Why Your DTC Brand Isn’t Growing — You’re Ignoring This

Episode Summary

In this episode of The Free to Grow CFO Podcast, Jon Blair sits down with Chris Lang, co-founder of Fresh Chile Co., to break down how organic content and paid media actually work together to drive growth in a DTC brand. They explore why brands that rely solely on ads often struggle to scale—and how content improves marketing efficiency over time.

The conversation covers the link between storytelling and conversion, including how content builds trust across multiple touchpoints before a customer buys. Jon and Chris also introduce the concept of “hunting vs. harvesting,” highlighting the difference between short-term sales from ads and long-term growth driven by consistent content.

They also get tactical, walking through how to use your product page as a content roadmap and why most founders overthink getting started.

This episode is a practical look at why content is a core driver of profitable growth.

Key Takeaways

• Consistent, high-volume content beats perfect content that never gets published.

• The best ad creative often comes from organic content that’s already proven to engage.

• Brands that rely only on paid acquisition are “hunting”; the ones that win are also “harvesting” with content.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Chris Lang- https://www.linkedin.com/in/chrislangsocial/

Free to Grow CFO - https://freetogrowcfo.com/

Meet Chris Lang

Chris Lang is a founder, marketer, and operator who helps brands and founders grow through organic social and storytelling. He is a partner at Fresh Chile, where he helped scale the brand into the top 1% of Shopify stores by building community driven content and consistent organic distribution. Chris has built and operated businesses across ecommerce, food, retail, and media, and now runs MOVE FWD, a social and storytelling studio focused on turning a founder’s story into a repeatable growth engine. His work centers on one belief: stories build trust, trust builds community, and community drives sustainable growth.

Transcript
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00:00 Introduction

02:48 Building Community Through Storytelling

05:54 The Importance of a Strategic Content Framework

08:20 Navigating the Hunter vs. Harvester Mindset

11:00 Consistency vs. Quality in Content Creation

13:43 The Long Game: Patience in Brand Building

19:05 Visualizing Content Strategy

20:04 The Power of Storytelling

21:36 Financial Considerations in Content Strategy

22:48 Creating Content for Multiple Platforms

26:04 Final Thoughts

Jon Blair (00:00)

Hey everyone. Welcome back to another episode of the Free to Grow CFO podcast, where we dive deep into conversations about scaling a profitable D T C brand.

I'm your host, Jon Blair, founder of Free to Grow CFO. We are the go-to outsource finance and accounting firm for eight and nine figure D T C brands.

Jon Blair (00:17)

Alright, today I've got my homie Chris Lang again for the third time on the show. Chris, I think you're the first three-peat man, what's happening?

Chris Lang (00:26)

And I feel like I had my flu game today, bro. This is like my 10th call of the day. I'm like, you know, just like pushing through. No, dude, three P feels good. Feels good.

Jon Blair (00:30)

Hahaha!

Yeah, I'm excited to chat, man. think we chatted, I mean, we've chatted a bunch of stuff. We've chatted Fresh Chili. We've chatted the kind of like five F's and kind of like, more like life coaching side of Move Forward. But today we're gonna talk about something that I definitely see you playing in constantly with your content game. But we're gonna talk about content, organic social storytelling, whatever people wanna call it.

Chris Lang (00:41)

Yeah, right.

Yes.

this.

Jon Blair (01:02)

The reason why I brought you on to talk about this, one, you're living it, you're breathing it every single day and you're out some great content yourself, but I want brand founders listening to hear about this other side of building a DTC brand. It's not all just Facebook ads, Google ads, direct response marketing. There's a brand building side of things, organic social, content creation, storytelling, all a part of that.

Chris Lang (01:15)

Right.

Right.

Jon Blair (01:28)

And over time, there's this invisible linkage between the two, between ad buying and direct response marketing and that content. And I couldn't think of anyone better than you to come on and chop it up on that. before we dive in, can you give the audience a quick, just a quick background on who you are and what you do?

Chris Lang (01:44)

Yeah, so I'm a creative entrepreneur, Fresh Chili's in the top 1 % of Shopify brands, bootstrapped, no investors, tons of line of credit and loans though, if I'm being honest. And I've been in the DTC game for about 10 years now taken me that long to really wrap my head around.

blended ROAS and content, like how do they all speak to one another? So yeah, yeah, yeah.

Jon Blair (02:08)

So before we get into like, I wanna get into the weeds on some of your advice on how to build organic content, but before we do, what have you seen at a high level over your years of doing ad buying and creating content? What do you see about how those two combine forces to really drive a brand's growth forward?

Chris Lang (02:19)

Mm.

Yeah, I I think the two big takeaways, it's going to make you more efficient on your ad spend, you know, when you're doing it right. Right. I mean, I think every every high level media buyer is saying their job is so much easier when the brand has organic strategy down. that's like organic strategy. going to make me look like a rock star. Right. So.

Jon Blair (02:43)

For sure. Yep.

Yeah, yeah, totally, totally.

Chris Lang (02:48)

Every media buyer loves that. then like number two, it's about depending on the business model. If you're looking at L TV, AOV, all the things, right? Like it's about building a community that you can build your business upon long term. And so I think it's those two foundational aspects that I see that are kind of the biggest takeaways.

Jon Blair (03:08)

Yeah, man, even with, I mean, we've built Free to Grow on the back of, you know, referrals and content. And obviously this podcast is a part of our content. There's no lie about it. But what is the reason why we do it? Yeah, we, we, we want to drive leads. We want to grow our business, but I love being helpful and I love seeing the community that gets built around our content. I've got existing clients who say they listen to the podcast. I have prospects who come in that I've known for a year.

Chris Lang (03:24)

Right.

Jon Blair (03:37)

that heard a podcast episode and said, today's the day I start working with Free To Grow. Another podcast I'm on, Ecom Scaling Show, we just recently started doing monthly live Ecom Scaling Shows to further the community building, to invite people in to watch the show live and ask questions. And I think in a world of AI content creation, right, being on the rise, building genuine organic content and telling your story as a pillar of that, not the only pillar, but

Chris Lang (03:41)

Mm-hmm.

Great.

Jon Blair (04:05)

a core pillar is going to differentiate genuine brand building from like AI driven content. Do you agree? And what do you have to say about that?

Chris Lang (04:06)

Right.

I agree and I think that's really where my framework was really developed is, know, there was a there was a part before the agency kind of got restarted where I had like 10 different businesses and I had to create like this social framework to tell the story repeatedly, you know, every day. And then there's been a few shifts with that, you know, one stories and reels are more important than ever. Like, think I think the worst thing I've seen, you know, clients or brand agency or brand owners obsess over is like the

the grid, know, this the aesthetic and it's like, no, your people are on stories, your people are on reels right? And so like you guys spend more time strategizing, you know, what that content looks like. And that's where if if you know, if you're a Shopify brand owner, this is the best way I can explain it. Go to your PDP, your product page and what's on your product page.

How do you convert that customer? It's images, it's reviews, it's how to use, it's price point, it's shipping terms, your return. And that's what we do. We systematically, call it our shop operating system is what I call it internally, but it's a Figma board. And this Figma board is very systematic where yes, we have the post of the day or carousel post of the day, but we're also building out stories. And those stories are very systematic to the products that

that

are on the Shopify store and also that are relevant to educate very high level top of funnel.

the customer because that's the thing like they see an ad you're spending all this money on meta but then you're not optimizing like the conversion and the other thing is like people obsess over their websites but they don't obsess over social but you're spending money on social and obsessing over you're like like losing a step in between right and so that shop operating system that I've really kind of developed and it's very visual and the reason why brand owners really like it is because they can really see okay

Jon Blair (05:54)

Yeah, totally.

Chris Lang (06:04)

Monday, you know February 2nd or whatever it is

Here's my post of the day. Here's my stories of the day. Here's my email Here's what ads we're launching and that's that's the way that I sort of had to bring it all together visually for people and it just really started to click for them like oh There's a whole strategy behind this and yeah, I was like we're trying to complement the email We're trying to complement the ad strategy now ads if you're a brand that's thrown a thousand ads ad account That's another again, they're all variation. I guarantee those ads

that are in your ad account are variations of what we just talked about. How do you convert people on your PDP is sort of the strategy that we take on. I would say it's our first step on social is where we like to start. You can do in-person events, activations, collaborations, white listing, it goes on. But the first step is to build a foundation through kind of top line education.

Jon Blair (06:59)

That's fascinating. My brain was firing off in all directions as you were talking. Like first, just using the every piece of information on your PDP is kind of like a roadmap of like, we need content that goes deeper on each one of these, right? And I like to think about content and it doesn't matter what kind of business you run. I run a service business, but obviously this applies to an e-comm consumer goods business. You want content to nurture prospects on its own.

prospect can choose to dive deeper and go down a rabbit hole and learn all the things for themselves, right? If you just rely on a top of funnel Facebook ad that drives someone to a site and then maybe some Google ads retargeting, right? They're basically relying on converting a lot of your sales through these really 15 to 20 second like scans of pages, right? And some products can sell that quickly, right? There are some impulse byproducts where

That can happen, right? But there's only some people who are ready to buy today. Like there's this book I read. I forget the name of it. it's called the one page marketing plan by a guy named Alan dib. I read a number of years ago and it really changed my perspective on marketing. This totally applies to an ecom brand. There's harvesters and there's hunters, right? The hunter, the hunter analogy for advertising is you put out a Facebook ad, someone clicks on it. They go right to the landing page and bam.

Chris Lang (08:11)

Thank

Jon Blair (08:20)

they buy, right? Um, there's a small percentage of people who are going to be ready to, to, to, for you to pull out your, your marketing gun and shoot them and bag the kill. Right. And what's great about a hunter is it gets you sales today. It gets you fed today. But what's bad about a hunter is every day you have to net new, find a new piece of game to kill. Right. Or you have to find a new customer who's ready to buy today. So what does a harvester do? A harvester sows seeds.

Right? Fertilizes them, waters them over many, many months. And then patches of that, of that land that's been cultivated starts, start to be able to harvest it one patch at a time. And so he's what this book talks about is you got to think about two layers in marketing. You're going to have some people you're going to hunt where you're going to bag the kill today, but you also need to be tilling the fields.

Chris Lang (08:50)

Right. ⁓ Right.

Jon Blair (09:12)

And you need to be harvesting one section at a time and you need both of those layers of sales. And so if you think, I think about content as being the harvester, you're the harvester, right? And so you may be nurturing someone on your content for two or three months. And then they see an ad the second time and that's the day they click and they buy, right? But you've been nurturing them all along with their content. anyways, I, I, I'm curious if someone wants to get started today.

Chris Lang (09:29)

Right. Right.

Mm-hmm.

Jon Blair (09:39)

What is the first, what is the biggest trap that you would of? Something you see all the time.

Chris Lang (09:44)

Hmm.

Yeah, that's a great question just because it is like a few different answers. But one answer is like not really having a strategy. I think with like,

people are afraid to test maybe is what I'm trying to say. People are not, they're afraid to like, they're almost paralyzed to put something out there, whether it's a reel or whether it's a story because it may feel spammy, but people's thumbs are just doing that, that quick. mean, like, what are you thinking about? Like, what are you obsessing about? Like, and I think that's like, maybe that is the number one thing that I just see is like, just people are like so,

Jon Blair (10:10)

Yeah, yeah, for sure.

Mm.

Chris Lang (10:21)

I'm a brand guy. Trust me, I'm a brand guy. But my biggest viral video was an ugly burrito thumbnail. know, I did not to eat that sucker myself, but it went viral to sell lot of salsa. yeah.

Jon Blair (10:27)

hahahaha

Hahaha

Chris Lang (10:36)

And I think like you just, know the term like Barry uses like ugly ads and I think that's a good analogy of some sort, but it's like you just at least gotta start talking to your community. And I think that's what it is, right? Like people wanna be prepared. It's like going to a networking event. You don't maybe know everyone in the room and you know, but I just, find it fascinating that.

know, brand owners are willing to spend so much money in hunters as a hunter and not really as a harvester. And I think that that's a great analogy. And so I would say don't be afraid to put yourself out there. And because the community is going to tell you it's either going to be engaging or not engaging. And, you know, that's kind of your, you know, your stats you can look at every month. So I think that's kind of the first thing.

Jon Blair (11:17)

Yeah.

Yeah, man, a hunter will feed you for today, but then they have to go out and hunt again. A harvester, a farmer will feed you all year long. Right. but what's the problem? It's delayed gratification, right? ad buying, getting a, getting a hit off of a Facebook ad or a Google ad, there's this adrenaline rush. There's this dopamine hit called direct response marketing. Right. but you know, the, the, more that I,

Chris Lang (11:26)

Mm-hmm.

Yeah, your research is

Jon Blair (11:48)

work with ecom brands at free to grow and even just build my own business. The more that I realized that actually funnels, I funnels, the analogy of a funnel actually ⁓ destroys the ⁓ perception of the value of organic because a funnel assumes that you drop someone right down into that bucket and they buy, right? Whereas like, I'm starting to realize with a content strategy, you have to think about it.

Chris Lang (12:07)

Right. Right.

Jon Blair (12:12)

ecosystem. It's more like a web, right? And there's all these connecting points across different pieces of content and across different ads, across emails. And really people kind of like your prospects are actually traversing up and down and across that web. And then at some point they finally they're convinced and then they go down the funnel and they buy. Do you, do you agree?

Chris Lang (12:14)

Right.

Right.

Right. ⁓

man, I mean...

I'm going to date myself here, I think one of the best analogies I could say is like purchasing a car. like you're going to see, you're going to see like the dealership ads on, on your feed. You're going to maybe hear about the dealership on the radio. You're going to see the, the, you know, kind of cookie TV, you know, commercial off the YouTube. And, that's the thing you go on the website, you look at it, you go on the manufacturer's website and look at it, you know, and that's the thing. Like it took me six months to buy my

Jon Blair (12:55)

Yeah.

Chris Lang (13:05)

last car. And again, it was just a myriad of touch points. just I thought it's funny, I ended up with what I actually started off with. But I just kind of went down this rabbit hole of looking at you know, all these other, you know, types of vehicles. And so I think what's really interesting is you do have to have that approach. And again, people like to research, I think people have been I think I don't know the stats on it, but everyone's been scammed on the Ecom at some point.

think that's kind of like what you kind of have to do. You have to build trust at every touch point.

Jon Blair (13:30)

For sure, for sure, yeah.

So I think I might be able to infer the answer to this question from a few things you just said, but I know with my own content strategy, what got me started was just like, I don't care if this is good or not. there was a lot of, in terms of like engagement metrics, in terms of the data, the first year or two of me building my own personal brand,

Chris Lang (13:44)

Yeah.

Right.

Right.

Jon Blair (14:02)

I would have guessed that it wasn't going well from the data, from the data I was being fed from these platforms. But anecdotally, I knew it was going well because prospects I talked to current clients, they were telling me they were listening to the podcast, keep it up on LinkedIn. And I'm like, really? That post got like 300 impressions. Right. And so, I've, I think I've come to learn that you just do it and you do it for the love of it. Right. And, and.

Chris Lang (14:05)

Right.

Jon Blair (14:29)

That's what keeps you going and it will bear fruit in terms of building your business at the same time. But what's your opinion on consistency and quantity versus quality?

Chris Lang (14:40)

Yeah, I think it's a combination of both if I'm being honest. So there's this graph I just posted and I benchmark us versus Heinz, French's, Tostitos, Kraft, Tabasco. And everyone had a net negative follower growth and we were the only brand that a positive follower growth.

and by a large margin and our engagement is higher than all those companies put together and we've distributed over 500 pieces of content in the last 28 days. So you know I but there's a strategy behind it going back to that right like I'm trying to educate our our consumers on every type of sauce we have. So we have over like we have we have 60 different sauces to be clear. So 28 days I don't even go through all my sauces you know I try to feature a

every day and just to get people like you said I'm just you know in 90 days they're all gonna kind of see that at least maybe we have a cocktail sauce or Dijon mustard but it comes down to the strategy I think today's world you do have to high level output going back to that benchmarking against some of the biggest brands in the world who are not generating as much content

But if I guess, know, what's interesting is, you know, people want to engage. They will either like, am I showing up for this or is, because I kind of do the same thing and I think you do the same thing. Like you might go on an Instagram or X account. ⁓ they haven't really posted in six months. I'm gonna unfollow.

Jon Blair (16:10)

Yeah, you're like,

this company dead or is this creator dead? Like, what is going on here?

Chris Lang (16:14)

Right.

Yeah. And so you might unsubscribe or unfollow. So I think it's a part of that. And so, you know, it's good to have both if you can do both. And I think the framework is, you know, and this is what I tell people, because I don't know what the average Shopify store, like how many SKUs they have, but just say it's 10,

you can really stretch that content out over 30 days pretty easy. When you think of all the touch points that you obsess over on your product page, just really turning that into posts and stories and reels, that's gonna give you 30 days of content.

Jon Blair (16:45)

Yeah, that's interesting, So that's actually one of the next questions that I was gonna ask you, which is you have any other advice for if a brand feels like they've exhausted their PDP and their SKUs, what do they do next? And this is what I'm really getting at, this thing. I hear a lot of content creators say,

Chris Lang (16:58)

Yeah.

Jon Blair (17:08)

I don't want to post the same thing because I just posted that three months ago. My opinion is, yeah, well three months ago a bunch of the people who were following me weren't following me. And all the people who were following me who haven't bought forgot what I said 90 days ago. What is your opinion on that?

Chris Lang (17:12)

Yeah.

Yeah, you know, it reminds me of the story of like Henry Ford, his desk.

was right past the advertisers desk and this advertiser was working on like this new campaign for the car and you know every day Henry Ford just kind of looks down at it just kind of like thinks to himself walks to his office one day he stops he's like can we change that up he was like you know i'm tired of looking at it he's like we haven't released this car yet sir so you know i think

Jon Blair (17:49)

Yeah, yeah, exactly.

Chris Lang (17:51)

I was like, what are you talking about? Like we're not, and I think that's just like, we get in our own way of right, of building community, telling our story. The reality of it is, is...

And I love this example of like Larry the Cable Guy, Like Larry the Cable Guy, you kind of know him as Mater from Cars, you know, from XR and everything. But that guy was that guy for 20, 30 years before Cars, right? And just, he just showed up every day and he was just Larry the Cable Guy. And, you know, it turned to something that's probably beyond his wildest dreams. But I really, what I find success in, and not just in like Shopify, but also creators and actors,

or musicians is the people who are willing to put in the work. You know, after day, and be like, this is who I am, this is who I am. And so...

those are the people that really win at life. And, you know, I mean, if you just actually, you know, take a step back, you'll you have that realization. So it is one of those things where it may feel, you know, but that's where like with us, you know, we we do change up the styles every 30 days, you know, the color schemes or images we do constant creative. So we're constantly doing new photo shoots, new video shoots. So but again, the messaging is still the same, you know, it's has

Jon Blair (19:04)

Yeah.

Chris Lang (19:05)

hatch hatch Chili, hatch Chili, you know? And so, and that's what people come to us for. And so, you know, when I work with other brands, it's kind of the same thing. I mean, I just got off a call earlier. They just were worried about spamming. And it's like, no, like.

And I think once people lay it out visually, so like what's cool is Canva or Figma or Illustrator, whatever you like to work in, they all have a whiteboard where you can just kind of throw everything, just take a look at it see how everything flows and looks out. And I think it'll start to make more sense to people. And this is something I've sort of I don't want to say I'm gatekeeping, but this is something that we've just been having success with internally. And I just haven't really been, you know, sharing it too much because

It was something that I wanted to make sure that it worked. That our clients were seeing positive growth like we were talking about. They weren't seeing negative. I mean the results are in. I mean the brands who are posting more consistently, they're the ones who are winning right now.

Jon Blair (20:04)

Interesting. Yeah, man. one thing that I wanted to dive into off of that is storytelling. Cause we talked about PDP, we talked about SKUs but the next layer the next pillar in my opinion, to great content, a great content strategy is storytelling. Where can a brand start. What are kind of the bullet points, your framework for like, where do we start telling our story in what areas?

Chris Lang (20:28)

Yes, so you definitely want to do it around the hero product comes down to that value system. it is one of those things where I just really define 30 different values.

that we have to be cognizant from a strategy standpoint of selling that product. But the top five are already there. I mean, like we talked about earlier, what is the social proof? How do you use the product? What's the money back guarantee if there is any? What are the shipping? And it's really kind of answering those basic questions around it.

That's where you just want to show up every day and that's where like you'd you see white listing is just it's really kind of king right now I think that's really gonna be the big alpha You know for this year is the brands who are building more social proof and I'm gonna dovetail for a minute because Meta sort of ran out of ad inventory

when it comes to your brand account. So how can it get more ad inventory is that if you actually start whitelisting social proof and start picking back off influencers and getting more ad inventory. So it's a really quite interesting dynamic right now for Meta and for Shopify growth companies.

Jon Blair (21:31)

Interesting. Yeah, totally.

Man, if there's one thing that brands can invest in in 2026 and beyond to provide a tailwind for their ad buying strategy, I think it's this content strategy you've been laying out, I mean, I would say financially speaking, let's talk about the finances of it for a second. Brands do need to think about what is the impact of these efforts gonna have on my...

blended marketing efficiency, right? Because the costs of building out a content strategy need to be considered in your overall advertising budget. But like, just like testing anything else, know, brands are great at like carving out a piece of their budget to test new ad creative, right? So I think personally as a CFO in the DTC space to think about starting an organic strategy and paying for the resources to do so in the same way.

take some amount of your budget, clear it with your CFO, your finance guy. Hey, can I spend X a month on creating content for our organic content strategy? correct me if I'm wrong, you should be able to dovetail that into your ad creative as well. So you can kind of kill two birds with one stone, right? You can create advertising creative. But I would say sometimes, and actually this is a good question.

Chris Lang (22:29)

Right.

Jon Blair (22:48)

I think where I see some brands go wrong is if they're only creating content from an ad creative standpoint, it may not be created in a way that packaging it for organic social. It doesn't, it doesn't, the output doesn't make sense, but if you start with organic content at the beginning and think about how you can dovetail that into ad creative, you can kind of combine efforts. And I think that helps the cost efficiency. Do you agree?

Chris Lang (22:58)

Yeah.

Yeah.

Mmm.

