Business Spotlight: STM
First 5000 regularly profiles an Australian mid-sized business as part of our Business Spotlight series. It’s our mission to promote and encourage the growth of mid-sized businesses in Australia by shining a light on the success stories.
First 5000 editor Roulla Yiacoumi visits STM’s newly renovated headquarters in Alexandria, Sydney, to talk to the founders about how the business began, its growth into a multi-million dollar enterprise, and the truth behind the STM name.
About the business: Designs and manufactures protective laptop bags and gadget cases
Founders: Adina Jacobs (nee Krausz) and Ethan Nyholm
Founded: 1998 in Sydney
Employees: 35
Website: www.stmbags.com.au
Facebook: facebook.com/stmbags (38,000+ Likes)
Instagram: instagram.com/stmbags/ (500+ Followers)
Twitter: @_stmbags (900+ Followers)
How the business started
What first began as an idea to better transport a laptop has grown into a multimillion dollar business.
Adina Jacobs (nee Krausz) and Ethan Nyholm met and became friends when they first worked together in Sydney almost 20 years ago.
The idea for STM came about when Ethan bought a laptop but couldn’t buy a case for it.
“Ethan bought a padded envelope from the post office and put it in his backpack — and that was his laptop bag,” says Jacobs. “It worked, but it wasn’t a great solution.”
At the time, Jacobs was an accessories buyer for fashion retailer Hound Dog, and her colleague Ethan approached her to see if she might be able to find something more suitable than a puffy plastic envelope to transport his laptop.
But the only bag they could find was a $300 bag from the US.
“So we cobbled together an idea and had a sample made,” says Jacobs. “We put in six or $7000 each. We had two bags: five colours in a backpack, and two colours in a shoulder bag, and we bought stock.”
The early days
The business got off to a rocky start when Jacobs and Nyholm discovered people were simply not interested in their products.
“When we first started, we got our samples, and we thought ‘this is such a great idea and everyone’s going to want it’, and ‘everyone’s going to think it’s amazing’ – but nobody was interested,” says Jacobs. “Nobody wanted to wear a backpack with a suit, nobody wanted to buy a laptop bag because they were getting free black bags with their laptops.”
Jacobs and Nyholm decided to approach the media with their products to see if it would generate any interest there. “We wanted to people to try them out,” says Jacobs. “We approached luggage stores but they didn’t care. They didn’t get it. So we decided to go to stores where laptops were being sold, such as Harvey Norman. They weren’t responding.”
Turning point
The biggest turning point came when the pair decided to target the Apple market.
“Apple computers didn’t come with bags,” Jacobs explains. “The people who were buying them were spending a lot more money than those who were buying PCs, and they cared about what the laptops looked like. And they cared about the accessories they used to carry them, and they cared about protecting them. Those people were happy to spend $150 on a bag. We started to sell a lot of product through Apple resellers.”
The big deal
“The first big deal we did was with [former internet service provider] Ozemail,” says Jacobs. “They bought 500 bags — that was a fortune! And they paid for them!”
But the real turning point when Jacobs got her bags into accountancy firm PWC. Jacobs figured plenty of employees would have laptops, and so spent a huge amount of time trying to track down the right person at PWC.
“In the end, I called reception and asked to speak to the person who bought laptop bags for the company. They put me through to procurement — and they were interested.”
PWC ended up buying a batch of bags and their employees loved them. But to STM, the impact was huge in terms of shifting the mindset of potential buyers.
“All of a sudden there were people in the city wearing backpacks with suits, and that changed a l lot for us,” says Jacobs. “It changed the way people looked at carrying their computers – that was a huge deal.”
Jacobs says that one of the key advantages of the STM backpacks was their look. “That black bag screamed out ‘I’m carrying a laptop’ whereas our backpacks did not. PWC ended up buying thousands of bags from us.”
Expanding the business
STM began its life in the third bedroom of Ethan’s semi in Bondi; the garage was the warehouse.
“Two years in, we just managed to pay Ethan who was working on it full-time. About 6 months later, I started to draw a paltry salary,” laughs Jacobs.
It was close to four years in when the business got too big to be a home operation and the pair moved into their first office in the Sydney industrial zone of Alexandria, an area close to both the city and airport.
To expand the business, Jacobs and Nyholm needed a loan. They took their plan to a few banks but were turned down.
“Banks weren’t interested – we had nothing to back us. I was 24,” says Jacobs. “Nobody wanted to lend us money for a very long time. In the end, our parents guaranteed us loans of around $150K each. We bought stock with the money – the money only ever went back into stock.”
At that stage, all of STM’s our bags were being manufactured in China but some suppliers were becoming unreliable.
“It was getting harder to find and work with [capable] factories,” says Jacobs. “We were doing small volumes, and we had a piecemeal way of doing things. None of our products related to each other. There were no economies we could use. We weren’t really important to anybody.”
After a disastrous run with one factory which wanted to delay an STM production schedule run by three months, STM pulled all production out of China and went into Vietnam.
