been transformed into party wear, and it has been a very successful and profitable business.  I saw it firsthand in YiWu.  I am sure that the people in YiWu are not the first ones to market this product, and will not be the last ones.  What I saw is a successful business model, with everyone involved enjoying profits, and a growing market.

Convert the duduo into party dress

I am not suggesting that we copy the idea in order to create a successful business.  FYI, other locals in YiWu have tried to recreate the business and failed.  I am just suggesting that there are lessons we can learn from this business model.

Especially with proper understanding of The Long Tail theory, some of the keys of success seem replicable.

1. All people involved are team players and are passionate about creative niche products.
2. Normally one guy can only be great in a few area (marketing, design, manufacturing) and therefore we should be ready to build a team to have a breakthrough. Everyone has a special role in the process of building the product.  They can be designers, component manufacturers, final product manufacturers, or marketers.  Everyone’s expertise is required for the completion of the product.  This fosters an environment where everyone cares about their work and their product, and helps each other.
3. Everyone contributes to the niche market.  When they already have sunk cost on a project, they are willing to share what they have with others at a low unit cost.  Admittedly, this is unusual behaviour for Chinese businessmen; I guess YiWu is an exception.
4. They are working to bring their costs down but not the price.  A lot of people make the mistake of lowering their prices too much to sell the products, and with such a small margin, they are forced to sell a large volume to maintain profits.  However, with the focus on lowering costs, they can be more flexible and offer unique items to their customers which may not be bought at a high volume, but can still be profitable.
5. They have an attitude of sharing profits fairly.  Everyone understands that it is better for everyone in the process (the team) to be happy with the system so they can continue being profitable.

An important consequence from YiWu’s successful business model is that the products are so unique they have attracted attention and business from businesses all over the world.  Whenever businesses are in need of a unique small commodity, they will think of visiting YiWu, knowing that they will have the best chance of finding it there.  With the custom print t-shirt business, this can be simulated by the creation of chains of t-shirt websites, all with unique designs.

I really believe that if we can all work together to create unique products that customers really want, we can make a difference in the custom print t-shirt business, let alone the whole garment industry.

Please take time to give me feedback and your ideas on enjoying running a small business, and being in the “tail”.

We talked about the 80/20 principle in the last two posts.  The head is normally a more secure place to be at, while the tail is a struggling place. Therefore nobody would have thought that staying in the tail is a “success”.

Chris Anderson’s “The Long Tail” theory suggests that in this era, with the advancement of technology like Internet, the situation has changed.  It is possible for the technology to bring the costs low enough to benefit the smaller businesses (the tail), and ”the tail is lengthened” to include more businesses with less sales volume.  If the business model is good enough and benefit enough from the cost down (the longtail model), the tail might even be “fattened”.  The “80/20″ still somewhat stands in many markets, but it is no longer the only scenario.  For those who can develop the new business model of selling less (quantity) of more (variety) , it is entirely possible to stay in the tail as a smaller business and make niche items and be very successful in their own right.

Chris Anderson and the YiWu model illustrate to us the same ways that bringing the costs down (or easy enough) will lengthen and fatten the tail.  Chris Anderson gave the merit to Internet which brings the total of inventory-carrying costs down and let more niche items survive in the tail.  On the other hand, the shopping malls in YiWu succeed by lowering costs by sharing resources and working together.  At first glance, these two approaches seems unrelated, but if we take a closer look, they are the same: they are both using the power of sharing to make things happen.

Let us take a closer look at this shift of focus that Anderson suggested.  In the past with the mainstream products, the typical approach to selling your own product is to invest by yourself in the marketing, building up its demand, and distributing.  The more you can invest in all the aspects, the bigger result you can get.  Therefore, the biggest businesses always take up a very high proportion of the market and the attention of consumers, and there seems to be no room or no demand for narrowly targeted products (niches).  The mass channel has twisted the real demand, and we are all educated to believe that the one-size-fits-all is a proper way to do business.  The real contribution of Internet and its openness is to put the real personal demand back in place, and let the customers choose items that are not in the mass channel.

