How Two Broke College Students Built A $1M/Year eCommerce Fulfillment Center

Nick Malinowski
Founder, OTW Shipping
$90K
revenue/mo
2
Founders
2
Employees
OTW Shipping
from Salt Lake City, UT, USA
started May 2020
$90,000
revenue/mo
2
Founders
2
Employees
1.73M
alexa rank
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How Two Broke College Students Built A $1M/Year eCommerce Fulfillment Center

Hello! Who are you and what business did you start?

Hey there, Nick and Parker here! We co-founded OTW Shipping, an eCommerce fulfillment center, not too long ago in 2020. For those who don’t know what a fulfillment center is, we store inventory for online sellers and when they get orders we pack and ship them to their customers (similar to an Amazon warehouse). Our mission is to provide eCommerce brands with best-in-class fulfillment with a level of service and support that feels like your own personal warehouse team.

We officially launched in November of 2020 as a couple of broke college students and hit $1M in revenue in our first 12 months, shipping out over 120,000 packages. We are moving into 20,000 square feet this week and are on track to triple that number in the next 12 months!

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What's your backstory and how did you come up with the idea?

It’s safe to say that Parker and I hadn’t always dreamed of opening a fulfillment center. My background is in marketing and data science, while Parker’s focus is biomedical engineering. So, we did not have much experience in supply chain or eCommerce before starting OTW Shipping. However, we had always wanted to start our own business. We’ve been best friends since we were kids growing up together in Ohio, and we’d thrown around various ideas for years, but we were never in a good spot to make it happen.

Flashforward to 2020. I was graduating in a few months with maybe a few grand in my bank account, a fair amount of student loans, and a remote job (thanks Covid) upon graduation. At the same time, Parker was a sophomore, since he had taken a 2-year mission trip in Spain. We didn’t have much to work with. Since Parker got back, he had been working for a towel company his buddy’s cousin owned over the summers in the warehouse packing orders to make some extra cash.

One day he brought up the idea, noting that it seemed pretty simple, and we could probably start it out of his garage. I had worked in a fulfillment center as a kid during the summers too, so I was familiar with the concept. We needed to verify our assumptions, so we started doing some research into the operations side, costs involved, competitive landscape, and so on.

Going down the Google rabbit hole, we found the market was highly saturated, but fragmented and undifferentiated, with lots of room for niche players. We also found the cash flow was friendly and not super capital intensive - perfect for some college students. At that point, we decided to take the next step and validate the idea which we talk more about later on.

Take us through the process of designing, prototyping, and manufacturing your first product.

As I mentioned before, we did our market research and found our initial niche as 3PL: Services for startups and small businesses that we're usually stuck with high minimums and a lack of support. Our goal was to offer fulfillment services with no minimums while providing a high level of customer service. We designed our website and pricing around this concept, which took about 1 week.

Our pricing took a lot of research as 3PLs are known for incredibly varied and confusing pricing models. We tried to make it transparent, easy to understand, and startup-friendly.

Once we had a basic site up and running (very ugly, be happy we didn’t have pictures), the next step was to pull in our first clients. The issue was, that we didn’t want to take on a warehouse lease before having revenue since we had very limited income. It was interesting trying to sell warehouse services without a warehouse!

Luckily, through hundreds of cold emails, Facebook messages, and Reddit DMs we were able to secure our first few clients after a month or so of outreach. These included a local Utah Kickstarter, a unique German map company, and a few other smaller brands. We ran the numbers and it was enough to find our warehouse space.

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Describe the process of launching the business.

Once we had obtained some clients, we had to find warehouse space. We were extremely lucky to find a spot with racking already installed and a forklift we were allowed to use. It was actually on KSL (Utah’s version of Craigslist). Between getting our first partners and moving into the warehouse, it was probably less than two months.

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To keep costs down, we tried to save money where we could. In the beginning, Parker would use his laptop to print free UPS labels we got from UPS and pack orders in between taking classes remotely. We cut and make our bins, had no barcode scanners, and no fancy software or applications. It was just me doing web development and sales, and Parker running the on-the-ground operations. So, overall our costs were maybe $5,000 for our legal fees, initial packaging, security deposit, and WMS software.

Without a doubt, there are going to be hard days, days you want to call it off, days where you tell yourself that you aren’t cut out for this, but don’t give in to those thoughts.