Yeah, so I'm smiling because kind of a

Kind of two points there. Let me answer the first part of your question, right? I mean, it's either going to be a 3000, 6000 or 9000 month investment, right? That's the way I kind of look at it, right? Like either you're hiring some like a good VA overseas to maybe kind of handle some of this content and you know, 6000 maybe you're layering on, you know, organic content and influencer kind of management, right? And then maybe 9000 and above your like custom content, know, custom photo shoots,

custom video shoots. So just to get that price point out of the way that's a good way to look at it. The other thing too on that why I was smiling and I'll just say it because Johnny it just tweets about this constantly with screenshots he's just like

It's a lot of organic content that we started doing for the brand Perfect White Tea, is a national apparel brand. basically, that's kind of it. That's what I'm talking about. What's cool is when we create 30 days of content, and we do this 45 days out, we're actually creating over 500 pieces of content that we're going to schedule and publish throughout the month. And what's cool is all of that content, all those 500 pieces of content,

that can be used in your ad account. That's what's amazing. Yeah.

Jon Blair (24:28)

Yeah. But you got to the strategy from the beginning, right? Like, like you,

you, you can get lucky and be able to use them in both places. But if you have that as a part of your strategy from the beginning, it really changes things. mean, look, I'll, I'll share this right here, like fully candid for everyone listening. The, content strategy strategy at Free to Grow CFO, it hinges the cornerstone content is our two podcasts. We pour our heart out into recording those planning them.

Chris Lang (24:37)

Right.

Right.

Yeah.

Mm-hmm.

Jon Blair (24:57)

editing

them, packaging them. And then we parlay that into all of the content that goes out in short form, daily LinkedIn posts, daily YouTube shorts. And then we also use it to create blogs and weekly emails that go out. And, but we didn't stumble upon that. That was our plan from the beginning, right? We're like, and, so what I want brand founders to hear is like, if you're worried about the cost, right? Of layering in organic content.

Chris Lang (25:04)

Mm.

Right.

Jon Blair (25:25)

on top of your existing kind of ad strategy, rethink it and say, how can we create content which consumes probably a budget you already have for creative, right? And build it out so that it serves both an organic content strategy and the creative that you need for your ads. And then you're gonna get a whole lot more, I think, bang for your buck, out of creating that content. So, ⁓ I'm curious.

Chris Lang (25:47)

Yeah.

Jon Blair (25:49)

Unfortunately, we could talk about this forever, but unfortunately we're gonna have to come to a close in a few, but I'm curious, what is your take on the biggest opportunity, like emerging channel for publishing organic content?

Chris Lang (26:04)

I mean, right now YouTube shorts. I'll be quite honest. This is a this is a channel because I haven't spent as much money on it, right? I've done Google Adwords and meta and some Tik Tok but it's like YouTube shorts is really where a lot of the organic growth is happening. This is actually where I'm pushing a lot of our client content for the last year.

I started a weekly cooking show with Fresh Chili and organically and just kind of getting sitting that as a foundation. So I'm about a year into it as well. I met with Isaac from Mini Katana We had dinner dinner in West Hollywood last month talking about like YouTube, you know, so I would say Isaac is a great guy to talk to you about YouTube growth strategy right now. I think what's interesting

is I didn't realize this, but I actually went to a Google YouTube meetup with like Ezra Firestone and Brett and Jacques from Raindrop. And the most interesting aspect is if you take YouTube from a consumer standpoint and you list Disney, Hulu, Peacock, everything else, all of those combined don't even equal YouTube's monthly viewership.

Jon Blair (27:12)

Well, well.

Chris Lang (27:13)

This

is like phenomenal. was just like So I feel like I that was like a gut punch to me. I was like, I really felt like I was missing the boat on that Meta still king obviously

But what's really cool, what's really cool is like you're already creating content for Instagram and maybe even TikTok. You know, just start putting it on YouTube as well. And then, you you get to a point where you need to really look at your strategy for growth. But what's great is just start repurposing your content across platforms for now.

Jon Blair (27:44)

Totally, Man, this has been everything I was hoping this conversation would be, man, and I appreciate you coming on. What are your final thoughts for a brand founder who's listening right now? What's a single final thought piece of advice you can give for someone who's just interested in getting started?

Chris Lang (27:58)

If you're interested in getting started, just start. Start taking some practical advice, take your product page.

go into Canva, very easy, select the 9x16 social media, select the 4x5 social media templates, and just start building out your PDP, but in social assets, and just start publishing them. I think, one, that's gonna give you clarity over your brand, ⁓ two, it's gonna make you really think how you present your brand and the offers, but I would say just really start converting.

foundational.

I'm not talking about crazy growth strategies, but just from a foundation standpoint, start telling your website story through your social media channels.

Jon Blair (28:39)

Man, I love that. I love that. Well, this has been fantastic, man. Before we land the plane, where can people connect with you or find information about you?

Chris Lang (28:47)

at Chris Lang Social, across all the platforms. Yeah, that's the best way.

Jon Blair (28:51)

Yeah,

definitely follow Chris. Chris's content. It's fantastic. He's, are you speaking at anything, ⁓ anytime soon?

Chris Lang (28:58)

Yeah,

I'll be in Miami next week for the DTC growth summit. I'll be with Ezra and I'll be Expo West in Anaheim.

Jon Blair (29:07)

Are you coming to eCommerce Roundtable in Austin in April? Bam, I'll see you there, man. That's in my town, so I'm looking Forward to seeing you there. Awesome, man. Well, I appreciate you coming on as always, and I look Forward to our next chat, man. All right, have a good one, brother.

Chris Lang (29:10)

Congresswoman table. Yeah, I'm going to be there. ⁓

Amen.

Yeah, same here. Thank you so much.

Bye.

Jon Blair (29:27)

Don't forget, if you liked today's episode, please hit the subscribe button wherever you're listening and leave us a review. It helps us reach more people like you. Also,

If you want more tips on scaling a profitable DTC brand, follow me, Jon Blair on LinkedIn. And if you're interested in learning more about how Free to Grow CFO can help your brand increase profit and cashflow as you scale, check us out at freetogrowcfo.com.

Don’t Make These Fatal Bookkeeping Mistakes

Episode Summary

In this episode of The Free to Grow CFO Podcast, Jon Blair sits down with Free to Grow CFO team member Prabhu Shrotre to break down some of the most common issues we see when taking over a new client’s books. They walk through why many DTC brands rely on cash basis accounting and how it leads to misleading financials, poor visibility into performance, and ultimately bad decision-making.

The conversation covers three key areas where things typically go wrong: revenue recognition, cost of goods sold, and operating expenses. Jon and Prabhu explain how recording revenue based on cash deposits distorts true sales, why expensing inventory upfront creates inaccurate margins, and how delayed expense recognition—especially with ad spend and credit cards—disconnects financials from actual performance.

This episode provides a practical look at what’s actually broken in most DTC financials—and why getting the fundamentals right is critical if you want to scale profitably.

Key Takeaways

• Most brands don’t have a growth problem—they have a visibility problem.

• When revenue, COGS, and expenses are recognized in different periods, your P&L stops being a decision-making tool and becomes noise

• If you’re not accounting for liabilities like sales tax, your “cash” balance is overstated—and you may not actually have the money you think you do.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Prabhu Shrotre- https://www.linkedin.com/in/prabhanjan-shrotre-0b27903a9/

Free to Grow CFO - https://freetogrowcfo.com/

Transcript
~~~~~~~~

00:00 Introduction to Prabhu and Free to Grow CFO

07:42 Challenges with Cost of Goods Sold Accounting

11:45 Operating Expenses and Their Impact on Financial Analysis

17:08 Culture and Work Environment at Free to Grow CFO

18:00 Final Thoughts

Jon Blair (00:00)

Hey everyone, welcome back to another episode of the Free To Go CFO Podcast where we dive deep into conversations about scaling a profitable DTC brand. I'm your host, Jon Blair, founder of Free To Go CFO. We are the go-to outsource finance and accounting firm for eight and nine-figure DTC brands.

Jon Blair (00:17)

Alright, today is an exciting day. I've got one of my Free to Grow CFO team members on the show today. Prabhu, I'm gonna get this maybe slightly wrong, Prabhu, I'm sorry, but Prabhu Shrotre. Prabhu, thanks for coming on, man. How are you doing today?

Prabhu (00:25)

Okay.

I'm doing good man, how are you?

Jon Blair (00:35)

I am good, I am, let's see what time is it where you at? It's eight in the morning here, what time is it there?

Prabhu (00:40)

at 7.30 in the evening here so yeah it's good

Jon Blair (00:44)

Well,

I appreciate you joining. For those of you that don't know, we have a small team in Pune, India. Prabhu is on that team, has been with us for a while now. There is, what, three people on the team now out there?

Prabhu (00:57)

Yes, we have three people in the beam here.

Jon Blair (00:58)

Yeah, so Prabhu ⁓ has been a steady force in our business for a while now. Has it been two years?

Prabhu (01:06)

It has been two years now, yeah.

Jon Blair (01:08)

Yep, two years. Yeah, it feels like I can't remember Free to Grow before Prabhu, so it's hard to remember pre Prabhu. We've got a couple other really amazing people out there as well, but Prabhu, before we dive into talking about probably mostly cash basis accounting and the importance of accrual versus cash basis, can you just give everyone just like a really quick overview of what you do at Free to Grow CFO?

Prabhu (01:31)

Sure, so I'm Prabhu. Thanks for introduction, Jon

the things that I do in Free to Grow is presenting the historic books to the clients that is recording books correctly, properly, maintaining their books of accounts and preparing their financial models for the client. So that's an overview of what I do in Free to Grow.

Jon Blair (01:49)

So, Prabhu has seen his fair share of bad books that we inherit when we have new clients come on. Prabhu's been involved in a number of cleanup projects as well as a number of onboardings, which inherently in onboarding oftentimes there ends up being at least a small amount of cleanup. today we're going to talk specifically about the dangers of cash basis accounting as opposed to accrual basis accounting, which is the way that we do it at Free to Grow CFO.

And there's three specific areas we're going to dive into. One, revenue recognition, two, cost of goods sold, and three, operating expenses. So Prabhu, let's start with revenue recognition. Can you explain a little bit, can you explain a little bit about the cash basis revenue that we tend to inherit from new clients and why, and some of the areas that the cash basis accounting is misleading.

or incorrect.

Prabhu (02:42)

Sure, so what happens is most of the e-commerce brands they record their revenue as soon as the money hits their bank accounts and what happens is in the initial phases the founders think that they're making big profits due to a lot of cash flowing into their accounts whereas the actual picture it's not right and in a cruel basis accounting what we do is we record revenue in the right period whenever the item was sold.

So the biggest problem I can think about of cash basis accounting is we only record revenue when the money hits our bank account, we record it as sales. But we tend to forget important concepts like discounts and refunds, which can affect the margins of the brands if they're really looking at having the correct picture of their books of accounts and how much they made in a particular month.

Jon Blair (03:29)

yeah, so to go a level deeper, can you explain why when you see a brand that's doing cash basis revenue accounting, can you explain a little bit why discounts and refunds and some of those things are missing from their entries?

Prabhu (03:45)

So what happens is these brands, tend to record only the amount of sale know, for example, $100 hits my bank account and I record $100 in sales. reality, my price of product is maybe 200. I offered $50 of discounts. I had some $50 of refunds. And whereas my actual sale for that period is gross sales of 200 versus net sales of 100. And if we only record

Jon Blair (04:08)

Mm.

Prabhu (04:10)

the amount that's coming to my bank, then that's obviously not the correct picture what I'm looking at.

Jon Blair (04:15)

Yeah, and even worse, there even balance sheet item in that deposit as well, right? Being a sales tax collected, which is actually a liability, and then also to an operating expense, or I guess what we call variable order costs, being the Shopify fees or the credit card fees. So as you pointed out, we're missing the bifurcation of gross revenue.

Prabhu (04:24)

Yeah.

Jon Blair (04:42)

minus discounts, minus refunds, maybe plus shipping income, right? And then sales tax collected, which should be on the balance sheet, and then credit card fees or merchant account fees, whatever you want to call them, which should be an operating expense that's not in the revenue section of the P &L. So let me, do you, I think it would be helpful if you explain, because

because a balance sheet item in sales tax collected is embedded in that, you know, quote, I'm gonna say air quotes, like revenue that they're recognizing and also potentially an operating expense or a variable cost being the credit card fees. What does that do? This form of cash basis accounting where they're just plugging the net deposit that hits their bank account to revenue, what does that do to analyzing margins?

Prabhu (05:23)

you

So it's a really really messed up thing when books are recorded on cash So as I say, if we record revenue when the money is hitting my bank account, for a period I might think I'm generating enough sales but I should be aware that some part of my sales is not actually sales but some part of my cash in is related to sales tax or gift card liability that I'll have to pay in the future period and

If I'm not accounting for that correctly, I might not have a picture of what liability is coming up in the future and in the future I might not have enough cash balance to pay that. So that's an issue that most of the brands are facing.

Jon Blair (06:10)

Yeah, so there's actually, as you're talking, there's three issues I can think of. There's probably more, but one, you have the income potentially in the wrong period because sales had actually got fulfilled at the end of the previous month. That deposit's delayed and not showing up at the bank account for a few days. So you have the revenue in the wrong period. Then two, what you brought up, some of that quote income isn't actually income, it's owed to someone else. It's either owed to the government because it's sales tax or it's owed to

a customer in the future because it's a gift card, is technically a prepayment and is not income. So we're overstating income there, but then we are also understating income by the amount of the credit card fees, right? That are subtracted. That should really be a variable cost. So if we use that, let's say we use these net amount that is deposited to the bank account as your quote net revenue for margin calculations, which is like

margin dollars divided by net revenue, the denominator's wrong. If the denominator's wrong, the percentage you're calculating is wrong. And so it really causes all kinds of issues. So guess the point though I want the audience to take away, it's not just one thing that it causes issues with, it's multiple things. And if you start talking about really important questions like, can I afford to scale ad spend? Is my ad spend profitable? Really, really hard to do when you're doing this incorrect

cash basis revenue. So let's move on next to cost of goods sold. What's the big issue that you most commonly see with cost of goods sold accounting?

Prabhu (07:42)

So most of the brands that come to us for the first time we see that the accounting policy they're following is the record Purchase of inventory as an expense whenever they paid money for it But in actual sense if we look in account correct accounting sense, it's not actually an expense But it's an asset it only becomes an expense when you sell the goods. That's when it moves to cogs until that

you have to record it as an asset, inventory asset. But most of the brands fail to maintain that accounting policy and they have a negative or I would say an artificially low income in the period when inventory is purchased. And when the sale actually takes place, they have this artificially wrong profit since expenses booked in the previous period.

Jon Blair (08:27)

Yeah, so there's actually a commonality between the revenue recognition issue in terms and L value in the wrong period, the wrong accounting period, the wrong month. There's a commonality between that and this cash basis cost of goods sold issue that you're mentioning, which is that in one period your profit will be overstated and in another period it will be understated. And so what's interesting is generally speaking, and this is a trap, so like don't follow this.

Don't try this at home listeners, okay? But like, you can look at a longer time horizon, let's say trailing 12 months, to get a rough idea of what profitability is, because those month over month swings can kind of like offset each other and smooth each other out. But that's a trap, why? Because I can't tell what happened last month, or the month before, or the month before, so I can't follow trends on a month by month basis in real time. And so let's use Cost of Goods Sold as an example.

I want to know if my gross margin is getting better or worse every single month, not just on a trailing 12 month basis. And you cannot do that accurately if you have revenue being recognized on a cash basis and you have cost of goods sold being recognized on a cash basis. think furthermore, Prabhu, what about like, why is it important? Let's remove the P and L for a second and let's not talk about the timing of cost of goods sold hitting the P and L, just the balance sheet.

Why is it important or what are some of the reasons that come to mind for you of why it's important to get the asset value correct of inventory from a balance sheet health analysis standpoint?

Prabhu (09:59)

Alright, so that's a really good question, Jon. It's really important to have the correct asset value on the balance sheet because we calculate several ratios like inventory cycle, cash conversion period, which are broadly linked to our working capital cycle and if we are not getting that number correct, owners might get in trouble if they don't have this correct amount of cash that they're required to pay in the future or

If they are not able to assess their proper working ⁓ capital cycle, then that might cause an issue.

Jon Blair (10:31)

Yeah, well, and so it's not just that what one thing that our books do when we get them done right, the Free to Grow way. The P and L is obviously important. It's a critical starting point for financial analysis, but the balance sheet in an ecom brand that is capital intensive because it holds inventory. The balance sheet is just as important, maybe more important because you can have profit, but no cash. How is it possible to have profit, but no cash? Usually,

It's because you have too much inventory on hand and your CFO or your finance team can't help you manage the financial impact of inventory. If it's not recorded on the balance sheet accurately every single month, you can be profit rich and cash poor because all your cash is sitting on the balance sheet in the form of inventory. So it's actually, it's actually just as important on the flip side of the balance sheet.

is accounts payable? And actually I want to segue now into talking about cash basis operating expenses and we'll talk about the impact of accounts payable and how that affects working capital analysis. But what do you most commonly see Prabhu as issues with operating expense accounting we take on a new client?

Prabhu (11:45)

So on the front of operating expenses, I see that most of the brands similar to revenue, they also record their operating expenses on cash to look at this as an example, if I go to a restaurant, I eat something, I pay through my credit card, and then my credit card bill is paid 45 or 50 days later, then that 50 days later is when money is going to go out from my bank account.

these brand owners, they record the expense on that 50th day, but not on the day when they consume the food. isn't really expense that took place on the day when you ate the food and not on the 50th day. So, that pretty much applies to expenses as well. For example, spends. spends which are charged to credit cards are usually taken out of your bank account on the 40th or the 50th day and brands look at it as the

Branch don't see the growth of sales and they cannot have a proper correlation between The sales that are growing up and the ad spend since it's not recorded in the correct one

Jon Blair (12:45)

Yeah. So if a brand has, we see this with brands that have payment terms with say Facebook or something. And if we don't get the bill, from the, from the brand, which specifies the period that that ad spend was for, it's hard for us to, we can run the risk of, of booking the expense when that bill gets paid to say meta. it's, that's usually why I think I see an issue with

other bookkeeping firms getting the expense recognition wrong on a cash basis is because they don't have a process set up to get the information needed from the clients to figure out the proper expense, the proper period for some of these big expenses. Now, a lot of our controllers on the team are trained to look for some of the big expenses that maybe need to be accrued, which means like, even though we haven't,

paid for it yet. We booked the expense in the month that is benefit that that expense is benefiting. We see this a lot of times on the marketing expense front needing to book a marketing accrual. Sometimes we see this on shipping costs as well. to the customer because you'll get billed by the 3PL late like in the month after the shipments actually you know benefited company. And so

Prabhu (13:47)

you

Jon Blair (13:59)

this is like super, super key. think another big thing, I think in general coming

up with a process to, get bills from from our clients, as opposed to just booking expenses on the bank feeds, right? Which is the month that the, or the day that the cash comes out of the bank account or the day that expense hits the credit card. That is, that is the key is coming up with a process for that.

Prabhu (14:14)

Right

Jon Blair (14:24)

And again, going back to tie

Prabhu (14:24)

Thank

Jon Blair (14:26)

a thread between revenue recognition, cogs and operating expenses. If you have revenue recognition, that is the wrong amounts and partially in the wrong periods, cost of goods sold on a cash basis that is being expensed in the wrong period. And then also operating expenses. You've just got revenues and costs all over the place in different months. And it starts to become basically impossible to, to analyze your financials.

Okay, Prabhu, so there's another thing related to operating expense accounting on a cash basis that affects the balance sheet. I see this a lot when I do our CFO audits. It's that there is no accounts payable on the balance sheet, which immediately tells me operating expenses are on a cash basis. Can you just really quick share with the audience?

why having no accounts payable on the balance sheet when there actually is money owed to vendors at the end of every month, why that's an issue.

Prabhu (15:18)

So what most brands do is they tend to book the expense money actually hits their bank account, but in reality they actually owe their vendors and during this process the accounts payable is not booked on the balance sheet and that's a big red flag because when computing the working cash flow cycles or calculating the future working capital requirements

is we are completely ignoring the accounts payable then there's a hidden liability that we are not accounting for and from a cash point of view it can just drag down you know branch when the liability pops up and we have not planned for it accordingly or beforehand so that's a big red flag

Jon Blair (15:56)

Yeah.

I, when I as a CFO look at the balance sheet and I look at cash position, I don't ever say, Hey, like, let's say the cash balance is a million dollars. I don't ever say we have a million dollars in cash. I always say we have a million dollars in cash minus a hundred thousand in credit card liability minus 250,000 in, you know, accounts payable and

If there's any other current liabilities on the balance sheet that I know need to get paid in the next 30 to 60 days, I subtract those and say, here's how much cash we have net of what we owe people over the next 30 to 60 days. And if you don't have accounts payable properly accounted for on the balance sheet, then you have no way to track that you actually owe some amount of money to your vendors. And you can't assume that

all the money in the bank is yours because there are short-term liabilities, accounts payable usually being one of the biggest ones that other people have rights to and you need to be able to understand that when you're doing cash flow and working capital analysis. So this was an awesome conversation Prabhu I think this is gonna be really helpful for our audience. I wanna ask you one final question that doesn't have to do with accounting.

Prabhu (17:00)

you

Jon Blair (17:08)

and it's about working at Free to Grow CFO. What about working at Free to Grow CFO and our culture makes you wanna work here and kinda drives forward a high level of performance across the team?

Prabhu (17:21)

Man it's really difficult to answer or really difficult to give just one point that you convinced me that I need to work at Free to Grow you know I have so much of freedom working here and just to express how much freedom I have

I recently traveled to the US to visit my family, my brother who stays there and that did not at all my work at all. I I moved there, I stayed there for a month and I worked just as usual. So that's one good thing. The other thing I would say, the owners, the, all the teammates, the owners, everyone in the team is so supportive and so knowledgeable and it's a really challenging environment to work with everyone. And I'm just like, you know,

happy to be working everyday. So it's never a dull day at Free to Grow I would say. Every messy client that comes up is a new experience for us. yep, that's...

Jon Blair (18:08)

We love it,

yeah. We love having you on the team, man. Having you come on the podcast, feel like, a big milestone to have you come on and chat through how we help brands not just fix their accounting, but really fix their decision making. And the things that you talked about today are basic blocking and tackling foundational fundamentals that are absolutely necessary

to ⁓ scale a D to C brand fast and profitably. So I appreciate what you're doing, Prabhu. I appreciate you coming on the podcast and I look forward to chatting again soon.

Prabhu (18:45)

Thank you, Jon. Thank you for having me over. It was really lovely to be on this. And thank you. Thank you for having me.

Jon Blair (18:51)

Awesome.

Jon Blair (18:51)

Don't forget, if you liked today's episode, please hit the subscribe button and leave us a review. It helps us reach more people like you.

Also,

if you want daily tips on scaling a profitable D T C brand, follow me, Jon Blair on LinkedIn.

And if you're interested in learning more about how Free to Grow CFO can help your brand increase profit and cash flow as you scale, check us out at freetogrowcfo.com

Measuring Marketing Profitability Across Amazon and Shopify

Episode Summary

In this episode of The Free to Grow CFO Podcast, Jon Blair sits down with one of Free to Grow CFO’s in-house eCommerce CFOs, Kevin Jornlin, to break down how brands should think about measuring marketing performance when selling across both Shopify and Amazon. They discuss why traditional channel-level metrics often lead to incorrect conclusions, how paid media creates a halo effect across platforms, and why Shopify can appear unprofitable while Amazon looks artificially strong. The conversation dives into blended new customer ROAS, the importance of accurately understanding LTV across channels, and how cohort data can reveal meaningful differences in customer behavior between Shopify and Amazon. Jon and Kevin also share a practical framework for determining appropriate ad spend based on contribution margin and profitability, helping founders make better decisions without relying on perfect attribution.

Key Takeaways

• Channel-level ROAS is misleading and often causes brands to cut or misallocate ad spend.

• Incorrect LTV assumptions can lead to under-scaling or over-spending on acquisition.

• The goal isn’t perfect attribution—it’s understanding financial impact on contribution margin.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Kevin Jornlin- https://www.linkedin.com/in/kevin-jornlin-cfa-650a40b/

Free to Grow CFO - https://freetogrowcfo.com/

Meet Kevin Jornlin

Kevin Jornlin is an experienced investor, operator and CFO. As a fractional CFO at Free to Grow, Kevin advises e-commerce brands on the science of scaling profitably.

Kevin began his career on Wall Street, where he spent 15 years as an investor before launching his own hospitality brand, Vanish Travel, as founder and CEO.

After discovering the power of e-commerce through his wife’s pet brand, Awoo, Kevin has jumped full-time into supporting DTC operators in the finance function. He loves the ecom sector because of the unique set of problems that require tackling, and for the sector’s ability to provide life-changing wealth when those problems are solved.

Kevin has a BS from the University of Richmond with a double major in Finance and Accounting.

Transcript
~~~~~~~~

00:00 Introduction to the Free to Grow CFO Podcast

04:23 Understanding New vs. Returning Customer Profitability

11:07 The Complexity of Amazon and Shopify Integration

16:57 Insights from Cohort Models and Retention Rates

22:56 Final Thoughts and Practical Advice for Brands

Jon Blair (00:00)

Hey everyone, welcome back to another episode of the Free To Go CFO Podcast where we dive deep into conversations about scaling a profitable DTC brand. I'm your host, Jon Blair, founder of Free To Go CFO. We are the go-to outsource finance and accounting firm for eight and nine-figure DTC brands.

