Candy Japan 2015 year in review - part 2

This is a continuation from the 2015 year in review post. From here on I'll give you a bit of laundry list of other stuff that also happened besides the major items of CC fraud, tax issues and writing a book.

Improved customer support

I hired my first customer support person on UpWork and had a very positive experience. Now I am spending a lot less time answering email and customers are getting their responses faster as well.

Automated returns

When there is a fraudulent order with an invented address, all those packages are returned to me. When you get dozens of returns, it quickly fills up a residential mailbox. There's also work involved properly noting which accounts the returns came from and proper disposal of the boxes. I managed to automate this by having a barcode behind each box, which a helper scans so that I no longer need to receive the actual physical boxes.

Great time saving success! If the return is from a legit customer who just entered their address wrong, they are even automatically issued a gift card valid for an extra box in the future.

Just the usual day-to-day operations

As we are sending new items every two weeks, just looking for them takes a fair bit of time. I want to make sure there is always a long enough queue of confirmed items, so that the service can continue running smoothly.

Also involved is paying for the items (in cash, in person each time), postage (this one now happens automatically) and packing materials (and making sure there is enough). I need to generate and read through the shipping list each time, to make sure addresses are correct.

Besides the items themselves, we do a newsletter each time about the items. For that I have hired a writer, but I still do the final checking and sending myself so that I can only blame myself if the information is wrong.

Failed acquisition of an anime box

One day while browsing Flippa I noticed a subscription box business for sale, which seemed like a good fit for me. It was an anime box where subscribers were getting monthly good related to various series each month. I figured I could just send those from Japan and the business was very reasonably priced (previous owner seemed tired of running it), so I bought it.

Even before noticing this business for sale, I had already considered starting an anime box. This way we got a running start by having 70 initial subscribers already paying for it.

However it turned out to be difficult to maintain the quality of the box while sourcing items profitably from Japan (they had been shipping from US before and buying from local wholesalers). While it was profitable, I wasn't happy with the quality of items we could offer and promoting the business wasn't motivating, as any promotional activity I'd spend on it I would rather be spending on promoting Candy Japan instead.

For these reasons I decided to shut it down after a few months, but not before making the final mistake of sending the final items twice to subscribers (oops!). The way that happened is that after the shipment went out, instead of post office giving the tracking codes to me, they went to my supplier who did the packing. I neglected to ask for the receipt, which resulted in the items not being marked as shipped.

Later on when I made the decision to shut down the site and was about to cancel all accounts, I noticed the unshipped items and sent those. So they ended up getting sent twice, a mistake of about ~$1500. However from the customer point of view, it might be the best product shutdown ever.

At least I learned a lot. In particular how to use CrateJoy and how involved it is to transfer ownership of an existing box business (it wasn't too painful). These provided a lot of material for the book.

More stuff that didn't pan out

We still have the same arrangement for getting candy as we did in the beginning, just buying all the stuff from a supermarket with a slight discount. We found an online wholesaler, but looking at their prices they were often not much different. Also visited some in person, but could not find one where we could actually buy from. If I wanted to save money here, the key may actually be to spend some time doing price comparison between all sources for each product.

I also spent a ton of time thinking about how I really SHOULD be producing more content for Candy Japan, really getting into AdWords / Facebook ad optimization, producing YouTube content etc., but then didn't really take the time to do much of it. I did do some basic SEO fixes, shut down some unprofitable ad campaigns, commissioned some uninspired content and learned how to use a DSLR camera properly, but didn't get to the point of having returns from any of this activity.

Got contacted by a Japanese TV station wanting to do a bit about Candy Japan, but they wanted to shoot us packing boxes and the supermarket I'm working with didn't like the idea, so that was dropped.

Obsessed about competitors some more

As I wrote before, Candy Japan is now not the only service which is shipping out Japanese candy on a subscription basis. I compiled this list of Japanese candy boxes, and there are at least 20 such services now. I've browsed a bit around the sites, and many of them seem to be very good (better?).

One evening I even put my spy gear on and did some research on them using semrush and whatrunswhere. I can't say I learned much, except that "japanese snacks" is actually as important a term to rank for as "japanese candy" is. It seemed that other boxes are not engaging in much advertising and didn't really seem to have any surprising SEO secrets either.

Probably the biggest thing they are doing right is having different tiers. I'm definitely leaving money on the table by just having a single tier, while I should try to get every customer to sign up to their appropriate subscription level. There are also many items I could be sending if I only had a higher budget, so I could truly even offer more exclusive items, besides just sending bigger boxes of the same.

For example regional items are very interesting, but usually also expensive. Each prefecture in Japan has their own items, but those tend to cost about ~1500 each, which just isn't compatible with our current budget. So maybe I should have a tier for that.

I even met some of the other founders in person, cool guys (hi Hiroki & Javi!).

Started a physical A/B test

We finally got custom boxes designed, but they are more than twice as expensive as the ones we were using before. To avoid throwing away this money for no reason, I decided to start an A/B test where half of subscribers get the new package and half get the old one. If it improves retention enough, then I'll go with the new design.

Next

I should try to do more conversion optimization, such as doing more email marketing to leads signing up on the site. Should improve communication also with customers who have signed up, as some cancellations are probably due to people just getting antsy about their first box arrival taking pretty long to come from Japan.

Should try a higher-priced tier for regional items. This might also lead to some interesting YouTube videos and blog posts.

I need to try some fraud solutions such as Signifyd. Maybe see if the new Recurly API offers something, or if Stripe or some deeper PayPal integration would work better.

At the moment I don't really have the energy to get into fixing the payment situation. Dealing with the fraud kind of burned me out and left me disappointed in the state of payment systems.

I don't want to wind up in another nightmare scenario. Maybe I'll mess something up in the integration, or it just doesn't prevent fraud as well as it should and I'll experience another crime wave. I feel I cannot trust that I will be protected without having to manually look at each transaction.

Each fraud case I find makes me lose a bit of faith in humanity. It's just not a very fun way to spend your day. I'll need to get back into fixing the credit card issue after regaining some energy. Hopefully Christmas holiday will help.

If you liked this post and are considering starting your own box, please do check out the book. If you'd just like to get some candy, you can subscribe to Candy Japan here.

Candy Japan 2015 Year in Review

How it started

Candy Japan mails subscribers around the world candy twice a month.

In 2011 I moved to Japan and needed some income, so I decided to see if there might be something I could sell online. I picked sweets, as they have a nice balance between fun to receive and easy to send. I wanted to try having recurring subscribers instead of doing one-off sales.

The service grew rapidly to 300 customers in 2011, then had a long stable until 2013. In 2014 there was massive growth.

2015

One year ago I set myself the goal of reaching 1500 subscribers. In reality this year turned out to be quite a roller coaster.

I thought we were doing great, even crossing 1200 subs at one point. But that turned out to be a mirage. All lies, just a dream. Fake. They were actually criminals engaging in testing stolen credit cards.

Reality check

Purging fakes took us under the magic one thousand subscribers again. An important number not just psychologically, but because that's where postal discounts start.

I played cat-and-mouse with the fraudsters for a bit, adding various checks such as e-mail confirmation, IP bans etc. but it only took hours for the criminals to adapt to these. Some of the fraud was pretty blatant.

Eventually I just ragequit and switched off credit cards, going back to PayPal-only.

Besides costing thousands of dollars in various fees, it had other negative consequences as well.

I had spent time coming up with a new sign-up flow which was looking very promising, but had to scrap it when switching back to PayPal-only. Similarly I had to stop an A/B test midway, as the fraud was skewing the results too much.

Buying gift cards I had only implemented through credit cards, so switching to PayPal meant that I could no longer sell those. This led to more lost sales. Having PayPal only seems to lower conversions, so I am losing sales there too.

Growth backtracked. We are now instead back to 750 subs and the trend still hasn't reversed. Very far from the goal of 1500 I had set.

Tax issues

I've lived in Japan long enough now that it seemed I might need to switch to paying taxes here instead of to my native Finland. It took almost a year to get a decision on this, while in the meantime I continued to pay to both.

I thought taxes in Japan might end up being much cheaper, however turns out Japan just has many different kinds of taxes which are not paid at once, so there is much more to pay than just the low initial bill.

After Finland finally agreed with the tax switch I received a big refund for amounts I had unnecessarily paid there. Celebration was in order, so I promptly spent it reserving flights & AirBnB for a 2016 summer in Europe (if you are in Paris / Amsterdam and want to meet up, let me know).

Wrote a book on how to start a subscription box

The third major undertaking was to expand the type of writing I do on this blog into a whole ebook. It's called "How to Start and Grow Your Subscription Box". The writing process was much tougher than I had anticipated.

I hoped to complete it in a month, but in the end it took 4 months, with the mid part feeling like "this is hopeless and will never end". Besides just writing it out, there was more research and reorganizing than I had anticipated.

