Recently, Andrew Youderian and I took an epic 5 day camping trip in the wilderness of Montana. There was very little internet so we decided to record a few podcasts along the way.
This episode is part 3 of a 3 part series where we discuss the other side of entrepreneurship. Today’s topics include the state of dropshipping, the art of negotiation and how emotions affect our decision making.
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What You’ll Learn
- Andrew’s views on dropshipping as a long term business model
- The art of negotiation and how to hedge your bets
- How emotions often cloud our logical decision making process
Other Resources And Books
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Pickfu.com – Pickfu is a service that I use to get instant feedback on my Amazon listings. By running a quick poll on your images, titles and bullet points, you can quickly optimize your Amazon listings for maximum conversions. Click here and get 50% OFF towards your first poll.
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But before we begin, I want to give a quick shout out to Klaviyo who is a sponsor of the show. I like Klaviyo because they are the email marketing platform that I personally use for my e-commerce store, and I depend on them for over 30% of my revenues. Now Klaviyo is the only email platform out there that is specifically built for ecommerce stores, and here is why it is so powerful.
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I also want to give a shout out to Privy who is also a sponsor of the show. And Privy is the tool that I use to build my email list for both my blog and my online store. Now what does Privy do? Well, Privy is an email list growth platform and they manage all my email capture forms, and I use Privy hand-in-hand with my email marketing provider. Now there are a bunch of companies out there that will manage your email capture forms, but I like Privy because they specialize in e-commerce.
Right now I’m using Privy to display a cool wheel of fortune pop-up. Basically a user gives their email for a chance to win valuable prices in our store and customers love the gamification aspect of this. And when I implemented this form email signups increased by 131%. So, bottom line, Privy allows me to turn visitors into email subscribers, which I then feed to my email provider to close the sale. So head on over to Privy.com/Steve and try it for free. And if you decide you need some of the more advanced features, use coupon code MWQHJ for 15% off. Once again, that’s P-R-I-V-Y.com/Steve. Now onto the show.
Intro: Welcome to the My Wife Quit Her Job Podcast. We will teach you how to create a business that suits your lifestyle, so you can spend more time with your family and focus on doing the things that you love. Here is your host, Steve Chou.
Steve: Welcome to the My Wife Quit her Job Podcast. Andrew Youderian and I, it’s day three of our epic Montana Yellowstone Park road trip. Right now we’re sitting in front of a campfire, no internet access, nothing to do except hang out with each other. And today, what we did is we went hiking. We went to the Upper and Lower Falls, we saw some bison. But as usual, today we talked a lot about business, we talked about life, we talked about other things.
And so we’re just kind of kind of go down and maybe summarize some of the topics that we talked about because they’re probably going to be interesting to you business owners out there. And one thing that did come up is Andrew as you know he’s sold to businesses. He sold Trolling Motors and Right Channel Radios, and he also created a seat back organizer. I think the brand is what, Rough Riders is that correct?
Andrew: Rough Routes.
Steve: Rough Routes, that’s right. And so I thought it would be interesting for Andrew to share first of all why he sold Trolling Motors and Right Channel Radios and why he’s thinking about giving up the Rough Routes product.
Andrew: Yeah, I sold the two businesses for different reasons so the Trolling Motors business because it was the least profitable business of the three I was running at the time, and I wanted to focus my efforts elsewhere. I sold the CB Radio business because it was a drop ship, exclusive drop ship business. And as we’ve kind of talked on multiple times on this trip, it is getting harder and harder to resell other people’s products. Yeah and the seat back organizer was an interesting product…
Steve: Before you go into this organizer, drop shipping, like what was — I don’t think we covered this right? What are your views on drop shipping going forward as like a long term business model?
Andrew: I think it’s getting increasingly difficult. I think it will only get harder. Either you can do it in very specific niches where you can add a lot of value and where the niches lend themselves for maybe confusing purchases or needing a lot of customer support up front, but I think it’s only getting more difficult.
Steve: What was your average order size, do you remember?
Andrew: Yeah, it was about 120 bucks per horn.
Steve: So do you think drop shipping is still viable for big ticket items like trolling motors, for example, versus smaller items?
