Purchased Our First $5 Jubilee and How Not To Run A Stamp Business

Last week finished up with very pleasing $1,200 in sales. Nearly all of it was split between one very eager new customer who bought some low value Jubilees, and a number of repeat customers. Then, on Saturday morning, I managed to buy my first ever never hinged dollar value Jubilees - a $1, a $4 and a $5. They aren't perfect, but they are very pretty, and for the price I paid, I can think of at least a dozen customers I can now offer them to that I have built a relationship with. There is an excellent chance that they will be sold, either in this last week of February or the by the end of March. Also, I went to my local stamp dealer to pick up some more supplies and took with me complete sheets of the 1935 Silver Jubilee issue of Nigeria, which he said he has a customer for. I left them with instructions to sell them for $2,000. So if those sales are consummated then February or March will be a record breaking month, and all because of one thing: relationships.

Relationships are the lifeblood of a profitable business, not sales as most people believe. The internet is awash with articles about how important relationships are. It seems that while most business people agree on this, not all take the time and engage in the simple actions that build strong ones. The reason why they are so important is because it is the relationship that facilitates the best, most immediate and profitable sales. Initially I bought inventory not knowing who would ultimately sell it to and when it would sell. However as my relationships with my customers grow and I get to know their tastes and personalities while building trust, I am able to start buying stamps having a short list of customers that I will offer them to before they even reach my store. This would not be possible if I did not build good relationships with my customers. Businesses that form solid relationships with their customers develop the intangible asset known as goodwill. The value of goodwill can often be as much or more than the combined book value of a business's hard assets. Thus it makes sense, if you are going to commit your time and energy to building a business that you try to do it in such a way as to build goodwill as you go. The reason is that if you do it this way, it really doesn't take that much more time than not doing it.  This brings me to the topic of how not to run a stamp business.

One seller on E-bay that I have done a fair amount of business with over the past several years prides himself on being the cheapest on e-bay. He auctions most of his stamps starting at 10-15% of catalogue. If the stamps don't sell that week he then offers them as buy it nows at the same start price. I have obtained a lot of bargains by perusing his listings and have managed to sell many of these stamps for four to five times what I paid him - to happy customers I might add.

You would think that a dealer who does this would be wildly successful, and who knows maybe he is. But one thing I have noticed is that I win almost all of my bids with him when I bid on his listings. That is in sharp contrast with most other sellers where I'm lucky to succeed on more than 10% of my bids. To me this means that he does not get much bidder competition on his listings. Many of the other sellers that I bid with where I lose the auctions have the same basic stamps and they manage to sell them for more money. Why is this?

I suspect that his manner in dealing with customers may be one of the main reasons. When you go to his listings, his descriptions begin with the sweeping statements that he is they cheapest on e-bay, which might be true in the end, but given that many of those other sellers start their listings off at a penny, it does not appear, to the average person to be true. Then when you scroll further down there is a large blurb about how we all make mistakes and you can't really expect him to get it right 100% of the time. So he writes himself a pass for sloppiness right upfront.

And he does make mistakes as we all do. I just bought something two weeks ago for $21 USD when the US-CDN exchange rate stood at just around 1.5:1, so the items cost me $30. I suspect that what happened was he misplaced my item or sold it and forgot to update his item photos. What arrived in the mail was not at all what was described in the listing. No, the stamps I received were vastly inferior. I messaged him politely for the second time since I started dealing with him to explain the error. Now, the first time I did this three years ago, he blocked me as a buyer and I had to apologize profusely to him for hurting his feelings before he would agree to let me continue to buy from him.

This time he responded by telling me that he double checks everything before he sends it out but if I am unhappy I can return the item for CREDIT. So in other words I don't get a refund. This does two things:

1. It forces me to spend more money with him if I want to get what I spent back, and
2. I will only get all my credit if he keeps proper track of what I have already spent and what credit remains. Of course this does not usually happen and I wind up losing some money when my purchases come close to the full amount of the credit, but not equal to the full amount.

The other thing though is he is effectively refusing to admit to his mistake and suggesting that I am merely someone who cannot be pleased. This after I have spent $1,000's with him. Is this any way to treat a customer that spends that much? I think not.

But that isn't the end of it. I sent the stamps back as he instructed and didn't push the issue. I bought two more stamps during the week to use up my credit. The first stamp cost $8.50 CDN. I received a message from him after this auction closed advising me that I had $10 US worth of credit left (I started with $21US!). I replied that I thought I had $21 USD less $8.50 CDN because that was what my e-bay summary said, to which he replied that this must be impossible, since that would mean an exchange rate of 1.5. I knew I was right but decided to let it go since the difference was only a few $ - in the interests of the relationship and the ability to continue receiving relatively good deals from him.

Then later in the week I bought the second stamp, again for $7.50 CDN plus shipping. So I messaged him and said something to the effect of "just send me this stamp and we will call it even". He replied in the affirmative and then asked me why I had sent one of the stamps back when he had described it correctly. He just couldn't leave well enough alone. Even though I hadn't pushed it and just politely returned the stamps and even though I effectively only received $16 of value for my original $30 and waived the difference, he just had to push his luck.

And so something inside me just snapped. I replied with a detailed explanation of why his original descriptions were wrong and then I told him that I could not imagine treating my customers this way. I fully expect to be blocked for life after that exchange and I may never receive either stamp. But that is OK. The fact that I, as a business owner am OK with giving up a source of good deals in order to avoid being treated rudely illustrates the fundamental truth that value creation is not always about the money. Most of the time value is about the overall experience. We see this all the time with designer brands, fancy restaurants and the like.

Some businesses, like the big box retailers can succeed and be highly profitable by focusing only on price. However, the reason why they can do this is because they have vertically integrated their distribution channels to handle the immense volume cost-effectively and they have a near monopsony with their suppliers. What is a monopsony? Well it is a monopoly - on the customer's side of the equation. In other words, a monopsonist is either the largest or only customer of a particular business. So it means that the monopsonist is in a tremendous negotiating position with its suppliers. These businesses can simply carve out their profit at the lowest possible price by lowering their costs and forcing their suppliers to accept a lower price. They don't have to offer amazing service or worry about the customer's overall experience because they are the least expensive. To some buyers, who are only concerned with price, they are the business of choice. However, there are still plenty of consumers who avoid these businesses because they prefer more personalized service and are willing to pay for it. The other reason why these businesses can succeed with this model is the type of merchandise they are selling can be easily replenished, or it can be discontinued and replaced with something else. Since they are competing on price, consistency of quality or reliability of constant supply is not an issue for them.

However in the stamp business, the inventory is not easily replaced. It takes time, discipline, connections and focus to build and maintain a specialized inventory in a way that allows for a good profit margin. So it makes very little sense, in my opinion to compete only on price, unless you are a general worldwide dealer with no specialized focus. A business like this fellow's will only ever be worth what the sum value of his inventory is worth at any given time, nothing more. In contrast, my hope is to build a business that will be worth more than the inventory because I will have built a solid customer list of people who come to me because they value the overall experience they have when they deal with me. Every day now, I see these relationships grow and get stronger and I am seeing a steady increase in sales as a result.