The real threat of Internet to the mass channel is not only the lowering of cost, but it also expands the channel for the small businesses to reach their customers. It is true that online businesses only occupy 10%-15% of the total business, but if we compare this to the traditional tails (20% of those markets), this is a lot of growth.  This is also evidenced by the dropping margin of traditional channel and the mainstream products joining the niche online channel in the last few years. If the online market is not changing the whole world’s business, I don’t think the mainstream business would bother to join the online channel.  With The Long Tail and with more small businesses shaping the new business model based on this theory, I believe one day we will buy the mass products in mass channel and the unique items on unique channels.

YiWu is showing us how the spirit of sharing is to extend and to fatten the tail. By working together and supporting each other to make easier everyone’s business, they are setting up a new business model that is very friendly to the new niche items, and by this attitude, they earned the reputation and the attraction from the whole world.  Each person has a special role in the process, and believes in doing a great job to contribute to the whole process.  They also have a positive attitude to treat the sunk cost as free (since you have created a nice image, why not let other people benefit for a low cost?). When everyone works this way, everyone gets as much as they give.

There are many products in North America which are qualified to build a long tail business.  I have been involved in the business of custom print high end professional gaming mouse pads.  It was easy to replicate the YiWu business model; anyone who thinks they have a reasonable network to buy a small volume of unique mouse pads can set up the business within a few hours and make it profitable.  And I think we can do the same thing with custom print T-shirts.

A famous politician said : In the past, democracy is to fight the rights for every person to be equal, and today, democracy is for everyone to fight for the rights to being different. Let us work together to make niche businesses a happy tail.

Late 2006, I flew from my home in Vancouver, Canada, to GuangZhou, China for a trade show.  On the way, I bought Anderson’s book The Long Tail.  The book opened my eyes and I realized that many business practices in YiWu that I encountered in 2002 were evidence of the Long Tail theory.

Let’s relate again the Long Tail theory to Newton’s Law of Gravity.  The apples will continue to fall from trees, regardless of the existence of Newton’s Law.  Similarly, the occurrence of niche markets will happen regardless of whether Chris Anderson writes about it.  But the point of Newton’s Law and Anderson’s theory is that if accurate, they can help us understand why it has happened, and they can predict what will happen, and at what rate.  With the knowledge of apples falling come Newton’s Law, and then the development of rockets.

I was interested to see what was happening at YiWu, so I decided to visit the city after the trade show.

YiWu, like many other Chinese cities, had undergo a drastic transformation between 2002 and 2007.  There were many new buildings everywhere, including many new shopping malls.  I noticed that each of these shopping malls was specialized for a particular type of small commodity.  For example, if a shopping mall was specialized for jewelery, every store in the mall would be selling different types jewelery, or components of jewelery.

A huge place for the same niche products

I went back to visit the particular shopping mall where I had the contract in 2002.  I found that many of the small shop owners I met have now become sizable factory owners.  They were all still selling the narrowly-targeted goods that they were previously selling, but the production has grown immensely.  The growth was mainly due to the increase of varieties of items instead of the quantities of each type of item.  For example, the zipper store sells the same number of each type of zipper.  Because he now has available 8000 types instead of 200, his sales revenue has grown 40 times in 5 years.

They told me with a narrowly-targeted product line, they can bring their costs down, in addition to improving the quality and features of the products to meet the modern culture and market demand.  Because they have almost no MOQ (minimum order quantity), their customers can buy only one zipper or thousands of zippers and the unit price would basically be the same.

With almost no MOQ, customization for many products is available, which increases the product value.  With the same unit price for any quantity, new competition is hindered unless they are willing to lose big to start.  Even with large corporations that may be willing to lose big, they can’t beat the personal service at YiWu’s stores. All of this occurs without having to lower the price! This does not hinder new business though, the new business only needs to create their own niche.