Andrew: It is but the problem is when you think about that is you’ve got no inventory costs and so your profit per order, anyone out there is potentially — you compete with more people when the profit per order is $100, right? So say you’re selling — the margins are small, 10%, and you sell $1,000 trolling motor, you don’t have to have — you have no inventory costs or capital requirements. So you get more competition because the whole profit order is going to be higher.
So it is potentially more viable, but you still have to overcome what I call the friction barrier. Like, even if you provide the web’s best site for big screen TVs in terms of education and product knowledge, you still have to have some reason they want to come buy from you versus Amazon once they find what they want. So you can do it. But I still think it’s tricky.
Steve: I mean, do you think that drop shipping is more viable for big ticket item as opposed to like a $50 or $100 item?
Andrew: Not necessarily. I think if standalone, yes, actually, I’ll say that. If you’re trying to individually sell smaller type items, I think that is much more difficult because you just don’t have the profit per order. I think if you’re going to do smaller orders or sell — if you’re going to drop ship items with smaller — has smaller price point, you need to be able to sell a lot of accessories with it because that’s where you make the money with drop shipping.
Steve: I see. And the accessories naturally have higher margins, right?
Andrew: Yeah of course.
Steve: Okay. All right so I understand. Okay. So in the Rough Routes, that was your first private label product, right? You actually went to China, you had it manufactured yourself, and you listed on Amazon, right?
Andrew: Yeah. Not private label, because I didn’t, I designed it from scratch. So it wasn’t something an existing product I put my brand on, I designed it kind of from the ground up. But I guess yeah, I private labeled. Yes. Not white label, so yeah private label.
Steve: I mean, it was your brand on it, right?
Steve: Rough routes?
Andrew: Yeah, right.
Steve: Okay. No one else can sell that exact same thing under label.
Steve: Okay. And so you actually bought a barcode and you listed that on Amazon? Yes.
Steve: Okay got it. Okay. Yeah, I qualify those private label.
Andrew: Okay yeah, got it.
Steve: And so how did it go and why are you thinking about stopping that product?
Andrew: When I started doing it, I did it primarily because I wanted to build something from scratch for the experience to learn how it worked. I did something very much to scratch my own itch. We’ve been having this funny battle throughout the whole trip Steve, I will pull up my paper map, and you will pull out your digital map on your phone. And it usually takes you five minutes to realize you’re not going to get anywhere with it. And I usually find where we’re going in like 30 seconds.
Steve: I just want to add that Montana is the only place where paper maps are a viable business.
Andrew: So I — there weren’t any organizers on the market, the backseat organizers that really held large full atlases. Anyway, yeah, so I designed this product and it was — I learned a lot and it was fun. But I think I got — I didn’t think about the size of the market enough when I designed it. And I was okay with it. I knew there was a good chance I can design this that it was going to be not the next big business for me. But at this point, they’re selling kind of onesie-twosie on Amazon here and there, but they’re not going to be an enormous business going forward.
Steve: So let me ask you this. How do when to call it quits because in theory, you could put a little bit more marketing behind it, maybe some more content marketing behind it and triple the business or 10X and maybe even I don’t know.
Andrew: Yeah, but it would still be a really small business and it’s not something that I want to do compared, and it’s not something I think relative to the other things that I’m doing that is a strength or passion has that much potential.
Steve: So that being said then, why did you even do it in the first place if you didn’t think it had that much potential?
Andrew: Perhaps because I really wanted to get the experience of understanding how building a product from scratch works. And I wanted to get the experience of understanding how to work with suppliers well, how to design a product from the ground up and understand Amazon too.
Andrew: Yeah, because I’ve gotten more from being a store owner first and foremost, to kind of transfer me a little bit more into a somebody who manages a community of store owners, but still really important to understand the things that they deal with and face.
Steve: And with that knowledge do you perhaps plan on starting another e-commerce product line going forward?
Andrew: No, not in the near future. I’m definitely doubling down on the community and the job board and trying to spend all my efforts on making those as valuable as possible.
Steve: Yeah, I know earlier today, when we were talking about how crappy selling physical products can be. And everywhere you go on the internet, you hear about all the good things and all the rah-rah, yeah start a business, start a business. So, I thought it’d be interesting today to share some stories from both of us, actually. And I remember Andrew; we were talking about returns, handling returns and chargeback.
Andrew: Oh yeah, yeah.