Jon Blair (00:18)

Alright, today's a big day on the podcast. This is a Free to Grow CFO podcast first. I've got my buddy Kevin Jornlin here, one of our super awesome e-comm CFOs on the Free to Grow team. Kevin, what's happening, man?

Kevin (00:32)

Hey Jon how you doing?

Jon Blair (00:33)

Good, I appreciate you joining me. We are, like I mentioned, this is a Free To Grow CFO podcast first, having someone on our team come on the show. I wanted to have Kevin on today, because I want to talk about something really important that I'm seeing again and again and again with brands, both that we're working with already as Free To Grow clients, as well as brands that I'm encountering in our sales pipeline. It's what I'm calling a

What we're going to talk about today is what I'm calling advanced marketing profit analysis. The complexities of having an Amazon and a Shopify store. Before we dive into that though, Kevin, can you give the audience just a quick background of who you are and where you came from?

Kevin (01:14)

Yeah, sure.

So I actually started my career in the investment industry. So I worked for about 15 years on Wall Street, a couple of New York based investment firms. After that, I actually launched my own startup in the travel hospitality space. Did that for a few years. Concurrently, my wife actually launched her own e-comm brand in the pet space. And that has been going on for about five years now. And so I've kind of

grown

up with her in learning all things ecom and I've been their CFO since day one. was my education into the ecom space over time. I have picked up some clients and I am thrilled to be working with Free to Grow where I've been for about a year now. I've got six brands that I look after all in the kind of 10 to 50 million dollar revenue range.

Jon Blair (02:11)

I love it. But before we start talking about Shopify plus Amazon, like marketing performance, having worked with us now for a year or so, been the most helpful of takeaway from being a part of your wife's brand that's helped you kind of settle in as an e-com fractional CFO at Free to Grow?

Kevin (02:28)

The e-comm space is unique, right? I think that growing up in the investment industry, I could be a CFO for a variety of different industries, but e-comm is its own animal in a few different specific areas that I'm thinking of. One being ad spend and then two being cashflow management around purchasing inventory well in advance of selling the product.

two things if you can get them right ecom is a it's an amazing industry in its ability to generate wealth for founders very quickly as opposed to a lot of industries that take a very long time or require a lot of capital investment if you can get your marketing efficiency

Jon Blair (03:08)

Yeah.

Kevin (03:18)

correct and CAC targeting and media spend levels dialed in and you can manage your cash flow. The sky's the limit for e-comm and that's been a lot of fun to be involved with.

Jon Blair (03:32)

Yeah, I like how you framed that. I'm starting to realize some of those same things myself. recently, I saw a post from the one and only Alex Hermozi talking about, he said like, income loves speed, investing loves time. And the interesting thing about e-comm, going back to what you were just saying, you can actually build a lot of income really fast with a lot of speed in e-comm.

There's a lot of scalability, but doing it right is not trivial, right? There are very important best practices you need to follow to do that right, which is why we're gonna talk today about this advanced marketing profit analysis. So to set the stage for the discussion, one thing that we uniquely do at Free to Grow CFO is because we're a firm that works exclusively with fast growing e-comm brands,

We really go a couple layers deeper than the typical fractional CFO to understand marketing performance. And the crux of it is understanding, one, what game are you playing? Are you playing the high LTV game or are you playing the new customer dominant game or are you playing the apparel and high sku count game? But two, once you determine that, it all comes down to understanding what is the CAC

that your brand can afford? How much can you afford to spend to acquire a new customer? Each of those games are vastly different in terms of your new customer acquisition cost requirements. And in reality, what we've learned, I didn't know this in the early years at Guardian Bikes, what we've learned is that, I believe, what's his name? Mark Zuckerberg, I think, said this before and it kind of like was a famous quote of his is that like, whoever can afford,

to spend the most on CAC is gonna win. But what dictates how much you can spend on CAC is your unit economics and which game it is that you're playing. And what we've realized as we've dove into helping brands understand new customer profitability versus returning customer profitability is it's actually pretty easy to do when a brand is just selling on Shopify. Or maybe even selling a small amount on Amazon where Shopify mostly dominates their

their revenue mix. But there's this additional complexity that comes into play when there's a significant Amazon and Shopify presence because of some of the data limitations on Amazon. Now, I want you to jump in now, Kevin, because the reason I brought you on is because you have a few clients in particular where you've really dove into the weeds of this complexity. I want to start out by asking you, if you can lay out for the audience, when a brand goes from Shopify dominant

in their sales mix to all of a sudden having significant amounts of Amazon sales. Why does that introduce complexity into understanding new versus returning customer profitability for that brand?

Kevin (06:24)

Right. So let's first what type of business we're talking about here. The first order dominant businesses have a different calculus related to this question than the high LTV ones on the dominant side. It does not matter all that much to measure things like new customer sales on Amazon. So most of the brands that I work with are just doing

doing

traditional like MER stats and they're measuring their profitability that way and that's fine. Okay, so where this becomes most relevant is in a brand that has at least some level of repeat customer sales. That can be a supplement brand, a clothing brand, anything like that. All right, so new customer sales are everything when it comes to

measuring your media efficiency, your marketing efficiency, right? Now, as you said, brands tend to be pretty good at calculating NC ROAS on the Shopify channel on its own. It's not that hard to introduce Amazon into that calculation. And all you have to do is sum your new customer sales on Amazon plus

your new customer sales on Shopify and divide the whole thing by your media spend to get your combined NC ROAS that is the most important metric to start with when you're talking about evaluating your marketing spend now It's super easy to get data from Shopify on all of these metrics on Amazon It's actually not that hard to get new customers

Jon Blair (08:09)

Yeah.

Kevin (08:14)

customer sales data, like you can get it directly from Amazon Seller Central. And then of course, you can get it from a variety of tools like Lifetimely as well. that's where you need to start. Right. And then you can take your NC ROAS Let's say a brand has an NC ROAS of one and a half. All right. That's combining Shopify and Amazon and their contribution margin.

before

their ad spend is let's just say 50 % to make the math easy. All right, so that means they are not making money on the first order. We're starting at a one and a half and we're taking away half. So for every dollar of ad spend, they're getting back 75 cents in profits. So we know that they have another 25 cents to make up before they achieve breakeven.

Jon Blair (08:44)

Yeah.

Kevin (09:08)

profitability. Okay so that's the starting point.

What is then extremely important here is to calculate your LTV. All right. And the LTV over three months, six months, 12 months, really what you need to do is you need to put together a cohort model. Again, cohort models are very easy to calculate on Shopify, but on Amazon, that's actually not something that you can pull from Seller Central. It's not available. So this is where you really do have to use

a third party tool and there aren't many that we've come across. There is lifetimely There's one that I ⁓ tend to prefer, which is called expand fi. And then you can use that data to get your cohort model on Amazon and you combine the whole thing together to get a sense of when you're ⁓ achieving profitability. And this is so important because what brands, I mean, if you don't have the data, you can

Jon Blair (10:06)

yeah.

Kevin (10:10)

assume that your Amazon cohort model is the same as your Shopify cohort model. In other words, customers are coming back to repurchase at the same rate on your website versus Amazon. But in reality, I have seen those two channels delivering extremely different cohort models. In some cases, Amazon is much, much better.

Jon Blair (10:26)

Mm-hmm.

Kevin (10:38)

front and center was subscribed and saved very often. it's not, yeah, it's not hard to imagine an Amazon customer coming back to repurchase much more than a Shopify one. But I've actually seen it the other way around with some brands that heavily incentivize people to check out on their website with their subscriptions. So the point being you have to get both of these channels right in order to, to

Jon Blair (11:04)

Totally.

Kevin (11:05)

get that LTV right.

Jon Blair (11:07)

Yeah, and

like to drive point home further, why is this a problem in the first place? It's a problem in the first place because most of the brands we're working with have significant top of funnel ad spend in places like Meta where there's truly a halo effect. So if we as CFOs were to allocate 100 % of Meta spend,

only to the Shopify channel and you were to pull Shopify new customer sales versus Shopify LTV over a given time horizon, you may incorrectly determine that the payback period of your meta spend is much longer than it actually is because you haven't accounted for Amazon, right? Now, I wanna also drill into a couple more points that Kevin just mentioned. One being like, why do new customer dominant brands not have to worry as much?

There's a new customer dominant brand that Kevin and I have worked on together where returning customer sales is such a small dollar amount relative to new customer sales. You can basically call 100 % of their sales effectively for this analysis you can consider a new customer. So you don't really have to analyze on Amazon how much is being returning customers because it's so immaterial.

that at the end of the day we can basically assume all of their sales are new customer sales, because that's just the makeup of that particular brand, the product category, the price point, and the rest of their product this is uniquely an issue for brands that have some sort of significant LTV. Now, there's another category of brand.

that has significant repeat purchase but does not have the consumable or supplement style like, you know, fast LTV frequency, and that's apparel. If you have an apparel brand and you are selling on Shopify and Amazon, using one of these tools like ExpandFi to really understand new versus returning customer across both Shopify and Amazon blended is incredibly important because if not, you're going to falsely determine, you're gonna falsely calculate

erroneously calculate whether or not your new customers are actually profitable or unprofitable. And like, I'd love to have you give an example that you've seen, Kevin, but like, I've seen a brand without doing this combined analysis, right, like before working with Free to Grow CFO, incorrectly conclude that they should cut back their meta spend because it looked unprofitable when assuming that Shopify

was the only attributable sales. And then once the Amazon data got pulled in, it was like, no, no, no, keep scaling that meta spend. Can you tell me some of the surprising conclusions that you've been able to draw when you've used ExpandFi to bring in the full picture of Amazon versus Shopify, know, new versus returning customer sales?

Kevin (13:55)

Yeah.

Yeah. And the thing you'll often find for those types of brands is they maybe will understand and come to the conclusion that you just mentioned, which is that it looks like we're not making money on meta. However, we know that some of these sales are showing up as Amazon sales. And so what we're going to do is we're going to just take out a certain percentage.

and we're going to move it over into our Amazon channel and that will make us look better on our MetaSpend or Shopify spend and it'll kind of even things out. But what percentage you choose to shift from one channel to the other is, it's just very difficult to get that accurate. There are other tools that do that like Prescient, but what

Jon Blair (14:56)

Totally.

Kevin (15:00)

I found is if you just take out 30 % of your Shopify spend and move it over to Amazon, there are just too many moving pieces there to come up with some accurate insights. So that's why I like looking at everything at the top down level. And then once you go into, let's look at one channel versus the other, then, and how much we're spending on our Amazon ads versus our Shopify ads, you can maybe start to tweak

Jon Blair (15:10)

Totally.

Kevin (15:29)

those spend levels based on what you think that percentage is. So to put a finer point on it, what you'll often see is a brand selling on Shopify and Amazon has a ROAS of let's say like three.

Shopify but like 10 on Amazon, right? So it looks as if their ads are much more profitable on Amazon than than Shopify but once you take into account that halo effect and once you also take into account that Amazon tends to be a lower margin channel when you look at an all-in bottom line profit on ad spend you find that they're much

Jon Blair (15:52)

Yeah.

Kevin (16:14)

more equal than you might have expected. And really the only way to test or my preferred way of testing how much we should shift between one channel or the other is to run tests. And specifically like on Amazon, let's adjust our ad spend on Amazon. Let's cut it in half and let's see what the impact is on sales and ultimately

what we care most about, which is contribution margin for the business. All right, so if you shift ad dollars between one channel and the other and your contribution margin for the business goes up, then that is a sign that you're kind of calibrating that spend in the right direction.

Jon Blair (16:43)

Totally. Totally.

Yeah, it's interesting insight that I want everyone to take away from this discussion is that all of these different levels of analysis, and when I say level, I really mean the perspective that you're looking at, right? Some of them are lower, more granular perspectives. Some of them are higher level perspectives. They all tell us slightly, they all paint the picture.

from a slightly different angle, right? And so if you think about it, you're trying to kind of piece together this three dimensional understanding of what's going on with marketing performance and no single analysis tells you everything. They all tell you something and you kind of like, they're all one piece to the puzzle and if you look at all of them, you can kind of begin to get a sense of what the moves you're making in ad spend are actually doing to what matters most.

contribution margin, why? Because that's the driver of profitability. And here's what it's not, and I wanna make sure that people don't get confused about this. We're not talking about that Free to Grow CFO has figured out the perfect attribution method for all ad spend. What we're doing is we're doing a financial analysis, right? We're doing a financial analysis of various...

levels of perspective on how accretive we believe your ad spend is to the business's bottom line and to give you some sort of a sense of how one sales channel in Shopify is contributing to that differently than Amazon. Now, one thing you mentioned earlier, Kevin, like some surprising differences on what you thought was happening on Amazon versus what you found when you actually started

looking at cohort models and some of the data that was available in ExpandFi. Can you walk the audience through a couple examples of some surprising findings when you actually went through and looked at the cohort model for Shopify versus Amazon and then combined?

Kevin (18:56)

So I work with one.

pet supplement brand we brought on ExpandFi to understand the cohort behavior of Amazon. And it jumped off the page in the sense that their LTVs, their retention rates were almost like three X what they were on Shopify. And I had had a feeling that that was the case, but when you actually put the numbers behind it, it becomes, it becomes very interesting.

not only that, this brand has like two main products and the retention rates of one product were just vastly different from the other. So that can then be an indicator

you can direct more ad spend to that product that has a higher LTV and not only direct more ad spend, but you can accept a lower NC ROAS. So on product A, maybe it's got to be at least a one NC ROAS, but on product B, because that retention rate is so good, well, you can actually go down to a 0.8 NC ROAS. And so that they've implemented that.

Jon Blair (19:50)

Totally.

Kevin (20:07)

And it seems to be working well.

Jon Blair (20:10)

so the important thing is that, the important takeaway is there are counterintuitive insights when you get down to this level, right? And knowing that is important because when you don't know these various insights, you're not exactly sure what you can and can't afford to do on ad spend and acquisition costs. So this is like,

incredibly, incredibly important. And I'll say it's different for every brand, right?

It also, in my mind, it directs not just to that you can be a little bit more strategic on acquisition, maybe by like product line or by SKU, but it also may dictate whether or not you should spend some more time working on Amazon retention versus Shopify retention. Shopify retention, you're gonna be messing with things like Klaviyo and email workflows and things of that nature. The retention game on Amazon's a different game.

right, in terms of the activities, the agencies, the freelancers. And so, what Kevin is walking you through right now with some of these examples, it's not that your CFO, if they understand how to do this, is going to be able to tell you every little activity that you should engage in to improve the numbers. But if we think about this as like a spectrum of activities you can get involved in, before these analyses,

Kevin (21:10)

Sure.

Jon Blair (21:34)

you're guessing where on the spectrum you're going to make an impact with any decision you make. Now that we are using some of the, know, Kevin's examples using these tools like ExpandFi and whittling down these insights, you can now work on like one area of the spectrum. You know, what activities do we think are going to drive this metric? And then the great thing is you can measure it again after you execute on those activities and see if they actually drove the outcome that you were hoping for all the while.

being able to take a step back and say, are we making contribution margin dollars and thus profit go up or down as we mess with these things? And so, you know, being that we're a uniquely EECOM focused firm, these kinds of analyses are, have to be near and dear to our heart, things that we love doing, and they have to be a part of the financial planning and analysis mix because without it,

we can really just say, ⁓ you spent more and your blended MER was this versus what it was last month. So all that being said, Kevin, are there any, thoughts that you have? if there's a brand founder who's listening right now and is like, man, this is piquing my interest, do you have kind final advice on, like, where should they get started or?

maybe what should they look into first to see if they might be a good candidate for a tool like expand fi.

Kevin (22:56)

Yeah, sure. So

So if you think about what is one of the most important decisions that brands have to wrestle with on a month in month out basis, that is what is the appropriate level of ad spend. All right. So there is a, are a few different directions that you can take that the bottom up, which is basically like spend as much as you can at this NC ROAS. And that's good. But there's also the top.

down, which is what we work as CFOs very closely with our brand founders on. And I can share a formula that I use to help brands with that decision.

If anyone who's run a business before knows that there's there's almost this like mental issue that comes from having one line on the income statement that is a inflow and all of these other lines underneath it that are all expenses and outflows. And you're like, wait a minute, how am I, I only got one thing coming in and then I've got like 200 things going out. How am I going to, how am I going to make money here? Um, but that

that that metric for this conversation, the inflow source is returning customer contribution margin. You start with returning customer contribution margin, and then you take things away from it and you can solve for what is my minimum net income level. Okay, so let's go through an example. Let's say a brand has $200,000 of returning customer contribution margin each month. They then

have 100k of fixed overhead. Alright so they're left with 100k but then they want to solve for a minimum

net income of let's say 50 K. Okay. So then that drops them down to $50,000 that they can lose on acquiring new customers. Okay. So we just went through all the reasons for calculating NC ROAS. And this is one of the most important ones, right? Where it's like, you can tell your brands, you can spend up into the media spend level,

Jon Blair (24:58)

Love it.

Kevin (25:15)

that will result in a $50,000 loss on acquiring new customers. So as long as that marries with the campaigns are doing well and they're hitting the NC ROAS thresholds that deliver a decent payback, then that is a good way of marrying the bottom up with the top down on ⁓ calibrating total levels of media spend.

Jon Blair (25:38)

I love that. That is super solid advice and I also think it just simplifies this conceptual framework that I think gets over complicated by a lot of people. it's like if you understand LTV to CAC, you're like some sort of like an ad spend whisperer. It's not that complicated. what you just laid out I think is super, super helpful. So look, before we close here,

I'm gonna tell a funny story about having Kevin on this podcast. I've been holding back on saying, it's time to land the plane. Because Kevin, who has listened to many podcast episodes that I've hosted is like, hey man, I found you've got like a signature phrase at the end of every podcast. It's like, we're gonna land the plane. And so, this whole time I've been holding myself back from saying that. But, it's time to land the plane, Kevin. Here we are, this is a great discussion. I really

appreciate having you come on. This is a topic that's so important for brands. I know a ton of people in our audience are experiencing this challenge with this advanced marketing profit analysis. And I think some who are considering launching into Amazon, they now are a level up in their thinking of like, okay, I need to be ready to handle this. So I appreciate you coming on, Before we land the plane, I would love if you could give the audience

Where can the audience find more about your wife's brand? What is it called and what's your website?

Kevin (27:00)

Thanks for that. Yeah, happy to land the plane with you, Jon. My wife's business is called Awoo, A-W-O-O, and the website is awoopets.com. And you can find their stuff on Amazon and Shopify, as well as a few other channels.

Jon Blair (27:03)

Yeah.

Awesome, definitely check it out, definitely.

And you can be sure,

you can be sure that they know what their combined NC ROAS is for Amazon plus Shopify, that's for sure. Well, thanks again for coming on, Kevin. I think we might have to do this again soon.

Kevin (27:22)

You got that right.

That sounds great. Thanks, Jon.

Jon Blair (27:28)

Don't forget, if you liked today's episode, please hit the subscribe button and leave us a review. It helps us reach more people like you.

Also,

if you want daily tips on scaling a profitable D T C brand, follow me, Jon Blair on LinkedIn.

And if you're interested in learning more about how Free to Grow CFO can help your brand increase profit and cash flow as you scale, check us out at freetogrowcfo.com

BONUS EPISODE: Ecom Scaling Show: How Should You Pay Your Team As A DTC Operator? (Ep. 12)

Episode Summary

Welcome to the Ecom Scaling Show, brought to you by Free To Grow CFO and Aplo Group! Join hosts Jon Blair (Founder, Free to Grow CFO) and Dylan Byers (Co-founder, Aplo Group) as we dive into the crucial—yet often missing—link between marketing and finance in DTC e-commerce.

