How an e-commerce startup achieved 9x revenue growth: A chat with JJ Chai, CEO of Rainforest

Aspire: Rainforest’s success— achieving profitability quickly and posting a 9x increase in yearly revenue — is no mean feat. How did you accomplish this and what did you learn in the process?

JJ Chai: The first element is that we are an acquisitive company. What we do is deploy our balance sheets and debt to buy and acquire brands and companies. And that’s where the significant growth — 9x revenue —comes from. The year before we had three to four brands and then we scaled to more than 15 brands, including larger ones as well. M&A is in our nature and that’s exactly how we want to go. The other growth is really around expanding the brands. The three biggest levers are obviously product line expansion, meaning new products, geographical expansion, so if a product sells in the US on Amazon, we bring it to Amazon Canada, Amazon Europe, etc, and lastly, channel expansion. 

Of the three, we learned that geographical expansion can be a hit-and-miss. A product that is highly sought after by Americans may not have the same demand from customers in Canada or customers in Europe. You have to adapt the product to the market because customers in some countries may not use those types of products. In some cases, the product already exists for the market, but it can and needs to be adapted further. 

As an example, one of our products is a soft toy storage solution. In the US, it’s called a soft toy but in the UK, it’s known and referred to as a stuffie. And you need to have that keyword, otherwise, no one knows what your product is about. Also, because our products are physical, it takes a lot more time than we expect due to VATs, and country regulations to get the goods delivered.

‍

Aspire: What are some best practices and strategies to build an e-commerce brand and establish trust with consumers in this industry?

JJ Chai: In today’s world, Facebook is expensive, and Google is expensive. Unlike how it used to be a much easier environment during the early days of Amazon, Facebook, or Google, today, you have to pick a niche or product that you have a good sense of, a product that's good or better than what the incumbent is and go for it. If you look around Singapore, you have your PRISM+ TV, which is like a Samsung quality TV at 30% off, or your Stryv hairdryer. Instead of Dyson, which can cost an arm and a leg, save $200 and you can buy a Stryv. It’s looking for opportunities where incumbents are way overpriced, and good AOVs to make your marketing spend worthwhile. It can cost you to get a sale, and margins are not great, but because the TV is so high value, your acquisition and break-even costs make sense. 

The other angle that works is repeat purchases. If you buy your Bounceback pills or whatever supplement, it costs you X dollars to acquire the user. However, since the lifetime value is high, even though it may not pay back in the first purchase, the user will come back for more if the product is good. It comes down to having a sense of what product categories and where these opportunities exist, and then going for it. Because the incumbents are playing in the Dyson world for instance, which is way too premium, so how can you address the different gaps that exist? That’s a classic DTC. 

Also, now everyone has a playbook around go-to-market with influencers instead of paying Facebook or Google straight up. Every brand is focused on a segment in the market, like the high-end, etc. The good DTC operators look for a segment that they can go for that the premium brands can’t reach, and where the budget brands also don’t play in. It’s about looking for those white spaces in the market and PRISM+ is a very clear example that there’s no reason why you can’t have a Samsung-quality TV that is 30% cheaper.

When it comes to trust, the classic playbook nowadays is through influencers, via borrowed credibility. You give them the product and the important thing is to find a good fit between the influencer and your brand. It may not necessarily be the one with the largest following, it’s the one that makes sense for your brand. Ideally, the best influencers are the ones who like your product and they are not making a sales pitch because they already use it themselves. And there’s the core element of quality control. If your product is bad or of poor quality, no amount of influencers can paper over the problems, regardless of whether it's electronics or a backpack.

‍

Aspire: Sustainability is becoming increasingly important in e-commerce. What advice can you give to e-commerce startups looking to incorporate sustainability into their business model?

JJ Chai: The tricky part for e-commerce companies is to go along with the consumer but not overrun it. Overrun it in the sense that you’re introducing a super eco-friendly version of your product, with it costing maybe 20% more. And the first thing that happens is your sales get affected. The narrative of the eco-consumer is true but their willingness to pay is still relatively low. So there’s a big danger that if you’re not competitive, you might overshoot the market. You need to be sure that your segment actually pays or they have shown a willingness to pay. 

A lot of us who are in this e-commerce space have tried many things. There’s some marginal amount, maybe, but not much. So you incur a lot of costs to do that. And this is where the problem is and fundamentally, this is where things like carbon credits come into play. Otherwise, it’s very hard for us to lead the charge because even though we say everyone’s about eco-friendliness, no one buys the products because they end up costing more.

‍

Aspire: As an investor, what are the top criteria you use to evaluate high-potential startups? 

JJ Chai: I invest mostly in early-stage startups, on the smaller side, like a minimum viable product stage type of company, seed funding, or angel investment stage. At that stage, it’s more about the founder criteria. Which is, why is this person doing it? Is he/she doing it because they are passionate about solving a problem and are they willing to go through the difficult journey of being a founder? Because it’s all fun and games until you have a runway issue. It’s sort of getting a sense that they are willing to go through tough times. 

