Latest / The Modern Supply Chain / Simplifying global expansion for e-commerce brands with Darwish Gani

Transcript

Simplifying global expansion for e-commerce brands with Darwish Gani · The Modern Supply Chain

• Darwish Gani (00:00): We actually hit the nine figure run rate mark in about three and a half years. 50% of our revenue is international. Every time somebody talked to us, they're like, "Wow, you guys are a lot bigger than we thought you were." And the reason was because we just had twice to scale given how developed our site was, how big our team was and how much PR we had. And so we had this other big tail of size that we've just benefited from. This concept of international being a growth lever was really real for us. Izzy Rosenzweig (00:26): This is the modern supply chain, the show where we break down modern supply chain strategies that help e-commerce brands shift from staying above water to predictably scaling. Welcome to the modern supply chain. Today's guest is Darwish, founder and CEO of OpenBorder, a platform that helps brands expand internationally by handling global tax collection, filings, and compliance. OpenBorder and Portless work closely together to remove two of the biggest blockers to global e-commerce growth. Portless solves cross-border fulfillment and delivery. OpenBorder solves taxes, duties, and regulatory complexity. Together, they make global expansion far more accessible than most brands realize. In this conversation, we'll talk about why the belief that selling outside your home country is hard. That is outdated. What actually breaks when brands try to expand globally? How is the modern supply chain enabling brands to reach 50 plus countries with minimal operational overhead? Darwish, super excited to have you. (01:22): Before we jump into questions, I think you actually have a fascinating background and I think some of the best businesses very often start with the pain and they build a solution. Can you give us a little background on yourself, what you did before OpenBorder, then maybe a high level in OpenBorder? Darwish Gani (01:36): Yeah, I've only ever had one job out of college ever since then. I've been working on my own companies of some sort of fashion, but I actually got involved in e-commerce for the first time back in 2018 when my co-founder and I basically built a holding company for DTC brands. And our concept was to build the rocket internet for e-commerce. So the idea was let's go fast clone US DTC concepts and launch them internationally. We basically saw a couple stats that showed us that at the time, 40% of all venture dollars are going into Facebook ads and 40, 50% of venture dollars are to consumers. So it's like- Izzy Rosenzweig (02:15): Those are the old days, huh? Darwish Gani (02:17): Exactly. So all the money is going into ads. The ads are all going in predominantly the US market. And then we're like, wow, there may be an opportunity to do that same thing abroad. And if you thought about all this rise of direct to consumer brands, they're heavily domestic and not international. And so we thought there was an opportunity there. We looked at some CPM data and that was the premise of the HoldCo. So we're like, let's go launch a bunch of brands and see where we get. We ended up launching two brands that got pretty big, pretty fast. One was the men's skincare line called Lumen. The other was a electric trading brand, Meridian. And together we actually hit the nine figure run rate mark in about three and a half years. We were very capital efficient actually in that run. And 50% of our revenue was international. (03:02): So this concept of international being a growth lever was really real for us. Every time somebody talked to us, they're like, "Wow, you guys are a lot bigger than we thought you were." And the reason was because we just had twice to scale because of international. Then given how developed our site was, how big our team was, how much PR we had. And so we had this other big tail of size that we've just benefited from. And so we knew that international was a real thing, but launching a lot of brands is not easy. So we kind of underestimated how hard it would be to own and operate and scale brand two, three, four, or five to be all nine figure category leading things. But we were very excited by this international opportunity. And that's when we realized maybe our passion here wasn't in starting these brands, was actually in this international thesis. (03:48): And one thing led to another, and now we are working on OpenBorder, which is completely separate company and helping, empowering 150 plus brands, maybe even 200 now and selling abroad. Izzy Rosenzweig (04:01): I love it. I mean, we have exact same stories. I started my brand, scaled it. We did over a hundred million in that business. Realized the infrastructure of what we're doing is probably better than the brand itself. But so many fascinating things you just said right now, I want to dig into the two as we go into these questions. One is a thousand percent, and I agree with global is so untapped. And the point that still till today, marketing, performance marketing is still one of the top ways brands grow. And CPMs, the cost to show a thousand impressions to a customer on Meta or TikTok, it is not comparable when you look at the US market versus the global markets. I'm curious, any learnings there because not every market's created equal. You can have really cheap CPMs in Brazil, but your conversion rate might tink. (04:47): So how did you balance as you went global, which I still think there's a massive world out there, but how do you balance cheap CPM versus efficient markets? Darwish Gani (04:57): We originally thought that, oh, because CPMs are lower, we'll get the lower CACS everywhere. But what we found is that