Podcast: DTC Hypergrowth and Overcoming Supply Chain Constraints
Episode Summary
This week on The Free to Grow CFO Podcast, Jon Blair is joined by Doug Schneider, COO of Heart & Soil, to discuss the challenges and strategies involved in scaling a direct-to-consumer (DTC) brand, particularly focusing on operational constraints, supply chain management, and the importance of leadership. Doug shares his journey from a biochemistry background to becoming the COO of Heart & Soil, emphasizing the significance of purpose-driven business and the need for strong relationships in supply chain operations. The conversation also touches on demand planning, inventory management, and the role of leadership in navigating hypergrowth.
Episode Links
Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/
Doug Schneider- https://x.com/DTCDoug
Free to Grow CFO - https://freetogrowcfo.com/
Heart & Soil - https://heartandsoil.co/
Key Takeaways:
Effective demand planning is essential for managing inventory.
Data-driven decision making helps reduce decision fatigue.
Strong relationships with suppliers can provide a competitive advantage.
Meet Doug Schneider
Doug Schneider is the COO of Heart & Soil Supplements. As a founding manager, he played a pivotal role in scaling the brand from $0 to $50M in just three years.
Transcript
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00:00 Introduction
02:36 Doug's Background and Journey to Heart & Soil
10:12 The Importance of Purpose in Building a Brand
14:41 The Role of Communication in Supply Chain Management
23:11 Leadership and Its Impact on Business Growth
35:14 Demand Planning Challenges During Rapid Growth
50:12 Closing Thoughts
Jon Blair (00:00)
All right, yo yo, what's happening everyone? Welcome back to another episode of the Free to Grow CFO podcast where we're diving deep into conversations about scaling a DTC brand with a profit focused mindset. I'm your host, Jon Blair, founder of Free to Grow CFO. We're the go-to outsource finance and accounting firm for eight and nine figure DTC brands and today I'm here with my good buddy, Doug Schneider, COO of Heart and Soil. Doug, what's happening man?
Doug (00:29)
Yo, Jon, thanks for having me, man. I appreciate it.
Jon Blair (00:33)
Yeah, it's funny actually to have Doug is out here in Austin as well. We are not in the same location. Currently, I'm maybe about like 20 20 miles away from him, but it's not often. Actually, I think the last person I talked to is in Austin was Dean, your CEO. So local local Austinite in the eComm scene out here, one of our beloved clients. And I'm super stoked to be chatting today because
Doug (00:50)
Mm-hmm.
Jon Blair (01:01)
What we're talking about today everyone is removing operational constraints during fast hyper growth. Because here's the thing, when you're scaling a brand, you have your major functions, operations, marketing, and finance. And what the scaling game becomes is which of those functions is the constraint today? Who's holding us back today? For example, at the beginning,
oftentimes it's marketing is the constraint. How do we acquire enough customers to even start growing fast? But as soon as you do that, typically operations becomes the constraint because they have to keep up with inventory and maybe they're stocking out. Then the operations team figures out how to get ahead of inventory and guess what becomes the constraint? Either marketing again, because it's gotta keep growing, or finance because we're running out of cash that's getting consumed by inventory. So it becomes this whack-a-mole game.
And I know from scaling at Guardian Bikes, the supply chain side, supply chain and operations side of removing constraints is a huge, huge challenge. Many of our clients are dealing with it. And so I couldn't think of anyone better to chat through this than Doug, given that, you know, he and Dean and the rest of the people on the founding team of Heart & Soil have scaled to a very healthy eight figure business very, very quickly. And so,
Before we get into chatting about operational constraints, Doug, it would be great if you could give us a little bit of a background, your background and kind of your journey to ending up at Heart & Soil.
Doug (02:35)
Sure. It was a little circuitous, I guess, but I actually, so my background, I got my undergraduate degree in biochemistry and I wanted to be a dentist when I got out of college. My stepfather is a dentist. So that was like my plan and you know, best laid plans doesn't always work.
Jon Blair (02:51)
Dude, my dad's a dentist. I love it.
Doug (03:04)
When I got out of college, was working in biotech while I was trying to get into dentistry. And I figured out that I really hated working in biotech and I wanted to do something else. actually I read, I probably read like two books that were really influential in what landed me at Heart & Soil. And the first one, I was probably like 25 years old and I read Zero to One by Peter Thiel. And that's some
Jon Blair (03:15)
You
Mmm. Yep.
Doug (03:34)
an idea in my head that I hadn't fully conceptualized before which was you know if you're like I'm like a pretty idealistic person especially when I was like 25 years old I was and this book kind of laid out this idea to me that if you want to influence things and see some change that really a business is the way that you do that in the United States and I think I was kind of of the idea that
Jon Blair (03:58)
Mmm. Love that.
Doug (04:03)
like you write your senator or something like that if you think things should change and then I just like snapped into focus to me like the business can be this really powerful vehicle for bringing about this you know whatever change or influence that you want to have and so that idea was cemented in my head then I read another book called Deep Nutrition
Jon Blair (04:06)
Yeah.