CC fraud, tax issues and writing the book were the main activities this year. If you would like to read the laundry list of minor things I spent time on, read on to part 2.

If you liked this post and are considering starting your own box, please do check out the book. If you'd just like to get some candy, you can subscribe to Candy Japan here.

I wrote a book on growing a subscription box to 1000 subscribers

I figured I've learned enough stuff from running Candy Japan to write an e-book. Since July I've spent every extra moment on this project, which I finally finished this week.

It's called "How to Start and Grow Your Subscription Box". It starts from brainstorming an idea and a name for a subscription box, then looks at different e-commerce platforms for setting it up, finally finishing with some packaging and marketing advice (here's the full table of contents).

I wanted to compile a bit less self-helpy hypey type of resource for someone thinking of starting a box, something that would contain a lot of practical advice. It would be the equivalent of "Start Small, Stay Small" for the subscription box world. Less "you can do it if you believe in yourself!" and more "here's what you can actually do now".

The writing process

The biggest challenge in the writing process was not quitting. Seinfeld's method for writing jokes was discipline, just keep at it every day. Mark the day with an X in the calendar when you did your work, then don't break the chain of Xs.

"After a few days you'll have a chain. Just keep at it and the chain will grow longer every day. You'll like seeing that chain, especially when you get a few weeks under your belt. Your only job next is to not break the chain."

You know who else followed the Seinfeld method? Jack Torrance in The Shining.

If you just robotically write X pages per day for Y days, you might find that at the end you have X*Y pages of nonsense.

Sometimes I had to stop and just rework the structure again. Often this meant throwing out pages that I had already written, because they wouldn't fit into a coherent whole.

Pages are not created equal. Write a self-introduction and it's no effort at all to hit your daily goal. Do a comparison of all the pricing plans of different subscription e-commerce platforms, and the same word count takes much longer.

One tip that helped me keep working

Write down your personal reasons for writing a book at the top of your outline.

I figured having a book would give me an extra multiplier every time I blog on subscription box topics, as I could link back to the book. A bit of a positive feedback loop as well, since the book will in turn give me more things to blog about. To be able to write about these topics, I would also need to learn them better myself. Even if the book flops, I'll still at least have learned a ton.

Even if I didn't feel like writing that day, I would still agree with these reasons and manage to do at least a bit of writing.

Underestimating the work involved

At the top of the rough outline for my book I also noted:

To write a 50 page book in 3 weeks = only 3 pages a day with 4 days left for editing. Sacha wrote 40 pages in 3 weeks, Barry wrote 100 pages in 3 months.

That seems really optimistic now.

Taking into account all the reorganizing, rewriting and working through the difficult parts, I ended up taking 4 months to finish, not 3 weeks.

There was some (justified?) scope creep as well, as I ended up writing 138 pages, while still covering less topics than I set out to do in the initial outline. Had I only written 50 pages about everything I intended to cover in the rough outline, I would have ended up like The Hitchhiker's Guide to the Galaxy, describing Earth as just "mostly harmless" due to space considerations.

Launching

I wrote the book in Markdown using Sublime Text, then turned that into PDF, ePub and mobi using Leanpub. Submission to Kindle was easier than iBooks (had to regenerate the ePub file many times to pass all the requirements), but both were much less painful than I had feared. For the book cover I used 99designs. The landing page is hosted on Google App Engine as a static site, with digital product sales handled by Gumroad.

I don't have the launch sales numbers yet as the book was released just now, but I will write another post about that.

Thanks for reading

You can find the book here if you are interested in starting a subscription box. You can also find it by searching for "bemmu" on iBooks / Kindle.

Also thanks to Laksman of SideProject Book for reading a draft of this post.

Candy Japan hit with credit card fraud

After our first child was born two months ago, I was very much preoccupied with trying to learn the basics of infant care.

I still had to know how much candy to order, so one day I got online for a moment to check how many new subscribers had joined during my time away.

Wow, a ton of new members are joining, hooray!

Seems they are all finding us through Google. We must have been mentioned in the media somewhere. Fantastic news! I went straight to Slack to brag about the great sales numbers.

Then I decided to look at the traffic in a bit more detail, to see where this sudden good luck was springing from.

Hmm, odd.

The conversion ratio for organic search traffic is unnaturally high. In other words, the number of people searching for Candy Japan on Google hadn't changed, but somehow the amount of orders coming in from search had massively increased.

Having a conversion ratio over 5% for one day is a statistical anomaly. Sustaining it for the better part of the week means that something strange is going on.

Could it be fraud?

I knew that there are people out there buying stuff with stolen credit cards. Hey I've seen Tom Hanks chase DiCaprio in Catch Me If You Can.

I was aware that a certain percentage of transactions is always fraudulent, but I had always assumed that these transactions would be mixed in with real ones. Hundred real orders there, then one fraud case dripping in here.

Since the level of fraud I had experienced so far was at an acceptable level, I assumed everything is OK.

Everything is not OK.

What I hadn't expected was having a wave of fraud crash in suddenly with such force.

While from Google Analytics I had noticed that a lot of sales had happened, it didn't reveal the severity of the issue. Looking at the list of transactions, I saw that thousands of payment attempts had been made with different cards during those 4 days. For each successful sale, the fraudsters had tried a dozen cards that had failed.

After starting to deal with this, I got contacted by a police officer in Ohio. To be doubly sure he really was a police officer, I called the local police directly and asked for him by name. "Thanks for calling me, let me just pull over". He was on patrol. His reason for contacting me was that someone had noticed an unexpected charge from "candy japan" on their card and had filed a police report.

I exchanged any information I had of the particular fraud incident he was investigating, but he seemed not to have much hope with the case, telling me that they just had to follow up as they'd received a report of an unknown transaction happening. I think he even said the words "this won't lead anywhere". I agree. Assuming fake IP, fake address, card number bought from someone online, what could he possibly do about it?

Easy money

I started reading a bit more about how this underworld works. Apparently these criminals are called "carders". The stolen cards originate from credit card security breaches, resulting in a big list of card numbers. These are later sold online in packs filtered to working card numbers only, which can be purchased for about $10 per valid card.

To be able to compile and sell these packs, the carders need to know which ones are valid. To do this, they will use an online store or service to place an order for the sole purpose of seeing if the charge goes through or not.

If a store ends up as such a checking endpoint, they will see a sudden influx of a lot of fake orders. That's what was happening to me (and recently also to jsbin).

Carder uses my store to test 10 cards before they find one that works. For each attempt I pay a 0.15€ transaction fee to my gateway and another $0.10 fee to subscription middleware Recurly. So even before a successful order comes in, I'm already out around three dollars.

Then they hit upon a card that works. Now the fee to charge that card is a bit higher, since money is actually moving. Our candy subscription is $25 / month, which costs me $1.76 in fees to charge (Recurly fee is $0.10 + 1.25%, gateway fee is 0.15€ + 2.75%).

Believing this to be a real transaction, I ship the product to them. Candy itself, shipping, labor etc. will cost something around $15. So now I'm out $19.76, but I received $25. What's the problem?

Chargeback

When the real owner of the card notices the surprising charge on their card, they will dispute it by contacting their bank or credit card company. The customer receives their money back, as they should.

The money I thought I had is taken from me and on top of that there is a 15€ chargeback fee. The end result is that I lost not only the transaction fees, but also the product and labor cost and on top of that get hit with an extra penalty.

As I wasn't set up to handle these fees, I had to spend weeks just to understand what all this means and to write a bunch of glue code to export the chargeback information and convert them from gateway internal IDs to the ones understood by the Recurly gateway. Then even more code to cancel and adjust all those subscriptions to avoid charging them again or shipping any more product.

For orders which I later noticed as very likely being fraudulent, I proactively refunded them, despite having already shipped many of those orders, leading to more losses.

Later on these shipments will likely return to sender, as the fraudsters very likely used false names and addresses, leading to more work still.

Conclusion

I lost weeks of productive time and thousands of dollars in money and product.

Currently I have credit cards disabled until I can integrate with a fraud detection system, but if you would like me to send you some candy and PayPal is OK with you, you can subscribe here. I'm also working on an ebook.

DiCaprio is cool, but I will be rooting for Tom Hanks next time.

Choosing a Domain Name

I haven't done a Candy Japan update recently. There are a few things I want to write about, but seeing Paul Graham's latest essay Change Your Name, I decided to share some of my own tips for finding a domain name first.

How to quickly check domain name availability

There are three pretty obvious ways to secure a good name. The best one is if your desired name is simply available (as was the case for candyjapan.com).

One of my favorite tools for brainstorming domain names is called Instant Domain Search. It shows if a domain is available or not in real time while you type in the name. Sometimes it does give false positives, so don’t party until double-checking the result using another tool, such as your domain registrar’s reservation page.

If your favorite name was not available, you’re not alone with this problem. Hundreds of millions of names have already been registered. This means that pretty much any single word and many good combinations of two words are gone. You might desire a short name if possible, but you're unlikely to achieve a super-short name these days. Almost every possible combination of four letters is also taken, unless you include special characters in the name.