Andrew: And you told me this one horror story. I’ll let you tell it with Trolling Motors.
Andrew: Oh, yeah. I mean, this is getting really old because it’s something done a long time ago. But yeah, we were in the trolling motor business. You’d be selling these $2,200 GPS power trolling motors. And anytime you sell a big ticket item like that, you get people who are trying to scam you. And I think once or twice we definitely shipped at least three or $4,000 worth of trolling motors to people and ended up finding out they were scams which is brutal, right? Like that’s a tough — that’s a hard thing to swallow, yeah but it’s kind of part of the game.
Steve: We were just talking about drop shipping large big ticket items.
Steve: So the thought of dealing with fraud is infinitely worse for a big ticket item drop shipped?
Andrew: Oh 100% yeah. You sell linen Steve.
Steve: The thing is with our linens, we’re not — our products aren’t the type of things that people will actually buy charge back and try to scam us with right? Again, I can do that with like handkerchiefs.
Andrew: Well, I’m going to go home and start doing that now.
Steve: But you might do with the trolling motor or a right channel radio or radio right?
Andrew: More likely Yeah.
Steve: Right. So how did you deal with that problem, like how did you prevent that from happening?
Andrew: A lot of it was we were on Shopify at the time, and they have some built in risk analysis which is nice. But on top of that we would look at the bill to ship to. Almost all of the fraudulent orders we had, had different bill to ship tos. We’d look at that, in any of those we came across we’d be much more careful about. We’d look at the email address. It’s funny a lot of those scammy, those fraudulent orders, you could tell that the email was fake on it.
Steve: How? What if it was like SteveSmith@gmail.com.
Andrew: I found that fraudsters weren’t that intelligent. They put like firstname.lastname@example.org.
Andrew: You just think, there is no way this is an email address. Not all the time but a lot of the times. So that we would look at, we’d look at the name. If it seemed like a strange name – again it sounds odd because there’s a lot of unusual names out there, but again some really weird ones that didn’t even make sense with some of the fraudulent orders. And then we’d also call the number, and a lot of times if it’s a legit order, you can get at least a voicemail or something like that. If you try it for a couple of days, you can get somebody on the phone. For most fraudulent orders, not always, there’s some really smart scammers out there. But a lot of the times you wouldn’t be able to get ahold of somebody and that was a big red flag.
Steve: Mm-hmm. Okay. So you would do this test — like what were your rules? You obviously can’t do this with everything right?
Andrew: You could do it with — our rules were kind of okay, pay special attention to the orders that came across that had different bill to ship to, look at those. If anything looked fishy on them, then call or email them. And if we couldn’t confirm by a call or email, then we wouldn’t ship the order. Oh there’s a deer Steve.
Steve: What’s that?
Andrew: There is a deer right behind you, the other way. All right, you’re not going to believe me just this quick.
Steve: What, are you lying?
Andrew: No I’m dead serious.
Steve: We are out in the wilderness and there are bears. Andrew has been trying to scare the crap out of me actually in regards to bears, oh there Steve a bear. What, what?
Andrew: It’s working really well actually; it’s probably the best part of the trip.
Steve: I’m not afraid of deer though. There’s a couple of interesting things that speaking of Andrew BSing me all the time. We did have a little bet today, that was kind of interesting.
Andrew: You’re going to bring this up really after the results?
Andrew: You’re a bigger man than I thought.
Steve: I think we are. So we actually ended up hiking to the top of a fire tower. And for those of you who don’t know what a fire tower is, well, why don’t you explain it?
Andrew: A fire tower is just a big tower on the top of a big hill where usually you have one or two people stationed for the summer, especially in the fire season where they have a great vantage point to look for fires. And you can hike to the top and it’s a great panoramic view from the top of this tower.
Steve: So we hike to the top, and I’m just looking around and I see this like patch that looks just like a golf course right. It’s got a green perfectly cut out. It looks like it’s got a sand trap, padding green. I’m like, Andrew, that looks like a golf course, what do you think? That’d be a great place to put a golf course. And then Andrew was like, I’ll give you three to one odds that that’s a golf course. And I think Andrew knew that it wasn’t a golf course.
Andrew: I think you knew it wasn’t a golf course.
Steve: Yeah, but I wanted to see how far he would go. So what I said was — you give me three to one odds, if you were so sure this was not a golf course, why weren’t you giving me like 101 odds, are you willing to give me 101 odds?