“We started working with a designer who brought all of our bags together. We started doing things more intelligently,” says Jacobs. “It’s totally different dealing with factories in Vietnam. The factories are run by Koreans, who have a more western way of doing business than China. It’s a different ballgame.”
Diversifying
While STM has long-been known for its stylish, high quality laptop bags, a few years ago the company expanded into cases for phones and tablets, such as the iPad.
“We started with just bags and did just bags for close to 10 years,” says Jacobs. But the market for cases was growing, and STM decided to expand its offerings.
Surprisingly, it was a far from simple transition. Thinking it would be a relatively straight-forward move into cases, the founders were surprised to find they couldn’t make cases in Vietnam.
“They don’t make plastic injected moulded products in Vietnam – we had to go back to China,” says Jacobs. “We’ve now found some amazing partners in China and have good relationships.”
The bags and cases are run as separate businesses within STM. There are two bag ‘collections’ each year, and dozens of cases.
“Our first case was for the iPad 2,” says Jacobs. “With the first iPad we didn’t know what it was going to do, how people were going to use it.”
Today, cases make up 70 per cent of STM’s business, while the remaining 30 per cent is bags.
The name
“I’m always unsure how much to reveal about how we got our name,” says Jacobs tentatively. “Officially STM stands for Standard Technical Merchandise, but the name really came from a phrase Ethan used to say a lot: spank the monkey. We went with STM for short. I liked the mystery of the acronym.”
Jacobs admits that given a little more time, the name may have been something different.
Finding people
The first STM employee was a sales person, the national retail manager.
“We scraped as much money together as we could at the time – I think it was $40-50K, and hired our first employee. She only left 4 years ago.”
Today, there are 12 employees in Australia and 23 around the world, chiefly in the US. Marketing is run out of the US office.
Nyholm stresses that the right skill set was what was important – not where the person was located.
“It’s about people as opposed to place,” he says. “People is the most difficult [aspect of the business] but the most important. It’s hard finding good people.”
STM uses LinkedIn and Seek to advertise for most roles, but will use agencies if they get desperate.
“Agencies are great but they’re expensive,” Nyholm says. “When we’ve exhausted all avenues, we’ll go to an agency.”
Work culture
“We care about people and we care about what we do — and I think that goes out to the people we work with,” says Jacobs. “They see how passionate we are about what we do. The space that we’re in is interesting. It’s on the edge of product and on the edge of technology – there’s something happening all the time. It’s never boring.”
Jacobs and Nyholm work hard to make STM a place where staff are treated well.
“We don’t want people to work here until 8pm. You need to have flexibility. If you need to go to the bank, go to the bank. We don’t make people clock on and off,” says Jacobs.
Nyholm agrees. “It’s absolutely about getting the job done, not sitting behind a desk and being here from this time to that time.”
Government assistance
Giving STM a foot up the ladder was the Australian Government, in the form of various grants available to budding businesses.
“We qualified for the export marketing development grant,” says Nyholm. “We didn’t think we’d qualify because our product wasn’t made in Australia but they changed the legislation.”
He adds that applying for grants is not an easy process so hired a consultant to assist.
Nyholm says the grants helped significantly. “It allowed us to do things, like attend trade shows and events. We’ve invested in our technology and communications, and they helped offset the cost of business.”
STM also qualified for the innovation grant which Nyholm says offset some experimentation and product design costs.
What’s next
STM has its sights sets on expanding the business, with Nyholm saying there are things the company could be doing better.
“We could be communicating with our customers better,” he says.
Nyholm also sees the company growing, but not too fast.
“In this industry, you’ve got to take risks, but we don’t want to get ahead ourselves. Flexibility is really important in an industry that changes 180 degrees every 18 months.”
The company has recently launched direct sales from its website, an initiative that has been in the planning for many months. The company chose to bypass direct sales earlier in their business model to look after the resellers that supported them. But most of these have now disappeared.
For now, the company is focused on product development, and bringing in enough product to meet demand. Last year, the company introduced its first ever collection specifically for women, called Grace.
Improving social media engagement is also on STM’s agenda, says Jacobs, but Nyholm doesn’t believe it’s the holy grail it’s made out to be.
“I’m a direct correlation skeptic,” he says with a smile. “Social media is an important method of communication, but I don’t yet see the direct correlation between more likes on Facebook and more dollars on the bottom line.”
First 5000 profiles Australian mid-sized businesses as part of our Business Spotlight series. We’re all about promoting and encouraging the growth of mid-sized businesses in Australia. Interested in being featured? Contact Roulla Yiacoumi at editor@first5000.com.au for details.
Roulla Yiacoumi was the the editor of First 5000, the leading network for mid-sized businesses in Australia from July 2015 to October 2016.
Petras Surna
February 16, 2016 at 9:34 pm
This story is a great example
This story is a great example of how much effort it takes to turn an idea into a profitable business by relentlessly searching for a viable market. As is often the case, the market might not be where you first think.