In this episode, Jon and Dylan dive into the various compensation structures and incentives in DTC eCommerce. While contribution margin dollars can serve as a key incentive metric, it doesn’t universally apply. The discussion explores multiple factors influencing comp packages, highlighting strategic objectives, profitability, and cash flow. The conversation examines different incentive structures for various roles, particularly senior executives, and navigates the nuances of focusing on contribution margin dollars, especially for high LTV brands and those in a hyper-growth phase.

Key Takeaways

• There is no perfect comp plan—balance, flexibility, and context matter more than precision.

• Contribution margin is usually the best north star for growth roles, not revenue.

• Profit sharing drives better alignment than equity for most DTC teams.

Episode Links

Free To Grow CFO: https://freetogrowcfo.com/

Aplo Group: https://www.aplogroup.com/

Jon Blair on Linkedin:   / jonathon-albert-blair  

Dylan Byers on Linkedin:   / dylan-byers-046010149  

Transcript

~~~

00:00 Introduction to Incentive Compensation

00:38 Structuring Incentive and Compensation in DTC eCommerce

01:07 Key Factors in Compensation Strategy

04:11 Contribution Margin Dollars Explained

06:35 Best Practices for Non-Marketing Functions

07:21 Balancing Strategic Objectives and Incentives

10:26 Avoiding Common Pitfalls in Incentive Compensation

15:40 Time Horizon and Flexibility in Bonuses

27:13 Equity Incentives vs. Profit Sharing

33:14 Conclusion and Final Thoughts

Mini Episode: The Tried and True Formula For Building Wealth With Your Brand

Episode Summary

The DTC gold rush is over — and a lot of founders are still operating like it’s 2021.

In this mini episode, Jon Blair breaks down a reality many brand owners don’t want to hear: building a successful DTC brand is not a quick flip. It’s a long, gritty process that requires disciplined financial thinking and a focus on real profitability.

Jon challenges the “exit-at-all-costs” narrative pushed across social media and explains why relying on a big acquisition as your wealth strategy is dangerous. Instead, he shares the five-step wealth-building formula that has worked across businesses for decades — including DTC brands.

If you want to build a brand that actually creates wealth (not just revenue), this episode lays out the framework.

Key Takeaways:

• The DTC “gold rush” mindset is over

• Profit isn’t enough—cash flow matters

• Real wealth comes from distributing and investing cash

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Free to Grow CFO - https://freetogrowcfo.com/

Transcript
00:00 Introduction to DTC Brand Challenges

02:26 The Reality of Building a DTC Brand

04:05 Wealth Building Formula for DTC Brands

Jon Blair (00:01)

Hey everyone, welcome back to another mini episode of the Free to Grow CFO Podcast,

where I break down one key concept that will help your DTC brand increase profit and cash flow as you scale. I'm your host, Jon Blair, founder of Free to Grow CFO. We are the go-to outsource finance and accounting firm for eight and nine figure DTC brands. All right, so I recently put out another mini episode not that long ago about the e-commerce gold rush being over.

I'm gonna talk about some of the same things in today's mini episode. it may feel a little bit repetitive, but I want to repeat it because this is so important. If I can be completely honest with you, I wanna repeat this because out in social media and the world of content in the DTC space, there's just a lot of sensationalism. There's a lot of content creators that you founders look up to, even people who I look up to, I won't name any names, but that sell this dream world of entrepreneurialism that I just don't find to be true. And I'm telling you, this is coming from real world experience. This is coming from working with the founders that Free to Grow CFO serves. I gotta be honest, scaling a DTC brand for every single one of the founders that we work with, it is hard. It's gritty. Things start working and you're crushing it and then they stop working and you gotta go back to the drawing board. Building a brand is a long term endeavor.

I think the COVID pandemic era got brand founders excited about this dream of scaling really fast and selling your business for a lot of money. And that's why I think generally so many DTC founders today think that exiting for big multiples is the only path to wealth. And I gotta be honest with you, this is a lie that was accelerated by the COVID pandemic era, Ecom, you know, brand asset bubble and further accelerated by content creators that are just selling you emotional sensationalism. wanna be real. And I know I've already covered this in other content before, but it bears repeating. It's worth listening to this again. Building a DTC brand is a long-term journey. Make decisions for building your brand as if you're gonna do it for the next 30 years.

But consistently take cash out of your business and invest in assets to build wealth as if your brand's gonna die tomorrow. Here's the five step formula for building wealth in all businesses, including DTC It's always been these five things. One, build your business on a foundation of profitable unit economics. out profitable unit economics first.

You cannot move on to the next steps until you have this figured

Two, scale those profitable unit economics to create company level profitability. Three, optimize your balance sheet to create distributable cash flow. So you can see we've gone from one, profitable unit economics, two, scale those. Now the company's profitable, but you don't stop there. Then you optimize your balance sheet so that you can actually distribute cashflow to yourself. Four, distribute that cashflow to the owners. Five, take that cashflow and invest it in buying assets. Things like stocks, real estate, other businesses, whatever gets you excited. This formula withstands the test of time. It's true today. It will be true tomorrow. It will be true forever.

And guess what executive team member is the lynchpin in helping you execute on this. A really great elite DTC CFO. That's one who understands DTC specific nuances like ad spend profitability and inventory management. Are you executing on this tried and true wealth building formula or are you stuck in a 2021 fantasy thinking you can execute a quick sale at a 10x EBITDA. Those days are long gone. Now is the time to hire an elite DTC CFO and start building wealth.

How to Turn E-commerce Profits into Long Term Wealth

Episode Summary

In this episode of The Free to Grow CFO Podcast, Jon Blair interviews Ryan Kelly, a real estate agent and investor, discussing the importance of investing in real estate and the nuances of working with an investor-focused agent. They explore the differences between buying a primary residence and an investment property, the importance of analyzing deals, common traps for new investors, and the current market dynamics in Austin. Ryan shares insights on strategies for real estate investing and emphasizes the need for continuous learning and adaptability in the ever-changing market.

Key Takeaways

• Real estate is a great asset for building wealth.

• New investors often overlook hidden costs in financial projections.

• Building a diverse toolkit of strategies is important for adapting to market changes.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Ryan Kelly- https://www.linkedin.com/in/ryanekelly/

Free to Grow CFO - https://freetogrowcfo.com/

Meet Ryan Kelly

Ryan Kelly is a top-producing real estate broker, licensed mortgage loan originator, and seasoned real estate investor with a mission to help others build lasting wealth through real estate. With over $100 million in closed transactions and more than 300 clients served, Ryan brings a unique blend of investment insight, market knowledge, and personalized service to every client relationship.

Known for his responsiveness, integrity, and fierce negotiation skills, Ryan goes above and beyond to deliver smart solutions and seamless experiences. His dual license as both a broker and lender gives clients access to creative financing options, transparent guidance, and full-spectrum support—before, during, and long after the close.

A proud Austinite since 1992, Ryan moved to the city to attend the University of Texas and has called it home for more than 30 years. He actively supports local nonprofits including Austin Sunshine Camps, KW Cares, and Foundation Communities, and lives in South Austin with his wife Andi and their two boys, Andrew and Spencer.

Whether you're relocating, refinancing, or building a real estate empire—Ryan Kelly is the partner you want in your corner.

Transcript"
~~~~~~~~

00:00 Introduction and Background

02:59 The Importance of an Investor-Focused Agent

06:02 Analyzing Investment Properties

08:56 Common Traps for New Investors

12:08 Market Dynamics in Austin

14:57 Strategies for Real Estate Investing

17:59 Opportunities in the Austin Market

21:05 Final Thoughts for Aspiring Investors

Jon Blair (00:00)

Hey everyone. Welcome back to another episode of the Free to Grow CFO podcast, where we dive deep into conversations about scaling a profitable D T C brand.

I'm your host, Jon Blair, founder of Free to Grow CFO. We are the go-to outsource finance and accounting firm for eight and nine figure D T C brands.

All right, today is an exciting day. I am here with one of my real estate agents, one of my agents out here in Austin, Ryan Kelly. Ryan, what's up, man?

Ryan Kelly (00:24)

Hey man, enjoying a nice ice storm day here in Austin.

Jon Blair (00:28)

Yeah, yeah, so we're recording this on January 26th, 2026 and a big ice storm came through over the weekend so we got our like one time a year that we get to take the kids out to go sledding. ⁓ And it's funny, we have a person on my team, she lives in Dallas, she sent in this video on Slack to the team of her kids sledding on a baking sheet and she's like, hey in Dallas none of us own sleds. I was like, hey we're sledding on the...

Ryan Kelly (00:39)

Exactly.

Jon Blair (00:53)

the top of a storage container that we flipped upside down because ⁓ there's no reason to have a sled for the one time a year that it snows,

Ryan Kelly (01:01)

never even maybe not even once a year so like half the kids are in sweatpants and pajamas they don't even have ski clothes right they're just out in clothes until they get wet and then they come inside so you know the southern the southern way to enjoy ice and snow

Jon Blair (01:07)

Hahaha!

man,

yes, absolutely. Well, I appreciate you being here, The reason I wanna have you on the show is because those of you that listen, you've heard me talk before my opinion that real estate is a great invest in, to build wealth. You a Free to Grow CFO, we're fractional CFOs who help Ecom brands improve their profit and cash flow.

distribute more cash flow to themselves and then hopefully the brand founders are investing that in assets that build their wealth. And I couldn't think of anyone better than you to come on and talk about investing in real estate. So before we dive in, can you tell everyone a little bit about you, who you are and what you do?

Ryan Kelly (01:56)

Absolutely. Born and raised in Texas, grew up in Waco, halfway between Austin and Dallas, came to UT in the 90s, pre-internet, as I like to tell people. But my first career was actually as a broadcast journalist. So I did TV news. If you ever watched 5, 6, 10 o'clock news, that was my first career. Worked in Waco, worked in Austin, moved into PR. But ultimately, as I got kind of my midlife crisis stage, I was looking to do something more in the wealth building aspect.

Jon Blair (02:04)

Hahaha.

Ryan Kelly (02:24)

I wanted to run my own business. So I was actually looking to become a certified financial planner and help people, you know, invest in the stock market, you know, get 401ks Roth IRAs, but...

As I started exploring, how do I want to build my wealth? What can I control? And then that's where I really kind of led me to real estate. My in-laws actually were the first ones that really kind of gave me a visual of what it would look like to own real estate. They own a pretty sizable portfolio of rental properties in Texas. So when I started talking to them, how does that work? How do you make income? You don't have to sell these properties to get that income. That's when I really pivoted quickly. And this was probably a little over 10 years ago, moved into real estate, have been a residential real estate broker here in Austin. I'm also now a mortgage lender as well. then my wife and I have been building our rental portfolio for the past 10 years, along with some syndications and some other real estate related investments and multifamily and industrial. But on a personal level, single family duplex, don't make it complicated. There's a lot of great properties in the residential space.

Jon Blair (03:29)

I love that. So yeah, I met Ryan through a real estate investor network that I'm a part of and that he's a part of called Bigger Pockets. And I met Ryan on this journey of trying to find investor focused real estate agents in the Austin area where I live. that's where I want to start our discussion because I think a place where a lot of people get hung in my opinion and in my experience, is they go talk to their agent who sold them their personal residence, which may or may not be, I have found in my personal experience, may or may not be a fit for helping you build your portfolio. So my first question to you is, can you help the audience understand why it's important, if they wanna get started real estate investing, to find an agent who focuses on and understands investing?

Ryan Kelly (04:15)

Absolutely, you know the language is different and it's not complicated but it's different if you own an investment property it is about two things cash flow and Then also what are the other benefits that you're going to try to get off that property? Or do you need tax benefits? Do you need to come into a property from a 1031 tax exchange or do you need to? Facilitate you need to sell that property maybe with a 1031 tax exchange and get tax benefits

And then you also have ⁓ what I call the network of services. You might need property management. You're going to need different insurance. You might need an LLC. You're going to need some different avenues. And so when you're in an agent that works with investment properties, you understand more why people are buying that property. You're not buying it because it has a nice paint color or because the pool is cool looking or you want to live in that neighborhood. You're never going to live in that property. You're buying it because you're trying to put an asset into your portfolio needs to have some sort of a performance. And then on top of that strategy, if you're buying a house for yourself, the only strategy is are you gonna enjoy living there?

if you're buying it as an investor, most people are gonna underwrite that property as you and I would say, as a long-term rental. Well, what does that mean? That's what you and I think of as a long-term lease, 12 months of rent. However, that's only one strategy. There's lots of different strategies that I have clients doing from midterm rentals, short-term rentals, rent by the room you know, flipping, arbitrage. So understanding the different ways that you can take the same property and do different things with it, I think is where investor agents spend their time compared to a regular retail real estate agent.

Jon Blair (05:57)

Yeah, it's interesting because you have to think about what is the objective of buying your primary residence versus what is the objective of buying a rental property. The objective of buying a rental property is you're actually starting a business or you're growing a business. Running a rental is a business. It may not be a full time job, right? But you need to go to an agent who understands the ins and outs, the nuances of running a real estate business when you're buying your personal residence, you want to, you want a place that you enjoy that suits your needs from a comfort level at, you know, aesthetics level that you're in the neighborhood where you want to send your kids to school, those things, different considerations, different objectives. And, and also I think the other thing that I want to mention or that, that I was thinking of is when it comes to comping or the ability to analyze a deal, this is where I saw my agent.

who my original agent who helped me buy my last few personal residences. Incredible at that. If I gave him a list of things that I wanted in the house, he would go find it, right? Gave him my budget. He would go find what I needed. If it was missing something, he would give me the vision of how we could turn it into that. And he would help me to negotiate a decent deal. Great at that. But when I started having him sending me rentals, he was not really the greatest at understanding things like comping, helping me understand how might that property appreciate over time.

What do, what, is the range of possible rents that I might be able to get for that property? Right? ⁓ how does, how does a school district rating, impact rents over time? it's interesting because when we started working with you, it was very clear off the, ⁓ off the get-go that you are an investor focused agent, because when we would say, Hey, this is an interesting place. Just by like second nature, you would say,

Hey look, I pulled this up, I pulled all the comps in the last 12 months for rents and all the comps for the last 12 months for purchase prices and here's some factors that you need to consider when it comes to the durability of those rents or the durability of the value of this property. And you just did that on the first email response back to us. It gave me so much intel to make an informed decision. What would you say when you're talking about analyzing a deal, right, from an investment standpoint?

Walk me through the short list of like the steps of the information that you pull and need to kind of understand before you decide if the numbers make sense.

Ryan Kelly (08:17)

Yeah, would start, let's say you were a new client too. I would say, first of all, you hit it kind of on the head. If you're gonna go buy a primary home, you're always looking for the best neighborhood you can buy in. You want the nicest house for your budget. You might be happy with an HOA, because you get to use the pool and tennis courts or whatever. But as an investment property, most of the things I just said are probably gonna be negatives for you as a rental property. HOAs are a cost. A nice school district means that house is expensive.

Jon Blair (08:40)

Hmm, for sure.

Ryan Kelly (08:46)

those types of things. And so when you're trying to find an investment property, think of Warren Buffett, right? Like he's not going to go buy the most rich company in the world. He's going to go look for value. He wants a good company. You want a property that can produce cash flow, but you need it at the best price that you can get it. And so I look at that as you might say, hey, maybe I don't want to be in an HOA or maybe I need to pick a zip code.

maybe isn't the best school district, but it's such a good location. It's known to be a strong rental area, not a purchase area. It's a good rental area. So first of all, you start with, we start with the high level.

And that's always location, right? Location with your budget. And then when you look for rents, we want to go to that first. How's that area renting? We can pull up rental comps. Are people paying rent? Are they going up or down? How long are properties sitting on the market? Because vacancy, as we know right now, has gone up because the market got soft with kind of oversupply in the last couple years. So you want to make a judgment. Is it one month that it takes me to get a tenant?

or is it gonna take like four or five months? In which case there might be too many properties on the market to compete against. So you wanna know rental data, you wanna know property tax, that's a big one too. How expensive is it? Because that's a cost, that's expense for your business. Insurance, having kind of a gauge of how expensive is it gonna be to go get insurance. And what are the factors that are gonna negatively influence your insurance, like an old roof?

So putting those together, then you can run a property pretty quickly. Like you could send me a link or I could send you a property and go, hey, here's an address within five minutes, maybe 10. We could probably pull a basic rent analysis or portfolio analysis for that property to determine if it's even within range of making sense. And that's assuming we don't adjust the price. Then you can get into, do we think we'll be able to negotiate some of these terms to make it a better investment?

Jon Blair (10:38)

Yeah.

Yeah, one of the biggest traps that I see new investors get in is, maybe it's two things, but it's centered around the same concept. But it's it's a faulty financial projection. And either because they're poor comps, right? The rents are unreasonable or the purchase price comp is wrong. Or the financial projection is based on producing cashflow, positive cashflow, but not accounting for all expenses.

Ryan Kelly (10:59)

Yeah.

Jon Blair (11:10)

And to go into that like one level deeper, you know, you have to think about, and this is something that Ryan has really started, gotten me thinking about, because I have a number of very solid performing properties in Mississippi that by and large on average are older, right? With Ryan, the first property I bought was brand new. And he got me thinking about, okay, listen, look, of course we got to factor in your ⁓ mortgage payment, taxes, insurance.

But here's some of the costs that some people don't think about. Do you have property management? You're going to self manage this repairs and maintenance and capital expenditures and the difference of those on a, on a 2025 build versus a 1955 build is completely different. So something might have a tighter margin, right? when not accounting for your repairs and maintenance and capex, but if you're buying a brand new home and you expect those things to be low, or maybe you have a warranty on it with a builder, you can afford to write those smaller expenses into your projection. So, it's really helpful to have an agent who invests themselves and understands those differences. I'm curious, Ryan, what would you say is the biggest trap that you see new investors get involved in before they've kind of been around the block on a couple deals?

Ryan Kelly (12:24)

think the first one, and this is a conversation I have every day, is nothing pencils, nothing works, I can't find anything, they're not wrong, and...

but they're not looking in enough places. And so what typically happens is they'll call me, they want to invest in Austin. I love Austin. I'm bullish on Austin long-term. We have great jobs. There's a lot of tailwinds that are gonna make Austin a great place to live. The challenge is Austin has gotten more expensive. And so it's very hard to start penciling properties once the median home price is 400,000, 500,000. There's only so much rent people are gonna pay until they decide to just move and go buy something. And so what happens is they're looking in very nice areas. And so as you and I know, you know, there's other markets. And so what maybe not work in Austin, it might work in Temple or College Station or Waco or Abilene. And so sometimes you have to look in a different area. They weren't doing the wrong analysis. They were doing it in the wrong place. So that would be one thing. And then the other thing I would say is,

Jon Blair (13:24)

Yeah.

Ryan Kelly (13:28)

As markets shift and change, what worked five years ago or 10 years ago may not actually be the strategy that's great today. There might be a different strategy that works really well today. And then five years from now, it might be a different one. And a perfect example is BRRRR So for those that aren't familiar with the BRRRR method, and Jon, you've done this. So the BRRRR method is an acronym for buy, rehab, ⁓

Jon Blair (13:38)

Totally.

Ryan Kelly (13:53)

rent it out, then refinance it, because you've improved that property, and then ideally you can get some cash out and then repeat. You got some money back and you can go and do it again. I always tell people, BRRRR works today, it's not gonna work in Austin, okay, it's too expensive. You need to go to a market where maybe that...

Entry level price is $100 or $75 or $125. You need a cheap property where if you put in $30 to $50K and fix it up, it appraises at 200. You need easy numbers like that. And then you might be able to get some money out. You might be able to get some rent to kind of cover your costs. As the value of that property goes higher, those ratios just stop working. It's like you would need the property to appraise at such a higher level. And the rents also don't keep pace as properties get more expensive. And so BRRRR worked in Austin probably 10 or 15 years ago. Probably doesn't work the way people think of it.

Jon Blair (14:42)

Yeah.

Ryan Kelly (14:50)

today, but there are other markets, lower priced markets with those older properties, those kind of starter homes where I think BRRRR works. The other one that I think works today, which you and I took advantage of last year, is that all of sudden you might catch these little pockets of new construction where quite honestly, you and I bought new construction properties cheaper than we were able to find resale properties in the same market for the same returns of rent. And yet now we have something brand new with very low capex. Whereas if we had to buy something 10 or 20 years old, we've already got to start building in some of that replacement cycle. So it's just trying to figure out what the market can give you. And sometimes people come into it with one plan.

Jon Blair (15:16)

Yeah.

Yeah.

Ryan Kelly (15:36)

If the plan doesn't work, they're like nothing works.

Jon Blair (15:36)

Totally.

No,

no, you have, you have to build a toolkit. You have to have a toolbox that you keep putting tools in. Right. And that's why, like for me, I am a continuous learner when it comes to real estate. listen to numerous, numerous podcasts every week. I read at least half a dozen books a year on real estate. And like right now I'm reading a book on flipping. I've never done a flip and flips don't particularly work well in this market because transaction volume is low, but

Ryan Kelly (15:50)

No, no.

Jon Blair (16:04)

they will work at some point and they will work in some markets, right? And I'm looking in, I'm looking in three different markets at any point in time, Austin, Temple, and in Mississippi. And at some point that's going to work. And the other thing is even if it doesn't, let's say I find a market where BRRRR works. Well, the first step of BRRRR is very similar to a flip, right? You got to do a rehab. So all the tools from in terms of flipping, I'm putting into my toolbox, but what I want to add to what Ryan just said is like,

Ryan Kelly (16:06)

Absolutely.

That's right. It is flipping.

Jon Blair (16:32)

You have to have a toolbox that has enough tools that you know how to pivot based on what the market is giving you. The more and more ⁓ kind of lifetime real estate investors that I follow read their content, whatever, I find that they have transitioned over time into different strategies as the market gave them the opportunity to leverage those different strategies, right? So it just comes down to if you want to be a student of real estate investing. There's still plenty of just tried and true, long-term rentals will always be a strategy that works somewhere, 100 % of the time, no matter where the market is, somewhere you can find rentals that work, right? But it just depends on what strategy you wanna deploy. I wanna ask you another question here, which is about Austin in particular, because I've been looking in and around Austin for a few years, just recently started doing.

Ryan Kelly (17:02)

I'm sorry.

