Following his objective of reaching $10k/month from his online businesses, Jake launched NE Lounge, an Amazon FBA store selling inflatable products. 1 year and $16,000 later, the startup shut down. Choosing the wrong product in an unfamiliar niche is the cause to blame.
Hi Jake! What's your background, and what are you currently working on?
Hey! I’m Jake Lang, born and raised in New Hampshire. I’m 28 years old, I now live in Massachusetts with my fiancée Brooke (we’re getting married in June 2020) and our two Great Danes Miley and Charlie.
I build online businesses, it’s what I love doing. I love looking for a niche, finding an opportunity, and delivering a solution to an underserved market. I’ve started six online businesses ranging from online courses to membership sites, and I have a top-selling book on Amazon for my niche.
My big project now is to continue building businesses. I will be starting two new businesses this year and sharing my journey at The Entrepreneur Ride Along where I’ll share the ups, downs, wins, and mistakes of building each business.
But that’s not what I’m here to talk about… Today I’m here to talk about my biggest failure as an entrepreneur. I like to call it my $16,000 learning lesson (AKA a $16,000 loss).
That failure came in 2017 when I was launching my Amazon FBA business. The business that I called “NE Lounge”.
It was supposed to have a dual meaning standing for “New England” lounger or lounge “Anywhere”. Get it, the letters “N-E” pronounced sounds like “Any”? Yeah, a stupid name that no one else understood either. But that doesn’t matter! Don’t let the name of your business hold you back from moving forward, you can always re-brand later.
Anyways. I was launching an Amazon FBA product. I was the founder and sole proprietor of NE Lounge, which was intended to be an Amazon FBA store selling inflatable products. My first product was an inflatable lounger, the NE Lounge Inflatable Lounger. You can see inflatable loungers on Amazon. It’s a bit of a fad product. It’s essentially an inflatable couch. You hold the lounger and run to fill it up with air, then tie it closed and you have a big inflatable pouch to lounge on great for camping or hanging at the beach.
I had big goals for this product. I did lots of market research, I saw what was wrong with the competition. My plan was to come in and sell a premium inflatable lounger, one that was bigger, more durable, and stayed inflated longer. I would price myself on the high end of the competition, I would charge $50 per lounger when most of the competition charged $20 to $40 per lounger.
At about $20 cost per item, and charging $50 per sale, I would profit $30 per each inflatable lounger that I sold. If I could sell just 100 per month (around 3 units per day) I would net $3,000 profit per month. Combined with the revenue I was generating from my other online businesses, which was around $7,000 per month, with this new Amazon FBA business I’d be able to hit my income goal of $10,000 per month. I told myself, if I generated $10,000 per month from my online businesses, I could comfortably leave my day job and pursue my dream of full-time entrepreneurship.
Well, that was the goal at least…
What motivated you to start NE Lounge?
I love starting online businesses, and I love finding new opportunities to make money online. At the time, I had two successful online businesses up and running. AssociatePI, a website selling online courses in the insurance industry generating around $5,000 in monthly passive income. And Pomsky Owners Association, a blog generating around $750 in passive income.
I just needed a little more income per month to comfortably quit my 9-5 job and pursue entrepreneurship full time. My goal was to generate $10,000 in income per month, that would give me a nice safety net to quit my cushy job as a financial analyst.
I was on the lookout for new opportunities when I stumbled upon Greg Mercer of JungleScout and the Million Dollar Case Study. It’s a case study going through the process of manufacturing a physical product and launching it through the Amazon FBA program to generate $1 Million in revenue. I was always interested in the Amazon FBA program, but I had never seen how simple it was to get started until I came across the Million Dollar Case Study. I was hooked. The allure of launching a new business, one that could generate thousands of dollars in extra income each month drew me in. I followed the instructions from the Million Dollar Case Study step by step to find my niche and launch my product through Amazon FBA.
How did you build it?
The Million Dollar Case Study from JungleScout laid out the Amazon FBA process with extremely simple step by step instructions. I followed along each step of their process to launch my product on Amazon.
The research started in May 2017, after I had discovered JungleScout. I used the JungleScout Amazon analysis tools for my research. I was on the lookout for an underserved market. I was looking for a niche on Amazon that had good organic search volume, good sales volume, and poor competition.
I narrowed it down to a few options including slime storage jars, hanging wall file folders, inflatable limbo games, inflatable pineapple pool floats, and inflatable loungers. In my research, I found that each of these niches were underserved. Each had good sales, but there was barely any competition that stood out with good reviews and a great product.
I decided to launch my Amazon business in the inflatables niche. Starting with inflatable loungers, then moving on to inflatable pool floats and inflatable games.
I chose the inflatable lounger to start. I chose the lounger because, in my research, I found that the top ten results on Amazon for the search term “inflatable lounger”, each competitor was generating over 300 sales per month. Some up to 2,000 sales per month. I knew that, if I could rank my inflatable lounger product within the top ten search results, I could provide a better product and generate at least 300 sales per month (equal to $9,000 monthly income!). In addition, when I researched the competition, most of the other inflatable loungers sold on Amazon had bad reviews (3 stars or less). Plus, most of my competitors had less than 20 reviews in total. I knew if I could enter the niche, get more reviews than my competitors, and ramp up my sales quickly then my product would stick in the top ten search results for “inflatable lounger” on Amazon and the passive income would roll in every single month.