The big issue we ran into was shipping costs, which we had to front ourselves initially. We had a Kickstarter client with over 3,000 orders to fulfill when we moved in, so it was a lot of shipping fees. Knowing we only needed the money to bridge a few days between our payment and our customer paying us, we borrowed $10,000 from our parents as a 3-day loan. If we did not have the money coming right back, we would have used credit cards, but this method was easier than applying for credit line increases.

otw-shipping

That was our launch in a nutshell. We got through the holiday season relatively unscathed and realized there was still a lot more work we had to do to scale.

Since launch, what has worked to attract and retain customers?

There is a ton of client turnover in the fulfillment industry. We knew we wouldn’t survive without retaining the small number of clients we had, so we made sure to build on our customer service before expanding. They had our full attention, so it made the hiccups we experienced as a new business more palatable.

Our first focus was building out SOPs to follow so we could eventually hire employees and provide a consistent experience for our clients. This takes a lot of time, but you must do this early as it will save a lot of confusion and headache down the road. It also helped us recognize gaps and optimize our fulfillment process so we could offer faster shipping and receiving.

The other strategy that has streamlined managing 30+ clients is Ryver. Ryver is similar to Slack but worked a bit better for account management for us. It has become central to what makes us unique, as our clients can avoid triaging through account reps or support ticket portal which makes for faster resolutions, including being able to talk with the warehouse directly.

otw-shipping

Side Note: We quickly realized offering fulfillment services without minimums to startups was a quick way to go broke since they required a lot of hand-holding, but brought little revenue in return. We pivoted our strategy to emphasize customer service, rather than startups.

As far as attracting clients, we’ve been strictly organic until we started running ads this past month. Surprisingly, our main lead generation channels were Reddit, LinkedIn, and a few well-placed blogs. For example, we have 1 specific term we search every day on Reddit which provides us the opportunity to respond with a lot of helpful content if anyone posts about it. This leads to people inquiring about our services.

We strongly recommend any business owner has a solid understanding of accounting. It’s relatively easy to learn bookkeeping and helps you ensure you are managing your finances and cash flow appropriately.

On LinkedIn, we use that same term along with the phrase "looking", "search" or "recommend" to filter to only those looking for the services we offer. This process takes 2-3 minutes a day, not including the time to respond to someone, and generally produces warmer leads that convert better than our other channels.

B2B sales are a bit different than DTC, but I think the same principles can apply.

otw-shipping

As a bootstrapped company, you have to be able to do a lot more guerrilla marketing to get your name out there. Find the last 10% of leads that aren’t obtained through standard channels like Google and Facebook Ads. We still have people reach out to us based on a comment we left on a Reddit thread from a year ago!

The other avenue which takes some time to develop is SEO. We are heavily investing in this now, but when you are just starting out, a few well-written and very niche posts can still get you on the first page. One of our competitors, ShipBob, has hundreds of users searching for pricing and reviews every month. We are now ranked in the top 10 results for many of those queries, and get leads from our objective breakdown of their services.

otw-shipping

How are you doing today and what does the future look like?

We’re doing great for the most part! We’re going through the growing pains many bootstrapped businesses face right now. Our main concerns have been expanding into a larger warehouse space and continuing to document our procedures so we can outsource more of the repetitive low-value tasks. You can’t get more clients without space, but you can’t take on a huge space without clients. It’s a precarious balance of the checkbook we’ve had to be very careful to maintain.

otw-shipping

Currently, we are moving into 20k square feet (5x the rent of our previous space), with 2 full-time employees, and a few part-time workers to service over 30 clients. As we’ve grown, our duties have shifted a bit. While I still run sales, marketing, and strategy, Parker has transitioned out of the warehouse and into client support, HR, and operations management. Of course, there is certainly some overlap, but having well-structured roles has allowed us both to get more done effectively without stepping on each other's toes.

Our next plan of attack to scale up involves testing out paid ads and building our social presence. We have been able to build a solid network through Twitter and LinkedIn that has resulted in many referrals, growth opportunities, and learnings. Once we fill up more of our new warehouse, we are looking to open a second location for faster shipping speeds and multiple locations for higher volume clients (Spring 2023).

Through starting the business, have you learned anything particularly helpful or advantageous?

We’ve learned A LOT. Here are a few things that we wish we had known earlier:

1) Document your processes as early as possible.

Google Docs is fine. Just write down what you are currently doing step-by-step. As I mentioned earlier, you’ll be able to train employees faster, find holes in and optimize your current processes, and provide a consistent experience for your customers. We currently have hundreds of pages of SOPs.

otw-shipping

2) Do the hiring process right.

We rushed the hiring of our first warehouse manager a few months in because Parker had to go back to in-person classes. We didn’t ask the tough questions or interview enough people. He didn’t do a great job and got arrested (although we did run a background check beforehand which didn’t raise red flags).