Doug (04:26)
by Catherine Shanahan And I was interested in nutrition because I was just a gym guy and I wanted to improve my performance in the gym.
looking at nutrition and when you look at nutrition there's a lot of contradictory information you can contradict every single thing that you find somewhere else and this book that I found really was like okay this is like a voice that I can trust and I'm gonna follow this and and one thing that she mentioned in the book was eating organs
Jon Blair (04:46)
Totally.
Doug (05:04)
and that this was like this missing piece in people's diet that we used to eat organs from like cattle, pigs, et cetera, and that we stopped doing it and that these really, really nutrient dense foods, and I was really captivated by that idea, and I kind of got going on this journey with nutrition and...
I was getting an MBA, I decided I wasn't going do dentistry, I'm going to get an MBA instead, I'm looking at this business world thing a lot differently now, and it would be great if I could do something in nutrition. That seemed like pie in the sky to me actually at the time, I didn't know what it was going to be, but this opportunity kind of fell in my lap because I was in some online communities that were discussing things like organs, it a very small community, a lot of weird people like me talking about this stuff.
Jon Blair (05:42)
Mm-hmm.
Doug (05:55)
I got hooked up with Paul Saladino who He was in his early people who don't know he's a huge influencer now in nutrition But in in his early days he was like this up-and-coming guy that only a few people knew about I got hooked up with him he he comes to me one day and says he's starting this company he wants me to help him come run it and Boom just like happened. I don't even know how it happened, but here I am
Jon Blair (05:59)
Got it.
I love it, man. So a couple things that I want to comment on. The first one is like the beauty of a business, right? I'm personally, I'm a man of faith, I'm a Christian, and I actually believe that businesses are like one of the most beautiful things created by God in terms of like it's this thing where you as an entrepreneur can follow a passion, right?
Doug (06:31)
Yes.
Jon Blair (06:49)
Go to seek to make a difference in the world, like a true difference. Fight back against a problem that you think is worth fighting for, right? And at the same time, if it succeeds, you make your customers' lives better, your business grows and you hire people and you make their lives better, and you engage with suppliers in which you make their lives better. And I just actually can't think of a thing, an organism, that can do that in such a way, anything close to what a business can do. there's a book I read a number of years ago by a guy named Donald Miller, who Donald Miller is a guy who talks a lot about guiding principles, frameworks for guiding principles. And I'm also a big EOS guy, which you might chat about in a little bit, because I know you guys are doing EOS. I was an EOS coach for a while.
It all starts with purpose, right? And I think even Jeff Bezos says, first you have to have core values because you can't find the people that you want to find without filtering them through core values. So then when you define core values and you find people who fit those values and then you give them a purpose or a mission and then you've got a company, right? And so you start with guiding principles first because if you don't have those things, things break down. Scaling a business is hard work and it never ceases to be hard work.
And you have to have that purpose and that drive to get through the tough parts. You gotta have the why and you gotta have a team that's bought into the why. So I really, really love that man. And I also think too that like what people, what a of people don't realize about Heart & Soil, you know, I would say from my vantage point, just cause a lot of people, I've actually come across this talking to a lot of people in the e-comm world. They're like, man.
You guys work with Heart & Soil, like you guys are definitely like a DTC. Like there's a lot of people who look up to you guys aspirationally, right? In terms of like your growth story. But what a lot of those people don't realize is it started with the purpose and the passion, right? And a great business was built around that. And it didn't start with a lot of econ brands. There's a low barrier to entry to starting an econ brand. Anyone can start a Shopify store, right? And source products off Alibaba from China and like
Doug (09:12)
Mm-hmm.
Jon Blair (09:15)
Bam, you've got a DTC brand. But a lot of those brands fail because there isn't actually any soul behind them. And in reality, we call it a DTC brand, not just a DTC retailer. A brand has true meaning and heart behind it. And so that's something that I want to make sure that everybody hears on this episode, because I talk about this a lot in our podcast, is like, look, we're not just building a company.
No matter what product category you're in, if you want long-standing success, you're not just building a company that sells products online. You're building a brand that represents some sort of a movement that has serious purpose behind it, and that's how you build a great business, matter what vertical you're in.
Let's chat about constraints, because you and I have, I mean, this has come up in conversations.
that we've had, whether we're grabbing a beer or another forum, I've heard you talk about challenges. what I wanna start around is like, first off, I already said the stage, like yes, operations and supply chain can become a constraint as you're growing. But you guys have some unique potential constraints because the product you're selling, you guys are very rigorous and serious and this is a part of your purpose about the quality and where your...
you know, your product comes from, right? Can you talk me through a little bit, like, about the rigor behind, like, sourcing the right ingredients and how that made supply chain even more challenging as you guys were scaling really fast?
Doug (10:41)
Yes.