Once I found my niche, I researched how I could improve the inflatable lounger to deliver a better product to my target market. In my competitive research, I found most of the bad reviews for inflatable loungers were a result of poor durability, difficulty of inflating, and comfort. My competitors were selling cheap products. The loungers would break easily, they were hard to inflate, they didn’t hold air longer than 30 minutes, and they just weren’t comfortable. After doing more market research and talking to consumers, I found my differentiator. I would enter the inflatable lounger market with a premium product. My lounger would be designed with a square head shape (more comfortable), it would be the widest and longest lounger on the market, I would use a premium 210T Nano Nylon (more durable), I would use a single mouth design (easier to inflate), and it would have a stronger clamp to keep the lounger inflated longer.
Through June and July 2017, I spent my time endlessly researching manufacturers and testing samples. I talked to hundreds of manufacturers on Alibaba until I found the perfect partner based in China. We worked together to custom design my lounger. A lounger that was durable, lightweight, more comfortable, and easier to inflate.
In August of 2017, after spending almost three months testing samples and talking to manufacturers, I placed my order for 500 units of my custom-designed inflatable lounger.
While my inventory was being shipped overseas to the Amazon warehouse in the United States, I worked on the Amazon listing and began to kick off my marketing efforts.
I worked with a professional photographer to produce product photos with models using my inflatable lounger. These photos would be used in my Amazon listing. I created a website for NE Lounge, and started driving traffic to the website to let everyone know that a better lounger was coming soon. I had professional videos created to show how to use and inflate the lounger. I had a product insert designed that would be packaged with my lounger, this included instructions on how to use the lounger and information about NE Lounge (for marketing purposes). I found the keywords I would target with my Amazon listing. I would start with the terms Inflatable Lounger, air chair, inflatable chairs, and wind chair. These keywords had a great search volume on Amazon. If my Inflatable Lounger showed up on the first page of Amazon when people searched these terms, I would get sales.
I created my Amazon listing title, with my keywords mixed in. The title I chose was: Inflatable Lounger Chair | Premium Inflatable Lounger by NE Lounge | Quick and Easy Inflatable Air Chairs | Run 10 Steps to Fully Inflate | Perfect Inflatable Chairs for Festivals and Beach
Lastly, I finalized the rest of my Amazon listing with a detailed description and five bullet points that defined my value proposition:
- EASY INFLATE
- QUALITY DESIGN
- COMFORTABLE INFLATABLE LOUNGER
- DURABLE & LIGHTWEIGHT
- 100% MONEY-BACK GUARANTEE
By September 2017, my first round of inventory reached the Amazon warehouses. Just a few days later, I officially launched NE Lounge. A few days after that, I got my first sale.
Which were your marketing strategies to grow your business?
My primary strategy was to rank in the top ten search results on Amazon for my targeted keywords. Terms like “inflatable lounger” and “air chair” were being searched thousands of times per day.
The problem is, the way Amazon works, to get a better ranking you need to sell more units. It’s based on the Amazon Best Seller Rank. It’s a formula based on how many items you sell over a period of time, the more you sell in less time, the better your Best Seller Rank. The better your Best Seller Rank, the higher you will climb in the rankings on Amazon.
So, to start, I was using JumpSend. It’s a tool that helps you run a marketing campaign off of Amazon to get sales quickly and improve your Best Seller Ranking. To use JumpSend, you sell your product at an extremely discounted price. Usually 50% to 75% off. JumpSend will send your discounted offer to their list of subscribers to get you a bunch of sales quickly (though you take a loss on the sale). JumpSend also sets up an automated email campaign, so everyone that bought your Amazon product will receive an email asking them to leave a review. This combination of getting sales quickly, and getting 5-star reviews, will bump your ranking into the top ten search results.
I also used paid advertising on Amazon. I paid $15 per day for Amazon to display my product on the front page for my keywords.
Additionally, I was running a website for NE Lounge. I was driving traffic to the website and producing content with the goal of driving more traffic to my Amazon listing.
Which were the causes of NE Lounge’s failure?
In the end, it came down to profit. I just could not turn a profit. No matter what I did. My marketing effort, trying to rank for my keywords on Amazon, was not working. No matter how many 5-star reviews I got, and no matter how many discounted items I sold, my Best Seller Ranking was not climbing fast enough to rank on the first page of Amazon.
I was in over my head. I chose an expensive product ($20 per unit), I was trying to sell at a premium price ($50 per unit) but no one was buying. The only buyers I was getting were the people buying through JumpSend at a 50% discount. After Amazon fees, I was taking a loss on those JumpSend sales and it wasn’t even helping my organic ranking!