Jon Blair (17:21)

You know, deals in central Texas in the last six months or so. But you know, as, as you know, and have put out in your own content, you know, a couple of months ago, Austin was named the number one buyer's market in the nation. I actually heard read somewhere last week that it's now Dallas and Austin is still in the top five. But anyways, exactly, exactly. So Austin. First buyer's market in years. I mean, I moved here in 2013.

Ryan Kelly (17:39)

Yeah, we're falling out of the top two right now. So we're getting there. Yeah.

Jon Blair (17:48)

And in 2013, there was 6 % a year appreciation. And it was hard to get a place, let alone what COVID did to Austin. But in your opinion, I the national news, I would generally say, says stay away from Austin. I don't agree with that. You don't agree with that. What do you personally think the opportunity is in the greater Austin area from an investing standpoint?

Ryan Kelly (17:52)

Absolutely.

I'll separate it in two ways. Let's forget housing for one second and just talk about the market demographics. So Austin right now is still a top five city in America for population growth. Last year we grew about 40,000 people in the metro. So if you added 40,000 people to any town, I call that a suburb. So you added a suburb of more people to the market. You're doing that consistently every year. So how come it doesn't feel like that right now?

And so if you look back at Austin, can go look at charts of appreciation and population growth. Austin went like a straight hockey stick lineup for the past 30 years. Even the last housing downturn, the 08 to 2012 window, Austin really kind of went flat. It didn't have a big dip like a Vegas or a Phoenix. And so what happened was Austin just kept going. And so when we got to like 2020, what happened was is we had tons of demand, but we were actually short on supply. The supply wasn't keeping up. So prices just went through the roof. But when that happened and money was cheap, everybody in the universe said, we need to go build something there. Let's go to Austin. Look at that market. Let's go build apartments and office towers and retail and single family homes and you name it. And they did. But those take

Jon Blair (19:27)

Hahaha!

Ryan Kelly (19:36)

two to three to five years to like get into the market. So what happened was we get to 2022, the prices went nosebleed level and they then jacked the interest rates up. So what happens is all of a sudden for a consumer like you and me, the buyer side said, whoa, we can't afford that.

And so we need the prices to come down, but that's also when the wave hit the beach of all this new supply and it said, hey, I thought everybody wanted something, right? So we added, I think 115,000 or more apartment units to the market. So that's like you know, three years of population growth of empty apartments on top of the market. So they're filling up. They're over 90 % occupancy now, but it took a minute to get those apartments filled up. have all these new single family homes. And when the builders overbuild, what are they going to do? They're going to, they're not lowering the price quite as much, but what they're doing is they're incentivizing the heck out of the buyers to buy new construction with low interest rates and credits and all those things. And so, there are opportunities in there. The challenge is we started way up here on price. We're now back to what I'd call fair price. We're probably not at a discount. I don't know if we'll get there. Some properties will get there. And then you have also on the multifamily side, let's say quadplex, duplex, residential, multifamily. Most of those have been owned for five, 10, 15 years. Well, they have 3 % interest rates.

They bought the property a long time ago. They have a 3 % interest rate. Even if their rents aren't great, they're making money. So they're not in a hurry to like give you and I a deal. It doesn't mean there aren't deals to be had, but they're not in a hurry to give you a deal. So right now what's happening is Austin is stabilizing.

Jon Blair (21:12)

Totally.

Ryan Kelly (21:19)

It's not great. It's not crashing. We kind of finished that part. I think Austin's corrected now. Depends on where you're looking, maybe 20 to 30 % off COVID. So we've had a pretty sizable correction, but I'd say now it's stabilizing. So if you want to get into the Austin market, you know, the next 12, maybe 18 months is probably going to be a good window to do it. There's going to be some opportunities there. Austin's a better value add market where you're trying to increase equity with your

Jon Blair (21:45)

Yeah.

Ryan Kelly (21:47)

effort versus, I can just turnkey something. Put 25 % down, buy it, it'll cash flow. It takes a little more energy in Austin to get a positive cash flow property. But I think if you're looking 10 years ahead, if you look at jobs and you look at demographics, those things haven't changed.

All that's changed is we had to let the oversupply crash through the market and the interest rates resettle the price. That seems to be getting close. I think this year will still feel a little soft, but I would expect over the next five or 10 years, you're going to see Austin hit its next wave, whatever that wave looks like.

Jon Blair (22:21)

Yeah, totally agree. And there's a couple of key things I want to draw out of what you just said. As a real estate investor, in my opinion, you should look metrics to gauge overall market movement, but you don't base your strategy on that. And when I say that, mean, like, if median rent is a given number and median purchase price is a given number, I always seek to pay lower than the median purchase price and hopefully get the deal, the pencil at rents that are below the median rent for that segment of the market. Because if you start playing in a situation where you got to charge above the median rent in a soft market, those are the ones that are sitting even longer than everything else, right? That's one thing. The second thing is you mentioned value add, or you mentioned that like there's not a lot of incentive for sellers to sell right now. What you need to be finding

Ryan Kelly (23:02)

Certainly.

Jon Blair (23:11)

is people who are ready to retire and they want to sell into this market. People who don't want to sell into this market just won't sell into this market. But the ones that do need some liquidity and you're at an advantage because transaction volume is low right now, you know, compared to recent history. So find someone who wants to retire and to target stuff that's vacant because that thing, no matter what the interest rate is, is likely losing money every single month. So some of the best deals I've ever found

Ryan Kelly (23:18)

That's right.

Yes.

Jon Blair (23:39)

is someone who wants to retire and had a partially vacant multifamily property. And they're like, they want to get out and they're not, they've either lost the energy to try to lease it up. There are some work that need to be done on it before someone would even consider renting it. And so they're like, what can I get to just get out of this thing? Right. And so, but what does that require? That requires looking at a lot of deals, right? You have to become, in my opinion, you have to become

You have to love looking at deals. I look at hundreds of deals before one closes. And that actually doesn't even matter. It doesn't matter whether I'm talking about Austin or temple, or I'm talking about Mississippi, all of the markets that I play in, you've got to look at dozens and dozens of deals before you get one to stick. And, ⁓ I do think this isn't, this is anecdotally for me and maybe my opinion. I do think that's another thing that matters about finding an investor focused agent.

is that sometimes I have found agents that focus on the retail sales of single family homes, they get annoyed by like tons of deals not getting under contract. If you're making a hundred offers and they're all, whatever, they're aggressively low and like those kinds of agents are like, come on, you're wearing me out. Whereas an agent who works with investors knows this is just part of the process. You don't know if someone's ready to retire until you make that low offer and they counter you with a nice counter offer, right? You lose, you miss 100 % of the shots that you don't take. And I just personally feel a lot more comfortable making, taking lots of shots with an agent who understands you need to take a lot of shots on goal before you get something to stick and actually get something that cash flows.

Ryan Kelly (25:04)

I'm sorry.

100%. In fact, thank you because I was working with Jon and I work with a lot of other investor clients and we commonly are looking at duplexes. Duplexes is a space that I like a lot. They're kind of built for investors, but they can also be sold to primary homeowners when you're done. So it's kind of a nice little hybrid property. Well, one of the markets I target is Temple, Texas. It's about an hour north of Austin. I like their numbers. A lot of properties can pencil well there. However, even with that, it was still hard. Last year we looked at tons of properties. I think you and I individually have looked at that market for a couple years. We were trying to find properties and we kept making offers and kept working deals. Well, ultimately we got to December.

And we worked out an incredible deal with a builder up there who was, you know, needed something to kind of hit their numbers at the very end of the year, had to move in transact fast. Jon was ready. And so this is why I like being an investor friendly agent, because we negotiated and got that deal under contract for Jon. My brain says, well, I want one too, because I'm an investor.

Jon Blair (26:21)

Hahaha

Ryan Kelly (26:22)

And so the next day I'm going to do some videos for Jon at his property. I called the builder and I go, I want that same deal. Right. And so, you know, having somebody that wants what you want, they want to find deals for you because they're looking for deals for themselves. It's a win-win situation. And they also know how to structure those deals, you know, where to look. They're already, you know, chasing the market themselves. They're scanning for deals themselves.

Jon Blair (26:42)

Totally.

Ryan Kelly (26:51)

It makes it a lot easier for me to share information when Jon reaches out and says, what do you think about this neighborhood or this property over here? I already have insight and data on that. And then the second thing I was going to share was if you always write your property to today, don't write it on what ifs or it could be or maybe one days. You got to underwrite it today. If it can work today, even if it's thin, that's fine.

Jon Blair (27:11)

Totally.

Ryan Kelly (27:20)

If it works today, you have to understand inflation is going to work for you in the future. You might get one opportunity to maybe refi at a lower interest rate in the future. Never guarantee, but if you can, that's a bonus. know, rents over time typically go up, but you don't want to write it to like, hey, it needs to be here in five years. You've got to make it work today. And if you can do that, typically I call that insurance. That's defense. You're good to go in the future because You wrote it conservatively at today's interest rate, price, insurance, the whole thing.

Jon Blair (27:55)

So, man, we could talk for a long time about this, but unfortunately, we're gonna have to come to a close here. But before we do, what if, you know, speak to the brand founder who's listening to this right now, who, you know, is interested in using some of the cashflow from their e-comm brand to invest in an asset class and real estate is interesting to them. What are the final thoughts you want to share with them about, like, what's the first step they, that you think they should take to just dip their toe in and get started?

Ryan Kelly (28:07)

Yeah.

Yeah, I would say ask yourself, it's kind of the Rich Dad Poor Dad question of like, do you want another job?

which is more active income and there's opportunities in real estate for that, flipping, wholesaling, short-term rentals, these are gonna be more active strategies or do you purely want passive or at least more passive income? And this is where you are gonna be looking at longer-term rentals. Typically, you can hire property management for those and make them very, as passive as you can. And then also what tax breaks, if any, are you interested in?

If you don't need big tax breaks, then long-term rentals are great. You're going to get lots of depreciation over 30 years or 27 years. You know, you get a long one. Whereas if you need like a big chunk now because of bonus depreciation and you know, all that stuff and the big beautiful bill, well then there are loopholes where you could do a short-term rental. I have numerous doctors, for example, that you know, they have W-2 income, they're surgeons or they're dentists, you know, but they want to get that bonus depreciation and so they're to focus on short-term rentals. So, you know, I would just think about it. What do you want?

And then ultimately owning a business and owning real estate are typically the two biggest ways to build wealth. And so you're a business owner. You already have a business and it sounds like, you know, if you have profits and you have that extra money to invest, you're doing well there. So the next question is, do you want to buy a business, another one, or would you like to add real estate to your portfolio? Start with those real simple questions and then you can drill down into strategy and things later, but that will get you started on, you where that's going to feel and fit in your portfolio.

Jon Blair (30:05)

Absolutely. Look, anyone who listened to this show knows I'm bullish on real estate, but the bottom line is, this is what I want everyone to take away from this episode. One, real estate, real estate investing is still alive and well. Don't believe the news, but you do need professionals on your team to help you through it. And a real estate agent that works with investors is one of those key linchpins that you need to add to your team first and foremost. And the next thing I want you to hear is to just remember, scaling your brand is all about generating more profit, but ultimately turning that profit into cash flow that you can take out of the business. Take out of the business your lifestyle, but also to buy assets to build real wealth. anyways, I think this is a great jumping off point for any of you guys who are interested in getting into investing in real estate. Before we go, if you wanna reach out to Ryan, Ryan, where can people find more information about you?

Ryan Kelly (30:57)

Yeah, you can go to RyanKellyGroup.com. You can find me on LinkedIn and Facebook at Ryan Kelly Group. Those are easy ones. And if you want to email me, very easy, Ryan Kelly, K-E-L-L-Y at KW for KellerWilliams.com.

Jon Blair (31:11)

wait, what about your YouTube channel? Because I watch your YouTube updates every single week.

Ryan Kelly (31:13)

at Ryan Kelly Group on YouTube. And you can see my weekly market update videos for Austin Metro.

Jon Blair (31:17)

Definitely.

Definitely, I watch them every single week. They're super helpful. I appreciate you putting that content out. And you know what, man, thank you for coming on. I really appreciate it and I'm obviously looking forward to the next deal we can do together.

Ryan Kelly (31:31)

Let's do it. Thanks, Jon. Stay warm.

Jon Blair (31:34)

Don't forget, if you liked today's episode, please hit the subscribe button wherever you're listening and leave us a review. It helps us reach more people like you. Also,

If you want more tips on scaling a profitable DTC brand, follow me, Jon Blair on LinkedIn. And if you're interested in learning more about how Free to Grow CFO can help your brand increase profit and cashflow as you scale, check us out at freetogrowcfo.com.

BONUS EPISODE: Ecom Scaling Show: NC-ROAS, aMER, LTV? Why Marketing Metrics Are Misleading (Ep. 11)

Episode Summary

Welcome to the Ecom Scaling Show, brought to you by Free To Grow CFO and Aplo Group! Join hosts Jon Blair (Founder, Free to Grow CFO) and Dylan Byers (Co-founder, Aplo Group) as we dive into the crucial—yet often missing—link between marketing and finance in DTC e-commerce.

In Episode 11, Jon and Dylan jump into the (almost) endless list of e-commerce acronyms and metrics. They emphasize the importance of clarifying the definition of metrics like NC-ROAS, LTV, and CAC to ensure clear communication within teams. The discussion covers the different types of ROAS, the significance of customer acquisition costs, and how to measure lifetime value accurately. Learn why it’s crucial to separate new customer and returning customer contribution margins and how these metrics can impact decision-making and profitability.

Key Takeaways

• Clarity in metric definitions fosters better decision-making in e-commerce.

• Defining gross margin versus contribution margin is essential for accurate financial analysis.

• LTV should be measured in contribution margin dollars, not just revenue.