Andrew: And what I choose is if you’re so sure it is a golf course, you should give me one to one odds or three to one odds that it is a golf course.
Steve: So that bet never went anywhere because we couldn’t even prove that it was a golf — it was like way too far for us to walk. So we couldn’t prove it. So Andrew proposed a more realistic bet something within walking distance that we could actually prove. And he was like, hey Steve…
Andrew: No, no, no, no.
Steve: I’ll let you tell it.
Andrew: I’m sorry. I didn’t mean to interrupt. You were the one who insisted it was sand; you pointed out and said it was sand.
Steve: I pointed out?
Andrew: I think so.
Steve: Okay. Well, anyways, it’s like 70 degrees outside, I’m sweating. It’s hot. It’s really hot. And I was like, oh look, there’s a little white patch of sand right there. Andrew is like no, that’s snow man, that’s snow. But you got to understand, like this entire place on this fire tower, you look around, you can’t see any snow. And there’s this white patch there that looks like sand, like a sand track for a golf course for example. So Andrew, what he does — well, I’ll let you tell how you phrased it because he kind of tricked me into betting him.
Andrew: I did that okay. That first time I did not trick you into betting. Secondly, there was snow capped peaks all around us. So I’m not sure how you didn’t think it was snow.
Steve: There was no snow anywhere on those peaks.
Andrew: There was snow everywhere on those peaks.
Steve: It was hot lustrous vegetation.
Andrew: We will see if — is it okay if in the show notes we post a picture that I took from the lookout tower and listeners can decide to…
Steve: did you really take photos?
Andrew: Of course.
Steve: Oh man.
Andrew: The listeners can decide if there were snow cap speaks in the park.
Steve: All right fine, go on with your story.
Andrew: Oh, I just I mean when we started betting, I was just kind of bet you that it was snow, you thought it was sand. At first I went to five to one odds. But then I thought there’s no reason I should give you five to one odds on this because I know I’m right. But at the same time, I don’t want to give you the satisfaction of having a great leverage deal. So, I feigned a little bit of ignorance and doubt thinking like even though it’s 99.9% sure it was snow a mile away thinking like oh okay, Steve, I think maybe you are right. I’m not sure about this. Maybe you are. I still think it’s snow, but I’m not so sure. Let’s do one to one.
Steve: And that was just the right thing to say because I wasn’t 100% sure that it was not snow, and I wasn’t 100% sure that it was not a sand trap for an old golf course. So as soon as I heard some doubt in Andrew’s voice, I was like, okay, I’m probably right, because there’s no snow anywhere luscious green 70 degrees outside. So, I ended up taking the stupid bet, I paid 20 bucks.
Andrew: You still haven’t paid me.
Steve: I still haven’t paid him yet. Well. Okay. Here’s the thing. He’s like, you can either pay me 20 bucks or you let me pat you with a snowball as hard as I can. Of course I’m going to pay him 20 bucks; my dignity is now worth 20 bucks. Anyways, we walk over and yes, it is snow. I didn’t realize you documented it with a photo.
Andrew: But I think kind of the takeaway here is thinking about how we thought about this with a couple of things. One negotiation and also two, kind of the expected value when you bet for things, betting to a level that you feel confident with. I love betting with different odds and giving people different odds because a lot of times if you give that straight up bet, people won’t bet, but if you give people a three to one, five to one, ten to one odds on something they’re much more likely to bet. So I don’t know. Do you think of it like you like — I love to bet, you like to bet. Do you think about that a lot when you bet or even maybe even more so when you make financial decisions?
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I generally don’t like to bet unless I’m pretty sure I’m going to win.
Andrew: Like today.
Steve: Like today. Well, I wasn’t sure until you feigned your little, oh you know what, maybe it isn’t. That’s really clever. But that golf course bet or whatever that hole was at, I was trying to negotiate you down so I could have a fun time and not really take a huge loss just in case I was wrong. Whereas you were trying — if you gave me five to one odds, I probably would have taken in a heartbeat, but you improved your odds overall. And I was a sucker; I ended up just getting one to one odds.
Andrew: The outcome was still the same for me. I would have won either way but I reduced the amount of risk I had, right.
