Episode 52: From TinyPrints to $333 Million with Ed Han and Laura Ching

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Ed Han and Laura Ching sit down with hosts Drew Sanocki and Michael Epstein. Ed and Laura are the brains behind the $333 million exit success story, TinyPrints. They discuss their early days of brainstorming business ideas with friends, their passion for entrepreneurship, and the role of the internet in their success.

Guest Speakers: Ed Han and Laura Ching

Ed Han co-founded TinyPrints with Laura Ching. They changed the stationery industry with their groundbreaking venture. Prior to TinyPrints, Ed played a key role on the Board of Directors at Lucid Lane. He honed his business expertise at Stanford University Graduate School of Business and the University of Chicago. Ed's also a close friend of co-host Drew Sanocki. Laura also attended Stanford University Graduate School of Business. She left her role in marketing at Walmart to pursue TinyPrints.

Links

- Follow Ed on LinkedIn

- Follow Laura on LinkedIn

- Check out TinyPrints

Read the Transcript ↓

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Drew Sanocki:
Hey, everybody. If you have received a holiday card over the last ten years, odds are you've received one from our next guests.

They are the founders of TinyPrints, Ed Hahn and Laura Ching. And today, they tell me how they did it, how they started, got the idea, grew, and ultimately sold their business for $333 million. So a big exit for them. They talk about what that was like.

They share a lot of tips and what they learned along the way. Really excited to have them on today.

Ed, tell me about the early days of TinyPrints. I remember you pitching it to me over burritos once, and I told you it was just a dumb idea before you went on to sell for $330 million.

Ed Han: ‍
There were several steps in between. But it's funny that you mentioned burritos. We should have obviously invited you. But a lot of GSB friends right around year 2000. We were living in the vicinity of each other, and we would just kind of get together around brainstorming business ideas. A group of us were very interested, I wouldn't say passionate at that time, for all of us in trying something entrepreneurial. Obviously, we were in business school during the heydays of the internet. And so this became sort of a weekly thing with quite a large group. We had friends like Katie Rollins in it.

At some point, Scott Ellis, Billy would come every once in a while. And the group sort of grew and shrank depending on how long we were at it. I'll tell you a funny side story. We finally brought on Kelly Berger who's the third founder at TinyPrints, someone that I was working with at a company called Danger. She actually had the ability to prototype which was a nice addition because up until then there was like 10 of us who could do nothing but talk.

And the idea that we come up with was in 2002, was kind of this movement that we saw around MySpace, Friendster. We thought, "Hey how about like a feed of people you connect to where you share your photos and updates. So we actually prototyped that. I didn't tell you about that one Drew because you probably would have been like hey that could be called Facebook. Anyway we built that and launched that with a bunch of our classmates and saw some traction but ultimately we thought ah that's a terrible idea, who's going to ever use this? So we went back to the drawing board and out of it came three e-commerce ideas, one around tea, believe it or not, and Persian rugs and custom stationery.

So about as varied as you can imagine and for various reasons which we can go into if that's of interest, we chose stationery and ran with it.

Drew Sanocki:

The Facebook story is funny because Laura, Ed and I were in the same business school class from 98 to 2000 and we had this app, the GSB like photo sharing. It was like a skeleton of Facebook. You basically could post pictures and you had like a little profile and sharing and all of us, all of us entrepreneurs in the middle of Silicon Valley and no one at the school was like I got to make this a product. It's like sitting there on our homepage every day and no one decided to.

Ed Han:

It's bad that we didn't think about it. It's worse if you actually did it and then decided that it was a bad idea, what we did. So we like to say there's like two or three moments in the timeline that are really funny to me.

Now that you jog my memory, the lunch you and I had with Sina for sure very early on. Then in the first year and a half when TinyPrints had no traction, I had coffee with Ro Choy who basically sort of was trying to do an intervention saying, "hey man, what are you doing? That's so weird. We looked you in the eye like. Yeah, like literally and said, look man, you and your wife are running some wedding gift company and now you're going to try to sell stationery. What are you doing with your life, man? So that was funny. And then, yeah, I love to be reminded that we killed off the idea of Facebook to sell a bunch of products.

Laura Ching:

That's always great. I think we already had one trick against us because we decided that name of the Facebook was going to be Class News, N-O-O-Z. It's like we lost credibility from day one. So we thought a little bit harder about the name.

Drew Sanocki:

You skipped over the wedding, you know, the straight up e-commerce business, which was making money, had traction. What gave you the conviction to jump off that lifestyle e-commerce business to TinyPrints.