Purchasing an existing name

If you find someone already has your name, chances are it is being held by a professional “domainer”. These are people who speculate on domain names by buying, holding and trading promising ones in the hope that later on someone like you will come along to buy it.

They may be holding massive amounts of domain names, hoping that one will end up being a hit valuable enough to cover all the costs spent on the rest. Sadly this means that they are often not very cheap. What do they cost? While many transactions happen in private, some are sold through online or real-life auction events. You can browse the prices of names that have sold in these events in the past.

For example dnjournal has such a listing, from which you can see some examples such as:

HomeCare.com	$350,000
FlowerBox.com	$55,000
MegaDeal.com	$50,000
Moon.co	£6,000

Another place for browsing listings is Flippa, which had trades such as:

Mini-Series.com	$6
TakeSail.com	$100
Swore.com	$2,300
Cloud.io	$45,000

As you can see the range of prices is vast.

There really is no one answer to the question “what should this domain name cost”? If you have two wealthy bidders going against each other to secure a name, then the price is as high as those bidders can afford. The owner of your desired name may prefer to hold off on making smaller trades and concentrate on the big wins. They may not even bother to reply if you don’t make a sufficiently interesting offer right off the bat.

Beware: some unscrupulous sellers in Flippa auctions will try to auction domains that contain words made up of international characters which happen to look like English words. For example if you see womаn.com for sale for a cheap price, it’s a trick. If you look very closely, you’ll see the “a” in womаn.com is actually the Russian cyrillic letter а.

Besides auctions, you can also contact current domain owners directly. If they are experienced domainers, they will likely play some psychological games with you to make you pay more. One of these is to make you believe that they are currently engaged in multiple bids for the name and that you need to outbid your competition. Whether this is true or just a trick you have no way of knowing, so you may be tempted to increase your price to outbid these possibly imaginary competitors.

Another mental trick they might use is to claim that they acquired the name for use in a project which they have currently underway. The release of their amazing site is just right around the corner and they would be unwilling to sell the name -- except of course they might reconsider for a considerably higher price to justify scrapping their current plans. The last time this happened to me and I walked away, the current owner still after years has not used their name for anything.

There are also counter-tactics to these, for which reason you might want to consider hiring a domain broker to buy the name for you. They can navigate these negotiations in a more cool manner since they are more detached from the name than you are and get a better price.

Grabbing an expiring name

Domain names are reserved for a limited period of time. What if someone no longer wants their name lets it expire? At first it enters a grace period for 30-90 days, during which the original owner can still renew the domain. After that it enters the redemption period, during which the original owner can still renew the domain, but there is a fee involved. If even after the redemption period is over the original owner has still not renewed, then it “drops” (becomes available).

The risk with using an expiring name is that it might have hosted some less than desirable content before or might have a lot of spammy links from bad neighborhoods pointing to it. You can see some of the backlinks by googling "link:example.com" and the previous content by checking what the site looked like in the past with Wayback Machine.

You might think that if you see a domain registration expire, you could just wait until the redemption period is over and register it yourself. However there are groups which use special software that rapidly attempt re-registration of these expired domain names over and over again in order to be the very first to re-register it. You will not be able to beat them manually.

Luckily these companies are sort of mercenaries for hire. By paying them a small fee you can use their guns to get you the domain you want. If you want to know more about this subject, I highly recommend Mike Davidson’s classic article How to Snatch an Expiring Domain.

The gist of it is that you can maximize your chances of getting your domain by instructing several of these “drop catching services” to attempt to get your name. I’ve had some luck using pool.com for this purpose, but there are many others as well. You can enter as many domains as you wish on their site, which they will then attempt to get for you. You can also browse domain names which will be “dropping” soon.

Consider a brandable variation of your key term

In the beginning I wrote that all the good names are taken. That's not entirely true. Actually only all OBVIOUS names are taken. Your best option may be to come up with a new unique name that no-one else has thought of. Something catchy, with personality and branding potential. A nice example of a name with benefits is mailchimp, an email marketing service provider which uses a chimp as their mascot.

The tactic is to try your desired word + an interesting suffix. You can put these ideas through Instant Domain Search to try them quickly, but there is an even faster way. There are services where you can enter lists of words to try as prefixes and suffixes and it tells you which ones are available. Some even have those lists built in.

The best one I have found is called Lean Domain Search. Suppose for example that you are thinking of starting a snack-related subscription box. As there are already dozens of snack boxes and many domain speculators out there, you will find that almost any good name is already taken. Entering the word “snack” into Lean Domain Search, you'll find that actually some good combinations of popular word beginnings or endings added to “snack” are still available. It doesn't suggest cute animal suffixes, but can find for example that “SnackGlobal.com”, “SnackGate.com”, “EpicSnack.com”, “ViaSnack.com” and “SnackBoss.com” among many others are still out there for grabs.

Thanks for reading

I hope I helped you find a great name.

Why write an ebook?

While growing Candy Japan, I realized that out of all the things involved in running it, I was enjoying writing about it the most. Not only is it fun to share what you've learned, but it turns out to be good marketing as well.

Enjoying the writing process itself and seeing good things come out of it kept me motivated to keep doing it.

After years of running the site and writing various posts, I've started getting more and more questions from others wanting to start their own subscription boxes as well. Looks like there is a slight "box boom" going on at the moment.

I realized that since I am already writing about this topic, all I would need to get an ebook out of it would be a minor adjustment in my writing direction. So perhaps this is something I would be capable of doing.

If you are already writing about a topic, the only difference between writing a book and writing random posts is having an outline. Not that even that is always necessary. Hackers & Painters is one of my favorite books ever and it is a collection of essays already published for free on Paul Graham's blog!

But why do it? Because it's a multiplier for your existing efforts. It helps motivate you to blog more, as each post is also another step towards completing your book. If you think about it like this, there really is no reason NOT to work towards a book if you are already blogging anyway.

Thanks for reading

If you would like to buy the ebook when it comes out, check it out here.

Subscription box pain points

While running our twice-monthly candy subscription box Candy Japan, I've discovered the biggest time spends are marketing, fulfillment, website maintenance, customer support, bookkeeping tasks, curation and investigating directions to expansion and things to improve.

Fulfillment

Of these for our twice-monthly candy box, fulfillment was the easiest to delegate to someone else to do, as it is purely manual labor. Some effort is required to gather the list of addresses and sanity-check that the entered addresses and amounts make sense. You can either do fulfillment in-house or hire an outside third-party logistics company.

Marketing

Marketing is an activity which you can spend all your time on if you wanted to. There are thousands of places where you could advertise, both paid and free. The options to tweak ad campaigns are endless. Marketing through the seemingly free social media and content-marketing channels is very time-consuming. Somewhere between paid and free is providing free sample boxes for bloggers, which ends up taking time just to evaluate which blogs are worth sending to and keeping in touch with them to maintain the relationships.

Customer support

Customer support gets tiresome, as you are often dealing with very similar issues. If you are using a home-grown system, you may find that the information you need to answer these question is buried somewhere in a database which only you understand, which makes outsourcing this more challenging. This is one good reason to use a ready-made subscription management system such as CrateJoy or Subbly. Besides just the usual support questions, there are always new situations occurring which can only be answered by you, meaning with a somewhat successful box you will always end up having some email to answer yourself every day.

For instance I often find myself having to dig for some information manually in our database or try to make educated guesses when a customer requests something to be done, but is emailing from a different address than the one they registered with. These examples sound bad and probably make you feel like “well, that should be easily fixable”. And they are, which is part of the support task, improving things so that those things will no longer get asked.

Keeping books

Bookkeeping is required for you to be able to correctly pay taxes and have some picture of whether you are making any profit with your box. It involves mostly storing offline and online receipts and entering their information into spreadsheets. Even with a hired bookkeeper you still end up doing some of this, as when for instance you make an order for some product which will be included in the box, you will be the one who gets the receipt.

When you sign up for an online product such as CrateJoy or ZenDesk, those receipts will get sent to your account. Each month you will need to find all these receipts and summarize them somehow for your books. Last month for out subscription box Candy Japan I had 50 receipts for various purchases and online services and just summarizing this for my bookkeeper takes several evenings to do. Mostly because it is such a dull task it is very easy to get distracted while doing it!

We are paying a bookkeeper, but that doesn’t mean you never need to deal with the issue. You must still be able to explain each receipt and HAVE each receipt. Each time you pay for something online, you have to figure out how to get the receipt for that later. You may be using an email system, a hosting site, buy tape and envelopes online, perhaps travel somewhere and use cash to buy your tickets etc. and for all of these things you will need to have the receipts and organize them in some way. It’s not a huge task, but another thing that needs to be done each month.

