How to Grow an Inventory Based Subscription Business

How to Grow an Inventory Based Subscription Business: Some people begin businesses so different from their original area of expertise that the path from one job to the other is a bit of a head-scratcher—a former corporate lawyer running a surf shop, for example, or a schoolteacher selling upcycled clothing. For Matt Fiedler, co-founder of record-of-the-month club Vinyl Me, Please, the steps leading toward small business ownership exist in perfect harmony. “I’ve always been around music,” Fiedler explains. “Growing up, my dad had a cover band and they would practice in our basement and play shows, so at a very young age I was exposed to music as an art. My dad had a really big record collection as well, and he had one of the first commercially available CD burners. So my first interaction with vinyl was being paid a dollar a record to change his LP’s to CDs.“ After spending his early days curating his dad’s music collection, Fiedler graduated with a degree in Music Business and Entrepreneurship. And although he describes himself as being of the Napster generation, his early exposure to vinyl records eventually made him itch for that old familiar feeling of something physical, something tangible. “The model was changing from paying for ownership to paying for access. I thought that was amazing because you didn’t really have to buy music anymore, but at the same time there was music that I just wanted to own…music that I really loved.” So Fiedler, along with friend and co-founder Tyler Barstow, launched Vinyl Me, Please, a record subscription service that sends out a featured record every month, designed to scratch the itch of fellow vinyl-lovers the world over Like the story of many great bands, however, the pair had to pay their dues before finding success.

“It was originally a side project—we launched in Jan 1, 2013 and it was just my co-founder and I for the first year or so,” says Fiedler. “We maxed out our personal credit cards to get it off the ground, and we weren’t making any money from it for about a year and a half until we were able to quit our jobs and do it full time.” The first album featured by Vinyl Me,Please was the folk rock album The Way We Move by Langhorne Slim & The Law. Sent to a just a dozen customers that first month, the record club’s membership quickly grew to 300 people the first year through word of mouth and referrals, and now stands over 20,000 members worldwide. This isn’t a basic Columbia House situation, either. Membership to Vinyl Me, Please comes with sweet perks. Fiedler explains that by working with the artist instead of just ordering bulk product, Vinyl Me, Please is able to offer exclusive features available only to their subscribers. “Everything that we do is pressed exclusively for our members, and there are things about it that you can’t get anywhere else; colored vinyl or bonus tracks, or even a record that’s just not available anywhere else, as in we’re the exclusive de facto retailer of that record.” Given the 8-week lead time needed to press each exclusive record release, inventory management is something of a delicate guessing game that Fiedler has had to work to master. “What we do is put in an initial order, almost like a minimum order, and that’s enough to get the production started,“ he says. “And what we’ll do in many cases is, in the months leading up to that record being featured, we’ll go back and refine our order—increase or decrease it accordingly.” Accurately estimating how many records they’ll need to press of each month’s featured album isn’t the only inventory challenge the pair run into—it’s paying for that inventory, too.

“Our business is very much based on inventory, and our ability to scale is based on the amount of inventory we can actually buy in a given point. We’re bootstrapped,” says Fiedler, using a term meaning that they’ve used entirely their own resources—like those aforementioned maxed out credit cards—rather than outside investment, to grow their business. He goes on to say, “We have hardly any external debt financing, so literally 40-60% of the cash we generate on a monthly basis is going to paying for inventory. If you consider the other overhead and payroll costs it can get to be pretty tight pretty quick.” Fiedler has run into this enviable problem—his business growing faster than he can accommodate it—before, when it came to packaging and shipping the monthly records. Fiedler and his team, along with a handful of temporary workers, were still handling the monthly mailings themselves when the member base hit 5,000. At that point, they realized they needed to outsource. [WooZoneProducts asin=”B06Y11R2WR,B01K3FK4JS”][/WooZoneProducts] The first logistics company worked well, for a while. ”At first they were able to help us scale to about ten or twelve thousand packages a month but after that they just didn’t have the resources,” says Fiedler. ”And then the economies of scale were going the other way. As we sent more volume, the per-box charge was getting higher.” Fiedler says that this is one of the growing pains they have only just resolved, saying that after their most recent transition to a different logistics company, “I feel like we’ve just recently gotten to the point where that stuff runs pretty well.” Today, as founder of a wildly successful four-and-a-half-year-old business with fifteen full-time employees, Fiedler says there’s one piece of advice he’d give to those starting out on their own entrepreneurship journey. “One of the things I really didn’t realize initially is that how you forecast really does matter. Even how you think about the next three to six months of your business is super important because it sets up a lot of different things. There’s a pretty big ripple effect especially when you’re dealing with physical inventory and the way in which our business operates, the ‘finger in the wind’ strategy just doesn’t work.”