Sure, so you kind talked about this purpose driven idea and the way that some e-comm brands pop up and they have to overcome obscurity. When we were launching, so Paul, one thing that people I don't think realize about Heart and Soil is that we kind of popped up out of nowhere but...
Paul Saladino, our founder, he spent four years before we launched building his personal brand. And when we launched this company, he had a decent sized audience that was ready to buy whatever he was selling. And that was the context when we started selling was there were people there that were ready to buy. Now, reason people loved Paul,
He was very particular about the science and the way that our products were developed was that it had to be of the highest quality. And that meant that the cattle that we were sourcing the organs from had to be grass-fed and grass-finished. Now, constraint number one is in the United States, there's not a lot of grass-fed, grass-finished cattle. It's like...
over 95 % of the cattle in the US are finished on something outside of grass. So that made us have to go look elsewhere, which was, and New Zealand was really the best place where we could get good volumes of, we believed, of grass-fed, grass-finished cattle organs. So we wind up going to New Zealand, and immediately when we launch, as you alluded to earlier, we had this big success.
So we're selling right away and the constraint became very obvious right away that it was going to be supply and this industry or this Segment of the market the supplement market, you know selling cattle organs is very niche. It's very new and the the constraint when I was given hey You're going to be in charge of operations and we launched and we we ran out of product
I'm trying to solve these problems, became obvious to me, the constraint is actually not the organs and the cattle. There was plenty of cattle in New Zealand that were grass fed and grass finished. The constraint was the capacity for freeze drying the organs. So that was like problem number one that identified right away. Okay, we've got this constraint. is the bottleneck that we're dealing with on our supply chain is freeze drying. So immediately I'm begging my manufacturers to give me access to the freeze-dried suppliers in New Zealand. I want to talk to them directly. They're guarding that relationship. And I'm eventually able to convince them that it will help all of us if I can talk to the guys in New Zealand and we can sort of make some plans to try and get this thing fed and scale because it was very obvious they were going to need to do some scaling too. That was like the big problem to solve in the beginning was we needed more freeze-drying capacity. I needed to talk directly to them because this thing was taking off faster than we thought it would.
Jon Blair (14:17)
Interesting.
Doug (14:27)
So there was a lot a lot of you know weekly Hour two hour meetings with people in New Zealand where you know the timing is all weird. talking to them It's their tomorrow or their day ahead. I can't remember is weird, but we were able to, by establishing those relationships directly with the supplier, even though the manufacturer was a little ambivalent about that, we were able to get them to buy into the fact that we could be their horse if they would feed us. So if they started moving more capacity toward us that they had existing and they made plans to scale, that they could ride us very far, that we felt like we had a lot of room for growth and we just needed the supply.
Jon Blair (15:16)
Yeah, so there's something that you're kind of like a conceptual thing that I've come to learn over the years with supply chain management that I want to draw out for the audience, which is that like, I mean, first off, from a product development standpoint, it is very important to be intentional and sophisticated about thinking about what is your bill of materials. Bill of materials definitely drives cost, right? But what I think, so I think people think about the technical side of managing costs and supply chain. But what I've learned, because I ran our supply chain at Guardian Bikes and so I had some firsthand experience of trying to keep up and deal with similar constraints. Actually, so much of it, actually so much of cost control and removing constraints on supply chain is literally just communication and being like relentless about communication. And it's all relationships because
Doug (16:10)
Yes.
Jon Blair (16:15)
The number of things, whether you're talking about getting payment terms negotiated or you're talking about a volume commitment and resulting in a per unit price decrease, the BOM the technical side of product development, yeah, that's great, there's importance to it, but that's not what you're leveraging. You're not coming up with some super savvy way to get cost out of the product because of the way that you are reformulating it.
you're leveraging a relationship and you're really, it's like all about communication. And so I think the point that I'm making is so much of supply chain cost control is actually like all soft skills, right? It's all EQ, it's communication, it's relationship building. Do you agree and do you have any more like to say about that?
Doug (16:51)
Yep.
my god, yeah, that was the, I mean, that became very obvious to me right away. Like when I first joined Heart & Soil, I'd never run a supply chain before. I didn't really know the first thing about it. But it was very clear to me that like, wow, we are really dependent on these other people and we need to build very good relationships with them. And the other thing that I found when dealing with vendors, especially on the supply chain, they might, you might have like rough spots where you're like, man, these guys stink, you know? These guys aren't doing what we need them to do. And I think a lot of people's first instinct is to say, okay, we need to find another vendor. Right, cut them.
Jon Blair (17:38)
Cut them, yeah, cut them.
Doug (17:41)
And my first instinct was like, okay, you go to another vendor, you're gonna have a new set of problems that you have to work through and you're gonna think that they stink. So what you need to do, or what I decided to do was like, okay, I think I have some role that I can play in making this vendor relationship better.