In the end, I sold more inflatable loungers at a discounted rate through JumpSend then I sold organically at full price. I was essentially paying money for people to take these inflatable loungers from me.
After accounting for the initial investment, marketing fees, Amazon storage fees, Amazon sales fees, JungleScout fees, professional photography, and graphic design the end result after selling 500 units of NE Lounger inflatable loungers was a loss of $16,000.
I shut the business down in April 2018 after selling all 500 units (for a loss). The nail in the coffin came when I brought the dilemma to my mastermind group, a group of entrepreneurs I trusted and had been meeting with on a weekly basis for over two years. I asked them if I should re-order more inventory to try and turn a profit, or cut my ties and walk away. I got a lot of great feedback from an outside perspective; it was eye-opening.
The choices were clear, spend another $16,000 and maybe turn a profit or double down on my other online businesses and scale those to reach my goal of $10,000 income per month. It was an easy decision. In the end, I decided not to re-order the next round of inventory. I shut down NE Lounge and walked away with a $16,000 learning lesson.
I can point to a number of reasons why this business failed. First, I suffer from shiny object syndrome. I jumped in too quick after just learning how to launch an Amazon FBA product. I saw the profit potentials, and I was really pushing myself to generate a little extra money so I could leave my 9-5 job and pursue entrepreneurship full time. I chased the shiny object when I could have doubled down and scaled my successful businesses.
Second, I chose the wrong product. I chose an expensive product to manufacture, one with lots of competition, one that is known to break (and get bad reviews), one that is a fad product that I had never personally used or even heard of before researching niches on Amazon. I should have chosen a simpler item for my first FBA product, one that was less costly and cheaper to manufacture on a per-unit basis. I was in trouble right off the bat when I dropped over $10,000 just to manufacture my inflatable lounger. I put myself in a hole from the beginning. I should have started smaller, and started cheaper for my first attempt. It would have softened the blow of this failure.
Third, I didn’t fully understand Amazon. This was my first Amazon product. I didn’t understand the fees, I was learning about manufacturing, I didn’t understand importing, and I didn’t realize how hard it was to rank a product organically on the Amazon search platform.
In hindsight, there are hundreds of reasons why NE Lounge failed. I am the first to admit, I jumped into this business too quickly. I should have done more research; I should have slowed down. I should have re-evaluated my options, weighed the pros vs. cons, and conducted a better cost-benefit analysis before launching NE Lounge. It was a good idea, I did my research talking to customers, and I entered the market with a better product that met the needs of the target market. But I needed to slow down, take a step back, and re-evaluate the risk of starting a new business on Amazon, a platform that I was unfamiliar with.
Which were your expenses? Did you achieve some revenue? In the end, how much money did you lose?
I generated revenue, I sold 500 units. But I had to lower my price so much to improve conversion, and I gave so many products away for free (or at an extremely discounted price) to try to get 5-star reviews that, in the end, the revenue was less than $5,000.
In total, I closed this business at a loss of $16,000 after twelve months of work.
The costs added up quickly. Here’s a breakdown of my expenses:
- $200 to test product samples
- $10,000 for 500 units of inventory
- $2,200 for importing service (using Shapiro)
- $30 for logo design and website setup
- $65 for product insert design
- $300 for product photography
- $450 per month for Amazon advertising ($15 per day)
- $40 per month for an Amazon seller account
- $30 per month for Jumpsend
- $500 per month for Amazon storage fee
My monthly revenue never got to the point where I was turning a profit. Ranging from $250 monthly revenue to $2,000 monthly revenue, I did not turn a profit in any month of operation.
If you had to start over, what would you do differently?
If I could go back to May 2017 and talk to my younger self, I’d tell myself to slow down. I’d tell myself to look at what you’ve already built. Don’t rush to meet your goal of $10,000 income per month, and don’t jump in too quickly. It’s a snowball effect, all this effort you are putting into your current businesses will pay off. Keep doing what you are doing, don’t get discouraged, don’t chase the next shiny object. And ask yourself, is Amazon FBA your strong suit? Or should you stick to your profitable online businesses? What’s the risk of starting an FBA business? Is now the right time, or should you save Amazon FBA for another time?
If I could start over, I would choose a different product to launch my first Amazon FBA store. I was in the wrong market for myself, one that I was not familiar with. It was a great learning lesson and a very expensive learning lesson at that. I will be back; I will launch another Amazon FBA product. But this time, I know what not to do.
Which are your favorite entrepreneurial resources?
Here are a couple of the entrepreneurial resources I follow:
Where can we go to learn more?
Things have turned around a bit since 2017! I’m now a coach helping entrepreneurs launch their first businesses over at The Entrepreneur Ride Along where I track my journey as an entrepreneur sharing everything behind the scenes as I start and grow my businesses. I share my stories like this, so you can avoid making the same $16,000 mistake that I did.
If I could point you to one resource, I recommend checking out my blog on 10 small profitable business ideas. This is the #1 most shared resources from my website, it’s by far the best that I’ve put together to help aspiring entrepreneurs spark an idea for that first business venture.