Curation

This is about finding the items to put in your box. Not every item you can think of is necessarily possible to purchase by you in the desired quantities. You might have a dream box in mind, but find out that half of the items have already been discontinued and are no longer available. Some might be available only in awkward quantities, such as a box of 200 pieces when all you needed was 150.

These limitations mean that to find a box containing 5 items, you might need to investigate more than 10 to be able to settle down to 5 which are practically possible. This can be made easier by using a catalogue of products which you know are available.

Growth & improving processes

After these repetitive tasks are dealt with, comes what at least to me is the most interesting part: expansion! This means discovering new marketing channels to try, optimizing your homepage for conversions, improving your box, hiring staff, including new types of inserts in your box etc. things which will change the month-to-month operation, hopefully for the better. You then also get to look forward to other things you could expand to, perhaps increasing the variety of your subscription plans or start/acquire completely new lines of business.

It is also quite enjoyable to think of ways to improve operations, such as eliminating some steps required for putting together your box or finding a way to otherwise not do something you were previously having to do every month. This sort of improvement is very useful for your sanity as well, as it will make you feel optimism: “ah, things can get better!”.

Thanks for reading

Can you help me out and let me know how much you would be willing to pay for an ebook on subscription boxes? You can do so here: Subscription Box - Start and Grow Your Box From 0 to 1000 Subscribers. It will have around ~100 pages of my thoughts and advice on running a subscription box, based on what I've learned running Candy Japan and other subscription boxes for ~4 years.

Nobody's Going to Steal Your Idea

I've been meaning to write this for months, but felt a bit hesitant to pen down.

I started Candy Japan, our Japanese candy subscription service in July 2011. It was supposed to be business experiment to see what it would it be like to sell something on a subscription basis. It started with just a hacker news post and a trip to the convenience store to pick up some sweets to send.

The idea was that besides actually sending the candy, I would blog about everything I learned while doing it. Treating it as just an experiment, I figured I wouldn't need to be too secretive even with usually sensitive things such as marketing experiments or revenue reports.

Wow, it's been running for 4 years now

Based on what I learned from the "experiment", I expected to have other businesses going by now. The "real ones" based on the information gained from the candy experiment.

I surely didn't expect to be just sending candy for this long! When you have a decent subscriber base, it keeps you going.

Candy Japan keeps occupying this huge space in my head and eats up a ton of my energy. On top of the twice-monthly activity of handling shipping and curation, there's always something that needs to be done or something that could to be tweaked or done better. Kind of like the game Civilization, "just one more turn". Always one more thing to do.

As the years and work I've put into this silly project have piled on, I've gradually started feeling more protective. I don't want to feel this way, but I guess it's human nature.

The competition

Being such an extremely niche thing, I thought at most someone reading my posts would think "hmm, I guess this kind of subscription business is pretty neat, I will apply this information to start my own crocodile leather underwear of the month club". But out of so many different things you could be sending in boxes, I thought it was pretty unlikely that anyone would also bother sending specifically Japanese candy.

But actually over the years many others have also started Japanese candy of the month businesses. Possibly just coincidentally (despite the provocative title of this post), although I'd like to think I inspired at least some of them.

Japanese candy boxes

http://oyatsubox.com/

http://okashiconnection.com/

http://marimomarshmallowstore.com/collections/marimo-candy-club

http://skoshbox.com/

http://japancrate.com/

http://www.jlist.com/product/SNACKSUB1

http://www.japanesetreats.com/

http://www.freedomjapanesemarket.com/japanese-snack-subscription-box

http://oishiibox.com/

http://tastejapan.net/

http://www.shikibox.com/

http://www.omnombox.com/

http://www.nandemobox.com/

http://tokyotreat.com/

http://www.otakyou.com/en/otakyou-box

http://www.japancandybox.com/

There also some more generic ones such as http://www.grubbox.net/ and https://www.snackcrate.com/.

Did you just promote your competitors?

Yep, by mentioning them above, I just sent them some nice quality traffic and Google juice. Why would I do that?

Because from the "business experiment" perspective it's dishonest for me to continue to pretend that they do not exist, when actually I could learn a lot by seeing what they are doing differently. And if I do learn, will I just pretend I magically came up with those ideas? Doesn't feel right.

I also want to lower my feeling of protectiveness and the stubborn "sunk cost fallacyish" emotion of having worked on Candy Japan for so long. I'll try to force myself not to get too attached, and write from a bit more objective point of view to truly continue learning.

So with this out of the way, stay tuned for the next post on how this competition has impacted Candy Japan.

Update: Wow, this really exploded, thanks to all the people currently reading this page :-) We even got some orders since this post went live.

Sales results from getting 3 million views on YouTube

Dream of having a video of your product in front of millions of viewers? I recently had that dream come true. Without any active effort on my part, Candy Japan got randomly contacted by a YouTube channel with 300k subscribers.

Just as a quick summary of what the business is, it's a subscription club where you get random Japanese candy delivered to you twice a month.

So did I become an instant millionaire with the sales that YouTube video drove to the business?

Here's the video.

As you can see, it ended up getting over 3 million views.

How I got featured on the channel

Here's how it happened. Roughly the following email came in (I just changed it a bit, since I have no permission to quote the actual email).

"We have a channel on YouTube which reviews candy, with over 60 million views 150k views per day. Our candy reviewing segment is one of the most popular shows on YouTube.

We think Candy Japan would be perfect for our show. Would you be interested in providing a review sample of your box?"

Since I happened to be around right then, I could shoot back an answer immediately and we got things moving quickly.

YouTube viewer stats

I shipped them a review box (they credit us in the description) just a month later the video was up. Here are the statistics from YouTube for the video:

While the video has no actual link to the Candy Japan website, it mentions the site name in large letters in the video. That means the only way people could navigate to the site would be by typing in the URL directly, so all traffic should show up as direct views in Google Analytics.

Results

In the statistics for the video, you can see daily views double from around 12000 to 24000. If the video was truly having a big impact, there should be a noticeable jump in views when the jump happens. Here's a screenshot from Google Analytics. Around the middle the big jump should occur.

Amazing, isn't it?

Actually, nothing happened. The chart looks rather flat. In the middle there should be a huge jump when daily video views doubled. I know the source for the slight spike in the end and it has nothing to do with YouTube (it was an image with a watermark posted on Reddit).

Conclusion(s)

Is YouTube a wasted effort, everyone is just channel surfing and not actually out to go away from YouTube? Without a link from the video description, even a very popular video will not necessarily drive direct visits. Conversions are not showing any jump either.

Maybe this video just had a really poor audience from a sales point of view. At least this shows it is not a given that a really popular video will drive sales or even any noticeable amount of visits. Some of you have complained that my blog posts sometimes have a downer ending. Sorry to disappoint, but reality doesn't always make for an upbeat story!

Candy Japan 2015 Q1 update

In 2010 I started a "Japanese sweets of the month" subscription service called Candy Japan where I send subscribers random surprise candies twice each month in exchange for a monthly payment of $25. I've tried to keep actively blogging about it with unusual openness, perhaps in a bit too revealing detail even, ever since launch. So here's an update on what's been happening since the last post.

Subscriber numbers

The subscriber numbers have stayed pretty steady, currently at 970. Staying over 1000 is important not only as a psychological milestone, but because Japanese postal mailing discounts start at 1000. Whenever I've gone slightly under, I've tried to bump it up to this number by sending review boxes. You can apply here if you have a blog and would like to write a review. I will send more review boxes out when I have some extras to send again.

It's been a pretty eventful start of the year, but not totally in a good way. I've been consumed by practical matters that haven't really improved the service from a customer point of view but that have been things that I've either been forced to do or I chose to do to lessen my workload.

Tax switch

Firstly switched from paying taxes in Finland to paying them in Japan. Not for tax optimization, but simply after living three years in a new country, in the Finnish system taxation shifts to that country. Since I passed that time limit, it was time to do the switch.

Doing this switch required filing a lot of paperwork all in Japanese, so I had to learn new vocabulary and redo some books. This ended up taking a lot of my focus for the beginning of the year. It was actually a kind of nightmarish situation. I felt completely overwhelmed, as while I manage to get my point across, my Japanese still isn't super advanced.

For a while I was so worried about doing things correctly. I started stressing about all the paperwork I had to do, maybe making a bigger deal out of it in my head than it actually would be if I approached it calmly. My days were filled by reading about tax treaties, checking how to file paperwork in Japanese, meeting with the tax office, emailing and calling the Finnish tax office. It even started impacting my health as I started to eat more and not sleeping well just as a stress response.

One of the most difficult parts was that at first it seemed that I would need to split my income into "Japan based income" and "foreign income". But in my own books I was just getting a lump payment that was a mixture of both. I spent a week trying to write code to parse credit card processor statements that would go through all the past activity to split it into the required categories, only in the end to discover that actually I didn't even need to do that, but I put it on GitHub in case the codebase would be useful for someone out there.