So it was about like identifying ways where we could have cleaner lines of communication. And what really needed to happen is like things need to be easy. Like they need to be really, really easy and boring. Like the guys on my supply chain team, talk to them about that all the time. I'm like, we need things to be easy and boring. That's when we're doing good. So when things get complicated, we got to go back and figure out, okay, what do we got to do to make this easy and boring? And like we instituted, or we made like systems, like shared spreadsheets and things like that with different vendors where we get together, we say, hey, this is how we think this can work. And they say, that's easy, that's good. And then all of sudden you go from, hey, these guys are not doing what we asked them to do, to being like, okay, now we're kind of clicking and things are flowing. But it takes that extra layer of accepting that you have some
responsibility in this vendor relationship and that there's some things that you should be doing to try and make the relationship better.
Jon Blair (19:03)
Totally.
You know what? This just got my mind thinking. There's a very, I think the guiding principle or the concept that you're drawing out here is completely the same as managing your internal team, right? Where like, when there's an employee who's dropping the ball all of a sudden, it's really easy to go like, cut him, I can find someone better, right? But I've learned over the years, and yeah, look. There are some times that you do actually have to get rid of an employee and those are hard conversations to have. But I think I've learned more and more and this comes back to my EOS kind of coaching perspective which is like, it's usually a core values thing. It's usually like they stick out like a sore thumb on a cultural thing where like it's toxic to the rest of the company, right? But if there's a technical thing that they're dropping the ball on, that's the leader's opportunity to step in and go, what's the gap that I can help you fill, right? Are we missing resources? Has the roles and responsibilities all of a sudden gotten away from you and they're like outside of your realm of expertise and you're feeling uncomfortable? Is there something going on in your personal life, right? And like, again, sometimes those conversations do lead to cutting that person, but I think I've realized more often that just like with vendors, Let's leverage the relationship. This person's worked for me for a number of years and done a great job up until this point. What's going on, right? And so like, it's a lot more of asking the right questions to really diagnose what all of a sudden is the root cause of this issue that kind of seemingly has come out of nowhere. And then working together to like, to solve that issue. Like, do you see the same thing with like, managing your internal team?
Doug (20:41)
Right.
Yeah, absolutely. It's exactly the same because I think you have to have like a... For me, I'm like my instinct, like you're saying someone on your internal team is maybe not doing as well. The instinct for me has to be like, well, where have I failed this person? Because normally I'm of the mind that like people aren't dumb. They just haven't been taught yet and that you need to go and do and play your own part in making sure that this person has what they need to succeed. And it's the same with the vendor relationships. And what I found is that...
With our supply chain the vendor relationships have had became like this crucial competitive advantage that we hold and what we did was we were very patient during that period where we struggled to keep things in stock now we and we worked very tightly with them. We did not you know Call them on the phone and like really give them hell it was mostly working collaboratively and what we found was when we built like this positive relationship that when we really needed something done, like we have that equity with those vendors where we can call them up and say, hey, we need this. And they say, we're going to get it done. I mean, it's worked for us where we can pick our spots to kind of play hardball and really press and that they will respond when we do that. That's just been my approach to it. And I approach it the same way with people on my team.
Jon Blair (22:27)
Totally, totally.
Yeah, dude, totally, I...
No, I agree. I read, I don't know, I'm a big reader. I read like two or three of Jocko Willink's books. He's most famous for Extreme Ownership, but he has this one, he has a newer book called Leadership Strategy and Tactics. And he talks about how like, you know, and he's talking about it from the perspective of a Navy SEAL. So you're talking about life or death situations, right? And so like it actually really puts in perspective this concept of you have to have a real relationship, not a fake one, to leverage when the going gets tough. You don't leverage fake relationships. There are a lot of leaders that try to leverage fake relationships and the person on the other side sees right through it and they're like, and they feel manipulated, right? And so actually it's not a coincidence that Free to Grow is first of our five core values as relationships. And it's because if we don't have real relationships internally and with our clients, we can't leverage them. When they really need to be leveraged. And even with working with our clients, like we have to have good relationships with them because sometimes we have to deliver really bad news or tell them to make a hard decision. Things like, hey, you gotta stop paying yourself so much. Things like, hey, I think you do have to cut payroll costs. I don't know who, but I think we have to do that, right? Like hard, hard decisions that need to be made. And you can't just say that. It doesn't land the same. If you don't have a real relationship to leverage. And managing a supply chain is no different at all. They're people on the other end and they're just an extension of your business, right? And like the thing I wanna make sure everyone hears is that managing supply chain and operations, there's technical aptitude that goes into it, but cost control, building a profitable business, it's so much the soft skills of learning how to.
Doug (24:26)
That's exactly right.
Jon Blair (24:43)
unlock value from people and that's people who work in your supply chain external of the business and people who work in your business because at the end of the day as you're scaling like Heart & Soil I think I was talking to Dean when I was hanging out with him yesterday your CEO he's like I think we're around 30 35 you know employees now when you eventually you guys will be at like 50 plus when you get to that point, you guys as the leaders cannot be going and checking on all the different metrics that all those people are responsible for. All you can do is build an environment where the value that exists within those people is being unlocked and they're looking after those metrics for you because you have unlocked the value and they're bought into the relationship and the purpose, right? That's actually, I'm...
