Jeffrey Zwelling from Y Lighting – Podcast Transcript

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Shaun Ryan: [0:02] Hi. I’m Shaun Ryan, for the Ecommerce Podcast, and today I’m talking to Jeff Zwelling, CEO of Y Lighting. Hi, Jeff.

Jeffrey Zwelling: [0:08] Hey, Shaun. How you doing?

Shaun: [0:09] Very well. Welcome. Now, Jeff, you’re the CEO at Y Lighting. Is that right?

Jeffrey: [0:14] I am.

Shaun: [0:15] Cool.

Jeffrey: [0:15] CEO and founder.

Shaun: [0:16] CEO and founder. Now, traditional first question – what was the first thing you ever bought online?

Jeffrey: [0:21] I was buying publicly traded stock online, pre-Internet.

Shaun: [0:26] Pre-Internet. So, how were you doing that?

Jeffrey: [0:29] CompuServe.

Shaun: [0:30] CompuServe. Wow. And what was the most recent thing you bought online?

Jeffrey: [0:35] I’d probably have to say it was stock, yesterday.

Shaun: [0:40] [laughs] I’m seeing a pattern here.

Jeffrey: [0:44] Ironically, I continued to use the Internet to buy stock, almost on a daily basis.

Shaun: [0:51] Wow. So, how are you finding the recent crash?

Jeffrey: [0:55] Volatility breeds opportunity.

Shaun: [0:58] Yep.

Jeffrey: [0:59] I’ve always been close to the term “day-trader,” whether I’m proud of it or not. So, it’s been an opportunity.

Shaun: [1:12] Cool.

Jeffrey: [1:13] I’ve been trading with volatility, frankly.

Shaun: [1:16] Yeah. That’s a very positive outlook on it. And you’re able to make that still work, even while it’s going down?

Jeffrey: [1:25] Yeah. The swings are so dramatic, and the commissions for online trading so low, that many days I’m able to enter and exit a position in the same hour, clearing close to $10,000 at a time.

Shaun: [1:46] Wow.

Jeffrey: [1:47] So, it’s a bizarre situation. But I think if anyone’s watching the market, they’re often wondering, “Is there a way to make money with all these swings?” And if you have the appetite for it, there certainly is.

Shaun: [2:01] Yes. Now, I’m picking that you have quite an appetite for risk. So, can you give me a little bit of background on yourself?

Jeffrey: [2:09] So, I’ve been an entrepreneur since I was a kid. I started several companies, mostly in the area of retail and all around software. I’ve been in the video-game business. I’ve been in the Internet-services business, Internet B2B, and then most recently the leading online retailer of modern lighting, which is Y Lighting, and its sister company, Zwello, and Croft and Little.

Shaun: [2:42] Very good. And where is Y Lighting based?

Jeffrey: [2:47] We’re based in Southern California.

Shaun: [2:49] Yeah.

Jeffrey: [2:50] And we have a showroom in Palm Springs, we have administrative offices in Cerritos, and we have people working in other different locations.

Shaun: [3:04] Cool. So, tell me a little bit about Y Lighting. So it specializes in modern light fittings?

Jeffrey: [3:14] Right. We’re the brand leader in modern lighting, which tends to be high-end and design-focused. It’s a luxury item. It’s a smaller niche, but of that niche, it has a very dedicated customer base and specific products. And Y Lighting is considered to be not only the pioneer of selling this directly to the public, but also the dominant player.

Shaun: [3:40] How did you start the company, and how long has it been around?

Jeffrey: [3:44] We started it in 2001. So, this is our seventh year. The reason we started it was because my co-founder and I both were in the process of remodeling houses, and we went online looking for the type of lighting products that we would want, and there wasn’t any available. And based on just a personal need, we decided to start this company, and it’s been very successful.

Shaun: [4:15] Yeah, I can see, with your entrepreneurial background, when you identify a gap like that, personally, it must be hard to not start a company and fill that gap. [laughs]

Jeffrey: [4:28] Yeah. We also started this during the Internet bust, so the opportunity relative to the cost was great. Advertising opportunities, in particular, were very cost-effective. For instance, we bought the entire lighting inventory of AOL in 2002 for $10,000.