Laura Ching:

So for me, I was working at Walmart.com, right? I thought that was going to be it. Walmart getting online, great opportunity. I definitely didn't have thoughts right after business school of starting something. In fact, I actually did not take any entrepreneurial class at the GSB, which sounds crazy. But I just thought I'd kind of go on the path of a company like Walmart.com. After a few years, was kind of slowly climbing the ladder there and was a middle manager. I was doing fairly well, but it just wasn't as fulfilling as I had hoped.

I've had grand expectations coming out of business school. My job is going to be really fulfilling. I just kind of felt like I was trying really hard to do a lot of things that I just didn't find a lot of enjoyment doing. And then there were investors coming into Walmart and it just didn't feel like a great fit. So three or four years out, I don't think I was the first person to join those burrito meetings, but it just felt like, what was I thinking? Entrepreneurship actually, I think, would be much more fulfilling for me in that I would get to do what I wanted to do on my terms.

I wouldn't have to worry about a lot of things that I just didn't find personal enjoyment doing, like trying to lobby senior management on XYZ or presenting PowerPoint presentations for half my life. Or managing a lot of people at that time. So it just felt like a great fit. And I would say for myself, I was one of those that kind of went in and out of those Baja Burrito meetings, depending on the idea. I remember times that they were talking about financial services business or something really dry in my opinion. So I would probably say that for myself, if it wasn't going to be stationary, I might have not have jumped onto this idea. As opposed to Kelly and Ed, I think they are much more driven about starting a business and the excitement around any business. For me, I grew up in household where design and writing letters was always something we did.

Drew Sanocki:

That was the thing that caught your interest? What about it?

Laura Ching:

My mom was like a sickler for etiquette and graciousness. I could hardly enjoy Christmas because right after the presents were open, I'd start to write all my thank you notes. So it was just kind of ingrained in me. And then on top of that, I've always just loved design and fashion. And so I had never felt like I was a typical business school student. So I was just super excited that this kind of idea fell on my lab work. I could mesh my personal interests with something business related. It seemed like the right time. I think for us, for TinyPrints, what resonated with us was Polly and Ed. I think Polly was pregnant. So they're going through the process of trying to find a birth announcement. Went to the store, Papyrus was sifting through these albums full of stationery.

It was just a very broken process. And then layered upon that, I think with Ed and Polly seeing some traction with the gift business in Boku, they saw an opportunity to take the learnings from Boku and then now have a play on this product that they themselves are personally dissatisfied with the offering that was currently there. That's how it all started. So we really started as Papyrus online, right? We got a lot of those big binders, if you remember, when you go to a store, if you're filling out like a wedding invitation, you sift through all that. We just took all that inventory and plopped it online and tried to just have better offerings, better customer service. And then once we started getting some data around what our customers really wanted, we started tweaking the product.

Drew Sanocki:

And you guys printed in-house, right? Like you weren't subcontracting to printers.

Ed Han:

No, we were. It was not that different from drop shipping other than the fact that this is custom printed product. And so in the beginning, we didn't even hold our own paper inventory or envelopes or some of the ingredients that do tie up capital eventually when you get to scale. In the beginning, the idea of shipping a consumer product off of these digital presses that cost half a million bucks and used really just for commercial reasons was unheard of. And so as the business model evolved from just being another online version of your local print shop or stationery store, we got super lucky in innovating on these digital presses with a local printer who had a couple of these things and were using it for commercial reasons. They tinkered with us to make high volume runs with short run orders work which was the key.
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Drew Sanocki:

Laura, in preparation for this podcast, I was reading some interviews with you and you were talking about how you wanted the customer to feel like Martha Stewart. You wanted to empower them to feel creative and in control of the creative process. And I know from our own business, we want brands to feel that way when they design their direct mail campaigns. How do you scale that up? How do you scale up that white glove service that you guys provided to that person who was designing cards in the early days?

Laura Ching:

Martha Stewart presents this image of like effortless chic, right? It's very simple, but behind the scenes, it's actually a lot of work. And so that's what the product I think we were trying to create in the sense of doing all the dirty work to come up with very unique, one of a kind exclusive designs that they could feel like when they sent it to their friend, no one else had it but them. They were in on the secret. And then we would help them do all the kind of personalization behind the scenes to get it exactly right. And in the early days, we didn't really know exactly what the customer wanted. So we had like four sets of eyes in the QA process. So once the customer chose the design and personalization down to the photo and taking out the blemishes to the font size and the message, all of that, once it was entered into our website, right, we'd have a few people on our production design team looking at that, optimizing it, treating it like it was our own. It was our own card, calling the customer, going back and forth. And of course, that's not scalable, right?