we ended up kind of equalizing on CAC. And what I think actually happens is for brands that do international at scale, you end up running at the same LTV CAC in every market because basically you've determined for your company, "I'm willing to spend a dollar on marketing if I make this much back in time." And as long as that is true, you spend. So if a country has a $100 LTV, you'll spend $50 to acquire a customer. If they have a $200 LTV, you'll spend $100 to acquire a customer. And you'll kind of end up spending up until that point of return, which you don't want to get back anymore. And so in practice, what I find is that one, the return ratio gets fixed across all markets. (05:44): It's just some markets have higher or lower LTV. And then the second would be that there's like an inverse correlation roughly with like GDP per capita and conversion rate. So as countries are more realthy, they convert a little bit better and vice versa. There's some notable counters to that, but broadly speaking, that tends to be true. And so roughly you end up in a world where return ratios end up being kind of similar. And what you have to actually manage to is knowing that you're buying ad buying against your actual LTV CAC. And what we ended up using was bid modifiers like Facebook where we could actually just upload for any given country, what is the value of a customer? And so then we would automatically be buying based on the value of an individual country. And we basically bought to a return on ad spend, like a return, a contribution margin baked return and I spent over a pure robust metric. Izzy Rosenzweig (06:38): I love it. And I know at Portless, when we launch brands, most of the time we start in their core market, usually being US or UK, whatever it is, and then we say, "Hey, let's help you go global." And usually within 12 to 18 months, 30 to 40% of their business is global markets, right? Because if you could unlock a way to do, unlock an easier way to go global, your customers are everywhere. I say there's omni-channels, omni-customer. It is sometimes a lot easier to grow your revenue while maintaining your CAC if you just look outside of your core country. And I think to your point of the CAC, very often will balance out, but what we've seen is, let's say if a customer's pushing a certain product in the US and their CAC is 50 bucks and they're at, let's say 15 million bucks, if they want to go beyond that, that CAC will go to 60. (07:20): But if you push into UK, you can now go from 50 million to 25 million while still maintaining a $50 CAC. So I think you could grow your overall business while holding your CAC in these different markets. Darwish Gani (07:31): Yeah. And the way we thought about this actually was like, I remember in 2019 or something when we did a small seed round for the business and people would say, "How are you going to diversify channels? You're still relying on Meta." And I thought, "You know what? We are relying on Meta. We're really good at this one thing, and maybe I could just do this thing longer without getting good at anything else." And so a lot of these brands have built a really good competency. They have a funnel that sells with a very low brand awareness because people hear a story, they like it and they buy. And the idea is just, can you take that and find other pockets where it works? And so I think that what you guys are seeing with your customer base is something that we also see at some level and it is at least the activity that we want people to try. (08:13): And the coolest part about it is I think with companies like us, that cost of test relative to the reward of it working ends up being very, very high. You can do this without changing a lot of your operations without spending a lot of money and knowing if it's going in the right direction and relative to any other channel or activity you could do for that size, I'd find that the risk reward hit ratio tends to be pretty good. Izzy Rosenzweig (08:34): When we talk to brands and before engaging with us or other models, I'm like, how did you guys look at going global? They would deliver, manufacture, put products around the world to do two containers to Australia, two to the UK, two to the US, two to Canada. And now you have literally inventory around the world, UK is crushing it, Canada's doing terrible. Well, now you have debt inventory in Canada. And that is just like some of the old ways of running supply chain and how we've seen like, no, unify your inventory under one hub, ship to all these countries, keep it simple. I'm curious when, as you got started in talking to customers, how are some of the old ways of going global that you've seen that were just not so simple? Darwish Gani (09:15): What we've found is that one of the biggest dichotomies probably in the new and old really comes down to the marketing motions and teams. So if you think about, a lot of times what I'll hear from teams is, "Hey, I want to go conduct in- depth market research. I want to go do a full competitive analysis in a market and then we're going to evaluate one market for a quarter and we're going to launch that market maybe in the next quarter or two." And then we're going to sequence that kind of year over year or every six months in rolling windows. And I think that's the traditional kind of mindset. And I think the beauty is you don't have to do that anymore in a digital first context. The reality was historically, if you were selling to wholesalers, you're advertising on TV and billboards and you just sell in retail, you kind of had to do that. (10:03): And maybe that was even an aggressive pace. So I think that's where there's a big dichotomy. And we are seeing a new age, I think, especially of very young DTC entrepreneurs who came from the drop ship world who've