Doug (25:16)
Right.
Jon Blair (25:36)
That's why when you go meet someone who works for a big corporation that has like thousands of people, everyone is so unmotivated. And they're literally just looking for the way to go work for a smaller business where they actually are known or start their own business or just climb the corporate ladder and make enough money that they can retire and not have to do that anymore. There are very few people I've met in a big corporation that are super happy because they are not truly being like poured into and nurtured and like really have the ability to own something and create value there. And so this is super important because it's counterintuitive. And again, I'm not saying to not get into the technical side of managing your costs, which we can talk about a little bit more, but like I would say what withstands the test of time as you scale and the team gets bigger and bigger and bigger and you as the leader and founder can keep your finger on the pulse of less and less and less. It's about unlocking value in people. That's just how it goes. That's why so many of the best founders are known as just like incredible leaders. Because that's the thing that unlocked the value in the business, Is leadership. And so actually, I want to talk a little bit about leadership here as you guys have scaled. Dean, had, Dean was actually, your CEO was the guest on our very first ever Free To Go CFO podcast episode. And we talked about leadership because Dean is a very... Dean is very intentional and passionate about trying to be the best leader that he can. He's like, in fact, we hung out on the lake yesterday and that's basically what we talked about the whole time because he's really always trying to figure out the next way to be a better leader. Like, how has Dean's like true heartfelt focus on the...
guiding principles and leadership impacted you as a leader and how do you see that like benefit the business?
Doug (27:42)
mean, Dean's motor is insane.
Jon Blair (27:45)
Yeah
Doug (27:47)
like and he has this like massive massive passion for exactly that like this the leadership stuff and the like time management stuff he consumes this stuff in his spare time like he's watching YouTube videos about he's reading books about it he's geeking out about it like that's what he cares about and he has this big motor and energy that when I first started working with him we clicked really really well and you know we started day one with the company and the company is super small and we were given the reins to this business we both felt really fortunate about that we both took it very very seriously and as the business started to scale we were constantly talking to each other about
upping our own game. That was very, very important. He was very obviously invested in doing that and becoming better and better and better. There was something that I recognized in him and I was like, I've got to do the same thing. We started to pour ourselves into what was going on on Twitter with the e-commerce community, starting listening to podcasts, reading books, whatever. We could do going to conferences soaking in as much as we could to learn as much as we could about ecommerce and trying to constantly up our game and it's still this ongoing thing where both yes and we're both built the same way where it's like you almost kind of like the
Jon Blair (29:16)
Mm-hmm. I love it. Forever.
Doug (29:28)
You'd like I don't ever think there's some you know at there's a what would have reached the end of the rainbow here And I'm gonna be good. I'm like I don't even like to you know I like the fact that I'm gonna have to keep going going going going and he's the same way So and that pervades the whole company is like we have to keep upping our game We have to keep improving like and I feel that when I went from you know I'm leading this small company that's made zero dollars to, know, I'm the COO of a company that's doing 50 million plus a year. But like, if I'm to be the COO of a company that's doing 50 million plus a year, like, I need to be a COO that's doing 50 million plus a year. Like, I need to have my game upped. And so...That's something that I think our team recognizes too, is that we're constantly trying to improve and we're constantly thinking about the future and we want the systems that we, so it went from, it's weird when you're in a startup, like you go from, like you yourself, if you're running a startup, you're doing tactical stuff every day and then all of a sudden,
as things start to scale, know, those hard skills of executing there tactically become less important and then the soft skills and the leadership and the strategic thinking rapidly start to become, and being like a cheerleader basically for your team and getting people motivated rapidly becomes like way more important. And making that shift, that transition was actually, Dean did it
Jon Blair (31:03)
100 % Totally.
Doug (31:17)
beautifully and We we really took a core group of people and we were able to kind of manage this massive hyper growth with this core group of people because Dean He was ready to make that transition into that leader and you know, know I'm his right-hand guy So I was right there with him too. But yeah, he's been a huge inspiration for me. It's just his work ethic is insane
Jon Blair (31:33)
Mm-hmm.
I love that.
I dude it's funny every time I hang out with Dean we find like another Dean and I have this really weird like overlap of interests like I'm calling it weird because it's like a very nerdy I'm like avid reader and like all the same kind of stuff and so we're just like talking about like EOS and weird leadership like okay
Doug (31:53)
Yes you do.