Episode Links

Free To Grow CFO: https://freetogrowcfo.com/

Aplo Group: https://www.aplogroup.com/

Jon Blair on Linkedin:   / jonathon-albert-blair  

Dylan Byers on Linkedin:   / dylan-byers-046010149  

Transcript

~~~

00:00 ROAS Terminology

02:05 Defining ROAS and Its Variants

08:04 Marketing Efficiency Ratio (MER) Explained

16:16 Gross Margin and Variable Costs in E-commerce

20:57 Understanding Incremental Impact in E-commerce

21:58 Contribution Margin: Dollars vs. Percentage

23:36 Balancing Ad Spend and Profit Margins

25:01 Importance of Financial Forecasting

27:27 New vs. Returning Customer Contribution Margin

35:21 Customer Acquisition Cost (CAC) and Lifetime Value (LTV)

43:55 Summary and Key Takeaways

Why Most DTC Brands Get Amazon Wrong

Episode Summary

If you’re a DTC founder who’s hesitant to launch on Amazon because you’re afraid it will cannibalize your website sales, this episode will challenge that assumption.

In this episode of The Free to Grow CFO Podcast, Jon Blair and Alex Chiru break down what’s actually happening inside Amazon today — from intent-based search and AI-driven personalization to why ranking and momentum matter more than ever. We also unpack one of the biggest mistakes growing brands make: treating Amazon like a keyword game instead of a relevance and conversion engine. And finally, we zoom out to the CFO lens — why scaling too fast on Amazon without understanding your cash flow can put you in a dangerous position.

Whether you’re already on Amazon or considering launching, this episode will give you a clearer framework for how to think about the platform strategically — not emotionally.

Key Takeaways

• Amazon usually adds incremental revenue rather than cannibalizing DTC sales.

• Ranking improves when you generate conversions quickly after launch.

• External traffic helps, but Amazon still rewards on-platform spend.

• Search on Amazon is now intent-based, not just keyword-based.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Alex Chiru- https://www.linkedin.com/in/alexandru-chiru-44315941

Free to Grow CFO - https://freetogrowcfo.com/

Meet Alex Chiru

Alex Chiru has been selling on Amazon since 2013 and has built, scaled, and successfully sold multiple businesses along the way. Today, he operates his own consumer brands—one of them scaling rapidly in the automotive space—and works closely with established brands ranging from seven to nine figures in annual revenue.

Alex focuses on Amazon SEO, conversion optimization, and long-term catalog strategy, helping brands grow sustainably and recover when rankings or performance drop. He is an active member of the Million Dollar Sellers community, where he has been involved since 2017 and currently serves on the Advisory Council, leading discussions around SEO and CRO.

Known for his practical, operator-first approach, Alex enjoys sharing what he’s learned and helping as many sellers as possible through consulting, community involvement, and speaking at industry events. He’s especially known for staying calm when Amazon “breaks” and turning complex problems into clear, actionable solutions.

Transcript

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00:00 Introduction to Alex Chiru and Trubuilt Automotive

01:23 Misconceptions About Selling on Amazon

09:36 Impact of Returns on Ranking and Momentum

14:34 Challenges for Established Brands

18:49 Debunking Myths in Amazon Scaling

19:33 The Reality of Running an Amazon Business

22:08 The Value of a Fractional CFO

25:11 Advice for DTC Brands Considering Amazon

27:28 Final Thoughts

Jon Blair (00:00)

Hey everyone, welcome back to another episode of the Free to Grow CFO podcast where we dive deep into conversations about scaling a profitable DTC brand. I'm your host, Jon Blair, founder of Free to Grow CFO. We are the go-to outsource finance and accounting firm.

for eight and nine figure DTC brands.

Jon Blair (00:16)

All right, today I'm here with Alex Chiru He is one of the owners of Trubuilt Auto, one of our beloved Free to Grow clients. He also runs Vander Group, Vander Studios, I don't know, there may be other things, but Alex, what's up, man?

Alex Chiru (00:28)

Hey, what's up Jon? Nice to be here.

Jon Blair (00:31)

Yeah, thanks for joining. mean, look, the reason I wanted to have you on is because, mean, obviously we've been working with you, you know, as your fractional CFO for some time, but you also just have like a really deep background in the Amazon world. And, you know, we work with a lot of brands that are DTC first and launch on Amazon. We also work with Amazon brands who are Amazon first and then tried to come over to DTC. But I think Amazon is one of those channels where from a growth and brand building standpoint, man, there's just so many different agencies and contractors. I've personally had my fair share of like bad agencies and contractors give bad advice. And you're just the kind of guy that's like cut straight to the point, says it how it is. So I wanna talk a little bit about growing a brand on Amazon and get your take. But before we do that, can you just tell the audience a little bit about who you are and where you came from?

Alex Chiru (01:23)

Sure. So I started this journey back in 2013. I found it by accident through some friends. My first product was a complete fail. And then we started learning the algorithm and exactly the whole system and how Amazon works. And I started building different brands. sold four of

an agency which I exited and then right now we still have two other brands, another agency and on the side I started doing a ton of consulting for different big brands, for different aggregators, training their teams and in the last three to five years I would say I specialized more into

the SEO and the CRO realm of the Amazon algorithm. So usually I'm behind the curtains, but I've always been involved in the Amazon space.

Jon Blair (02:18)

Yeah, so mean, you've been doing Amazon for we'll call it like 13 years or something like that. I'm curious, like, I think a lot of DTC founders have misconceptions about selling on Amazon. What would you say is the top biggest, misconception that DTC brands have about selling successfully on Amazon?

Alex Chiru (02:39)

They are afraid that the moment they are going to jump on Amazon, their sales are going to drop on their website, which is completely untrue. They don't see Amazon as an extra additional channel to their business. And I've seen so many cases of that. In most cases, the Amazon customers are unique. They are completely different from your average DTC customers.

Jon Blair (02:52)

Totally.

Alex Chiru (03:04)

And they usually do not mix. Yes, you have a huge overflow of traffic. If you have a good DTC brand that's doing over 20, 30 million dollars per year. And that spillover will help you tremendously with the overall Amazon algorithm and what not.

Jon Blair (03:23)

Yeah, absolutely, because like, I mean, I see this time and time again, brands who are spending meaningful money on Meta on Facebook, right? And when you see that spend go up, you see all the traffic go up on Amazon, see sales go up. So I'm curious, like, if you've got a brand that's already got a meaningful DTC business, they've got meaningful Meta spend, if they want to launch on Amazon,

Alex Chiru (03:38)

Correct.

Jon Blair (03:50)

and they come to you, what are some of the first things that you're like, hey, we've gotta get this dialed to really capitalize on this traffic that you're driving through your Facebook spend?

Alex Chiru (03:59)

First of all, it would be understanding customer and seeing exactly how you can adapt that customer to the Amazon customer.

and optimizing for flow of traffic that they are getting. I still have that perfect example. I took a large DTC brand on Amazon three years ago. First year, we reached eight figures and we've been growing close to 60 to 70 % every single year because of that.

People should not sleep on this. This is a huge opportunity for most brands, especially for large DTC And they should jump on it immediately, in my opinion.

Jon Blair (04:39)

are the things that make for, or what are the factors that make for a successful brand on Amazon? Are there certain product categories? Is there something about the marketing that a DTC brand already has in place? Like what makes for a successful brand on Amazon?

Alex Chiru (04:57)

Any marketing that that successful brand has would have to be adapted for that specific customer for Amazon. it will have to speak to that specific audience.

And Amazon has already all the tools in place inside of Seller Central or anything to help you optimize for that specific traffic. So Amazon works in customer audiences because they shifted from the regular keyword search like it was two years ago. They shifted to intent-based search and customized experience. I had this case a few months back. I was on stage presenting and we did an exercise in the room where I asked...

all the people to search for a specific keyword on Amazon, for example, like headphones and to show and compare the results with the person next to them. Every single person had different results. So they are going after a very personalized search intent based on your browsing history, based on your purchasing history, based on where you are located, demographics, income and so on.

Jon Blair (05:58)

Wow.

Alex Chiru (06:13)

So the traditional keyword search is no longer, I mean it's still relevant but it's not enough.

Jon Blair (06:13)

So that's.

Yeah.

But it's not the same because like I, I, Guardian bikes, the brand that I helped start and scale. We, we start on Amazon about 2015, 2016. And I remember sitting down and, and working with our ad buyer on our first, like, you know, sponsored brand, you know, campaigns, uh, sponsored product campaigns. And it was all about keyword research. Right. And.

and dialing in the bid parameters to win the bid for that particular keyword. With this intent-based discovery, how does that change the ad buying strategy?

Alex Chiru (06:57)

huge expert in the ad buying strategy but that changes based on the customer that you are going after and for Amazon for the algorithm mostly everything that I've seen over the years everything comes down to three different factors it's basically relevancy click-through rate and conversion rate

Jon Blair (07:05)

Mm-hmm.

Alex Chiru (07:18)

If you manage to win all three you are going to do great on Amazon. Relevancy meaning everything that you are feeding to that ideal customer base in your listing from attributes, front-end, intent-based search and everything that you speak naturally to those customers is going to count in that relevancy

The click-through rate is mainly 95 % considered the main image of the listing and the first 90 to 100 characters of that title. And conversion rate is calculated what happens after people click on your listing.

In most cases, everything is based on the overall graphics and images and your offer. But right now, Amazon, well, right now for the past two years, Amazon has been tracking also the time spent, where are you spending that time, where your mouth moves, where your eyes move on that page, what are you clicking on, what are you most likely to look at, what are the bits and pieces of review.

that you are looking for, are you looking at the videos, you looking at the UGCs in the review section and so on. So it's calculating everything and it's always going to create the perfect customer avatar in order to show that listing furthermore to different customers.

Jon Blair (08:44)

That's fascinating. mean, it makes sense with all the proprietary data they have on their platform. Like, they should be heading in this direction, right? Because they just have so much more data than even the average D T C brand store. You can plug in all these different apps to try to capture some of the same information, but it's just totally different in the Amazon world, right? Especially when you have people going and buying, searching and buying stuff over a long period of time from different brands, different categories. You can really learn a lot about

Alex Chiru (08:51)

Yeah.

Correct.

Jon Blair (09:13)

a consumer. that's that's pretty fascinating. I did want to ask you because one thing that comes up all the time when it comes to brands trying to scale on Amazon is this dreaded like like two words ranking and momentum ranking momentum ranking momentum right explain a little bit about why ranking and momentum are so important specifically on the Amazon platform.

Alex Chiru (09:36)

So Amazon algorithm works in time buckets. They will start counting your relevancy in the marketplace on the platform from the moment you create that listing.

And the more wasted time you have, the more negative history you have on the platform, the more it's going to hurt you overall. That's why the momentum is so important. So the faster you can generate sales and bring conversions to your listing, the faster you're going to move through the rankings, the faster you're going to spread your listing across all the other relevant audiences.

And they are...

Ties together momentum with ranking. If you, for example, open a listing now that you're going to send in inventory in two months and inventory takes another one month to get there, by that time you already are looking at probably three months of negative history, which are going to be almost impossible to rewrite from an Amazon standpoint. You can still do that in not very orthodox methods, but

Jon Blair (10:32)

Yeah.

Alex Chiru (10:42)

But

it's not going to be as easy as sending traffic and conversions from day one. There are tricks to do to stop that negative history to accumulate.

It has different names, people are calling it a honeymoon period, I don't agree with that term, I don't think it's real that much, the way they describe it, it's just a momentum based relevancy and nothing else. The faster you can send conversions, the faster you're going to do,

Jon Blair (11:07)

does.

does product returns or customer returns affect either ranking or momentum? Does that impact it at all?

Alex Chiru (11:18)

Yes, calculates, well, it's not Amazon, it's Rufus who's calculating basically everything for that listing right now. So Rufus, Amazon has two

AI algorithms that we know of, they have a third one that's in the back end, but most commonly you will hear about the Rufus, which is your personal shopping experience, which is the front end for the customers, and you have Cosmo in the back end that's analyzing every single attribute, every single piece of information that you're feeding into your listing, and matching that with...

the customer base or the correct audience.

Yeah, so Cosmo is going to analyze all the customer returns, any refunds you are going to have, any negative feedbacks, any negative reviews, why you are getting those negative reviews. It's analyzing every single word, and based on that, it's going to penalize you. So...

Every single metric counts a lot more than it was two years ago. Before it was just standard SEO, keyword search, you were sending a ton of traffic, you were doing some rebates, giveaways, you were pushing through PPC and everything worked well. Now it's not like that. You need to be...

properly optimized for Rufus and for Cosmo in order to just to show up.

Jon Blair (12:37)

Interesting. I actually did not know what have you learned about those AI systems like Rufus and Cosmo? What have you learned about to work with them that has changed how you advise brands and what they do on Amazon?

Alex Chiru (12:55)

They are not as complicated as people think. We have full access to Rufus on the front end and you can just have normal conversations with it. You can just analyze whatever answers it's giving you. You can ask him why would you choose this product over this product.

and monitor exactly the answers that it's giving you. The moment you're searching for, let's say you're searching for a bed pillow, you can go on Amazon and ask Rufus, find me a bed pillow, and it's going to prompt, okay, are you a side sleeper, are you a back sleeper, or are you whatever sleeper there are?

It's going to ask you are you searching for next support? Are you searching for something else? And then it's going to prompt you different results. Those results are not going to be the best sellers in the marketplace. Those results are always going to be the most optimized listings for that specific So playing around with this...

Jon Blair (13:50)

Interesting.

Alex Chiru (13:55)

and analyzing what customers actually want and what actually love about that product. And that can be just a normal conversation with Rufus, just like a normal conversation with ChatGPT or Gemini. And you will know exactly how to optimize that listing with no issues. It's going to tell you exactly what it's looking for.

Jon Blair (14:14)

Wow. That's okay. So are you seeing by any chance? This just makes me think like, are you seeing any brands that have been on Amazon for a long time and like crushed it as like the top ranked brand? Are you seeing any of those get threatened by this new way of like delivering product recommendations on Amazon?

Alex Chiru (14:34)

There were a ton of brands that had that issue.

and I've been dealing with them every single month for the past years. And we've been optimizing constantly for this. Most of them have never touched their brands since 2015 because if that listing blew up, then why wouldn't we touch it? But now they are just losing momentum in the last two years and they cannot explain it properly. Now, the overall AI algorithm in the backend of Amazon are not fully, fully integrated.

Jon Blair (14:41)

Yeah.

Yeah, yeah, yeah.

for sure.

Alex Chiru (15:04)

but they are moving extremely fast, I think by the summer everything will be intent-based and you will have to be properly optimized in order to sell on Amazon.

Jon Blair (15:16)

Wow, that's pretty, so how does this shift connect with the PPC ad spend tactics that you carry out on Amazon? Does that change things for how to think about PPC on Amazon?

Alex Chiru (15:30)

It should, it's going to move into a more intent-based instead of the overall keyword-based search. But again, not a huge expert in PPC. I was some time ago, right now I'm just paying good people to do the same thing.

Jon Blair (15:50)

So I'm curious, even though you're not doing the PPC yourself, what have you seen with brands? So if you got a brand has a decent D T C business already, let's call it 10, 20, 30 million a year in revenue, they're spending significantly on Meta, they go to set up shop on Amazon, do you have any advice about how to think about whether or not spending significantly on the Amazon platform?

actually creates net new demand or not? And the reason I'm asking this is because I have a lot of DTC brands who debate this. Like, you know, it's our meta spend that's driving all the traffic. It's a waste to spend on Amazon also. It's kind of like the same debate. There's this same debate about spending on meta and Google and whether or not you're kind of like double spending on a customer. I'd love to know your advice on how to think about that with Amazon.

Alex Chiru (16:40)

Well, I've seen real examples where people believe that and they started cutting their spend on Amazon and suddenly their ranking just tanked completely. And they messed with the overall relevancy buckets when they did that. And it's very, hard to get it back on track. so Amazon is extremely reliant on the overall ad spend.

Even if you're searching a ton of traffic from the outside, from meta, from TikTok and so on, and ideally it would be to have a blend of traffic that's going into Amazon, not one single channel. Amazon still requires their ad spend to be done on the platform. It's going to increase your overall relevancy score and it's going to optimize your listing.

overall relevancy based on that as well. So spend, it will basically be the death of that brand in my opinion and I've seen it happen. If you have any examples of people not running any kind of ads that are doing amazingly on Amazon, I really want to see that.

Jon Blair (17:41)

Yeah, well, and I think...

Alex Chiru (17:41)

Unless

they are searching only through brand search and that's it. They are selling only through brand search but they are losing like over 60 % of their potential of that.

Jon Blair (17:45)

Well

why

I think it probably and you tell me if you agree with this it also probably Depends significantly on what else is happening on Amazon within your product category because even like let's just say even you're spending a bunch of money on Meta and driving a bunch of traffic I've seen this happen where there's a competitor that is spending on Amazon and what happens is they're converting a bunch of your Meta driven traffic because

because the brand themself is not soaking it all up. So they're not, they're not even defending their own turf. I have seen it work with very little spend. Now, by the way, this is an exception. This is not the rule. I know a couple brands that have like patents on a product that is very hard to copy, right? And because of that, there is like pretty much no competition. It's a, it's a hard thing to even cop for a Chinese, you know, manufacturer to even copy. And so,

Alex Chiru (18:18)

Exactly. Yeah. Correct.

Correct.

Yeah, but that's a

unicorn in the Amazon space.

Jon Blair (18:45)

Yeah,

but that's not the rule. That's the exception. ⁓ I'm curious to get your opinion on like, look, I can't stand all of the content creators out there that have these like hacks about scaling a brand. I see it all over the place and I'm like, that's, what they said is like half true, but the...

Alex Chiru (18:49)

Correct. Correct.

Jon Blair (19:09)

the real story is not actually uncovered in that content. What do you think are some of the biggest lies out there in like that content creators, Amazon gurus it sounds good and it's emotionally like a hook to people who buy their course or whatever, but it's just not true in reality.

Alex Chiru (19:29)

that this is a two hour per week job.

Jon Blair (19:32)

Hahaha!

Alex Chiru (19:33)

That's the biggest lie told to the system. I mean, you can get there, yes, 100 % once you build your team. You need to be on top of it every single day. I remember in the beginning I was working between 14 to 16 hours per day just to understand the system, just to find all the metrics. Yes, it's becoming much more easier now since they gave us access to...

the overall reports in brand analytics and so on. Well, it's been happening for the past few years. But before we were just flying blind with without any kind of data and we were relying on stolen Chinese data from different Amazon servers and so on. And most of Amazon tools are still relying on something like that.

This is a proper business that takes a ton of time and it takes a ton of testing until you make it right. And having someone that does that for living every single day helps a little bit. If not, it's like you are going to start Facebook ads today for the first time. Good luck.

Jon Blair (20:26)

sure.

Totally.

Yeah.

Well, I think, dude, I think what you're saying is applicable to all business. Like, I get really, really tired of content creators. There's this guy, there's this guy in LinkedIn. I see him all the time. I won't name names, but he's like, hey, stop wasting your time, like, working for the man. Instead, get an SBA loan and buy a laundry mat and work two hours a week. And I'm like, yeah, you can do that.

Alex Chiru (21:04)

Sure.

Jon Blair (21:07)

eventually, but I guarantee you at the beginning, this guy has like eight businesses, he's got a plumbing business, a laundry mat all this. I guarantee you it took a ton of time to build that. I'm also a real estate investor. I own 18 units. I worked my butt off to get that off the ground. Now that they're all rented and everything and I have property managers, does it take a few hours a week? Yeah, but I worked.

Alex Chiru (21:13)

course.

Yeah, exactly.

Jon Blair (21:34)

My wife thought I was crazy when I was building that portfolio. Same thing with Free to Grow. I worked 16 hours a day, seven days a week to get this off the ground. Do I now have a team in place and I focus on specific areas where I can add the most value? 100%. But there's just, there is no free lunch. It all takes work. But what's cool about an Amazon business is there's leverage, right? That over time you can...

Alex Chiru (21:37)

Exactly.

Crap.

Jon Blair (21:59)

build leverage to where you don't have to spend every minute doing all of the work. And so there's light at the end of the tunnel, but you do need to put in the work to get there.

Alex Chiru (22:05)

Great.

Correct, and it's not rocket science to train people to manage your business. So it's not something hard in my opinion, it's just something that takes a ton of time and a ton of strong will to make it in the Amazon space. I've seen so many people come and go and it's...

Jon Blair (22:25)

Totally, totally.

Alex Chiru (22:29)

And Amazon changed a lot. So since 2013 until now, I think I fought all the major battles that Amazon to us. And it was interesting.

Jon Blair (22:42)

Yeah. Well, man, I... I have a lot more grey now that I've been in e-comm for 12 years than before e-comm, right? But you know what? It... Yeah. man. look, I got one final question for you. I know you're not as much in the weeds necessarily on this side of Trubuilt Auto.

Alex Chiru (22:44)

to say at least. I had hair when I started, so yeah.

Because you're not doing Amazon, that's why.

Jon Blair (23:06)

But having worked with Free to Grow CFO, with your CFO Colson, and with my business partner Jeff, for you personally, what's been the most eye-opening thing or most valuable thing about bringing a fractional CFO into your business as you guys are scaling it?

Alex Chiru (23:24)

Understanding our real numbers was a huge detrimental shift that we had in the business and knowing exactly how fast can we scale because we scale that brand extremely fast. I mean, we scaled it in two and a half years to close to eight figures from not doing anything.

So understanding exactly the amount that we can spend and how fast can we grow, we actually had, as you know, we had to slow down the growth because the cash flow was not picking up. understanding all the cash flow cycles and everything that made a huge difference in our business. Huge. Massive.

Jon Blair (24:05)

Absolutely, yeah.

Alex Chiru (24:05)

and knowing exactly

different predictions where our business is going to be in the next 16 months, 2 years, 1 year, 6 months, so we know exactly how to plan properly and where to move our focus on.

Jon Blair (24:20)

Yeah, so it's interesting because counter intuitively working with you guys, we helped you determine to slow down the growth. Not because that's the only path. You could have kept going fast, but you would need more financing in order to keep up, right? And so you guys were able to decide, hey, look, with the financing we have available, we wanna stay within that for now, right? And so we were able to like figure out a

Alex Chiru (24:34)

Correct.

Jon Blair (24:47)

a more steady, slower, but still steady growth rate that you could finance. that's important. We helped you guys make, hopefully, a decision that was helpful to run the business within the constraints that you want to run the business. So, look, I got last question before we land the plane here. You got a DTC brand founder who's listening to this episode right now. They're considering launching on Amazon.

Alex Chiru (24:57)

extremely helpful. Yeah. Yes, 100%.

Jon Blair (25:11)

Give them a tip on what's the first thing they should go research before they decide to jump onto Amazon.

Alex Chiru (25:17)

They shouldn't even research, they should just jump on it because it's just going to be an additional channel without limiting their overall sales revenue that they have right now. And it's just going to build on that plus whenever they will want to exit that company because everybody's building it, most of people are building it for that, it's just going to count as a higher multiple if you are spread out across all the channels. It's...

I've been working with a ton of DTC brands over the years and representing them onto the platform. I've never seen one brand complaining that now their DTC sales have dropped because of Amazon. It's actually the other way around. They are just capturing the people who are not converting on their website.

Jon Blair (26:00)

sure I love it.

I love it, man. So listen to Alex, just get started, do it. Alex, where can people find more information about you, Vander Group, Vander Studio?

Alex Chiru (26:14)

Vandor Studio actually doesn't have a website right now because we are only working based on recommendations and we refuse a ton of brands in the last few months. But they can always contact me on my email address on LinkedIn and I promise we should have a website by the end of this month.

we've been growing in demand so we need to show something apparently.

Jon Blair (26:37)

Absolutely, I know you guys are crushing it over there, and Luis. We will drop your ⁓ information in the show notes when this episode launches, but Alex, I appreciate you coming on and talking shop, man. I appreciate you being real and to the point, and it's been great getting to work with you guys at TruBuilt Auto, and we look forward to working with you guys many years to come,

Alex Chiru (26:41)

Yeah.

Thank you.

same here.

guys just basically changed our business and you are going to be with us for sure until the end. I guarantee you that.

Jon Blair (27:09)

I love it man, I appreciate it. everyone, definitely give this one a listen a second time. Some really great tips in here. And like Alex said, just get started. Get going on Amazon. It can add a lot to your existing scale and profitability. And ⁓ I think that's a wrap for this one. Hope you guys enjoyed it. Until next time, scale on.

Jon Blair (27:28)

Don't forget, if you liked today's episode, please hit the subscribe button wherever you're listening and leave us a review. helps us reach more people like you. follow me, Jon Blair on LinkedIn.

And if you're interested in learning more about how Free to Grow CFO can help your brand increase profit and cash flows you scale, check us out at FreeToGrowCFO.com.

Mini Episode: What an Elite DTC CFO Can Do For You

Episode Summary

In this mini episode of the Free to Grow CFO podcast, Jon Blair breaks down the critical role of an elite DTC CFO in helping brands scale profit and cash flow. He emphasizes the importance of understanding the specific 'game' a brand is playing—whether it's high LTV, new customer dominant, or high SKU count—and how this influences financial strategies. Jon outlines the different requirements for profitability in each game and stresses that an elite CFO should provide strategic insights rather than just basic accounting services.

Key Takeaways:

• An elite DTC CFO goes beyond basic accounting tasks.

• Identifying the game you're playing is crucial for strategy.

• Each game has unique CAC targets and profitability requirements.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Free to Grow CFO - https://freetogrowcfo.com/

Transcript
00:00 Introduction to Elite D2C CFOs

00:20 Understanding the Role of an Elite CFO

01:17 Identifying the Game You're Playing

01:58 Strategies for Different Games

04:29 The Importance of Strategic Thinking in CFOs

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Jon Blair (00:01)

Hey everyone, welcome back to another mini episode of the Free to Grow CFO podcast, where I break down one key concept that will help your DTC brand increase profit and cashflow as you scale. I'm your host, Jon Blair, founder of Free to Grow CFO. We are the go-to outsource finance and accounting firm for eight and nine figure DTC brands.

everyone, I'm excited for today's topic. Today we're gonna talk about what an elite DTC CFO can do for your brand. What do I mean by this? Look, there's plenty of mediocre CFOs out there who can help you clean up the books or produce a P&L and say, hey, we made money or we lost money. That's all basic stuff. Elite CFOs help you determine the game that you are playing and based on that game,

hand you a playbook which can be customized to meet your profit and cash flow goals as you scale your brand. Okay, so here's the process that an Elite DTC CFO can help you with. One, determine which game you're playing. Two, based on that game, determine if you need to be first order profitable. Three, align CAC targets, product launches, and sales channel expansion with the game that you're playing. So what's all this talk about game?

What do I even mean? I mean, are you playing the high LTV game, the new customer dominant or durable goods game, or are you playing the high SKU count slash apparel game?

Knowing which game you're playing is incredibly important because each of those three games has different requirements on the need to be first order profitable, which means that your CAC targets are gonna be different for each game. And then as you continue to scale and your CAC increases, you're gonna have to leverage product launches and sales channel expansion tactics in a different order and to a different degree within each of those games. So,

This is a mini pod episode, so I can't go super deep on this. If you want to go deeper, check out the episode on this on my other podcast called the Ecom Scaling Show. But let me give you some examples. So the high LTV game is a game that can be determined by your CFO by looking at your margin data and the Shopify cohort model. Marrying those two things up can help a CFO determine, do you have meaningful LTV over a three to six month period? If the answer is yes,

You might be able to play the high LTV game and that game scaling new customer acquisition, aggressively increasing CAC, losing money on new customers, but making, your money back in a three to six month payback period as consumers repeat purchase. The second,

is the new customer dominant durable goods game. That's a game where you have no meaningful LTV over a three to six month period and probably not even meaningful LTV over a 12 month period. That means all your profit has to come from new customers, from first orders. That means you have to manage your CAC to ensure that you always turn a profit on new customers as you continue to scale ad spend and CAC goes up.

So some of the strategies in this playbook are making sure that you have sufficient gross margin dollars per order to cover CAC as you scale, to launch new products to manage CAC, and to expand into other sales channels like Amazon and physical retail to manage your CAC as you scale. This game works best when you have high gross margin dollars per order to cover CAC and turn a profit on new customers, and there's a very large TAM.

you're pretty far away from hitting the ceiling of that tam. the third game is the high SKU count or apparel game. This game typically, especially in apparel, you do have meaningful LTV, but it takes a long time to get it. People aren't repeat purchasing repeatedly in a supplements brand over a three to six month period. Instead, there's a long tail. You're getting repeat purchase coming back 12, 24 months.

from the month in which you acquire a cohort. That means you still generally have to manage your CAC and be profitable or break even on new customer acquisition, but you gotta keep driving that repeat purchase in order to really generate sufficient profitability. So this is a game of always launching new products, but having the right products in stock at the right time to capture returning customer sales. And there's a real art here, especially in the apparel world, to make sure you don't get

too long on inventory, too overstocked. what's the takeaway that I want you to leave from here? you haven't heard me talk at all about debits and credits, accounting, closing the books, or even just weekly cash planning. What we're talking about here is strategy. An elite DTC CFO will look at your brand, pull various data sets,

various analyses and say, hey, brand founder, listen, you're playing this game and here are the playbook options for that game. That is called strategy. And strategy is what you should be getting from your CFO. If you're not, you're working with a mediocre one and you need to make a change to someone elite so that you can reach your profit and cashflow goals.

The Ultimate DTC Scaling Superpower: EOS

Episode Summary

Hypergrowth is exciting — but it also hides broken systems.

In this episode of the Free to Grow CFO Podcast, Jon Blair sits down with Doug Schneider, COO of Heart & Soil, to unpack what it really takes to implement EOS (Entrepreneurial Operating System) inside a fast-scaling ecommerce brand.

Doug shares how Heart & Soil grew from zero to $70M in annual revenue — and why “successful chaos” eventually becomes operational debt. They break down the EOS tools that created real traction, including Level 10 meetings, scorecards, Rocks, and the IDS issue-solving process that helps companies make problems go away for good.

They also discuss the people side of EOS, why broken systems burn out good employees, and what founders should expect when implementing structure and accountability for the first time.

If you’re scaling fast and feeling the cracks, this episode is a roadmap for building an operating system that can actually support growth.

Key Takeaways

• Growth without structure creates hidden operational debt

• IDS is the difference between solving issues and recycling them

• Meetings should drive decisions, not storytelling

• EOS is a multi-year maturity process — not a quick fix

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/

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

~~~

00:00 Introduction to EOS and Heart and Soil

04:35 The Importance of Implementing EOS

09:06 Unlocking Potential with L10 Meetings

13:36 The Issues Component of EOS

17:55 People Management in EOS

22:23 Overcoming Implementation Challenges

26:57 Final Thoughts and Advice

Jon Blair (00:00)

Hey everyone, welcome back to another episode of the Free To Grow CFO podcast where we dive deep into conversations about scaling a profitable DTC brand. I'm your host, Jon Blair, founder of Free To Grow CFO. We are the go-to outsource finance and accounting firm for eight and nine figure DTC brands.

Jon Blair (00:17)

Alright, today I've got my buddy Doug from Heart & Soil back on the show. Doug, what's happening, man?

Doug Schneider (00:24)

Not a lot man, good to see you again.