In 1982, a jewelery businessman from Hong Kong came to YiWu and built his business using a narrowly-targeted business line.  The high margin of the business created many specialized components suppliers which made the best jewelery, much better than anything from Hong Kong, and at a much lower price.  YiWu actually is modeling their mission after the Hong Kong businessman’s business.

The YiWu government recommends using the export of small commodities to build the local economy, which has resulted in tens of US$ billion for export every year for the city.  I was told that 1 out of 8 people in YiWu is in small commodity business and the export value per capita is even higher than more developed cities like ShenZhen or Dongguan.  The government and the people of Yi-Wu believe in a proper division of labor, a fair distribution of profit, and an united spirit to work together to make this happen.  Of course, the visible profits may help convince the people that they are in the right direction.

The factory owners said that as long as their costs are low enough, they can profit from these “niche” products forever, which is essentially the meaning of the Long Tail.  Now YiWu people are applying the same formula to other industries, for example high tech industries like PV solar panels.  Similar to the production of small commodities, each product is made by components contributed for many small businesses.  However, they all work together like a single company towards the same goal.

You can check how they can build so many niche products for growth,

Don’t get me wrong, I am not saying that every business in YiWu is successful. In fact, you will find the same unsuccessful businesses that you can find anywhere in the world.  And many people who tied to copy the YiWu model without understanding the long tail principle failed. However, YiWu’s small commodity business model, combined with the Long Tail theory, is a showcase of how businesses can be happy in the tail and can be applied to make better many different types of businesses.

We can find the following common factors among the successful businesses:

• Nobody is competing on price.  The price is low enough for the customers but high enough to make a profit.
• They build their business by building new items.  They believe, for niche markets, that 8000 items compared to 200 items means 40 times more business.  With more variety instead of more quantity, the new items can more easily suit the customers’ taste, and build more traffic.  This is similar to the key of Internet business.
• They believe in the value of sharing.  Everyone involved in the process, eg. designers, marketers, manufacturers, transporters work together, share the risks, and enjoy the profits.

If I am to summarize YiWu keys of success in one word, that will be the ease to build the niche products and to bring them to the potential markets and let the customers find them easily.  These business may or may not use Internet technology to make their businesses more accessible, but you can still find the spirit of sharing behind all of them.

A longer tail means more room for small business owners

Have you heard of the book, “The Long Tail” before?  If you are in the minority of small business owners who want your business to stay small while being successful, you might want to learn some new and interesting business directions from this book.

Our traditional wisdom is that due to 80/20 rule (where 20% of businesses get 80% of the sales - head, and the other 80% share only 20% of the sales - tail), everyone would want to be part of the head and not in the tail.  To be “successful” means you are in the head and not in the tails.  Conversely, being in the tail means you are still struggling or that you are a failure.  However, things have changed, and our traditional wisdom doesn’t ring true anymore.

The Long Tail theory is developed by Chris Anderson, the editor-in-chief of Wired Magazine.  This theory first appeared in Wired in October 2004 and was such a phenomenon that Anderson went on to write a book about it, published by Hyperion on July 11, 2006.

In a nutshell, Anderson explained in his theory how our culture and economy are increasingly shifting away from a focus on a relatively small number of “hits” aka mainstream products and markets, and moving toward a huge number of “niches”, aka narrowly-targeted goods and services.

As the costs of production and distribution fall, mostly due to Internet technology, there is a significantly lesser need to produce products as one-size-fits-all, and customization is readily available.  Without the typical bottlenecks of distribution, such as the constraints of physical shelf space, the production of narrowly-targeted goods and services can be as economically attractive as that of mainstream fare.

All of this ultimately result in a longer tail and more room for small business owners.  You can now run a small business and still be successful by being profitable and sustainable.