There's a lot of costs involved, but those are probably the first two or three years we invested a lot of money just learning what our customer wanted and then slowly over time automating that process, putting tools into the roadmap to let the customer do it themselves to the point where before we sold to Shutterfly, I think we were down to like one set of eyes in the QA process. But the goal really all along was to present a product effortlessly on the outside and taking away all the pain points and then helping the customers through that process.

Ed Han:

We always also talked about just wowing the customer on a product that is not often purchased, whether it's wording or etiquette or layout. It's not a product that you're going to become an expert at in as a consumer. And so we felt that there was value to be added. Of course, selfishly, that would have benefits to the brand. Another sort of life moment that inspired, I think, some of the early discussions around that was when Polly and I were getting married, we went to a traditional stationery store and bought wedding invitations and I think our budget was like 600 bucks. At the time, it was a ton of money. And took us a month to get, which is another problem. But you know, we got the invitations, we were super excited, looked at it and realized we had made a mistake.

It wasn't a typo, but it was kind of a cultural etiquette mistake because we both have Asian parents and immigrants. And something was left off. And so we debated a lot about whether we should reprint these because we were on a very tight budget. At the end of the day, it needed to be reprinted. Of course, now that I know a lot about printing, it makes perfect sense. But there's nothing to salvage when you have printed cards, right? So it's not like returning a pair of shoes that hasn't been worn that can be restocked for a small fee and resold again. So I said, "Look, we kind of need to reprint this, just need to change one thing." You know, what's the cost? And they said, "What you just paid for it. Six hundred dollars." I said, "Why? I can't do that. You know, I could have gotten twice as many invitations." And they said, "That's what it is." Again, from a supply chain standpoint and the economics, it makes sense. But I was so livid, I couldn't believe it. But we ended up doing it. And we realized in the early days of TinyPrints, we just don't want customers to have that experience, even if it was their fault.

Like our wedding invitations were our fault. Even at the end of the journey, we had people spelling Christmas wrong on an order where they had spent 300 bucks. Sure, you could have a little checkbox on the website and push that blame onto them. But we felt like it was an opportunity, actually, to really wow the customer by catching those mistakes, sometimes not even mentioning it to the customer and having them be delightedwith the experience.

Drew Sanocki:

That's awesome. And something we talk about all the time at our own company, when you see these big orders come in with errors, right? I mean, I'm imagining that the bulk of the revenue happened in Q4, right?

Ed Han:

At some point, we were doing 50-55% of our revenues in about a five week period. It wasn't so extreme in the beginning. And obviously, that would have never worked had it been that way for a bootstrap company. So it's nice that we eased in with a non holiday product that gave us sort of evenness, but it did become very, very extreme as the company scaled. And of course, profitability goes along with that, as I'm sure it does for you all. So we were having to harvest in those five weeks leading up to Christmas and having to squirrel those acorns away to help us get through the cash crunch of the first three quarters of the next year. It became harder and harder. When we first started the business, we were enjoying EBITDA margins probably in the high teens. When we went to becoming our own printer and disintermediating some of the economics out of the middle people, when we took our private equity round in 2008, I remember EBITDA margin was 26%. So the cash flow is incredible.

We also had negative working capital because we were being paid by customers long before we had to pay our contract manufacturers. There were so many things about it that made a very frictionless economic model for us. However, as the seasonality really became extreme in 2011, when we sold the company, the EBITDA margin was projected to be 3%. So we were a much bigger company, but actually the cash output was not that dissimilar from what it was a few years ago because the margins had become so compressed.

Drew Sanocki:

Was the design team the biggest team and was it like temporary designers you'd bring on staff to do a lot of the heavy lifting?

Laura Ching:

There's a team of folks within merchandising design that are the ones picking the cards and working with X-100 designers to come up with the collection. And I'd say like that team, no, that stays consistent throughout the year. The team that really flexed up during the peak weeks was what we call the production design team. The ones that are taking in the orders and doing all of the edits to get the product fulfilled. So my team, the merchandising team, it felt like holiday all the time because to Ed's point we needed to plan and launch holiday by like September. We're always trying to get the customer to buy earlier. It doesn't happen that much, but we try to execute launching the collection in early September. And that means that we'll start working with our team to call out for designs, right? If we had a whole slew of X-100 designers that could submit designs in, then we'd pick from and we'd guide them and say like, this is our call out. These are the themes of the year and this is what we're looking for. That whole process would start in like January. Because then once you pick the designs, you're going to need to go back and forth and we'd work with them on edits and then we need to do a bunch of steps to get the product actually up on the website. So all that takes a lot of time. And so we'd have not the full merchandising team, we'd have a small team of four or five people dedicated to holiday throughout the entire year.