Dead ends

I tried to find a manufacturer in China to manufacture boxes and packing tape more cheaply. I contacted three companies through Alibaba, asking for quotes and a template file to design the illustrations, but had trouble getting straight answers on how to proceed, so ended up just continuing to work with the current Japanese manufacturer. So that went nowhere and was again a bit of wasted effort.

I tried to learn more about how to make videos and about photography in general, with the idea of creating some interesting content for getting the club more known among new members. While I've learned a lot of stuff, I'm yet to actually make any videos.

Improving customer support

I had trouble keeping up with customer support. Although there isn't that much of it, there is enough that if I'm focusing on some other task for a while, enough will pile up that I'll start to dread starting to go through it. After only thinking about taxes for a few days, it felt terrible that my reward for that effort was a big list of support tickets to go through. To combat this I made two changes.

Firstly I took an evening to go through past emails and look at what are the most common reasons people email. I discovered about half are requests for free review boxes and the other half are people asking for updates on their orders. I added some new ways for people to get this information themselves by improving the order page and by adding a Zendesk trigger to reply automatically to review requests. This reduced the amount of incoming email a lot.

The second thing was finally getting a newer smartphone and installing the Zendesk app on it so I would get push notifications on new messages. While I won't necessary answer them right when I get a notification, it's a nice reminder to soon make the time to go through support tickets. Now I'm responding to new questions in less than 24 hours on average.

Outsourcing returns

One task I really dreaded was dealing with bounced packages. Sometimes when you mail a person, they have moved or are not home when a package is delivered. In those cases the package often gets returned back to my home. When you send thousands of packages, if even a small fraction of those gets returned, it means that if I'm away from home for a bit I'll get piles of mail. For each piece of mail I would need to contact the person by email to explain that their mail was returned and somehow make it up to them.

I guess I'm being generous, but even in the cases of wrong addresses I've always taken the blame and tried to make things right, even if technically it isn't really my fault. I feel the club is doing well enough that in edge cases I can always just assume the blame, as it won't end up being that big an expense and I'll have pure conscience that I'm running things well. But to make things a bit easier for myself, I "outsourced" dealing with these returned packages.

I wrote some Python to print barcodes on the back of packages and now they just get scanned if packages are returned, firing off an automatic email explaining the situation to the customer. This means customers have a better experience (faster response) while requiring less work for me. Most importantly, not driving my wife crazy by having our mailbox constantly full (it only fits three packages at a time).

In conclusion

While subscriber numbers have kept up, it was a pretty challenging start of the year. After finally wrapping up my studies in the end of 2014 I was hoping this year would be just fun-filled awesomeness, but it hasn't turned out like that so far. Hopefully now that I have things under control again, I can start making more changes to more visibly improve things.

If you would like to try some Japanese candy. In addition to the candy, we also send a twice-monthly newsletter out only to subscribers, containing some more updates from us. You can sign up here.

Candy Japan 2014 Year in Review

Subscriber count triples

How it started

In 2011 I had recently moved to Japan after my wife landed a job here in Tokushima. Despite having studied the language and working as a programmer before, wasn't too keen on becoming a salaryman for a Japanese software company. Instead of becoming an employee, I decided to see if there might be something I could sell online instead. I considered a few things I might sell online (ramen? tea?), but settled on sweets quite fast as they seemed like a good balance between fun to subscribe to and easy to send. It was also a good fit for a recurring subscription. I liked the idea of having a subscriber base that would be somewhat stable. Candy Japan was born with the idea of introducing Japanese sweets to people around the world by sending samples via physical mail twice a month.

I managed to get a handful of people to sign up to validate the idea even before having a website. After being encouraged by that, I set up a site and did a Show HN post. Some blogs picked it up and quite rapidly I had 300 paying subscribers. As the newness of the idea faded it became a bit more difficult to find new members, but I managed to keep the number hovering around 300 for the next three years. That was just enough success to keep me going.

2014

Instead of trying to aggressively expand or start a new project, I decided to go back to school to finally finish my M.Sc. degree (just got it for Christmas). While my university is in Finland, what I was mostly lacking was a thesis and a few remaining courses. My professor was kind enough to allow me to complete those remotely. At this point the site was running well enough with many tasks delegated, allowing for the extra time to do this.

To my surprise, while focusing more on writing a thesis and completing some courses rather than promoting Candy Japan, it actually started growing like mad. During the year subscribers tripled from hovering around 300 to over 900. There were days we sent over 1000 pieces of mail.

One thing that did improve with the service was occasionally sending some larger boxes and commissioning a professional photo, which was easier to do than I had imagined. Walk to photo studio with box in hand and tell them to take an attractive picture of it, for about $50.

The pricing and landing page have remained almost the same as before. We kept fulfilling orders that came in and resolving any customer issues, but mostly I kept focusing on schoolwork.

What worked

Looking back the success seems attributable to many small trickles of traffic resulting in a bigger stream. It always seems challenging to know exactly WHY someone subscribed, as it is more likely a combination of things. Anyway, here is what I notice from looking at analytics:

- Someone wrote a BuzzFeed post that kept slowly sending a new trickle of traffic, which over the whole year resulted in 49 new subscriptions.

- Procrastinating on Reddit! I noticed an askreddit post titled "What is the most ridiculous thing available on the internet for $25 shipped?". As my subscription happened to cost exactly that, I replied and that led to 28 new subscriptions. This felt like a rush, as I was just wasting time on Reddit and suddenly had 2000 visits that day from just a comment.

- Blogging about the service here really helped.

- Many subscription box review sites (that's a thing now) mentioned the site and sent subscribers. I did spend a ton of time sending review boxes to the bloggers, 230 of them in total. Most of those resulted in nothing. I suspect many of these conversions might be people that were already on the site, but went searching online to find reviews before signing up. Still it seems probably worthwhile overall.

- Facebook sent 47 subs, Twitter 11. I'm not sure if these are from organic sharing or my own posts / paid ads. Google Analytics just shows all of these coming from root path of FB and Twitter just reports them as coming from "t.co".

- All of the above made Google like the site more, resulting in twice as much organic search traffic. That was very significant, as search results in hundreds of subs. Or maybe there is just more search traffic for subscription boxes overall?

- My old AdWords campaign suddenly started working in July, again just a trickle but over the year 34 subscribers on top of everything else. Before that it was essentially dead, but without tweaking anything it started working. Again could be that I was just capturing more people who were already searching for the site.

- Sites like msn.com, lifehacker and huffington post did some "top 10 subscription sites" type listings and mentioned the site with no prompting from me. While those are famous sites, these were very buried links, but still resulted in total 23 new subs.

What didn't work

In 2013 I had grand plans on featuring different Japanese prefectures, which still sounds like a fun idea, but didn't get around to doing. I also had plans to get the first envelope to subscribers sooner, which was a partial success in that I have a system of doing that now, but still need to reorganize things to be able to ship every day instead of twice a month as we are doing now. I did manage to buy some items directly from a manufacturer, but didn't keep doing it despite the better margin, as it was more helpful to have a middleman help find items for me.

Next

In 2015 I plan to simply keep iterating to improve the service. Outsourcing handling of returns (packages that come back because subscriber moved to new address etc.) is my January focus. I will also look again into offering another subscription tier and see if it might be possible to add a shop for individual purchases. Mostly keep doing what works.

If you have ideas, questions or feedback, feel free to contact me@bemmu.com.

Complete Truth about Christmas in Japan

Christmas is not recognized in Japan in the same way as in the west, although companies are pushing for it, as getting everyone into the Christmas mentality would undeniably inspire a huge boost in sales. It would basically mean an annual spontanous appearance of bags full of gold in the company headquarters, making the upper management reach that coveted period where you are still smiling and feeling happy, before your board of directors pushes you to get twice as many bags or else.

The evil New Year still reigns supreme, with Christmas being more like an outside thing that nevertheless has managed to penetrate somewhat through aggressive advertising efforts. Hopefully after crushing New Year, Christmas can totally take over and instead of eating inferior new year foods with only a 1200 year history, we can all just get fat on turkey and ham like normal people.

First rule of Meat Club is doughnut talk about Meat Club

The forced fitting of a foreign custom does lead to some strange phenomena. When a country has no concept of christmas yet and there is a concerted effort to bring said concept there, there is ample opportunity to tweak some things to benefit the parties funding the christmas PR bonanza. One successful variation that slid through was that instead of turkey or ham, the thing people often eat on Christmas is a white cake with strawberries (not pictured, sorry, ate them all). I imagine there was some underground fight between the head of bakery association and the head of the meat producing association, fighting it to the death over which product would become the thing you eat on Christmas. While the meat guy was not afraid of blood and was highly trained with butcher knives, ultimately the baker managed to distract him by throwing flour into his eyes, followed by a quick bop in the head with a rolling pin. After that the poor meathead collapsed into a huge pile of dough.