Steve: That’s correct. You mentioned earlier that you weren’t 100% Sure.
Andrew: Right. I was 99% sure.
Steve: Okay 99% Sure.
Andrew: Correct. But still it would have been really painful on that 1% to pay $100 to you perhaps because I’m cheap, two partially because I never want to pay $100. But yeah, I mean, a lot of it I think a lot of times too, is if you can think about ways that you can still get the same outcome, but reduce your risk, it’s a beneficial thing to do.
Steve: Yeah, clearly, I have more to learn in this department. So Andrew applied all of this over me for the rest of my life.
Andrew: Not nearly as much as the grasshopper and Lucas bet that we had the day before.
Steve: That’s true. Well, one other thing we also talked about was where to invest our money, because right now I’m in a lot of cash and I think you are too, right. Yeah. And we are looking to buy a house in Southern California, and Andrew was just starting to talk about investment and property. And the climate in California obviously, is a lot different than the place where you’re looking at right, and I think I casually mentioned that most houses it just makes more sense to rent than to buy right? And then you said, well, if I put 20% down, can I at least break even on a house? And I said maybe not. It’d be border line but probably not. And then you thought that was crazy right?
Andrew: Well, you — I’ll start a little bit with it all started with you potentially thinking about making a move to LA. If you do move to LA, I asked, would you sell your house in the Bay Area or would you keep it? You said, well, I’ll keep it. I said, okay well, the cash flow meaning that assuming you had a mortgage on it and maybe you put 20% down, would the rent from the house that you rented out be enough to cover your mortgage, your insurance, and your maintenance? And you said probably not. So it would be completely a appreciation play at that point.
Steve: Right, but you also have to keep in mind that my house has more than doubled since I bought it and it’s been nine years.
Steve: And it still goes up, like I think it went up 20% last year and this year it’s already up in the double digits again.
Andrew: Yeah, and that’s kind of crazy. I mean, that’s phenomenal for who owns in the Bay Area. But from my perspective, I thought it was interesting that you would buy an asset like that purely based on the appreciation play versus the cash flow play, because you’re really you’re betting at that point that appreciation continues. And there was also a part of it though too that was emotional for you and maybe you can touch on that because it wasn’t — you were very — you strike me and I know you really well, you’re a very logical person, you think through financial decisions fairly clearly.
But in this case, there was a big emotional component that even that didn’t — that kind of prevented, at least in my opinion, prevented you from looking at an investment from a pure return standpoint and banking all on the very risky proposition that this crazy bull market in housing continues to go. So what was like – what are the emotional reasons why you would have kept that house?
Steve: Yeah, there was a couple things. So one, my parents made most of their wealth from real estate and once you have a house — so our house is pretty much paid off. And so by keeping it and renting it, that cash flow is very consistent. And you made the argument like you could take that cash; put it somewhere else to make a lot more money. But I feel like just emotionally, I guess money from renting is rock. It’s pretty rock solid, especially in the Bay Area where there’s a very finite amount of land. And there’s high to — I guess the only risk would be if high tech like totally tanked which I think is unlikely to happen.
And the fact that more jobs are coming in, in fact, there’s just not enough room to build anything, I think the appreciation will continue. And if anything, even if the appreciation doesn’t continue at breakneck speeds, we’re not going to lose any money. The property value probably isn’t going to go down. And if you remember the downturn back in 2008, 2007, most of the property where I live remained pretty much flat. It didn’t really drop too much, at most maybe 10%.
Andrew: Yeah, I thought it was interesting that you were baking a lot of — and I’m not a real estate investor at all.
Steve: Neither am I clearly.
Andrew: Yeah, although real estate investors have wasted more cash.
Andrew: But I just thought it was interesting that even though it’s cheaper to rent, you still would hold on to it for the risk, like you said, like your parents made a lot of money in real estate versus the kind of the actual calculations of the deal, and the past expectations of appreciation. So, I hope it works very well. I just thought that was interesting.
Steve: I mean, I don’t always make logical decisions, you know right. Yeah, I mean, I’m quite illogical actually for a lot of things that you make fun of me on a regular basis.
Andrew: Well, let’s go through those. What are some of those things?
Steve: No, no, no, you’ve got to give something too, what’s something that you do that’s not quite logical that you do anyways?