Shaun: [4:52] Wow.

Jeffrey: [4:54] Gives you an idea of how different the world is today.

Shaun: [4:57] And with another bust happening, are you seeing there’s other similar opportunities? I mean, you’ve already talked about the volatility in the stock market. Are there other opportunities as well, similar to the one you saw with Y Lighting?

Jeffrey: [5:11] I always view downturns in the market as opportunities to start new businesses. And we’re currently focused on allocating a certain amount of resources towards a business that would provide better analytics to online marketers and merchants.

[5:32] I generally find that, in particular, it’s easy to hire people as well as slow down and focus on building great products and services rather than getting caught up in the go-go mentality of raising capital and sales. So, for me, it’s an opportunity to do what I love most, which is to design and build products.

Shaun: [5:57] Cool. Now, so you’re talking about products around analytics for online retailers. There’s obviously some products out there at the moment. What’s the hole there? What’s the pain people are feeling?

Jeffrey: [6:12] Well, there’s a couple problems that all of the analytic packages – Omniture, Google Analytics, et cetera – don’t seem to address. One is that there’s a lot of transactions that are completed off-line, often through phone calls to customer-service centers, and all the data of those transactions gets lost under any cookie-based tracking system.

[6:37] The second is that a lot of analytics are really dependent on back-end database activity. So, if certain products are being returned, certain customers are being rejected for fraud, and those transactions aren’t being posted up to the analytics, then the analytics has a more favorable view of the company’s key metrics than it should.

[7:08] And third, there’s all kinds of limitations of browsers, in particular, as it relates to third-party search. As customers move through the site and switch domains, as they often do, in order to support third-party features such as search, that session data gets disjoined and it produces a perspective where there’s a higher number of visitors than you really have and subsequently a lower number of transactions per visitor than you really have.

[7:45] And that key metric is an important one for understanding many things about your business. And so, we’ve come up with some solutions for addressing all three of those issues.

Shaun: [7:59] It sounds very exciting. Can you tell us any more about it, or is it still sort of under wraps while you’re developing it?

Jeffrey: [8:08] It is sort of still under wraps. But, I’ve definitely identified a pain point in the market. I’ve talked to a lot of different-sized companies; every one seems to have variances of the same problem. And a lot of what we solving for Y Lighting, we’re going to spend the next year productizing into a service that can easily be incorporated into a customer’s website and turned into a valuable service offering.

Shaun: [8:40] Yeah. I could see, there could be a huge demand. I know a lot of our customers are using those packages from Google Analytics or Omniture or Coremetrics, and are often lost in the data that they’re getting from them. It can be very difficult to draw solid business conclusions from them, particularly when the data is only partial, as you pointed out, because there’s transactions happening off-line or other things not being accounted for. So, I can see there’s an opportunity there.

Jeffrey: [9:18] I interviewed 20 ecommerce companies, from the biggest to some of the smallest, and not one of them was satisfied with the quality of the data in their analytics, which tells you that there is an opportunity, and we probably will be able to address it.

Shaun: [9:36] Cool. I look forward to seeing more. [9:40] Now, to sort of return to the business of Y Lighting, approximately how much do you sell online per month?

Jeffrey: [9:50] We don’t release that number, but it’s in the millions.

Shaun: [9:53] OK. Great. And I understand, as a private company, you often want to keep those number close. [10:00] And how’s your growth been since you’ve started in recent years, and also, I suppose, in this year, which has been a down year for many retailers?

Jeffrey: [10:10] Well, we had our biggest month ever in September. And then, obviously, like many people, we’ve seen some year-on-year and month-on-month decline. We continue to do well relative to other ecommerce companies, and relative to the lighting industry as a whole, but we’ve definitely seen a downturn in every metric we track.

Shaun: [10:43] Yeah. I suppose holiday sales aren’t really big for the lighting industry, because mostly it’s new home-builders and people that are renovating, right?