The baker probably said some lame oneliner such as "Dough Christmas, huh?" while turning on the heat. Oh and incidentally, this is how Japanese Meatloaf was also invented. So that is why instead of turkey or ham, we now have Christmas Cake in Japan instead.

Mutant Colonel Sanders

Next we must dive into some biology to explain another cultural abnormality. DNA is the material that carries genetic information. Such as organisms have DNA, countries have their own cultural DNA. The material gets copied around to enable the survival of the fittest culture. One Saturday, as cultural DNA was being copied from USA to Japan, a minor copying error happened. Usually these are not important, but this mutation was

in the "KFC" gene.

The KFC gene creates an organelle called the "fast food restaurant". It works similarly to a mitochondria, except instead of making ATP, it produces buckets of grilled chicken, which have an even larger energy content. When the KFC gene was copied over to Japan, there was a random mutation which caused customers of KFC to believe that on the day the son of god was born, customers should try and consume dead animal tissue at KFC.

This mutation turned out to be very beneficial to the company, as now each Christmas they manage to collect larger piles of green pieces of paper than on other months. Researchers have still not reached consensus as to why this mutation also causes the Colonel Sanders character to change its outfit, but as long as funding continues, they believe an answer could be possible in the 3-5 year timeframe.

Call to ACTION

Your only hope in reversing these unnatural mutations and to defeat the evil baker is to subscribe to Candy Japan. By exporting strange Japanese candies to abroad, we will make foreign cultures see how dangerous this type of cross-cultural pollination is. After they realize their past wrongs, it is only a matter of time before Solonel Sanders and the evil cakes will be recalled from Japan.

Candy Japan crosses $10000 MRR

Essentially Candy Japan is a "candy of the month" subscription service where I send subscribers random surprise candies twice each month in exchange for a monthly payment of $25. Initially I promised to send an envelope every two weeks containing 1-3 items, but eventually I have started to send larger boxes as well, since not all types of items can fit in a slim envelope.

It started from a simple HN post and a comment thread. It grew thanks to several blog mentions to about 300 subscribers. For a long time it seemed the subscriber numbers wouldn't grow past that. But now I'm happy to report that ceiling has been shattered, and recurring monthly revenue has now crossed $10k and customers are reporting that they are happy too. Below is a chart of the subscriber growth.

Initially I worried about issues with customs, but based on surveys customers are reporting that they are receiving their packages without customs issues. Well, we did have one package where the customs officials opened it and checked whether a pouch of powder was actually candy or something more suspicious, but that is the only reported case out of thousands of packages sent and did not result in any trouble for us or the recipient. Overall everything is working very well. Sometimes packages do get returned to me (usually due to wrong address or customer not being home to accept a delivery) but I always take the time to solve these issues with the customers and resend packages.

Nice, you have some revenue now, but what about profits?

Out of that $10k / month revenue of course not all (not even most) is profit. Compared to a SaaS, the costs are very high, but I've carved enough profit margin to reach an income level similar to a Japanese salaryman now. The major costs are shipping (we use Japan Post) and the products themselves. I'm now spending enough on shipping that people at the post office know me by name. They probably also feel slight terror, as seeing me can mean extra work.

No special discounts yet, but it seems likely I can start enjoying a small discount in the future if the subscriber numbers continue to grow just a bit more. If we send more than 1000 items in a single day then there is a 10% discount. Last time we sent 700 in a single day, so just a bit more growth. Strangely it only matters that I send 1000 items at once. They don't all have to be candy shipments. Actually I've calculated that I might start saving money soon just by shipping some empty envelopes if I really wanted to cross that 1000 limit fast, since the discount is just based on a threshold ;)

The meaning of "free review samples" in the chart

Lately a small part of those shipments is going for free to blog writers, YouTube video artists and other creative people who have showed an interest in possibly featuring Candy Japan. To help them write their posts or create their videos, I send some samples out. Initially I hesitated to offer the free samples as it quite rarely results in any noticeable traffic at least in Google Analytics, but now I use these review samples to pad out the shipments. The thing is that candy manufacturers don't want to sell you incomplete boxes. You must buy whole boxes, but if a box has 200 pieces of candy in each box but you have say 550 subscribers then you must do something with those 50 extra pieces you would otherwise waste. So whenever I have a situation like that, I send those extra pieces to reviewers. I don't go out looking for reviewers, they seek me out. I get email almost daily from blogs that want to review the shipments, mostly from the community of "mommy bloggers" (that's a thing it seems) and others who are writing product reviews as sort of a hobby. Whether this is the best use for those extra pieces of candy I am not 100% sure, but it does result in some conversions.

How shipping is handled now

Apart from shipping the other major cost is the candies themselves. I haven't been focusing on improving the margins there as much as I could. Instead I chose the path of convenience, where I have an arrangement with a local supermarket. I give them suggestions on which candies I think foreigners might be interested in and they then contact the suppliers to see which ones they are able to get.

The suppliers send the items directly to the supermarket I am cooperating with, so there is no longer any need for me to physically receive boxes of candy. Which is great, since we live in the third floor with no elevator and it was getting a bit ridiculous to do all the shipping ourselves in the beginning :-) The relationship with the supermarket built gradually. Since this has been ongoing since 2011, I went from being a strange foreigner bothering the boss with requests for a few dozen extra packs of candy to being the "Bemmu-kun" who casually walks to the back room while employees are slurping noodles in their breaktime. Having orders made for me is easy, but I am throwing away some margin there.

I did make a small breakthrough recently by making the very first purchase directly from a manufacturer. It happened thanks to a fortunate connection I made through Hacker News. Through HN I got introduced to a coworking space in Osaka called Knowledge Salon (thanks @yuzool) and met someone there who is experienced in dealing with Japanese manufacturers. He helped make the initial phone call and thanks to his introduction we made the first order, which was for 550 pieces of a larger candy variety box, which was apparently a large enough order that they felt it was worth their time.

After having the initial phone call made by a fluent Japanese person (and seeing money really getting transferred to their account), they were also willing to deal with me directly. Obviously ordering from them was much cheaper than buying from the supermarket, which enabled me to send subscribers a larger shipment than usual that time. Sadly that manufacturer only makes a certain type of candy (ramune) and their selection is too limited to make many orders from there in the future. But it was encouraging to see that direct buying is possible. I also learned that phone and FAX were still preferred over email.

Going back to our arrangement with the supermarket that I usually use to place orders, after we decide what to send and the supermarket has received the items, I prepare a shipping list for them and the supermarket employees help do the shipping. I have a Python script running in Google App Engine that gathers all the subscribers that are supposed to get a shipment and a PDF file is generated from those (complete with customs forms) that the supermarket can then print and attach to the packages. We used to write each form by hand! Ah, so glad that is now automated.

Our relationship still doesn't really feel much like "drop shipping", as I am physically meeting with the people there several times each month (and buying my groceries while there!). There are many reasons to meet such as handing over my latest candy discovery for them to check with the suppliers, or stacks of cash to pay for a previous shipments or demonstrating how I would like them to pack some special shipment.

What are you doing now then that most laborous things have been automated?

My task is now mainly curation; coming up with a mix of interesting tastes, striking a balance between adventurous and safe choices. To up the element of surprise I sometimes burn some extra money on larger than promised shipments and include DIY-candies and other specialities. Once I even commissioned custom chopsticks to be made with the name of each subscriber carved on them. Everyone loved them, but I ate up my profit that month with that extra gift. It's difficult to resist spoiling my subscribers and hard to remember to keep some profit too sometimes.

Besides curation other tasks that remain for me are responding to customer requests, dealing with bounced packages (because customer moved / entered their address incorrectly / post office made a mistake etc. it happens), content writing, photographing the items, marketing and site improvements.

Content writing is necessary because subscribers might not know what they are eating as all the candy labels are in Japanese. I send a twice-monthly newsletter which describes all the latest sweets. It takes me a day or more each month just to do the research and write the content for that newsletter. Next month I will get some help with this from another foreigner living in Japan who has some experience in blog writing and unlike me is a native English speaker (I'm Finnish), so perhaps he will be able to write some of the candy descriptions in the future. I have also found a local photo studio happy to take better photographs than me armed with my iPhone camera in a poorly lit room.

Handling customer support

A big pain point I had for a long time was dealing with customer support. My personal inbox was getting clobbered by tons of Candy Japan -related support mails (concerning changed shipping addresses, "I forgot to update my address and package was sent to where I used to live", expired credit cards etc.). I began to fall behind in support requests and as my inbox kept getting bigger it made me reluctant to check my email at all, resulting in even more email piling up. The whole thing felt very unorganized and I realized I need to take control of the situation, as it was starting to have an impact on my overall happiness. My solution was threefold:

1) Switch to a support ticket solution. While still the overall work is the same, now I have a more clear way to mark support requests as having been dealt with, better separation of my personal email from support email and some glimmer of possibility that in the future there is a clear path to delegate this task to someone.