completely inverted their mentality towards this and they think global day one. And so I think it's becoming more and more the norm. So that's what I say about the biggest dichotomy of mental models that had to shift. And I think I'm seeing it shift pre-real in people who don't have any priors and assumptions. Izzy Rosenzweig (10:33): I actually find that we have customers around the world and it's usually the US customers that I'm telling this to. I'm like, Darwish Gani (10:40): "You Izzy Rosenzweig (10:40): Guys are crazy. If you're not shipping global, you are leaving money on the table." Darwish Gani (10:45): But Izzy Rosenzweig (10:45): Interesting enough, Canadian founders, UK founders, European founders, Australian founders, they're almost forced to think outside the country because their country's quite small. And US is a big market. It is the prize. But because of that, them as entrepreneurs are actually forced to think from day one. And I would agree with also the younger founders in the US usually get this. They understand we're going to live a global world. There's TikTok, which is global, there's Meta, which is global. So you have global distribution from Meta TikTok, you have Shopify software, which convert your currency easy. You have tax structure with OpenBorder, you have logistics, let's say with Portless, it is not hard to go global. Now, I guess next question is, let's just say you're going global to UK, Australia, Canada, New Zealand, kind of simple in my head, right? What happens when you go to Germany and France? (11:32): How do you guys think of localization? When are you over-optimizing? When are you under-optimizing that you're actually hurting conversion rate? Going launch, I think you'll see that 20, 30% pretty quickly. Where is the right balance of optimizing versus you're over-optimizing? Darwish Gani (11:47): Yeah, I mean it's a great question. And I think every brand is different. Some brands, like one of our brands we started, it was as big in the Middle East as it was in all of the US for the first year. And that was just because there are a lot of people who have a lot of hair, body hair in the Middle East and people want to save. And so we didn't expect that. So which countries hit do change, but this particular thing of getting past the English first countries, and we consider that Canada, UK, New Zealand, Ireland, the Bentlex regions, Nordic countries, Dubai, Singapore, Malaysia, these markets tend to have high English or expat populations or enough English awareness and high propensity to buy. When you go past that, thinking about France, or Germany, a Japan, Korea, et cetera, I think what we found is kind of what you said for many brands, the quick bang for buck with the English markets is that first 20 to 30% if they do well. (12:40): And if not, maybe the brand doesn't resonate as well, you're in the teens. That's like the first batch you grab and you can grab that without any operational change really with partners like us. The next tier though is interesting what we found is that localization does help, but localization does require real, at least historically, it required real investment. I think with AI, we're going to see that change very fast, but historically it did require some amount of localization, but not in the ways you think. So let's give maybe a few examples of some learnings we had in this. So we definitely would recommend some version of a localized site or experience, but maybe not the whole site, maybe just your core buying flow. We would recommend like the ad to be translated, but we're not saying you need to have local ad producers and creatives need region. (13:24): We're just saying take the English ads you have and dub them. We actually did this thing in our last business where we hired local creative performance, creative teams across the world. Oh, Izzy Rosenzweig (13:32): I love that. Darwish Gani (13:33): Spain, France, Germany. We hired some in Hong Kong. We hired everywhere around the world, we hire small pods and we showed them like, here's the ads we produce in English, go produce that but with your own flavor of what it is, here's the USPs that we sell with, see what you give. And what we found is that the US team ads dubbed 80% of the time would beat the local- Izzy Rosenzweig (13:54): That's crazy. Darwish Gani (13:56): And the reason I think ultimately is because they've spent 1,000 iterations figuring out how to tell this story, problem, solution, et cetera, whereas these teams are doing it for the first time. And so there's something that is very real about DTC brands being able to sell with low awareness. And then so that's one of the biggest things I learned. So I think yes, you got to localize, but it doesn't need to be the truly 100% everywhere type local experience to get the first probably half of the localization benefit for a online first brand. Izzy Rosenzweig (14:27): I couldn't agree more. And I think there's some good examples out there. If you think of Mr. Beast and YouTube, he's dubbing his content. He's not hiring local talent. Darwish Gani (14:35): He Izzy Rosenzweig (14:35): Is the expert. He is dubbing it. And what we've seen very similarly and very aligned, even Meta auto translation. Yes. Darwish Gani (14:44): This is crazy. It does a great Izzy Rosenzweig (14:44): Job. Darwish Gani (14:45): Yes. Izzy Rosenzweig (14:45): Great job. You'll get 80 to 90% of your sales Darwish Gani (14:48): Growth Izzy Rosenzweig (14:48): By mostly automation. And Darwish Gani (14:50): The last 10 percent, you Izzy Rosenzweig (14:51): Have to debate if it's worth it or not. Darwish Gani (14:53): And people know it's Meta translation, so they're not going to ding your brand for doing some JQ translation. They're just like, "Oh, wow, it's just the AI translation." I think