Jeffrey: [10:54] Right. It actually turned out that there is a little seasonality in our industry, for the holidays. But, it kicks in when the daylight changes in the United States, and it’s pretty much over by Thanksgiving. So, pretty much, it’s typified by consumers wanting to get their houses ready for the holiday season, for relatives and things, parties.

Shaun: [11:20] Right.

Jeffrey: [11:23] But, typically, in the lighting industry, from Thanksgiving through the New Year is actually a down period, a quiet period.

Shaun: [11:31] Yeah. I mean, I suppose that makes sense. People are focused on the holidays. [11:36] So, tell me, how do you market your site? How do you track new customers?

Jeffrey: [11:41] So, we do a combination of print advertising and shelter publications, which are publications dedicated to homes and home improvement. We participate actively in the community of architects and designers in the modern space, both through events and opportunities such as showcase homes. We have very extensive public relations that produce endless amounts of editorial in magazines and newspapers. And then, of course, we engage all of the traditional online marketing channels – Google, Yahoo, MSN, affiliates, comparison-shopping engines, et cetera.

Shaun: [12:30] Yeah. There’s a lot to do, isn’t there? Now, is there a marketing campaign you’re particularly proud of that you can share with us?

Jeffrey: [12:40] Well, most recently, we engaged some incredibly creative and talented designers to come up with a print-advertising campaign in which individuals were asked to show all their favorite things on their desks and in their home offices. And then we photographed those items. And generally, the individuals had a favorite light, desk light, et cetera.

[13:16] And we ran this print campaign on the back covers of several national shelter publications as well as tied it into a contest in which our customers can submit their own list of favorite things in exchange for an opportunity to be incorporated into a future ad, as well as there’s a reward.

Shaun: [13:43] Yep.

Jeffrey: [13:44] This campaign’s interesting in that it really helps distinguish Y Lighting as a curator or design authority as opposed to a lighting superstore, many of which the Internet has now, but Y Lighting is not one of them.

[14:00] I’m really impressed both with the strategy and the execution of the design, as well as the accolades that the ad campaign has received. It’s the only ad campaign I’ve ever been involved in that actually received editorial coverage on blogs and in magazines. So, the market is confirming that it’s as good as we think it is, so we’re excited about it.

Shaun: [14:25] Oh, that sounds fantastic. Very creative. And who came up with the concept for that?

Jeffrey: [14:29] Eric Einweiler and Eric Pfeiffer, two designers in Northern California who are amazing, but also really great people to be around and one of the things I love about my job.

Shaun: [14:45] So, what do you see as the biggest opportunities at the moment?

Jeffrey: [14:49] I think, the biggest opportunities is for companies like ourselves, who are very efficient and data-driven, to really gain market share as smaller and less-efficient competitors sort of give up on the idea of selling a lot of revenue, but not making enough money to support it in the hopes that one day they will have some kind of exit.

Shaun: [15:22] Yep.

Jeffrey: [15:22] And so, for, I think, Y Lighting in particular, it’s an opportunity, as a healthy, sustainable business, to really take over market, so that when the economy does in fact improve, Y Lighting will not only continue to be dominant but will have gained market share.

Shaun: [15:44] Yeah. I mean, that sounds very sensible. And I’m hearing that from a few people that are in the position to take advantage of that opportunity. There’s also a lot of people that are hurting, obviously.

[15:58] Now, is there an ecommerce site – other than your one, obviously – that you particularly admire?

Jeffrey: [16:06] Well, I think like every ecommerce person, I admire Amazon. Often, when I’m stuck on any kind of design problem, I go and see how Amazon handles it. They combine great user experience with great customer experience and faster things. And for me personally, it’s my merchant of choice for almost everything, even if it’s more expensive. So, I look up a lot to Amazon.

[16:35] I’m impressed with Zappos, for similar reasons – great user experience, great customer experience, fast shipping, easy returns.

[16:45] And to me, I’m not as impressed with sites that the main benefit of using it is that they might be a couple pennies cheaper. I’m much more impressed with how people have leveraged technology and distribution to provide an outstanding user and customer experience. So, Amazon and Zappos, which, obviously, aren’t unique to your audience or the people you spoke to, stand out to me as sites that I admire and I would love to be as good as.