Jon Blair (32:06)
He texted me yesterday after hanging out at the lake on Sunday and he was like, hey, what was that thing you were talking about? I was like, I need to articulate this to the rest of the team. like, it was like an unlock for me. And I was like, it's the difference between objective planning and execution planning. They're not the same thing and they oftentimes get confused for one another. Objective planning is where are we going? What are we going to achieve? Execution planning is how? What are we gonna do to get there? They're not the same thing. And you gotta get into two different mindsets, right? And he's like, thank you, that's exactly, so like that's what he's texting me about after we hung out on the lake, right? Like, and so, but then he also likes obscure heavy metal, just like I do. And so like, so anyways, it's been, it's been fun getting to work with you guys and us all living in Austin so that we can have nerdy conversations over beers. But I love it, dude, I mean, and again, coming back to growth.
Doug (32:44)
Yep.
Yes, he-
Hahaha
Jon Blair (33:05)
I think there's this common misconception that growth happens because you just find the perfect product that no one is going to compete with you on.
Doug (33:05)
Yep.
Yep.
Jon Blair (33:14)
You source it cheaply, you sell it expensively, and bam, we have a business. it's no, like whether we're going back to the purpose at the beginning of this story, or we're talking about like what's driving the CEO and the COO from like just like a guiding principle standpoint, that's what keeps things moving. And like I have a kind of a mentor.
Doug (33:24)
Yep.
Jon Blair (33:36)
Ryan Rouse who's been in the ecom and like CPG space. I don't know if you know him. He's out here in a he's out here in Lake Way But he he's about eight years ahead of me in life three kids like me And so I look up to his perspective a lot and he always says like look dude. It's not about Timing the game. It's about the time in the game, right? And that's that goes with working out that goes with like any discipline. It's about spending time in the game
Doug (33:48)
Mm.
Mm.
Jon Blair (34:04)
but you find a game that you love playing so much that there's no way you're gonna quit and you're gonna spend the time in the game and you love the journey and that's why you're not worried about the end, right? Because the journey is...
Doug (34:16)
Right?
Jon Blair (34:18)
That's everything, right? And that's where these beautiful things get created. And so you gotta find a journey you want to be on, right? And that like you can't stop thinking about. And so anyways, I just wanna point that out because it's counterintuitive to what a lot of econ brand founders think when they start a brand and they wanna achieve success. So really quick, I wanna chat a little bit about the technical side of what you manage. I wanna talk about demand planning because
Doug (34:27)
Thanks
Sure. Yep. Yep.
Jon Blair (34:47)
Demand planning is this thing that everyone struggles with. This push-pull between marketing and operations, but also cash flow that you have to consider. What, from your perspective, what has been the hardest part about the demand planning process as you guys have been scaling so fast?
Doug (35:07)
So it was interesting because when, so our, what phase of business we're in right now, we went from like,
you know, from 2020 through 2020, halfway through 2022, it was like hyper growth, insane growth. And so demand planning, I was like, throw it all out the window. I don't, I don't want to hear it. Nothing that you say is happening. So I built, you know, a system and this might not be the way to do it, but I wanted to have some hard data to look at. And in our supply chain is still run this way where we look backwards at sales and we're saying, this is the sales volume for the previous 30 days and we have decision making around we want to carry this many days of supply. We want to have this many days of supply of raw material based on the current sales volume. And we're going to order based on current sales volume because
Our business is also a little bit different from other people's where we don't have big spiky moments in our sales. It's very steady and predictable. Our business is built around subscription, really. It's a product that has 30-day supply. We really focused on subscription because we thought we could get monthly recurring compounding revenue, and that was how we wanted
wanted to grow.
using the system of looking backward at sales data for but it's still current the previous 30 days and kind of Building our constraints around okay. Here's how much we order at a time, but it's all based on the current volume It gives us enough that we can we can adjust when we're making our finished goods To be able to make sure that we're staying in stock and we're always making sure that we fill subscriptions So that's another
Jon Blair (37:03)
Mm-hmm.
Doug (37:15)
thing for a business like ours is like we can we can demand plan for subscriptions that's easy for us because you can look at the current subscriptions and you know what you're gonna need to fill so we will cut off sales for a product for one time and keep filling subscriptions in the background like for the past two and a half years we've I don't think we've missed more than a day or two worth of subscriptions I would fill thousands and thousands so I would say like less than point
Jon Blair (37:33)
Mm.
Doug (37:45)
percent of subscriptions have been missed. Yeah, so we focus on, so that, you know, the subscription thing is easy when it comes to demand planning.
Jon Blair (37:49)
I love that.
Doug (37:56)
What we're dealing with now that we've gotten to a little bit more of a steady state with the growth where it's not hyper growth anymore and it's more steady, this recurring growth, we have things like we never did Black Friday before last year. And when we did a big promotion for Black Friday, we had this massive spike in sales that I wasn't anticipating on the supply chain.
Jon Blair (38:08)
Mm.
Doug (38:24)
we were able to weather it and kind of learn like, we can kind of expect.
Jon Blair (38:25)
Mm.
Doug (38:29)
this much, right? But we knew that where we had our inventory level for Black Friday, we were able to get through Black Friday, through Q5, and into January 1, where you get all the production slowdowns, and we still kept everything in stock. coming into Q4 this year, we were like, well, we know kind of what inventory level we need to keep to be able to weather that storm, because you're dealing with production slowdowns,
Jon Blair (38:53)
Mm-hmm.