it's spot on. I think that's going to change the accessibility of international in real way. Izzy Rosenzweig (15:08): A million percent. So one of the other things that we often hear, and this is right up OpenBorder’s Ally, is going global, it's scary, compliance, slow down, break it out. I'm like, okay, there is the ability to ship affordably. Portless helps a lot with that. There's local currency. I mean, Shopify has it natively built in. I don't know if you guys get involved there, but it's pretty simple. Then there is, do I need local entities? And I think that's the part that scares people the most. So maybe like Darwish, someone wants to go into Europe or someone's go into a different market. Do they need to create local corporations? Do they need to create local entities and ... Maybe you could talk to that because I don't think people realize it is much simpler than people think. Darwish Gani (15:45): In short, especially if you're partnering with someone like you guys and you're shipping everything from China's rest of world, really you're not going to need entities in most of the regions to start transacting. There'll be benefits to entities over time in that you can lower payment processing costs, but fundamentally to start transacting at reasonable cost, you really can start shipping from China. And what you may need though is in certain jurisdictions, tax registrations. So tax registrations are things that you can set up. They're not as heavy as entities. They don't have the same regulatory kind of administrative burden, but they allow governments to say, "All right, this is this person. They're selling in my country and they owe me X amount of tax. Here's where they're going to pay it. " So in certain markets, UK, U, Norway, they'll have different thresholds or some will start right away for certain orders that they'll say, "Hey, I want customers to pay tax in this and I need that remitted." And so that's where having tax cities can be very, very helpful. (16:44): Australia is another market where this is very, very common. Tax registrations can help a ton, especially if you're kind of lower value goods, maybe under de minimis, which I'm sure people do know about it. Those are some of the main regions you'll need tax registrations in. And then obviously US sales tax is a whole different beast that you have to handle, but none of those require full entities. So some regulatory registration, but at a high level, it's a lot lighter than actually setting up entities and having to close books or do audits in different countries. Izzy Rosenzweig (17:14): And does OpenBorder help with that as well? Either Darwish Gani (17:17): Sometimes Izzy Rosenzweig (17:18): You guys provide or sometimes you guys help set up. How do you guys approach that? Darwish Gani (17:21): Yeah. So our model is very flexible. So whenever you work with us, you do not need to have really entities or registrations in any part of the world. So you basically are able to borrow our registrations or our entities wherever you're selling, whether it's for payments or whether it's for actual tax filings, remittances. So the idea with an end-end Portless OpenBorder loop is with a portals they can ship everywhere and with an open border, they are automatically tax compliant in any part of the world they want to be tax compliant in. And we kind of handle the nitty-gritty of collecting, remitting, filing on whatever basis or periodic time that local jurisdiction asks us to. Izzy Rosenzweig (18:01): It really is incredible. It is a new world and many, many conversations I'm having and podcasts, I bring up what is not happening now that will change in the future? It's still a tiny segment of brands that look beyond their country. It is early, early days of this. And I do think five years in the future to compete because if your competitors are doing it, a brand wants to keep them and capture that wallet as well. So I think this is early, early days just getting started and really is much, much simpler than what most people realize. When let's say you're talking to a brand, $20 million brand and like, "Hey, intriguing, I'd love to get exposure here. Is it all at once worldwide? Do you suggest start with English countries, then go beyond that? " What is your crawl, walk, run that you suggest to brands as they start going global? Darwish Gani (18:51): I'm going to really speak to brands who I think have a strong performance bent to the way they run their marketing orgs. I think that's probably a lot of folks that would be listening to something like this. And in that world, I think because you have that ability to where you could be one of those brands where you turn on international, you start running ads everywhere and before you know it is 20, 30, maybe even 40% of your volume, if you have that potential, I would say test into that quickly. And so the way I recommend it is take basically the global English speaking population in some of the regions, as I mentioned, Canada, UK, the Benelux region, Nordic countries, Dubai, Singapore, Hong Kong, Ireland, New Zealand, et cetera. And I would target all of them out of the gate as English speakers. And I'd even go as far as saying, go into some of the markets in Western Europe and you can toggle for people who have English in their feed. (19:39): And so you also can target those buyers. So I would grab the wise group you could speak English that has purchasing power and start marketing. And then if that works, which I think a good chunk of folks will work, then wow, you found a winner and you're driving growth. If it doesn't, then you can start to ask the question, "Hey, should I go start smaller with certain subsets of countries?" So that's my general recommendation. Izzy Rosenzweig (20:02): Any landing page requirements that people have