2) I started writing a support manual. If there is some issue that keeps happening, I have started writing those down with clear steps on what to do in those cases. Support is actually easy to do when the response is already known beforehand.

3) When getting an email, spending some time thinking WHY I received that email and how I could PREVENT similar emails from being sent to me in the future. I realized that many of the emails I get were because customers wanted to change or view their subscription details, so I added a simple page on the site where they can do this without needing to contact me. I will still make any requested changes myself as well, but taking steps like these will reduce emails a bit.

After these I am now in a place where my email support workload is gradually getting smaller and easier, instead of in a place where my inbox just gets longer and longer. Now I can deal with support in about 30 minutes each day and from customer perspective have faster and more predictable response times.

Thanks for reading

You can discuss this post on /r/entrepreneur.

Candy Japan 2013 Year in Review

The story so far

In July 2011 I posted on Hacker News about an experiment to start a Japanese candy subscription service. I live in Japan, so the idea was to send surprise candy stuffed into envelopes twice a month to subscribers directly from here. It worked. The word spread. Turns out many liked the idea enough to join as paying members.

After the initial Hacker News post in 2011 there were around 100 paying members. End of that year 257 members. Now in 2013 we grew from 310 subscribers in the beginning of 2013 to 426 at the end. Christmas gave a bigger boost than expected, December being the best month ever to date. Many people bought gift subscriptions, even though there was no Christmas promotion.

USA, Canada and Germany have the most subscribers. Retention based on first quarter cohort of 2013 is such that out of the 61 people that joined then, 6 months later 22 of them were still around. The curve is such that it seems safe to assume that if someone joins, they stay at least 4 months. That is just the average I can use to figure out lifetime value; some stay years, others immediately quit. Based on older data, even 6 months may not be a crazy assumption.

Emotional roller coaster?

Wired contacted me, telling me they were going to mention the site on their website. I got very excited about the prospect, imagining the thousands of paying customers that would surely be hitting my site any moment. It turned out to be just a half-hidden mention in some sub-blog of theirs and brought no customers. Actually even worse, it was one of the last slides in one of those "click here to see next slide" style picture posts that everyone hates. Yet another day someone completely out of the blue included a mention to the club above the fold in a popular BuzzFeed post. Around 30 people subscribed just from that.

My feelings running this club cycle between "wow, I'm so lucky to have such a cool revenue source" and "what am I doing with my life?". Not the emotional roller coaster of running a full blown venture funded startup, maybe more like one of those kiddy rides where you ride on a cute pig. Luckily there have been no true lows and the main direction has been up. I never liked Space Mountain anyway.

Is this "passive income"?

A passive income source is just as passive as you want it to be. You can always spend all your time trying to improve things if you choose to. When you choose not to, you risk being eaten by competition or missing growth opportunities. This has certainly happened to a degree. But what good is a "passive" source if you don't take advantage of the freedom sometimes?

So with this in mind, in 2013 I took some time off for personal pursuits (writing a Master's thesis, passing Japanese JLPT2 and some other licenses) instead of focusing 100% of my time running the site. Not that Candy Japan is even truly passive income anyway, as I do spend a bunch of time each month researching products and dealing with the shipments / customer support, but still I can get away with quite low hours spent if I really want to.

Things I tried: Playing with packaging

Tried using a proper box with more volume instead of just an envelope. The experiment was a success in that I found a supplier for the boxes and managed to do test shipments using them. Turns out that material and work costs for them are quite a bit higher, as it takes more time to put them together. In a customer survey 87% chose they "loved" that shipment, which is the highest happiness so far. Whether to continue using them instead of envelopes will still require some more thinking. Perhaps a physical A/B test where half of the subscribers are sent a different type of package and compare retention (yes, I tend to overthink things). I fear throwing money away for a benefit that only exists in my head.

Cost of shipping itself is based on weight, so that was not affected. Items with higher volume tend to be more airy, so the weight is not necessarily more even if the volume is larger. For example crisps are less dense than gummies. In addition to possibly higher customer satisfaction, boxes seem very photogenic for blog reviews.

Playing with pricing

In 2013 the price was changed from $23.90 to $25.00, with old subscribers grandfathered in to the original price (GRANDPA coupon to get the old price). It seems to have had no difference to signups, however did not do a proper test here. Obviously this being a physical product, the impact to margin is huge from this extra dollar and gives more breathing room to play with different ideas.

Failure: Inability to do advance planning

Tried to get ahead and choose candies for several months in advance. In practice this seems to be impossible, because many products suddenly go out of stock. I can't buy everything ahead of time either, because of shelf life and subscriber numbers changing month to month. It would be nice to have a longer view, as now we are scrambling to choose a nice candy combination just weeks before it is supposed to be going out, with the process repeating twice a month.

Learned more about my customers

Ran a questionnaire. The biggest takeaways were that some people were upset with the poor schedule of sending out explanation emails. A surprising 25% of responders claimed to be willing to pay $36 extra per month to get more premium candies. Including more options like these might increase the value of visitors. I always hesitate to create more work or complicate things, as at this stage this is not profitable enough to hire anyone to help full time.

In the questionnaire I also asked member preferences. Learned that the least favorite candy is bubble gum and the most favorite ones are anything strange, gummies and chewy candies. Overwhelmingly people were satisfied with the amount of candy they are getting, some even saying they are getting too much.

Started receiving a torrent of "I want to review your product for my blog" -emails

Received about 100 such requests during the year and the pace seems to be accelerating. It is suspicious how many of these I am getting, with the emails somewhat similar to each other. Maybe someone has come up with a guide on how to get free stuff from subscription commerce companies? I tend to be a bit suspicious, so before I understand a bit better where these originate I have been hesitating to agree to sending free product out, even though it could be low-cost PR.

Where to go from here

Featuring different prefectures

Had the idea to focus each month on a different Japanese prefecture since there are 47 different ones. I could make the club more educational by featuring information, pictures and the mascot of each of them. It was not so simple to arrange though, as apparently many of the products can only be sold inside those prefectures. I learned that not any supermarket can just order any product at will, but that there are regional and other limitations. I would probably need to travel in person to each prefecture and do shipping from those places myself. Which does sound like an adventure.

Negotiating discounts

I am still buying everything at nearly normal prices and the same goes for shipping. I have already had a meeting with the post office and learned that after hitting 1000 subscribers it could be possible to get a shipping discount. It surprises me that they even have such discount, as if I don't get it, where else would I go? It seems I have no negotiating leverage, but they are nice enough to have them on offer anyway. Same goes for the candies. More subs, bigger discount.

Improving time-to-first-envelope

Same contents going to all subscribers on the same day reduces effort. Instead of small shipping tasks spread all over the month, there is one intense 20 hour period of activity twice monthly. Hiring someone to help me half an hour each day would be more difficult than having helping hands for a longer time twice a month. Less obvious benefits include being able to print all shipping labels in one shot and getting special treatment from the post office as the shipment size is large that day. Having just one receipt for shipping even reduces bookkeeping work.

So perfect, right? Well, it's not perfect for the customers unfortunately. When someone subscribes, it can take up to 15 days before the next shipment day comes around. Then on top of that international shipping takes time, too. It can take over a month to receive the first item after joining, which understandably creates tension as customers start to question their decision to subscribe and whether they will actually eventually receive something in the mail.

For this reason I am thinking of setting up some "welcome envelope" that would be sent ASAP when a new member joins. The details for this are still open though. The biggest one being that if someone subscribes just for one month, I would end up sending them this welcome envelope in addition to the two regularly scheduled ones. This would possibly negate any profit from such customers, but it could be worth it if it means I can retain more customers that end up subscribing for a longer time if I manage to make them happier from the start.

There are tons of things I want to try and hopefully one year later I can post with some more results. If you have ideas, questions or feedback, please contact me bemmu@candyjapan.com.

Thanks to Dinoangelov, makerops, dbarrett and Brucem (check out Open Dylan, he is a big contributor) for feedback.

Accepting my first credit card payment without PayPal, part 2/2

This continues from a previous post.

After getting accepted by the credit card processing company in Europe I got a contract from them to sign and a short 5 minute (very polite) phone call which was just a small check to verify I'm indeed a real breathing person reachable at the phone number I provided. As mentioned before, I additionally proved my identity by mailing in utility bill and passport copies.

In the book "Anything You Want" Derek Sivers, who started an online CD store, wrote a bit about how you don't need Terms & Conditions and other such boring corporate stuff for your website. Well, during this process I discovered one reason to have them, as the compliance department would not otherwise accept my sites. Additionally I had to write a privacy policy and do some other minor changes to the site. This process is needed for each "business case" - a site you want to accept credit cards on.

Next, I got a login / password to a site where I had to complete a self-assessment to indicate I know how to handle credit card details correctly. Because I am using Recurly and not touching any credit card details myself, this part was easy to fill and took less than an hour although I felt a bit intimidated to get started (what if I answer something wrong?).