Doug (38:59)
with massive spikes in sales and the planning that's going on with our manufacturer right now, we need to get to this inventory level by November, whichever November date and...
Jon Blair (39:14)
Yep.
Doug (39:15)
We've got to make this many bottles a month. We're projecting this many are going to be sold. So we're getting a little bit more sophisticated with how we're doing the demand planning. to begin with, I just needed hard data, especially when we were in hyper growth. It's like, me something that I can look at that can tell me. I don't want to sit here and make every single decision and agonize about it. I need a system that tells me what to do. So I need data. I didn't want the decision fatigue. I needed data that
Jon Blair (39:27)
Yeah.
Doug (39:45)
told me you need to order this much on this day.
Jon Blair (39:49)
For sure, yeah, and I think still one thing to draw on what you just mentioned, what you just talked through is that you're still thinking strategically. You have to have data to drive initial numbers of quantities and when is the drop dead date to issue that PO, but you're like, okay.
Doug (39:58)
Yes.
Jon Blair (40:09)
there's segmentation happening. Like one, I'm sure you have certain products that, you're thinking about subscriptions, like we're not gonna go out of stock on subscriptions. We're gonna fill subscriptions, right? And so that's like a strategic decision. And I think the point that I wanna make is a lot of people agonize over trying to cut the perfect quantity on your PO. You're just not gonna cut the perfect quantity on your PO. It's never gonna happen. I've never seen any company do it. Yeah, exactly.
Doug (40:15)
Yes. Yes.
Yes.
And you're not gonna make a perfect forecast either. So yeah, think agonizing about that stuff is like not good. And that we wanted, when I built that system, I was like, need to remove the decision fatigue and I need this thing to tell me what to do. And it's not going to be perfect. That was the thing too, was the reason why we were using
Data that was looking backwards instead of taking in like here's the forecast was the forecast were all wrong and Forecast forecasting is not easy. I'm not saying that as like our marketing team couldn't forecast well It's really difficult especially when you're the growth is like in that hyper growth phase to it was really hard to predict But you need systems this alludes to what I was talking about earlier You need a system that makes things easy and boring when you're doing operations
Jon Blair (41:04)
Yeah.
Doug (41:27)
like you can't be sitting there and agonizing about everything you need you need data that's reliable and you need to be able to make decisions very quickly but
Jon Blair (41:27)
Totally.
Doug (41:40)
you need to be grounded in something that you're gonna trust. like, we talk about, my guys on my supply chain team, sometimes, you know, our system is telling us to do something, and I'm like, wait, maybe we should do something else. And one of the guys on my team is like, you gotta trust the Sheets, man. We have to trust the system. I'm like, you're right.
Jon Blair (41:59)
love you. do. That is, I love what he's like. Here's the thing. You can agonize over trying to get it perfect from a, from like a forecast perspective, which you're not gonna do. I've seen enough brands. I haven't seen, dude, Amazon, their demand planning is very inaccurate. Like incredibly inaccurate. We sold vendor central at Guardian for a period of time where we were their vendor and like, but.
Doug (42:11)
Yes. Right.
Yes.
Jon Blair (42:25)
it was a system that they trusted the system, right? And the system would correct itself a little bit over time too, right? As more historical data, like you beat your forecast, that rolls into the next iteration of the decisions. And so what I always tell people is stop getting so afraid about leaving money on the table because you under order. You're gonna live the fight another day. And guess what? If you're building a brand with purpose,
Doug (42:30)
Yep.
Exactly. Yep.
Yep.
Jon Blair (42:52)
If people stock out, they're actually gonna want your product more. They're not gonna go, forget hard and soil, I'm gonna go buy something else. They're gonna be maybe a little bummed, right? But like, the desire, if you build a good product that stands for something and meets a real need, you can be wrong on inventory planning and you don't have to bet the farm on whether you, whether you,
Doug (42:57)
Exactly.
Jon Blair (43:14)
know, stock out or not, you know? And so look, I wanna ask you one other question. This is like the token question I gotta ask. My business partner Jeff is your CFO, right? How has Jeff been valuable in helping you manage the brand's P&L and or cash flow or just make better decisions?
Doug (43:18)
Yeah. Okay.
Yes.
One thing that when it comes to operations too, and I don't know how many people are gonna listen to this podcast and be like deep inside of supply chain and operations, but.
One thing that Jeff and I have worked on a ton is inventory reconciliation and reconciling the inventory asset value that we have on our balance sheet with what we are seeing in our own systems and making sure that we're adequately accounting for our cost of goods. so solving that puzzle has been really, really interesting and fruitful.