Shaun: [17:22] Yeah. They are fantastic. And I think, it’s a great thing to do, when you do have that problem, to just go and see how Amazon’s solved it, because they’ve put the resources into it, and you know they’ve probably got a really nice solution. I mean, that’s great advice.

[17:39] Tell me a little bit about the size of the company. How many staff do you have, and how do you attract and retain staff?

Jeffrey: [17:49] So, we pretty much only add people to our team through referral.

Shaun: [17:56] Yep.

Jeffrey: [17:56] So, basically, people who currently work for Y Lighting refer people they’ve worked with.

[18:07] We’re lucky in that we’re the company of choice in the lighting industry that lighting people want to be a part of, and accordingly, we get a lot of inbound requests by some of the younger and more talented people in a relatively old industry. And the reason they want to come work at Y Lighting is because eventually they’ll make considerably more than they made at their previous job; plus Y Lighting, unlike the lighting industry as a whole, treats people much more similar to how Silicon Valley treats people.

Shaun: [18:49] Yep.

Jeffrey: [18:50] And so, in particular, we have two trips a year in which everyone goes to a different city, for team building, but mostly just being together. And these trips are greatly looked forward to. People get to bring their spouses, and the company’s culture is such that these are the core, non-economic benefits that people value, and accordingly, there’s constantly a flow of resumes to Y Lighting.

Shaun: [19:34] Yeah. That sounds fantastic. I mean, if people are happy, more than the monetary return they get from the work, if they love being there and want to stay there, but then, if on top of that, they’re also getting paid very competitively, then that’s a great formula. [laughs]

Jeffrey: [20:00] Yeah. If the business supports it, it’s a great way.

Shaun: [20:02] Yeah. Now, tell me a little bit about the technologies you’re using to run your store.

Jeffrey: [20:08] Well, a lot of our store is using our proprietary technologies. Not having been from the lighting industry, but rather from software, I tend to try to solve most of our problems with software. And accordingly, over these years, we’ve built probably the best software platform for managing customer service and experience in the lighting industry.

[20:41] We can easily facilitate all the types of customer-service problems that are inherent in shipping glass-oriented products, and we can do it in a way that gets the customer what they need quicker and solves their problems with less amount of administrative staff. So, we’re really, really good at that.

[21:08] And then, on top of that, we have a lot of software that we use for providing business-decision metrics that enable us to make our business very effective and efficient, and also customer-service oriented in the sense that products that, for instance, return at a disproportionate rate, we don’t continue to offer because our perspective is that that product is obviously not meeting a customer’s expectation, whether the picture is not reflective of the product or if the quality as described isn’t right.

[21:54] So, we’ve really worked hard on building software that enables us to be very customer-service friendly, and also very efficient. In doing so, we’ve been able to grow into the leadership position.

Shaun: [22:09] And so, you’ve written a lot of that software yourself. I mean, I know you’re using SLI for search, obviously, but are there any other technologies, third-party services or software that you’ve used, that you could recommend to our listeners?

Jeffrey: [22:35] I mean, we’re huge fans of SLI. It’s the only search that we’ve ever used that works, and we’ve used quite a few. And it works without us doing a lot of data manipulation, which is a huge benefit.

[22:54] In terms of other third-party software that we use, I have to say [laughs] there’s not many that stand up to SLI’s quality. We use LivePerson, which is a ticket-management system, but I would have difficulty giving it the five stars.

Shaun: [23:23] So, you’ve had some issues with that software?

Jeffrey: [23:27] Well, I think, like a lot of off-the-shelf software, the amount of consulting, internal or external, necessary to make it work for you is often much more than the underlying cost of the product.

[23:44] I do think that a better CRM, contact-management software should exist for businesses like us, but I haven’t found it. And I’d be interested if any of the listeners had some suggestions.

[24:02] So, in terms of things that really work for us, SLI stands out, stuff we built ourself. Oh, and I love a company that makes a software called FogBugz.