Jon Blair (00:26)

Yeah, thanks for making the we're gonna be spending some time talking about some nerdy stuff. Some really awesome stuff. EOS.

For those you that don't know, EOS stands for Entrepreneurial Operating System. It's a framework for thinking about how to run your business. It breaks your business down into six key components, vision, data, people, process issues, and traction. And the reason I've got Doug back on is because Doug has taken on the endeavor, no small feat, of implementing EOS at Heart & Soil a rapidly growing ecom brand. And so,

is near and dear to my heart. I implemented EOS at Guardian Bikes. We run Free to Grow on EOS. I formerly was an EOS coach. So I was like, Doug, come back on the show and let's get super nerdy about what you guys are doing with EOS at Heart & Soil. So for those of you that want to hear the comprehensive background of Doug, go back many months to previous episode where he was first on. But really quick, what's the sound bite version, Doug, of who you are and what you do?

Doug Schneider (01:23)

So I'm COO of Heart & Soil and I've been here since day we've been operating for about five years now. We went, or a little over five years, and we've scaled from zero to 70 million annually in revenue in that time.

Jon Blair (01:40)

Amazing. Okay. So I, you, you said something really important, which is that you were there from day one. So like, I was also at Guardian Bikes from day one. And so was like the three of us on the founding team to eventually we're like, shoot, we got 30 people. What's the system we run this business on? Right? Cause it's no longer just the founding team calling each other on the phone or like, or just having conversations whenever we want. You got to keep all these people in the same loop.

And the business getting more and more complex. So going from the founding team that you were a part of to where you were when you decided to implement EOS, what were some of the things going on in the business where you're like, dude, we need a system.

Doug Schneider (02:19)

Well, it's like, so you basically, you're like a maturing child when you're first starting the business. And we went through, you know, for us, and I'm sure it was the same at Guardian, was like this period of hyper growth. It's like your teenage years, you're going through these growth spurts. And what's happening when you're going through this hyper growth, at least for us, was...

Jon Blair (02:24)

Yeah

Doug Schneider (02:40)

tends to create this like successful chaos where everything you're doing is working You don't really really understand why but you're accumulating like this debt kind of how I started to to look at it not a financial debt but a debt in systems and process where everything is working it's masking the fact that you haven't actually Developed those muscles to be able to really run a successful

Jon Blair (02:50)

Hahaha

Doug Schneider (03:08)

team. And what I also felt was that we had to transition from this like family vibe where everyone is in the same room and working together and kind of owning everything about the business to it needs to be an actual team and people need to have clearly defined roles and then you have clearly defined goals and KPIs and there needs to be accountability and everything needs to function together because as you grow and scale in people that becomes

more and more and more important because the drama that takes place when you don't have something that people can work within and succeed, it breaks them. And I had this quote that I got from, actually got it this weekend, it was this YouTuber guy that Dean, our CEO, showed me, guy named Ryan Deese. I thought it was really poignant for this discussion where he said that good people

Jon Blair (03:49)

for sure.

Doug Schneider (04:05)

Don't fix broken systems broken systems break good people and if it feels like you're operating in chaos and People are treading water and like they're drowning. I think a lot of people's first Instinct is to get more people into help But if you're bringing more people into a broken system You're actually going to break those people even if they're good people so it became really apparent to us about three and a half years into the business that we had to approach things differently and the different approach was implementing EOS.

Jon Blair (04:38)

So there's a lot of, there are a lot of different operating systems out there, right? Like I'm a huge nerd, so I've read about Scaling Up, there's StratOp, there's more than there needs to be. All of them have, in my opinion, overlapping similarities, and then maybe there's some tangential differences, right? That make it somewhat unique.

Doug Schneider (04:43)

Hmm.

Yep.

Yes.

Jon Blair (05:00)

for you in your exploration of like, what's the operating system that we use? Why EOS?

Doug Schneider (05:06)

Well, you're right that there is definite similarities at the core to all of these, which is, think they're getting to this core truth about human psychology in general and how we behave in groups and organizations and what is needed to actually be successful as an organization. But for me, I read this book, Traction,

Jon Blair (05:18)

Totally.

Doug Schneider (05:32)

Actually, while I getting my MBA, before I joined Heart & Soil, and... My MBA...

It was useful, but this was one of the most useful things I got out of the whole thing. was just one of my classes, they told me to read this. And I was like, man, there's some really good, practical stuff in here. I think it's just the fact that it hits at these unavoidable principles of how groups of people need to organize themselves to be successful.

Jon Blair (05:42)

For sure.

Totally, yeah, I agree with the overlapping principles being like, hey, this is just the truth. And so I've actually, the reason why I latch on to EOS, I also really love Scaling Up, but EOS is just simple and straightforward, right? Scaling Up has some complexities that I think make sense. like, and actually at the end, before I left Guardian, I had a sort of a quasi, mostly EOS, a couple things from Scaling Up.

Doug Schneider (06:15)

you

Jon Blair (06:27)

Like the daily standup was something from Scale Up and the monthly management meeting from Scaling Up. But there's actually a tight connection between the guy who started EOS and Vern Harnish who is the Scaling Up guy. They actually know each other and worked with each other in the earlier days. And the guy who started EOS was just like, I'm gonna make it basically a simpler version of this. like, yeah, I think that the way that EOS breaks down your business into six key areas, vision, people, data.

Doug Schneider (06:27)

Yep.

Jon Blair (06:53)

issues, process and traction or meetings is just super key and it's super practical, super actionable. It's not like super theoretical. It's like, no, I can just, I can go implement this in my business. So, what did, what was the most surprising? I guess, which of those modules, which of the seven modules was the biggest unlock for you at the beginning with, getting EOS implemented?

Doug Schneider (07:17)

Well, we...

So again, yeah, we were like you where it was a little bit of a hybrid, especially before we were like, we're going to really adopt things from EOS where we were creating our core values and we followed the methodology described in Traction. We had our three year vision, things like this. We adopted Rocks but when we really started to get really serious about it was when we adopted the L10 meeting structure.

Jon Blair (07:46)

Mmm.

Doug Schneider (07:47)

⁓

Jon Blair (07:47)

Yeah.

Doug Schneider (07:48)

and got a lot more serious about scorecards and accountability with scorecards and the scorecards are where the KPIs are housed and I think one thing that happens I alluded to the successful chaos that we experienced is it becomes really easy to hide and the KPIs when everything's working are maybe you know the accountability to those KPIs are maybe

ignored somewhat and we need to get a lot more serious about having it be really visible and having clarity across the whole organization to be able to have people be accountable to these numbers. And the other thing that we did that was really really important, the thing that was starting to break in our system was you started to have these different teams form up and you know have your marketing side, have your supply chain, you have for us we have research and development, we have customer experience and the way that those teams can work together with one another was becoming more more difficult ⁓ to create those arteries between the different teams to have the information and the collaboration be really smooth. And we used the L10 meeting structure and created, we actually did all of this in Asana

Jon Blair (08:50)

Mm.

Doug Schneider (09:06)

But we have L10 boards for each team our company where our leadership team can delegate different issues to be discussed by different teams. And everybody runs their L10 meetings the same way every week.

Jon Blair (09:19)

Yeah, okay, so me having implemented at Guardian and helped several other businesses implement EOS, it's interesting to see which module gets unlocks for the business in different seasons. And I'll say, to start,

Doug Schneider (09:32)

Yep.

Jon Blair (09:35)

that doesn't already have a clearly defined vision, which like, Heart & Soil has a pretty strong guiding principles before EOS. I'm sure you guys were able to sharpen those as you followed the template for building out your vision. But you guys, some brands haven't even really thought through any of that before, right? So that's usually where I see the first unlock when a brand doesn't have things like very clearly defined core values or reason for existing or clear vision on where they wanna be three, five, 10 years from now.

But the next place where I see the most, biggest unlock is the level 10 meetings, just like you're saying. And I think the thing about the level 10 meetings, for those of you that don't know, a level 10 meeting has a very specific structure. And it's a structure where at different teams, you do it at the executive leadership level and then at the functional team level. What you do is you share good news, you...

review your scorecard, which are the KPIs mutually agreed upon by the team. And each KPI has one owner, right? And there's a bar where you set it like on track or off track. So you review that, then you review headlines of how things are going with the team and going with customers. And then you, this is key, you review the to-do list you agreed to the previous week. That's accountability. This person said they were gonna get this done by this week. Is it done or not?

And then you dive into what's called the issues list. And I want to, I want to camp on issues in a second after this, but the issues list is a place where people on that team have parked issues on this list that the team prioritizes. This is the key. So many meetings get destroyed because you bounce around agenda items. Instead with an L10 meeting, you may have 30 issues on the issues list, but the team agrees these three are top priority and you work through those three first. Sometimes you don't get them all done.

If you do, then you choose the next three together. And so you're knocking out highest priorities. And then the last thing you do is recap and any to-dos that were assigned, you clearly recap. And again, those get reviewed at the beginning of the next call. sorry, the one thing I missed, which is important for issues is you do a quick rock review. Rocks are your quarterly goals. They have a single owner. They have a due date on track or off track. So what have we done in this meeting? We've checked on KPIs.

accountability and performance, right? We've checked on our goals on track or off track, accountability and performance. Accountability of did we get our action items done from last meeting that we said, and then the team prioritizes the issues to be solved and to-dos get assigned to make that issue go away forever. That is that in and of itself. I actually run every meeting with a quasi L10 like,

agenda, even if it's not an L10, I try to like ask myself, are there similar principles to cover in a, a like kind meeting? Cause you get what's most important done and you assign solutions, right? That someone owns and is supposed to carry out by a certain date. What, what did you find was the most valuable piece of L10 meetings when you first got it going at the leadership level?

Doug Schneider (12:42)

So.

I was the president of my fraternity when I was in college and we followed Robert's rules of orders to run all of our meetings. And all of our meetings had the same agenda and it was a very ritualistic thing and it's kind of similar to the way that the L10 is set up. So I really liked that ritualistic approach to the meeting and making the meetings really, really snappy.

One thing that I really liked about L10 that was an immediate benefit was before we were doing that, like you said, meetings tend to be like kind of storytelling sessions, a little bit meandering, and things tend to fall off. And you would catch yourself being like, you know, before L10, it's like, yeah, we said we were gonna do this or that thing. Wait, what happened to that? yeah, yeah.

Brian was supposed to do that. Let me go peek my head in the office, you know. And there's a lot of that where things will just fall off. But if it's important, it goes onto the L10 board and there's that accountability. And what happens is you hit it every week until it's done. And you're driving this accountability. not letting things fall off that are important because it's really easy to do when you're operating in chaos.

Jon Blair (13:40)

for sure.

Doug Schneider (14:03)

And so that was just an immediate benefit.

Jon Blair (14:06)

Yeah, and even

if it doesn't get done, like in a perfect world, action items or to-dos per the traction system technically should not have a due date beyond seven days. Now every once in it's not perfect. Like sometimes it doesn't, that doesn't make sense. Sometimes something doesn't get done. That's not really necessarily the issue or like it may take a couple meeting cycles to get something done just because of chaos.

Doug Schneider (14:15)

Yep.

Jon Blair (14:29)

But every week you have to answer to the whole team, I haven't gotten this done yet, right? And so things start getting done a whole lot faster. I want to talk next about issues because I've actually got in front of me this EOS training that I developed back in the day for, that I give to everyone who came to work at Guardian Bikes and anyone who comes to work at Free to Grow is like a high level overview of EOS.

Doug Schneider (14:34)

Yes. ⁓

Cool.

Jon Blair (14:53)

What I always used to say and still say to this day is like, Hey, the weirdest thing probably are the about EOS that you've probably never encountered before is this issues thing. Right. And why? Cause most organizations suck at solving issues. And furthermore, there's no systematic way that they solve issues. tends to be ad hoc. Right. And, and so the issue side of EOS is all about having a system for

Doug Schneider (15:14)

Right.

Jon Blair (15:20)

solving issues. Can you talk me through like how that has improved Heart & Soil as a business? The system behind issue solving?

Doug Schneider (15:29)

Yeah, so the issues list goes through what's called IDS, which is identify, discuss, and then solve.

That is the system for getting working through an issue and with the I identify you're just clearly stating and we document this. What is the issue? And it's a very, very simple statement of what the issue is. And then when we discuss what we're doing is we're aiming for the root cause of the issue every time. That's what the discussion is around is identifying what is the root cause of the issue. And once you've got clarity, on those two things. First off, needs to be an important issue. It needs to actually be an issue. So you need agree on that. Then you need to discuss what's the root cause of this. Because when you're talking about solutions, for me, I hate band-aids. I don't want band-aids. And if you're not getting to the root of something, the core of something, you're only going to create a band-aid. So when you're coming up with solution for an issue, it needs to solve that root cause of the issue. So it's just working through

Jon Blair (16:10)

for

Totally.

Doug Schneider (16:34)

in that way. Identify it, is it really an issue, what's the root cause, what's the solution for that root cause, and then you go execute.

Jon Blair (16:42)

Well, and so there's a couple things I want to add to that. When you read that chapter in Traction, it talks about the way that they define the purpose of the issues component of EOS is that you have a system for knocking down issues and making them go away forever. And so many organizations that maybe do systematically solve issues don't make the issue go away forever.

Doug Schneider (16:59)

Yes. Yes.

Jon Blair (17:07)

quite often time, it's usually one of two reasons. One, you didn't get to the root cause. you, you solved a symptom instead of the cause. Two, you find the cause and you come up with a solution, but you don't have the accountability of who's going to do what to make it go away. Right. And so usually the solution is either a group

Doug Schneider (17:13)

Yep.

Yes.

Jon Blair (17:28)

Like the group says, yes, we agree that the company is going to do this going forward. And it's more of like a PSA to the rest of the business. And no one has an action item other than that. This needs to be communicated and pushed down the org or one or a couple people have specific action items that they're assigned that go on the to-do list with a due date that get reviewed, reviewed on the next L 10 to confirm they got done. Because if they got done, then that issue should be knocked down and solved forever.

Doug Schneider (17:46)

Yep. Yep.

Jon Blair (17:55)

This is like, this is a game changer because I would say so often there's a lot of process issues within a business that I think break good people like you were saying. But I think one of the biggest things that I see time and time again is that good people are like, dude, we've known we've had this issue and then this issue and this issue and no one has solved it. It's never gone away. And so I'm finally done. I'm going somewhere else where they actually solve issues. Like I think this is probably one of the biggest ones.

Doug Schneider (18:06)

Yep.

Jon Blair (18:24)

that organizations screw up on. I wanna ask you about the people side, because the people side is so huge in EOS. Can you walk me through the people side of EOS and how you implemented it at Hard and Soil?

Doug Schneider (18:34)

Yes.

So this is one of the areas where we actually took borrowed from.

We actually borrowed from Common Thread Collective. in EOS, it's get it, want it, capacity to do it. The people side of the business as you grow, especially when you hit like 12, 15 people, it starts to rear its head as like this is an issue that's creating this cultural drag on the organization. This drama is causing problems.

You go from solving problems on the business continually to now suddenly you've got all these personnel issues that you have to go and address. We actually adopted something called the KEI, Key Employee Index. We got this from Common Thread Collective. It's similar to the People Analyzer where you are looking at each person on your team and you're putting them through basically a rubric

in your mind about how they're doing, like how they're performing. And this KEI system is really geared towards like the cultural side of our business and whether or not this person is creating drama attacks on the business and somebody that is, do we view them as a key employee? Because these people issues

they rear their head and it's like it becomes like a garden where you have to tend to this garden continually or it will become overgrown and will become chaotic and the good people like you talked about what they want is they want to be productive they want to be contributing and they want to be progressing in their career and if you don't have your brand your business set up for good people

to come in and do that, then those people will become frustrated. They'll start to, you'll get some alternative narratives being spun up over here on this team about what the reality is. sometimes you're like, how did these people come up with this? it's something that, it's like human nature, it will happen. And it happens with good people too. Where if you don't have your business set up for them to be productive and succeed and to progress, then they will be

come dis satisfied and frustrated, it's really important to actually take it seriously and have a way to analyze the people on your team.

Jon Blair (21:08)

Totally,

yeah, and you brought up a couple of really important things, right? Like there's this framework within the people side of EOS where it's like, you know, at the highest level, do you have the right people, fit, core values fit, and do you have the right people in the right seats? And the right seats are like, what do they own? like you mentioned, do they get it, want it?

Doug Schneider (21:20)

Yes.

Yep.

The right seat, yep.

Yes.

Jon Blair (21:32)

and have the capacity

Doug Schneider (21:33)

Yes.

Jon Blair (21:34)

to do it. One thing I'll say about GWC that's really important that I always remind our team of is that GWC, so there's a bar for like the core values fit. Like someone could be a little bit below the bar and be told that they're below the bar and they can bring it back up. They can develop on GWC as well. It's your discretion of how much you want to allow the development, but G.

Doug Schneider (21:50)

Yes.

Jon Blair (21:57)

WC is actually a multiplication, G times W times C. So if any of them is a zero, it equals zero. And that's important because someone can get it, want it, not have the capacity to do it, and they're not in the right seat. Someone can have the capacity to do it, really want it and not get it, and they're in the wrong seat. so like remembering that you have to have all three of those, you can't have two out of three, you have to have three out of three.

Doug Schneider (22:03)

Yep.

Right.

Yes.

Jon Blair (22:23)

One thing that I want to ask you about is, one thing that I notice as an EOS coach is a lot of founders that want to get EOS implemented get overwhelmed by how much there is to implement. What's the wisdom that you can provide to someone who's interested about how to get started and how to take bite-sized chunks over time?

Doug Schneider (22:36)

Yes.

Yeah, I mean, I think it's with any like book, business book, I think it's there's some people that will tend to want to go like whole hog right away. And that there is some in leading a business, there's science and there's art.

And that there is an art side to leading a business and you have to have a little bit of a feel for What people can handle and what is needed what the priority is and for us, you know If we've gone through this kind of typical progression where getting you know our core values and our vision and getting people rallied around that and then you know adopting this L10 structure and the scorecards and the rocks to get things into

a more systematic and more team oriented, instead of family oriented organization, like those were natural progressions for us. so I guess I would say is that it does take a little bit of feel and instinct.

Jon Blair (23:52)

Totally.

Doug Schneider (23:52)

Just to know like what is needed at what time for your business and that yes It can be very overwhelming for people and the other thing is that when you're doing this you will probably meet some resistance from people and Yes, yes, and and that you have to keep pushing

Jon Blair (24:08)

You definitely will. You definitely will.

Doug Schneider (24:15)

and you have to really, if you're going to do it, you have to dedicate yourself to doing it. And it really, did take us, honestly like a year and a half for it to really start to set in and become something that was part of the fabric of the company and something that everybody really understood and was working within.

Jon Blair (24:35)

Yeah,

I was going to say, I, from my experience, takes about two years for it to be a hundred percent done. And, and, and the thing is, I always tell founders like, listen, each piece, each module, there's six modules, each module you implement standalone will change your business. It doesn't have to be connected to everything else. It's great when it is all connected and it's done, but one module will change the way that you do.

Doug Schneider (24:42)

Yep.

Agreed.

Jon Blair (25:01)

do business and it actually kind of doesn't matter which one you start on in many ways. And so that's something to keep in mind. think another thing that you mentioned and the book talks about this a lot. I've read the book like five times. So like it talks about that this will smoke some people out, right? And, and, but you have to, you have to change your perspective instead of going like, damn, why won't this person get on board? What you have to do instead is say,

Doug Schneider (25:15)

Yes, it will.

Jon Blair (25:25)

Where is this person misaligned with what we've just defined this business is all about? Right. And then, and so your job at that point is to investigate, can we get, is it possible to get them aligned? Is it, and, sometimes the answer is no. And when the answer is no, you now have something objective to rest upon when you decide that person has to be removed. You probably have multiple things that are objective. There's probably things from multiple modules in EOS where you're like,

Doug Schneider (25:31)

Yes.

Yes.

Jon Blair (25:53)

We have remove you because of core values and GWC and the KPIs and you're, you know, like, so I try to take heart in it. It's, it's, it is, it is tough. I've, I actually think in every EOS implementation I've ever done, at least one person didn't make it in the long run. And there was usually some indication or gut feel of multiple people on the team that there was an issue with that person.

It couldn't be defined, but once you have the six modules in place, it's like, can clearly see what the issue is now. And so it also empowers you to replace that person with someone who fits all the frameworks, right?

Doug Schneider (26:24)

Right.

And what's nice about that too, Jon is that it's difficult when, it's very easy to form bad habits. Before you have the system in place, there's a lot of people that are forming bad habits, and it's hard to break, this is one of reasons why it's hard to implement, is you're trying to break some habits, and that's hard to do. And some people just will not come around. But when you're bringing new people in, and this is how it's done.

Jon Blair (26:42)

Mm-hmm.

Doug Schneider (26:57)

when they're brought in, you're creating those good habits right away. And so really, there's a hesitation sometimes, and we've gone through it too, where this person's been with us for a long time, but it's clearly not working out. You're trying to make it work, trying to make it work, but you finally have that person move on and you bring someone new in and you're sitting there saying, why didn't we do that a long time ago? I mean, this is working much better.

Jon Blair (27:01)

Totally.

Totally.

What else have we not covered that was like a surprising benefit from implementing EOS?

Doug Schneider (27:26)

Interesting. I think that for us,

This might be a different way to answer this question, but for us dreaming up how to really integrate it with our project management software that we were already using, and we were using Asana, and coming up with a ⁓ really nice and interesting way to customize what we were doing in Asana for EOS, and then having that get wrapped into the way we were already going about our collaborative work.

Jon Blair (27:40)

Totally.

Doug Schneider (27:57)

within Asana but like running that whole system through Asana was like that for me was kind of rewarding because I went in and and and built that out and came up with a way to do this the L10 the scorecards the rocks and everything live in Asana and all this work being divvied up and collaborated upon within the software that we were already using so I actually think that looking at your tech and using some of these, whether it's scaling up or whether it's traction or EOS or something else, getting creative with how you integrate your own tech stack into or bring that system into your tech stack with your team was rewarding for us.

Jon Blair (28:44)

Totally.

I was like trying to hold back a huge smile because I was the COO at Guardian Bikes and like, we ultimately ended up implementing this in Asana as well. And we have multiple L10 boards in the Free to Grow Asana but I'm smiling because like as a COO, there's like this very nerdy satisfaction of like, there's an integration between tasks and the higher level.

Doug Schneider (28:50)

Yeah.

Nice.