Drew Sanocki:

I would love to hear more about Shutterfly and kind of why did you decide to sell? And you could talk a little bit about that sale process.

Ed Han:

The sale process really began in 2007. They approached us actually for the second time, if I remember, in late 2007. And with a very, very attractive offer, lots of nice overtures. And we really kind of got caught up in that after having run this bootstrapped company for four or five years. By that point, we were a $19 million business at the end of 2007. We just felt so grateful and almost in disbelief that, especially after what you told us, Drew, that this could even be possible. So we actually decided to sell the Shutterfly. In early 2008, we got all the documents done just in time for the security markets to start to kind of teeter totter. There were signs of cracks in the financial system. None of us, of course, foresaw the devastation that was coming at the end of the year in 2008.

And because that deal was structured as a 50-50 cash stock deal, the stock portion of Shutterfly's offer was dwindling. Not drastically, but it was certainly coming down. Not to the point where the three of us looked at each other and said, "Hey, you know, this is still really life-changing." So nothing was really changing. But then things just kept getting worse. They had really put their excess cash that they were going to use to pay for that small portion of our sale price into this CD-like product called Auction Rate Securities. But they were securities and not money market. And that market froze. There was no risk of default or losing it, but it was just illiquid. And there were no signs of it opening up. And so Jeff Housenbold, the CEO, kept asking us, "Hey, can you just hang on another week, another week?" And each week went by, the Shutterfly stock price was coming down a couple of percent. And so a lot of things kind of went against that.

And ultimately, we walked away from that deal, not because of the price, as it turns out, but the dwindling price made us realize we're just still having a lot of fun. And we see tremendous opportunity, again, not foreseeing the 2008 crisis. And so that's how that conversation started. We walked away from that deal. We were able to grow tremendously fast, even through the downturn, which I think was even pound for pound faster than what our own growth rate was because everyone else was having to clamp down. So like Shutterfly being a public company had to actually throttle back in a sense. So we grew 100% from 2007 to 2008. Then we grew 55%, another 50%. It was actually far faster than that in terms of the competitive landscape because everyone else was really hunkering down. And so in 2011, when Shutterfly came back to us with now an offer that was literally almost 5X of what they had thrown out in 2007, 2008, we had to look at the offer again.

And by that time, we had brought on a couple of growth investors. And so not that you don't have a fiduciary right amongst founders, but we took the offer very, very seriously, despite a lot of reservations about some of the ill behavior that Shutterfly had done during those three years because we had walked away. The price obviously made sense. It was a very frothy market by 2011. Public market valuations were sky high. And then I think there was somewhat of a strategic mistake that we had made. I think it probably goes all the way back to our bootstrap DNA and that we were super frugal. We really never had much cash on the balance sheet throughout the whole time and we were almost a $100 million company by 2008. We just never invested in our own manufacturing. Even as we reached a scale that was competitive to Shutterfly and all the big brands out there, we were still outsourcing the manufacturing, which made a lot of sense from a cap extent point obviously in capital requirements. But the margins were severely compressed compared to our competitors.

Coming out of the 2009 financial crisis, we were in discount heaven, the American consumer. And so nobody was willing to pay full price. Nobody would pay anything but 25%, 30%, 40%, 50% off. And so as we started to also compete because of our scale for that same customer with a 10% to 15% to 18% gross margin difference depending on the season, we were seeing very uncomfortable compression of our own margins. And so the idea of tying up a Shutterfly who had built massive manufacturing plans but more importantly, expertise sounded on paper very attractive. So in 2011, that's probably the unadvertised reason why it got us over the hurdle.

Drew Sanocki:

And no regrets?

Ed Han:

No comment on that one. I think anytime you send your baby off, you second guess a lot of things. I wouldn't say no regrets, but certainly we're grateful for it. There's two sides to everything. Our employees benefited greatly financially. At the end of the day, they preserved our office, our brand, our workforce entirely as they promised. And so many of them continue to have long careers at the combined company after the merger. But I think emotionally and probably specifically more towards the founders and some of the senior folks, there's mixed emotions.

Drew Sanocki:

What does it feel like? Day one and then maybe a month later and now 10 years later. I imagine it's such a rush early on. And how does it feel today?