3) Get an accountant for end-of-year taxes, but do your bookkeeping first.

We strongly recommend any business owner has a solid understanding of accounting. It’s relatively easy to learn bookkeeping and helps you ensure you are managing your finances and cash flow appropriately. That being said, for end-of-year taxes, spend $500 to have an actual accountant file your forms. It will save you countless hours of confusing tax law and make sure your financial statements are right from the get-go.

What platform/tools do you use for your business?

The workhorse behind our daily fulfillment operations is called Shipedge. Shipedge is a warehouse management system that allows us to receive and manage inventory, pack and ship orders, and support our clients. On the flip side, it functions as an order management system for our clients to integrate their eCommerce sales channels, manage their orders, track inventory, schedule shipments, submit payments, and more.

We chose Shipedge initially because of their relatively affordable startup plan and a suite of features that fit our prospective clients' needs. It has done the job, allowing us to scale quickly and personalize our fulfillment services to take on a variety of unique clients.

While our focus is fulfillment, there is a lot more that goes into running a business. We’ve relied heavily on Google’s full suite of products as our source of truth to build on.

Here’s a shortlist of most of what we’ve built on top of Google:

  • File storage (Drive)
  • SOP catalog (Docs, Slides)

  • Planning & Progress Tracking (Sheets)

  • SLA Tracking (Sheets)

  • Data Analysis (Sheets)

  • Financial Forecasting (Sheets)

  • Real-Time Dashboards (Data Studio)

  • Surveys (Forms)

  • Marketing Analytics (Analytics)

  • Paid ads (Ads)

  • Various client-facing materials and (Docs, Sheets, Slides)

Other than Google’s service suite, we have a few other tools that have come in handy, although we have notably been fairly frugal in our choice of software.

We built our website on Wix. If you are looking to get a website up and running right off the bat, we recommend Wix. Wix is an easy-to-use platform that can provide a very clean website on a budget.

As for graphic design, Canva comes in clutch. We’ve made some pretty awesome infographics without spending a cent.

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To help monitor emails and know when to follow up, we use Mailtrack. Mailtrack allows you to see when an email has been opened, so we can remain in touch with leads without spamming them unnecessarily.

A final major tool is Moz. Although a site like SEMRush or Ahrefs is better, somehow I still (Nick) have a password saved from an internship from 4 years ago, so I use their account for free (thanks Dwellworks). Moz helps us intelligently boost our SEO by planning content based on keyword research.

What have been the most influential books, podcasts, or other resources?

I read a lot as a kid. However, I’ve never read any entrepreneurial books or podcasts. What I have done is Google anything and everything I needed to learn. There’s no excuse for not being able to learn a new skill today. You have everything at your fingertips.

Parker here! One of the most influential books that I have read is The Seven Habits of Highly Effective People. My dad encouraged me to read it before college and I’m glad I listened. I also love podcasts, but they don’t necessarily have to be about entrepreneurship or business. I think listening to any type of thought-provoking podcast every day is a great way to keep yourself sharp and ready to tackle problems that come your way. It can be easy to become complacent, but whatever you can do to be better every day also helps you be a better entrepreneur every day!

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Advice for other entrepreneurs who want to get started or are just starting out?

I think the main thing we learned as young entrepreneurs was that most successful businesses are boring businesses. When you grow up, you have these dreams of novel ideas and billion-dollar companies. As you mature, you come to realize those companies are few and far between and rarely successful. It’s much more realistic and attainable to start a window-washing business and become profitable in the first few months than try and start the next Google.

And I think for most entrepreneurs, what you come to find is that it wasn’t the idea you fell in love with, but the autonomy, challenge, and pride you have from starting something of your own.

From Parker: Without a doubt, there are going to be hard days, days you want to call it off, days where you tell yourself that you aren’t cut out for this, but don’t give in to those thoughts. The experiences you will have and the lessons that you will earn will be priceless and you will be glad you never quit.

Are you looking to hire for certain positions right now?

We are not currently hiring, but we are focusing more on SEO and blog content. If there is anyone out there with a strong content writing background and a background in eCommerce or supply chain, we may have some part-time paid work involving keyword research and content writing.

Please contact us at [email protected] with the subject line “Content Writer; Your Name” and include at least 3 relevant writing samples. We don’t care about your educational background. If you understand SEO and can write, that’s what matters.

Where can we go to learn more?

If you have any questions or comments, drop a comment below!

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Nick Malinowski, Founder of OTW Shipping
Pat Walls,  Founder of Starter Story

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