The other thing is founder-problem fit. Why is this founder uniquely positioned to solve this problem? For example, the founder grew up in some stationery business and now they want to do stationery — there’s some sense that they have empathy for it. The third is team-related. Can this person attract good team members? The founder may not solve everything by himself/herself. The founder may not be a software engineer in this tech world, but can they find someone who is super hardworking and a good fit?  If you ask them ‘Where’s your software engineer?’ and they say ‘I’m going to use some offshore person’, it doesn’t inspire as much confidence. Or there are signs that this might become an issue down the line.

I wouldn’t term this as a red flag but maybe a thing that might matter sometimes is when founders are still doing and running the business part-time, but they also want to raise funds. And I understand why they are hesitant because it’s a very big commitment. That’s fine. But I also need a show of commitment that you can jump right into it. It’s already tough enough to make it work as a full-time thing and part-time is sort of hedging. It’s very easy to get discouraged and end up spending more time on other stuff.

‍

Aspire: Rainforest is in the business of building world-class brands. What are the key elements to building a strong brand today?

JJ Chai: It’s about consistency. There was a discussion we had with the guys at Indomie. And we asked them, ‘How do you guys make your brand so good over time?’ Because very rarely do you see an Indonesian brand become global. The answer was simple. It just takes many years, and consistently delivering the same thing over and over. Consistency is so underrated. Everyone wants fast growth but brand building is a function of consistency and kept promises, right? You promise something, that you can do this, and unfortunately, it takes time. In the startup or hyper-growth world, we are impatient and people take shortcuts, this is where it gets dangerous. Consistency is a big part of it. 

There is also the element of staying close to the problem and the user. What are we solving for them? And why? Why are we uniquely positioned for that? Whether it is a banking app, or whether it is shoes, backpacks, or TVs. And what is it that you're trying to solve for them that is unique? Keeping close to that all the time and evolving as the consumer will evolve as well. The third goes back to the classic Y Combinator approach — which is, did you find your audience that likes your product, versus those that just tolerate your stuff? This is probably where the starting point is. Finding that foothold is generally much better to have, like a small group or dense cluster of people who truly like your product. You’d rather have 80% of a very small segment than 5% of a very big segment because no one talks about you in the latter. Getting that segment of people who like your product goes very far because they all see each other using it.

For early-stage startups, you have to keep changing because you haven’t yet found the 100 people who love your brand/product, you haven’t found product-market fit. So, change is expected and necessary. Your whole life is about evolving as much as possible. Once you get those things, then it’s about refining and scaling. The scale stage is when you have to decide to keep a relatively consistent message. You shouldn’t be trying to fix these things during the early startup phase, but rather work on discovering the problem. When you find your value, stay and continue to work on it. Then, you’ll take a step back and think ‘What do we truly stand for?’. So, it's all about stages.

‍

Aspire: The e-commerce industry is constantly evolving. What trends and changes in consumer behavior do you see as most significant for e-commerce startups and how can they adapt and innovate to stay competitive?

JJ Chai: Trendy things are usually where most users spend their time. When TikTok is hot, everyone in e-commerce flocks there. That is good from the marketing side of things because you should be where consumers are and get their attention. But more importantly, you have to figure out the core stuff —  things that don’t change so much. For example, consumers say they want better prices, but they may actually want speed. Because we sell in the US, we've seen tests where next-day delivery versus two or three-day delivery is almost a 30% difference in terms of conversion rates. The US might be a more extreme example because it's centered around Amazon Prime, but there are elements around consumer behaviour that are true which you have to figure out. 

What are the real problems that you are trying to solve with your product? It may not always be what is stated, whether it's them saying they want it fast, or they want a lower price, etc. But why do they truly want it? And thinking about it from that perspective gives you the chance to come up with a true product for them. I’ve seen entrepreneurial guys in the e-commerce marketplace who move quickly on these trends and they make a quick buck but it doesn’t build the brand.

‍

Aspire: What is the single most important factor that has contributed to Rainforest's success?

JJ Chai: We picked the right battles. It’s e-commerce, the tailwinds are there, there’s investor interest, there’s capital, with people willing to lend and fund, and there are lots of brands out there to choose from. Even in our acquisitions, you can go into some categories where it's extremely commoditised, where someone sells $0.10 cheaper and they capture almost all the sales. We picked the right type of categories in the mum and baby care segment where customers are not going to just buy the cheapest option. 

So it’s down to where you pick your fights and we were deliberate about it. We were thinking, ‘Should we buy brands in Southeast Asia? But actually, Shopee is charging 2%, great. Will that be 2% all the time?’ No, it’s going to be 15, and sure enough now, it’s 15%. So, we focused on Amazon, which was 15% already, plus it was mature. We pick according to what we are good at, what we can do as a team, getting input from investors on interesting markets, and then going for it. 

‍

Check out Rainforest for the best-in-class direct-to-consumer e-commerce brands in the maternity, home, and living space.