The Long Tail theory is eye-opening but the examples mentioned in the book are largely focused on the niche products from large businesses rather than the real trend of niche products from niche businesses.  However, I had an experience in YiWu, China, which really helped me understand the real value of Internet and the “spirit of sharing” which ultimately brings the niche products to customers directly and more easily, and I believe that this is the real dynamic that makes the tail longer.

Just like how apples were dropping from trees long before Sir Isaac Newton’s discovery of Gravity, the growth of niche markets has been happening for some time before Chris Anderson’s theory, at least since 1982 when a city called YiWu in China set a mission for the whole city to become the center of small commodities.

YiWu is a city in the Zhejiang province of 1,105 square kilometers.  YiWu has a population of 670,000 registered as local residents and 600,000 as external temporary (as of 2007).  The size and population of YiWu are like those of hundreds of cities in China.

However, what makes YiWu stand out is how it aimed to become and successfully became the international centre of small commodities.  I have been told that YiWu currently produces 80% of small commodities that can be found in worldwide department stores.  The city center is a huge factory outlet.

In 2002, one of my companies in China was awarded a contract to build an intranet networking system for a shopping mall in YiWu.  The procedure itself was quite typical, but what made this contract unusual was that there was a special requirement to standardize the equipment for every shop in the shopping mall, even though all the shops varied in sizes and were owned by different owners.

A few months after we completed the project, I went back to YiWu to check up on our customer.  It was the first time I met the CTO in person; he was only in his early thirties and graduated from a famous US university in Computer Sciences.  Also, I found out then that not only did he standardize all the networking equipment, but he also did the same with all of the IT hardware, software, and servers.

I assumed that he did so to get a better contract price.  The CTO agreed that that was one of the reasons.  However, he stated that the primary objective was to bring the operation costs down.  He said that if their operational costs were low enough, they can make the production of niche items more profitable, and contribute to YiWu’s mission of becoming the centre of small commodities.  He called it the “niche to rich” project.

At the time, frankly speaking, I did not understand this ”niche to rich” concept.  My business background taught me that you can only have a successful business if your niche product turns into a mainstream product.  But there is no methodology to it as there were so many factors out of your control.  In many cases, a huge capital is required to iron out the road for the niche to get into the mainstream.  However, with a deep pocket, that usually means you are part of the corporate culture that would destroy any niche ideas.  This is true, as even a piece of junk like Wal-Mart can become very successful with a huge channel, but on the other end, most creative and new product designs with alot of potential would stay on drawing boards.

So I thought at the time, good luck, young man, even though the “niche to rich” is a nice slogan and definitely a dream for many young business people!

A few years later, I realized that I was wrong, and in fact there is a science to growing a niche product.  Let me tell you about my next visit to YiWu in 2007 and how the YiWu approach and Anderson’s Long Tail theory relate to each other.

Welcome to my blog about small business.

In 1993, I moved with my family from Hong Kong to Vancouver, Canada.  Vancouver is a very beautiful city and offers a nice lifestyle.  One of the reasons for the move was because I believed that my three kids would prefer the education and lifestyles here, and in that way, I realized that it was the right decision.

However, Vancouver hasn’t been a good place to do business.  Before we moved, I asked other people who have done business here how I could run a small business in Vancouver, people told me to buy a bigger business, and very soon, it will become a small business.  It was supposed to be a joke, but I found it to be very real.

For the first decade, I struggled to break the mold and make my business bigger.  same as what I have done in Hong Kong and China. I tried alot of things to repeat my experience in China, but I realized that I couldn’t do it.  However, all the effort was not a total waste.  the biggest thing I learned here is the business style and attitude. I learned that the definition of a successful business is not limited to having a big business.  people can have a small business in size that is still successful by being profitable, enjoyable to maintain, and sustainable.

And my blog is to share with you the lessons I’ve learned about running a successful small business. And it starts from The Long Tail theory (by Chris Anderson) which opens my eyes about niche business and how small business can be profitable and enjoyable by sharing the resources with our peer group.