to think about? I don't know if mandatory language or Darwish Gani (20:08): That, Izzy Rosenzweig (20:08): How do you think about that? How does that work? Darwish Gani (20:10): Yeah. So I say one of the biggest mistakes I've seen people make when they're launching international is they have this really amazing flow that works in the US. They have this listicle that goes to this PDP that has all this information and then people buy or they have these nice and trick or flows. They have email campaigns running afterwards that nurture the buyer. And then when they launch international, they just send everyone to the homepage. And I'm like, "Hey, you did all this work to find this is what it takes to convert a customer. Why are you sending everyone to the homepage now?" If you do that in the US, then don't do that here. So I actually think minimize the variables you're testing at once. So start with the same experience as much as you can and then see if the market itself takes it. (20:51): And then if not, start making adjustments. So that'd be point one. In terms of the actual language kind of changes, the biggest thing I think I would actually watch out for are more like claims. So certain supplements, beauty brands, they may not be able to make the same level of aggressive claims they make in the US. So you may need to modify those to be in an international market. But outside of that, your core selling propositions, I would keep the same on day one. Izzy Rosenzweig (21:16): I would say if you think about the buckets of areas you have to think about, there's tax compliance, which I think OpenBorder crushes. There are shipping, which Portless, we're pretty uniquely positioned to help there. Returns is an area that we actually, we help people with. We're launching portless returns in I think six markets next month. And then there's also product compliance. So that we have a QC in China that we help with. Let's say in Europe, you have to test for certain chemicals different than the US. Wow. But the QC ability is all in China.You could do it. You could test it, get the qualifications, you could do the labeling, everything on meant to end, the ability to go global, it is a new world. And if you're not competing globally, someone else is. And so your original thesis still holds true. The CPMs are cheaper in global markets. (22:03): Yes, the CAC may blend the same, but you will increase your CAC if you stay in your core country. Darwish Gani (22:07): Yes. Izzy Rosenzweig (22:08): The hitter often- The Darwish Gani (22:09): Incremental CAC of the one millionth customer in the US is more expensive than the first customer in the UK. A Izzy Rosenzweig (22:16): Million percent. (22:17): And then you also have even different types of brands out there. There's certain brands, for example, we work with some creator brands. They've built distribution followers around the world and now you're just selling in the US. Yeah, 100%. That's crazy. That's crazy. It is a big world. You have a great product, you're telling a great story. Expand, do it in the simplest way possible. Do not send shipping containers around the world. That is insane. Test it easily, scale it, and it's a lot, lot easier than people think. This is awesome. I guess I'll ask for one prediction. What do you think, I guess one thing about global e-commerce expansion that isn't true necessarily today that you think will evolve over the next five years? Darwish Gani (22:55): I think Meta ads auto translation. I think I learned about this two days ago and my mind got blown. I think that the way with AI hitting the storefront creation, the ad creation kind of elements of the site, we will see that people can get a lot more global, a lot faster. I think it's going to be an even bigger acceleration of number of brands created and the level of localization they're able to get. I think that's going to be pretty real. I'm even seeing now in my feed creators that are like Portuguese, Brazilian, who are ... I'm seeing their content in English, but it says metatranslated with AI. Izzy Rosenzweig (23:36): Oh, that's incredible. Darwish Gani (23:37): And I can actually go back and go back to English. So now content creators will have global reach right away. So content creators have reached right away. Ask me translator right away. Shopify needs to step up one level, I think on translator and adapt app, that experience they have. Once you get there, now really it is about finding the things that people love and selling them in a cool way. And that's going to make it even easier to build bigger brands. I think 2018, it was like to get to a hundred million dollar brand, it felt like it took two to three years if you're going very, very fast. Now we're seeing brands do three, four, $500 million in two to three years. And so that's pretty global. So maybe, I don't know, five years, but in 10 years, we may see our first $1 billion brand in a year. (24:22): That's Izzy Rosenzweig (24:23): Crazy. Yeah. Well, A, if you have efficient supply chain, efficient cashflow, the world is your market and you have AI Agentic AI handling unique pages for the person in their market, by their language, with their preferences, the way they like to shop. I couldn't agree more. I think it's wild times ahead. Darwish, where could people find you if they want to learn more about OpenBorder? Darwish Gani (24:46): Openborder.com, best place to go. And if not, shoot me a message at darwish@openborder.com Izzy Rosenzweig (24:54): Thank you for listening to The Modern Supply Chain. If you have questions about anything we talked about, you can find me on LinkedIn. And if you're interested in learning more about Portless, check out our website, portless.com. As always, hit that follow button so you don't miss an episode. See you next time. It's