Ed Han:

For me, that glow was very fleeting. I was actually quite surprised. You know, I would say within days, it felt like a non-event. Days. And I'll tell you very candidly for a couple of reasons, which we don't share widely. When we had taken our growth capital round, we did a fairly large secondary portion. And so from a financial standpoint, I live in the exact same house, probably up until a couple of years ago, drove the exact same cars as when we sold TinyPrints. I didn't see anything changing within a couple of days. It just didn't matter that much from all the financial stuff. The other thing is something that changed dramatically for me, and this is based on my personality, and I think I can safely, so to speak, for Laura and Kelly as well. I don't know about anyone else in the company. Part of the reason why we bootstrapped the company is because we certainly wanted full control, but we just as people don't like to feel like we owe anyone.

We would rather take on more pain for ourselves than kind of share that pain with others who might risk capital or whatever else because of what we do. And so in 2008, when we took on investors, I felt this internal pressure that I couldn't believe. You know, in some ways we had deep pockets, some more cash on the balance sheet. You would think that we'd be like, oh, no more Ramen in the office every day. But actually it felt like we got to go faster. We got to do better. We got to stop making mistakes. We got to execute better. And that pressure for three years felt higher than probably at any time in the first five years as a bootstrap company trying to get off the ground. So then when we sold the company in 2011, I felt that pressure actually grow.

From 2011 to 2012, I had never worked harder at any point during my entire TinyPrints Journey. The idea of integrating the companies, saving jobs, making sure that those conversations stayed consistent pre-deal, post-deal, fighting for, strategizing the brands the way we thought they should be done, dealing with what turned out to be pretty different personalities post the courtship. It was incredibly stressful. So there was no really time to celebrate and fly off to the Maldives or whatever it is that I might have thought about doing. I'd say 10 years later, none of it. I'm grateful for this amazing life. Like I said, nothing really changed externally. I've continued to try to be entrepreneurial and work on different ideas. It was, as it turned out.

When I started TinyPrints, I think a big part of the driver was money. Looking back, it was never about the money. It was about the journey and the family and the joy and the fun we had. I've been trying very, very hard on a more flexible schedule that prioritizes family and parents and some other things that are more important at this point to replicate some of that. Whatever glow that we might have experienced on the day of the merger was fleeting and very forgetful for me. Laura probably may be thinking differently.

Laura Ching:

I have mixed feelings. I think it's easy to look back and remember all the good stuff. I clearly look back so fondly when we're building the company and those are some of the best times of my, not my professional life, but my personal life. There's so much fulfillment. It's easy to forget just the struggles, the conflict, the hard days, the questioning of are you the right person for the job? I had all of that. For me, the most fun were the early days when there was just little pressure. The underdog mentality. There's nothing to lose. Then like Ed said, as the company grows bigger, there's just a lot more pressure to take care of your employees.

It becomes less about you and more about just doing the right thing for your employees and your investors. I think once we sold to Shutterfly, they definitely made good on a lot of things with keeping our brand intact, having a separate office, but it just got a lot harder. Those were definitely the hardest years as we tried to integrate ourselves into their culture, manage multiple brands, not now just TinyPrints, but Shutterfly. There's just a lot of identity crisis there as to figuring out how you can be responsible and supportive of all brands when you're known for being the founder of TinyPrints. That was a really tricky time for myself, I think.

Now, 10 years later, I think I have not started something since and part of it's just like it was such a perfect magical time. There's a little bit of being scared about, can you replicate that? I kind of waver sometimes. I'm sometimes think we just got really lucky. We go to the business school and there's a case study on TinyPrints and clearly most of those people think we just got really lucky. They're just being really polite when they evaluate the case. Then sometimes I'll have this confidence saying, "No, we got lucky, but we also worked really hard and we were really good at executing on this idea." We can do it again. It just kind of depends on the day. How you see yourself, how you play that story in your head. More than anything, I just feel like it was a really fun time and yes, we did get lucky, but I usually end up kind of in the middle. We got lucky, but we also worked hard for what we got.

Michael Epstein:

Drew and I really like this Seneca quote and this Stoa quote. "Luck is what happens when preparation meets opportunity." It really resonates because yeah, it's easy to look back in hindsight and people chalk it up to luck. You had this, the Boku, you had all these experiences that led to putting you in the situation that you were able to ultimately capitalize on. People can't lose sight of all the sweat and effort that went into creating that luck. Sure there's an element of tailwind, an element of luck in some cases, but you guys executed on it with an unbelievable outcome and certainly worth recognizing.

Laura Ching:

Thank you.

Ed Han:

Thank you, Mike.

Drew Sanocki:

Well, great. Thanks for giving me 45 minutes of your time. This was awesome.

Ed Han:

Thanks guys. Good to see you guys.