Andrew: No, but I mean, there is a vehicle that we have been driving.
Steve: I was going to point that out.
Andrew: This vehicle we’ve been driving around and it is like the absolute worst financial decision I’ve ever made in my life.
Steve: How much did you pay for that vehicle?
Andrew: We’re not going to talk about that on this public podcast, but it was more than you should pay for a 30 year old vehicle.
Steve: Let’s just say it cost more than my BMW.
Andrew: Yeah, I guess yeah, it’s not been a logical decision, but it’s been a good investment in terms of like we’re doing this right now partially because we had the vehicle right?
Steve: That’s true and I’m not going to say anything more because I want to sleep in the vehicle tonight and not outside.
Andrew: But it’s — yeah so there are good non financial reasons to do things.
Steve: Do you have anything else to add?
Andrew: I think it’s good to take a break from business sometimes and get off. It’s been interesting watching our habits with like cell phones. We’ve checked in a little bit but being able to unplug is really nice, having really slow internet that prevents you from getting stuff done quickly or going through a lot of emails. I don’t know, do you feel like — what have been your thoughts on having really poor, really poor cell service?
Steve: I know for me, it’s always a blessing because I’m addicted to my phone. And so this is actually one of the reasons why my wife and I we like to go on cruises because we’re on a cruise ship there’s no internet. Well, I rephrase that, you can pay for internet, but it’s really expensive and my wife and I are too cheap to pay for it, or we’ll pay for the shortest plan and as soon as we log on, I type as fast as I can. It’s like a race against time to get everything else just because we’re too cheap. I like to think that this trip is the same way except there’s no cheapness in play. So most of the time we didn’t have internet access, right. Only when we saw Old Faithful, that area had very limited internet access. And it was really nice, because it kind of took my mind off work.
Andrew: Yeah, it’s good. It’s good to decompress sometimes and get off the digital grid.
Steve: One thing I do want to say is Andrew and I we’re kind of doing something interesting with these set of podcasts. And what we’re doing is we’re kind of alternating the parts on each other’s podcasts. So episodes one and three are on my podcast and episodes two and four are going to be at the Ecommerce Fuel podcasts which can be found at EcommerceFuel.com. And I think our trip is actually about to conclude. We got one more day left tomorrow, and we’re probably going to be filming another episode in the van right?
Andrew: Yeah either driving or stopping. I’m hoping to be able to time it perfectly so we don’t have time to get you home for a shower. So you have to sit on the flight sandwiched in between two people licking of camp fire and fish.
Steve: Well that’s good for me right, I need more leg room and enough movement.
Andrew: It would be good for me too because I want to hear the stories when you get back, probably business partners that you’ll need to be connected with in the future.
Steve: All right, well, stay tuned for episode number four on the Ecommerce Fuel Podcast.
Andrew: It was fun, thanks Steve.
Steve: Hope you enjoyed that episode. And in case you missed episode number one, it is over at mywifequitherjob.com/episode224. And episode number two is actually over at EcommerceFuel.com. For more information about this particular episode, go to mywifequitherjob.com/episode225.
And once again I want to thank Privy.com for sponsoring this episode. Privy is the email capture provider that I personally use to turn visitors into email subscribers. They offer email capture, exit intent, and site targeting tools to make it super simple as well. And I like them because they are so powerful, and you can basically trigger custom pop ups for any parameter that is closely tied to your e-commerce store. If you want to give it a try it is free, so head on over to Privy.com/Steve, once again that’s P-R-I-V-Y.com/Steve.
I also want to thank Klaviyo which is my email marketing platform of choice for e-commerce merchants. You can easily put together automated flows like an abandoned cart sequence, a post-purchase flow, a win-back campaign, basically all these sequences that will make you money on autopilot. So, head on over to mywifequitherjob.com/K-L-A-V-I-Y-O, once again, that’s mywifequitherjob.com/K-L-A-V-I-Y-O.
Now I talk about how I use these tools on my blog, and if you’re interested in starting your own e-commerce store, head on over to mywifequitherjob.com and sign up for my free six-day mini course. Just type in your email and I’ll send you the course right away. Thanks for listening.
Thanks for listening to the My Wife Quit Her Job Podcast where we are giving the courage people need to start their own online business. For more information visit Steve’s blog at www.mywifequitherjob.com.