Shaun: [24:16] Oh, yes. Joel Spolsky, is it?

Jeffrey: [24:19] Yeah. And the FogBugz, I think, is just wonderful. And I’ve used Bugzilla, and I know it’s free, but to me FogBugz is one of the things that makes our life easier.

Shaun: [24:33] Oh. That’s great. And you’re using the Yahoo Store platform to run the store, correct?

Jeffrey: [24:39] Correct. We use the Yahoo Store platform, and we do find that to be a very effective way of us getting sort of the plumbing of an ecommerce site without having to be that reliant on a colo. So, we get a really fat pipe. We get really deep redundancy. Basically, all of the infrastructure component, we offload to Yahoo Store, who really do a great job on that side.

[25:21] And then, we don’t use the Yahoo Store templates that a lot of Yahoo Stores look like, and we use our own for everything there. So, everything on the front end is pretty much custom, but we benefit from sitting on top of Yahoo.

Shaun: [25:37] Right.

Jeffrey: [25:38] It’s proven to be effective for us.

Shaun: [25:41] So, what are your biggest headaches, technically, at the moment?

Jeffrey: [25:45] Technically, big headaches are the increasing number of customers who don’t allow third-party cookies to be shared.

Shaun: [25:57] Yep.

Jeffrey: [25:58] We’re seeing more and more of those. A large segment of our customers are Safari, and the Safari customers often have third-party cookies disabled. Firefox 7, we’re seeing a large number disabling third-party cookies. And this is another reason why next-gen analytics is critical to business success because, without the ability to understand what users are using to get to your site, it really undermines your ability to communicate to them. So, that’s one area.

[26:34] A second area is, to some degree, the difficulty of delivering email to certain consumer – email services, in particular, Hotmail, MSN, AOL. Despite trying different email service providers, we continue to find that there’s some difficulty in getting customers the information they need.

Shaun: [27:04] Because their spam filters pick it up and throw it out.

Jeffrey: [27:09] Right. Exactly.

Shaun: [27:10] Yeah.

Jeffrey: [27:12] And then the third, and briefly mentioned earlier, is we think there’s an opportunity for a better ticketing system. It’s a project sort of beyond the scope of what we want to build ourself, but a good ticketing system could really make our life easier.

Shaun: [27:30] Yep.

Jeffrey: [27:32] So, those are the ones that sort of stand out.

Shaun: [27:34] Yep. And I’m sure many of our listeners are having some of the same problems.

[27:41] So, what are you planning on changing over the next year?

Jeffrey: [27:45] Well, we just did a major site redesign that we think, from a usability standpoint, was best-of-class.

[27:58] We’re now engaging in, essentially, a user-experience audit to facilitate us improving the conversion rate, which is subtle changes to the UI. But, we won’t make those kind of changes if they actually hurt the user experience. So, those are our primary focuses is improving conversion on the site without undermining the user experience.

[28:30] We’re also continuing to improve our personalization algorithm, which essentially enables us to show customers product that’s most relevant to their tastes.

Shaun: [28:43] Yep.

Jeffrey: [28:44] A difficult problem, but one that, as we continue to improve, provides customers benefits, and hopefully also will improve conversion.

Shaun: [28:55] So, how are you doing that? Is that based on previous purchase history, or are the customers actively giving you information about their tastes?

Jeffrey: [29:05] So, we use combinations of what customers are clicking on, as well as what customers have put into their carts, as well as what customers have bought in the past. We’ll leave it at that.

Shaun: [29:20] Fantastic. Well, Jeff, thank you very much for your time today. I really appreciate it.

Jeffrey: [29:25] Well, it’s a pleasure, Shaun. It’s great talking to you. And this has been fun, and I look forward to doing it again sometime.

Shaun: [29:31] Yeah, it was great. Thanks, Jeff.

Jeffrey: [29:33] My pleasure.

Shaun: [29:34] So that was Jeff Zwelling, CEO and founder of Y Lighting. I’m Shaun Ryan, for the Ecommerce Podcast.