Now the merchant account was open with the credit card processor, but their service could not yet talk with the recurring payments solution Recurly. A few days of confusion followed, as I had already received two sets of login / passwords from the credit card processor, but neither of those worked for interfacing with Recurly. Turned out a third set was needed just for API access.

Finally after this I could actually add the hooks to Recurly in my code. Recurly communicates payments to me by POSTing notifications in XML to an endpoint I give them. The Recurly-specific code in my case is about 50 lines of Python and 40 lines of Javascript. Things this code does is showing the payment form, taking note of new subscriptions that are created and adjusting how much candy I owe to each person as money comes in.

Money from these transactions then appears on my bank account once a week via wire transfer. Well, there you have it, a simple case of accepting credit cards from start to end. Please comment on Hacker News or email me@bemmu.com.

Delegating a task successfully on oDesk

If you've ever kept a diary of what you spend your time on, you might be surprised to notice how little of it is spent on "core stuff that actually takes me forward". To increase profitable time, you either cut away time sinks or leisure time spending, or find a way to create more time by delegating. If you have a limited budget, freelancer sites like vWorker, oDesk and elance enter the picture for the delegating part.

I've tried vWorker before with bad results. I commissioned some content creation work and being inexperienced at this, I just hired a random applicant who proceeded to copy & paste content from other sites instead of creating original work. To educate myself about finding the right workers, I've decided it's time for another experiment, which I'm calling "the $500 management training program". It means that during what's left of this year I am going to spend no less than $500 attempting to delegate tasks on oDesk, no matter what. I consider this money gone already, it's an education fee to learn how to find workers without getting scammed again and hopefully discover good people that I can assign more tasks to again in the future.

I am happy to say the experiment has started off quite well and oDesk is much nicer to use than vWorker. So far the tasks I allocated were redesigning a Facebook app (UX work) and doing an illustration for Candy Japan. With the app redesign I had another failure, the freelancer either misunderstood the task or couldn't do it. I did communicate the work poorly and did not pick the worker carefully at all. Another worker thought the whole job was just about zipping files (since I asked for the results to be delivered as a zip file) but didn't understand that they were supposed to actually create the content for the file too.

The illustration one however I'd like to consider the first clear success. Instead of posting an open job, I went through several portfolios before deciding who to send my offer to. I made it absolutely clear what I wanted (by sending her a very crude mockup), outlining what I wanted to appear in each panel and trying to respond to messages as fast as possible. I'm quite satisfied with the end result, it looks so good that it could appear in a published comic book. How much would you think this cost me? The answer is inside the next paragraph, but take a guess first.

I have seen manga illustrators at work here in Japan, it is incredible how fast a professional can produce great quality works, so I have trouble guessing whether it took her 30 minutes or a whole day to do this. In any case, I paid her fifty dollars. The compensation would seem low to me considering the quality of work, however for someone in the Philippines depending on the hours spent it may be a reasonable amount.

Comments welcome by email to me@bemmu.com or on Hacker News. I try to respond to everything. RSS feed. Thanks to kephra, bradleyStC, brownies, ziyadb and bonsaikitten on #startups for feedback.

Accepting my first credit card payment without PayPal, part 1/2

This is a bit of "behind the scenes" post. We've been selling surprise japanese candy subscriptions online for about a year now, all through PayPal up to now. Today, we finally charged our first customer without them.

There's a lot of PayPal hating out there, but personally I've never had any major issues accepting payments through them. I've been a user for years and accepted thousands of payments. Still, I thought it was a bit risky to solely rely on them and conversions might also be taking a hit every time I throw a user off to PayPal land instead of just asking for their credit card info on my own site, so about half a year into the Candy Japan project I started to look a bit more seriously into it.

It started when I came across a free ebook (eleaflet?) called "How to be a Credit Card Processing Ninja" (author told me it is no longer updated since FeeFighters got acquired). It explained how the whole system of accepting credit cards roughly works. Gaining a bit of understanding of the process motivated me to push on. Not all of it applied to me, as I wasn't really in the position to start comparing payment gateways against each other, my problem was more about finding one that would even accept me as I'm not based in the US. Before I realized that I did try contacting Braintree and Authorize.net. From Braintree the reply was "We are currently only set up to provide merchant accounts for businesses with a physical U.S. presence" and the same for authorize.net. So how about Stripe?

In 2011, on impulse I signed up for the Startup School event, which is a Y Combinator event consisting of lectures and mingling with other startup founders. I flew over from Japan and watched the presentations in total jetlaggety state (protip: if flying over, give yourself time to rest before the actual event begins). There were YC company office visits available, one of those being Stripe. They're a cool payment processing company backed by Elon Musk among others, who interestingly was one of the founders of PayPal. I got to chat personally with the Stripe guys, but sadly it turned out that they wouldn't be able to help me either, I really need to be in the US to use them.

Well, I wasn't in any particular hurry to get a new payment system up since PayPal was working OK, so several months passed while I just kept my eyes open for any new information. On Hacker News I kept noticing several mentions about services that help you manage automatic billing, such as Recurly and Chargify. One evening I was just randomly browsing the Recurly support site, fully assuming I wouldn't be able to use them. Going through their list of "additional payment gateways", right near the end it mentioned a European payment gateway company I hadn't heard of so far.

Checking up on them I found out they can also help other Europe-based businesses take credit cards. I still wasn't sure if I could be accepted there, so I sent them an email to see if they might really be able to help. I got a response very quickly and just a week later our discussion had proceeded to the point where I had their price list, along with a list of documents I would have to provide to them. In the end being a sole proprietor not all of the items on the list applied to me, but I did end up sending them (in case you are thinking of doing this): an official certification of incorporation, a copy of my passport, a description of the ownership structure (using a form which they provided me), copy of a utility bill to prove my residence, a document where I free-form explained what kind of things I would be charging for and then finally a signed copy of contract to open the account with them.

This might seem like a lot of documentation to provide, but in the end the application process was tolerable and everyone I interacted with at the gateway company responded very fast and helped me through the process, providing me with help on any specifics, making the process smooth. That wasn't the end of it though (about halfway through), so in my next post I plan to share how the process was finalized and all the final steps I had to take before I finally saw my first Recurly transaction come in.

Thanks for reading and do check out Candy Japan if you'd like to see the shiny new credit card sign-up form in action (and some exotic munchies). Here's how we celebrated our first accepted payment.

Candy Japan April income report

How much money can you make by sending surprise candy to people around the world? I see no reason not to be open about how things are going, since I am approaching this whole venture as a learning experience. Here goes line by line from initial revenue through expenses to the final profit number.

Total revenue for April was $7234 from 312 subscriptions. We don't get to keep most of this money as there some very real expenses too. First thing is PayPal fees, after which we are left with $6895. We are switching from PayPal to accepting credit cards directly through WireCard + Recurly, but that will likely just raise our costs a bit (but will hopefully improve conversions).

Sending packages internationally and buying the items inside of those envelopes are our biggest costs, about $6.40 / month / subscriber for shipping and $5.80 / month for the items. After these, we are left with about $3088. Envelopes and packing materials aren't free (pretty close though). Those are about $0.50 / subscriber, so we are left with $2931.

Sometimes mail isn't delivered properly (usually address was wrong) and we have to send packages again, sometimes also replacing the items. We don't charge the customers for this but just re-send after confirming the address (as it very well might be our fault or just random error in postal delivery), so after accounting for this, we have about $2805 left.

We send things twice a month. 312 subscribers means stuffing 624 envelopes each month, which is time-consuming manual work. Luckily at this point we have managed to outsource this. After paying for that outsourced service, we have about $2450 left. We have an accountant doing the books. They charge $75 / hour and spend a little over an hour on Candy Japan -related things (I have other projects they also handle), costing roughly $100 / month. After that there's $2350 left.

One expense has been marketing experiments, such as buying ads on Facebook and other sites, which so far have been almost complete failures. The costs vary, but last month it was $260. After that there's $2090 left. We have to buy some misc. things like camera equipment, computer stuff, candies for deciding what to pick the next time, pay for website hosting (App Engine) etc. so after all these misc. things I feel safe saying we would have about $2000 left.

Now this sum is finally income. As a Finnish citizen I am paying about 20% taxes and other fees (such as health insurance) on this, so the final sum we get to spend on our rent, food, champagne and overpriced Steam first-person shooter games is about $1600. This is quite good I think, almost matching my living expenses in Japan.

Thanks for reading, and please do give our service a shot if you're not a subscriber yet. The RSS feed for this blog is here.

Note: The average subscription fee in this calculation is lower than what is advertised on the website, because in the past subscribers had the option to choose to pay either in USD or EUR. Some people chose EUR and because the value of that currency hasn't been too great lately, they are now paying a bit less for their subscriptions in USD terms.

Thanks to micrypt, blackwhite, davidw and salisbury on irc.freenode.net #startups for valuable feedback on this post.