And I've worked with Jeff a bunch on this because it has been a little bit of a puzzle, but it's uncovered things for me and my team about, we didn't really understand our costs as well as we should have. And we've been getting deeper and deeper and deeper and understanding exactly where our inventory assets, because we have to buy our raw materials. A lot of companies don't have to buy their raw materials. You just work it with a man you
Jon Blair (44:39)
Got it.
for sure.
Doug (44:43)
You got your PQ. You know your quote and it's pretty easy, but we have raw materials that we have to buy You know we have we have the production costs with with the manufacturer and understanding how those costs are flowing through the supply chain to the end consumer like that challenge of just making sure that our that we're adequately accounting for for cost for our balance sheet has been like fruitful for me and my team to be
able to really, really go deep on understanding exactly how money flows through this business. And the other thing about Heart and Soil too,
Jon Blair (45:17)
I love that.
Doug (45:23)
is that our main cost center is cost goods. It's not paid acquisition like paid advertising. A lot of e-commerce companies are going to be spending the majority of their costs are going to land in paid acquisition. But we've had a lot of organic growth and there's reasons why we don't have to spend as much. But the main cost center in our business is cost of goods sold and
our profitability is dependent on what we do on the supply chain. And so lot of the conversations with Jeff are kind of about protecting...
Jon Blair (45:54)
Totally.
Doug (46:02)
Because our profitability is based on that, protecting that profit level, putting the guardrails on what we're doing with the supply chain, like having some simple heuristics and guideposts for ensuring that we can maintain that really healthy profitability that we have. with your guys' Reach Reporting portal, he's given me the cash conversion cycle and the inventory days.
as like two really important guardrails to be working with my team on to make sure that we're not over ordering things and kind of affecting the cash flow negatively and then decreasing profitability as well.
Jon Blair (46:38)
for sure.
I love that man. Yeah, I mean it's so hard to, you guys are just trying to keep product in stock, but understanding the financial impact is super important, because sometimes there's a counterintuitive impact on cash flow and profitability.
Doug (46:54)
Yes. Yes.
Yeah, the cash flows, that's the main thing is like if we're not Because if I just told the guys on my team never go out of stock You know we could we could order things like crazy like those those suppliers that we we had the problems with they've scaled things pretty effectively we can go get a lot more but But it would totally wreck the cash flow because that's where all of our cash gets tied up is in the supply chain
Jon Blair (47:13)
Yeah, exactly.
Totally, totally, totally, I love that. Well know Jeff loves working with you guys, he's gonna be out here next week for our Free to Grow quarterly planning and so I think we're both gonna see you guys in person which we're looking forward to but I know we gotta land the plane, we're going a little bit over here so before we do, I always like to ask a personal question. So what's a little known fact about Doug that people might find shocking or surprising?
Doug (47:37)
Yep.
Yep.
my gosh.
my god i didn't know you were ask me this let's see there's one that i'm like i don't know if i should share this but yeah okay yeah you know what it's kind of a fun little story i went i went to jail for a weekend it was something that happened to me when i was 23 but when i was in jail
Jon Blair (48:00)
Ha ha ha.
That's probably the one we want to hear.
Doug (48:23)
has been three days in jail. I won an arm wrestling competition between the inmates. Yeah. and this was not prison by the way. This is county jail. Very, very, very different. but there was a tournament that broke out while I was there and, I won it. And, yeah.
Jon Blair (48:31)
That's epic man. That is so, hey, we've all done things when we were 23 that we wouldn't do today. So no judgment here. I've got some crazy stories as well. When I was 23, I was finished my business degree and then like quit working and was touring in a heavy metal band thinking that that's how I was gonna make a living and I did very...
Doug (48:54)
Right. It's true. Thank you. Yeah.
Yep.
Jon Blair (49:10)
very shameful things while I was in that van. So like no judgment here brother at all. And I appreciate you sharing that. Before we land the plane, where can people find more info about you and Heart and Soil?
Doug (49:12)
Thank you. Yep.
So our website is heartandsoil.co but if you want to talk to me I'm on Twitter @DTCDoug.
Jon Blair (49:33)
Love that, love that. Well, Doug, this was an awesome conversation. We didn't even get to chatting about EOS, so I might have to have you back and we can chat, we can check in on how your EOS implementation's going over there at Heart and Soil. But, yeah, look everyone, bottom line is, the takeaway here is there's a lot of...
Doug (49:39)
Yeah.
Dude, I'm down. Yeah.
Jon Blair (49:53)
best practices and technical, there's a technical side to managing operations, but there's a soft side, right? Strategy, managing relationships, unlocking value out of your people and out of your suppliers. Don't miss the nuggets in this episode about those.
Doug (49:59)
Yes.
Jon Blair (50:11)
those concepts and so this was super valuable. I hope it's helpful to everyone and in closing, remember like if you want more helpful tips on scaling a profit focused DTC brand, consider following me, Jon Blair on LinkedIn and if you're interested in learning more about how Free To Grow's DTC accountants and fractional CFOs can help your brand like we've helped Heart and Soil, check us out at FreetoGrowCFO.com and until next time, scale on.