Jon Blair (29:09)

like outcomes that we're trying to build, right? All in the same system, not in disparate systems. I would say that is the hardest job of like a COO. Like I think most, a lot of times people think of COO, like, you know, think about supply chain. They think about like making the product, moving and shipping the product. But like the hardest job of a COO in my opinion is like overseeing that the act, the activities in the business are

Doug Schneider (29:11)

Yes.

Yep.

Jon Blair (29:33)

driving towards the big objectives that the CEO and visionary has created, right? That's the hardest job. The job of the EOS integrator is like, I mean, I was the integrator at Guardian, I will say, I learned a ton and it was great, but it's not a job for the faint of heart. It's quite possibly the hardest job on the leadership team in many, many ways. I know I'm maybe somewhat biased, but I really think it's the hardest job on the team.

Doug Schneider (29:39)

Yes.

Well, it was interesting because what happens is, and this happened for me, where...

As we were growing as this business, like I mentioned, going from teenager to adult, my role switched from being really heavy on external operations and getting our supply chain and everything in our business model kind of working and humming from an external point of view to now the internal operations of the business started to become, it was apparent that that needed a lot of work. then, so it switches to how do we work as an org?

and that transition from looking at external operations to internal operations and making sure that those are working effectively for our team so that we can ultimately service our customers, that was part of that transition.

Jon Blair (30:48)

Totally. We didn't even get to scratch the surface, but that's okay. EOS you could talk about for hours, but this is a really good actionable stuff. What I want to leave everyone with is to remember that like, it may feel insurmountable or like too much, but if your business is growing really fast, this kind of work, working on EOS one module at a time, it is some of the most worthwhile work you could do in your business.

Doug Schneider (30:51)

Yeah.

Jon Blair (31:12)

It's totally worth it. Have a long-term mindset because it's going to happen over the course of we'll call it a couple years, give or take. but just enjoy the journey because it really, really makes a difference. Like Doug, what final thoughts do you have for someone who's listening right now? And is like, Hey, this piqued my interest. Like what, what are the final thoughts you have for them?

Doug Schneider (31:29)

Right.

Yeah, think listen to your gut because if...

If you are experiencing this chaos and this dissatisfaction on your team, your gut is probably telling you, and you're trying to push it to the back of your head and ignore it and pretend like you can just be this small group of people that are creating this great stuff and doing it all in the same room forever, but you have to move on, you have to become an adult. And that there has to be scalable systems and that EOS is one that

as these core principles of how groups of human beings work best together when they're a part of a team. So I think that pick one, stick to it, listen to your gut about what is needed and when, and then do it and really, really, and don't be afraid to make changes. I think with any system, I always tell my people, hey, if a system's breaking, start from scratch, always start from scratch.

be afraid to start from scratch and get it going.

Jon Blair (32:35)

advice, man. I appreciate you taking time out and look forward to hanging out sometime soon,

Doug Schneider (32:40)

Yeah man, thank you. Alright Jon, thanks man, it was fun.

Jon Blair (32:43)

Don't forget, if you liked today's episode, please hit the subscribe button wherever you're listening and leave us a review. It helps us reach more people like you.

Also, if you want more tips on scaling a profitable DTC brand, follow me, Jon Blair on LinkedIn. And if you're interested in learning more about how Free to Grow CFO can help your brand increase profit and cash flows you scale, check us out at to freetogrowcfo.com.

BONUS EPISODE: Ecom Scaling Show: How To Use A Variable Costing P/L And Why It Matters (Ep. 10)

Episode Summary

Welcome to the Ecom Scaling Show, brought to you by Free To Grow CFO and Aplo Group! Join hosts Jon Blair (Founder, Free to Grow CFO) and Dylan Byers (Co-founder, Aplo Group) as we dive into the crucial—yet often missing—link between marketing and finance in DTC e-commerce.

In Episode 10, Jon and Dylan dive into the critical importance of structuring the chart of accounts for DTC brands. They emphasize the necessity of a variable costing P&L to understand contribution margins by sales channel. Learn about pitfalls related to vertical chart structures and misallocation of fixed costs, and why accurate data tracking and sales channel segmentation are essential. By the end of this episode, you’ll gain key insights into optimizing your P&L for more accurate forecasting and better financial management.

Key Takeaways

• Overhead allocation can distort profitability assessments.

• Contribution margin dollars should be the primary focus.

• Multi-channel businesses face unique challenges in profitability analysis.

Episode Links

Free To Grow CFO: https://freetogrowcfo.com/

Aplo Group: https://www.aplogroup.com/

Jon Blair on Linkedin:   / jonathon-albert-blair  

Dylan Byers on Linkedin:   / dylan-byers-046010149  

Transcript

~~~

00:00 Introduction and Importance of Restructuring the Chart of Accounts
00:18 Episode 10 Kickoff and Today’s Topic
00:53 Challenges with Current P&L Structures
03:31 Practical Issues in P&L Analysis
05:17 High-Level Chart of Account Strategy
09:32 Forecasting and Cost Allocation
17:32 Sales Channel Segmentation and Data Tracking
25:11 Final Thoughts on P&L Structure
27:12 Episode Conclusion

Mini Episode: The E-commerce Gold Rush is Over

Episode Summary

In this mini episode of the Free to Grow CFO podcast, Jon Blair discusses the end of the e-commerce gold rush and the shift towards sustainable business practices for DTC brands. He emphasizes the importance of profitability, the role of a great CFO in executing wealth-building strategies, and the need for control over business operations and personal wealth creation. The conversation highlights the transition from a speculative market to one that rewards discipline and effective execution.

Key Takeaways:

• Profitability is essential for survival in the current market.

• Brands must focus on sustainable growth rather than rapid scaling.

• The era of easy money has passed, but disciplined wealth creation is possible.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Free to Grow CFO - https://freetogrowcfo.com/

Transcript

00:00 The End of the E-Commerce Gold Rush

02:17 Building Sustainable DTC Brands

03:58 The Role of a CFO in Modern Business

05:45 Strategic Wealth Creation for Founders

~~~~
Jon Blair (00:00)

Hey everyone, welcome to another mini episode of the Free to Grow CFO podcast, where I break down one key concept that will help your DTC brand increase profit and cash flow as you scale. I'm your host, Jon Blair, founder of Free to Grow CFO.

We are the go-to outsource finance and accounting firm for eight and nine figure DTC brands. All right, so today I'm talking about the e-commerce gold rush being over. That's right, the e-comm gold rush is over. And let's face it, that's a good thing. Here's the thing, from 2020 to 2022, e-comm lived through a market anomaly. Ad costs were cheap, demand was artificially inflated.

Capital was abundant and forgiving. Valuations were detached from profit and cash flow fundamentals. Brands were basically rewarded for speed and not durability, for top line growth and not profitability, for financial storytelling, not cash flow generation. In that environment, I saw a dangerous belief take hold and that was, hey, let's launch fast, let's scale hard, and let's exit at a 10X EBITDA multiple or even worse, I saw 10X revenue multiples, not even need to generate EBITDA. And let's do that before reality catches up. For a small percentage of founders that worked, but for most it didn’t.

And now, post-COVID, post-zero interest rate policy, post-easy money, we're back in a very different era. One where the rules that governed wealth creation before the bubble are once again the rules that matter. Here's the thing. The COVID ecomm boom was an asset bubble. That doesn't make it evil, but it does make it temporary.

Asset bubbles reward timing and luck. Enduring businesses that withstand the test of time reward discipline and execution. Building a DTC brand today is no longer about finding the next arbitrage. It's about mastering a proven, boring, highly effective formula, which is the way that great businesses have been built for thousands of years. What is that formula?

It's one, building a business on a foundation of profitable unit economics.

Two, scaling that unit level profitability to create company level profitability.

Three, optimizing your balance sheet to create distributable cash flow.

Four, distributing cash flow to owners.

And five, taking that cash flow and investing it in buying assets, things like stocks, real estate, and other businesses.

This is not a Vegas gambling strategy. This is not rolling the dice on an exit. This is how business owners have built wealth for hundreds, even thousands of years, long before Shopify, long before Facebook ads, and long before private equity roll-ups existed.

So post-COVID, why are so many brands struggling? Brands are struggling not necessarily because they're bad operators. They're struggling because they optimized for the wrong scorecard during COVID. When capital was cheap, brands could lose money on new customer acquisition, over-invest on inventory, and ignore cashflow. They could also assume that future scale would just fix today's losses.

That only works when someone is willing to subsidize your mistakes, which the private capital markets were willing to do during the COVID era. Today, no one is willing to do that.

Rising CAC, tighter capital availability, slower consumer demand, and consumers that are much more rational in their purchasing online, that means that profitability is no longer optional, it's the price of admission. And not just profitable someday, profitable at the order level, profitable at the contribution margin level, profitable in cash, not just on paper.

So in the post-COVID era, how do you execute on building a financially stable business? Well, one way is by bringing in a great CFO. A great CFO is not brought in to clean up the books or prepare for an great CFO helps you execute the wealth building trade. Things like turning marketing into a predictable profit engine, understanding true new versus returning customer profitability, making inventory a cashflow accelerator instead of a risk, structuring growth so as you scale, margins actually improve, and ensuring the business funds the owner, not the other way around. So important. When this is done correctly with the help of an expert DTC CFO, this approach increases your optionality. And yes, it often leads to a healthier exit at a stronger multiple later on.

But here's what it does not do. It does not bet the entire future of the business on a single outcome. You win either way.

Final point I wanna make is why hoping for an exit is not a strategy. Building a brand solely to exit is basically gambling, it's speculation. Building a brand that throws off cash flow, compounds profits as it scales, and strengthens over time, that's strategic investing.

And ironically, it's this second approach that's far more attractive to buyers.

But that's not even the real point. The point is running your business this way gives you control. Control over your destiny, control over your cash, control over your risk, control over your timelines, and most importantly, control over your personal wealth creation.

So the last thing I'll leave you with is how does Free to Grow CFO fit into this equation? At Free to Grow CFO, we don't sell financial hype. We don't sell shortcuts. And we don't sell exit prep as a substitute for building a business with profitable economics. We help DTC founders see their business clearly, fix what's actually broken financially, build their profit intentionally, build a cashflow generating machine and use their brand as a long-term wealth vehicle. If an exit happens one day, it's a byproduct of doing these fundamentals right, not the reason you exist.

The era of easy money is over, but the era of disciplined, profitable, founder-owned wealth creation is very much alive, and Free to Grow CFO would love to help you on that journey.

Here Are The Places Your Books Are Broken (And How to Fix It)

Episode Summary

Most founders rely on the P&L to run their business. The real risks—and the real truth—live on the balance sheet.

In this episode, Jon Blair sits down with AJ Stockwell, founder of Climb CFO, to break down how messy books quietly distort cash flow, margins, and decision-making in growing DTC brands. They unpack the most common red flags they see in cleanup projects—from cash-in-transit and merchant clearing errors to inventory mistakes that make gross margins meaningless.

This conversation gives founders a practical framework for knowing when a cleanup is necessary, how to think about the ROI of fixing historical financials, and why accurate balance sheets are non-negotiable once a brand starts scaling or pursuing outside capital.

What You’ll Learn

• The #1 red flag that signals revenue and cash are likely misstated

• Why the balance sheet—not the P&L—is the fastest way to spot broken books

• Why inventory is the hardest account to clean up (and the most dangerous to ignore)

• The difference between light cleanups vs. heavy cleanups—and how to evaluate ROI

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

AJ Stockwell- https://www.linkedin.com/in/ajstockwell/

Free to Grow CFO - https://www.freetogrowcfo.com/

Climb CFO - https://climbcfo.com/

Meet AJ Stockwell

AJ Stockwell spent a decade as the CFO and Controller of numerous e-commerce brands, both in-house and on a fractional basis through his firm Climb CFO. More recently, he has shifted his firm's focus to accounting education and helping businesses clean up their books rather than providing ongoing CFO support.

Transcript

~~~

00:00 – Intro: Why Most Founders Miss the Real Financial Problem
02:35 – The #1 Red Flag: Why the Balance Sheet Matters More Than the P&L
05:50 – Merchant Clearing Accounts & Undeposited Funds Explained
07:00 – How Broken Balance Sheets Create Broken P&Ls
12:30 – Inventory Mistake #1: Zero Inventory on the Balance Sheet
13:45 – Inventory Mistake #2: Same Balance All Year Until December
17:45 – How to Rebuild Inventory History When Data Is Incomplete
18:45 – Light Cleanup vs. Heavy Cleanup: How to Think About ROI
20:15 – Why Lenders Start With the Balance Sheet (Not Your Story)
21:35 – What Founders Must Provide for a Successful Cleanup Project
22:50 – AR, AP, and the Working Capital Blind Spot
24:10 – Why “No AP” Is a Bigger Problem Than You Think
25:20 – Final Advice: When It’s Time to Stop Guessing and Clean the Books
26:10 – Where to Find AJ & Closing Thoughts

Jon Blair (00:00)

Hey everyone, welcome back to another episode of the Free to Grow CFO podcast, where we dive deep into conversations about scaling a profitable DTC brand. I'm your host, Jon Blair, founder of Free to Grow CFO. We are the go-to outsource finance and accounting firm for eight and nine figure DTC brands.

Jon Blair (00:16)

Alright, today I'm welcoming back my buddy AJ Stockwell. AJ, what's up, man?

AJ Stockwell (00:21)

Hey Jon, not much earlier.

Jon Blair (00:22)

Dude, doing well. For those of you who haven't listened, AJ was on the show, I don't know, probably several months ago, we talked all things e-commerce, bookkeeping. If you haven't listened to that episode, definitely go back and check it out. But AJ, for those who didn't hear that episode, can you tell everyone briefly who you are and what you do?

AJ Stockwell (00:40)

Yeah, absolutely. So I'm AJ Stockwell. I run Climb CFO, which is an outsourced bookkeeping and accounting firm, similar to Free to Grow CFO. And I started Climb CFO about six or seven years ago now after I had spent four years at an e-commerce brand as the first accounting and finance hire. So building out that function, helping grow the company from nine million in sales.

to 150 million in sales, at which point we went through a merger and then I left the brand to start my firm.

Jon Blair (01:15)

Yep. And a short blip on the timeline. He also worked with me at Guardian Bikes, ⁓ fractually as a controller, which is where we originally met. And fast forward to today, we also worked together on some mutual clients and specifically around what we're going to talk about today. Cleaning up the books. In the e-comm world, we come across cleanup projects all the time, but this is also more generally an issue.

across all businesses in the lower to middle market. There's just a lot, there are a lot of people who either don't take bookkeeping seriously in the first place or work with a bookkeeper and they don't realize that that bookkeeper doesn't necessarily fully understand the end product that needs to be created for various compliance issues as well as management decision making. And so AJ and I and our firms have come across numerous instances in which we need to help brands clean up several months or sometimes even several years worth of messy books. And so we're going to help get to the bottom of what some of the most common issues are and practices for cleaning these things up. And the hopes are that you as a founder of a brand can spot some of these red flags so that you know, if you might need to go to a professional to get your books in order. So, ⁓ AJ, to start, I want to ask from your

What would you say is the top most common sign that you come across that a brand's books are a mess?

AJ Stockwell (02:42)

So the number one sign, the first thing that I look at is the balance sheet. I actually don't spend much time early on in the scoping process for a cleanup project on the P &L and am really focused on the balance sheet. And I think one of the first places to look is the cash balances. So the various bank accounts, but also accounts like clearing accounts for merchant processing.

Jon Blair (03:01)

Mm.

AJ Stockwell (03:08)

⁓ and the account in QuickBooks that's called undeposited funds, or some people see it as payments to deposit, is also technically a cash account. But if I get a bank statement and then I look at the balance sheet and they're nowhere near each other in terms of that cash balance, that's a pretty early sign that things are probably a bit of a mess.

Jon Blair (03:12)

Ha

Yeah, it's funny that you mentioned that because I think like everyone as a general statement, brands tend to be really, really familiar with or infatuated with or focused on the P&L, right? But the balance sheet usually tells the story of whether or not there are issues on the P&L because if the P&L is incorrect, generally speaking, there are multiple places on the balance sheet where you can see why the P &L is incorrect. I wanna go to the cash and transit piece because this is one of the first areas that I always look at too when I'm scoping out accounting engagements. I don't think this is super, I don't think a lot of brand founders necessarily realize why until we explain to them the cash and transit piece can be a red flag or an indicator that things are done right. Can you speak specifically why especially in the e-comm context, why cash in transit is so important to nail and get right, especially as it relates to those merchant cash sweeps that go from payment processors back to your bank account.

AJ Stockwell (04:28)

Yeah.

Yeah, definitely. So the biggest concern that comes up there is that if there are issues with that account, very often revenue is going to be incorrect. So it might look like the that cash in transit is overstated. Maybe you're looking at a really high balance that you know doesn't really make sense. And if that's high and then your balance sheet either or your bank account is also high or is about right.

you know, that's a good sign because you're probably duplicating cash then between those two accounts and most likely what's going on there is going to be duplicated revenue. But there's also so many other things that go through the merchant account and those clearing accounts and accounts in transit. So things like sales tax that you want to be making sure that you're recognizing, you know, if you collected them or collected sales taxes and are

Jon Blair (05:13)

Yeah.

AJ Stockwell (05:24)

accruing them as a liability. Also, things like the fees that you might be paying because, you know, Shopify generally takes the fees as they're transferring to the bank account. So one cause of an overstated, you know, cash in transit account in this case could be that the brand has forgotten to record their merchant fees. So that's also going to be a misstatement on the P &L.

So there's all kinds of things that are going through that account that make it important to nail.

Jon Blair (05:55)

Totally.

I'll even say, I still continue to be surprised how many brands balance sheets I don't even see merchant clearing accounts at all. that almost 100 % of the time means that the net payout that's getting transferred from the payment gateways to your bank account is all just being posted straight to one net revenue number. And the big issue with that is that one, it's.

AJ Stockwell (06:05)

Right.

Right.

Jon Blair (06:20)

Some of that revenue is in the wrong period because it's based on the date that it hit your bank account, not the date that the sale or the revenue should be recognized. And embedded in that is gross revenue, refunds, discounts, maybe shipping income merchant credit and credit card fees, and then sales tax collected. And so that's by far the most common thing I find. So if you have, if you get with a brand, you review their balance sheet, you review their P&L and you say, Hey, like this, this

AJ Stockwell (06:37)

Sales tax, yeah.

Jon Blair (06:47)

These books need to be cleaned up. What, when you think about scoping out the areas that need to be addressed in a standard or a typical ECOM cleanup project, what are those from kind of like most important to, they're all important, but what's the most, start with the most important, go to the least important.

AJ Stockwell (07:02)

Yeah.

Yeah, so the most important back to the first red flag is the cash balances on the balance sheet. So the way that can think about it and an interesting framework that I like is that the balance sheets are really bookends of a period. So a beginning balance sheet, because the balance sheet is a point in time, right? It's what are those balances as of a point in time? And then the ending balance sheet.

Jon Blair (07:20)

Mmm.

AJ Stockwell (07:31)

And everything that happens in between is explained by the P &L and cash flow or the statement of cash flows. So generally, if you're very focused on the balance sheet, trying to make sure one that you have a correct starting balance sheet for the period that you're cleaning up. So if I'm cleaning up, you know, the year of 2025, making sure that that January 1st balance sheet or really, you know, December 31st of 24.

is correct and then getting all of especially the cash activity first or as know highest priority correct that helps you know probably 95 percent of everything sort of fall into place to some degree and then from there going down kind of the rest of the balance sheet you know AR and AP of course those clearing accounts I'm sort of including with cash and then getting down to other accruals, prepaid, fixed assets, things like that. But usually once you've got the balance sheets and the cash correct, the P &L somewhat falls into place, at least from an overall profitability perspective. And there might be some recategorization to be done with transactions that were posted to the P &L and making sure that those are fleshed out correctly.

Jon Blair (08:37)

Mm-hmm.

Totally.

AJ Stockwell (08:50)

But really, cleanup projects are kind of hyper-focused on the balance sheet.

Jon Blair (08:55)

Yeah, I learned this firsthand early in my career. This was like 13 years ago. I was going through a CPA review at a $50 million business that I was the controller for. And this was like a $100,000 project. Like we're, the CPAs billed 100K for this, this review. This is a review that was needed for a big bank facility that we had and a number of different licensing requirements at the state level.

And I remember this partner at the firm that was doing the review. He's this old guy had been a audit partner for longer than I had been alive at that time. And he was, he's a New Yorker and he's like, we just gotta make sure that the beginning and ending balance sheet has no fluff on it. And every balance is justifiable. And then we know the P & L it just falls into place. And I'll just never forget that for the rest of my life, you know? ⁓ and so that's what the audit was. The audit was.

AJ Stockwell (09:44)

Yeah.

Jon Blair (09:47)

meticulously justifying everything on that opening balance sheet and that ending balance sheet. What it doesn't take into account, there may be some expenses that are in the wrong expense line, but you can be reasonably sure that the bottom line profitability is correct. ⁓

AJ Stockwell (10:01)

Exactly. Yeah. And I also want to point out there's, there's a really interesting tension here, where, know, the balance sheet is the piece that's so crucial to really making sure that the bookkeeping is done correctly and cleanly. ⁓ but like what you mentioned earlier, many founders or business owners are really focused on the P & L and are almost never reviewing.

or certainly not with like a high level of detail reviewing the balance sheet. So there's an interesting sort of tension there and disconnect.

Jon Blair (10:31)

Totally.

So what is, in your opinion, I think I know the answer, but in your opinion, what's the hardest balance sheet account to go back and clean up historically?

AJ Stockwell (10:45)

That's gonna be inventory, I think is what you're expecting to say. ⁓

Jon Blair (10:46)

I knew it. Yeah, I knew it. Yeah.

I mean, but it just it just is right. ⁓ What what are some of the what are the most common reasons that you see that make it hard to clean up the balance sheet or the inventory on the balance sheet historically?

AJ Stockwell (10:52)

Yeah.

Yeah, so I'm glad you brought up or tricked me into bringing up inventory. Because this comes back to another big red flag when reviewing a brand's balance sheet for a potential cleanup is if the inventory position seems crazy. If I have any context about how much inventory they probably have. And it also goes to the disconnect between people not.

Jon Blair (11:07)

Hahaha!

AJ Stockwell (11:28)

paying attention to the balance sheet and only focusing on the P &L where brands can go years by costing out, maybe calculating a cost of goods, like an average cost for their product and posting that to the P &L while never reviewing the inventory position that they have on their balance sheet. So in that case, you you can obviously be over or understating it, but

Jon Blair (11:33)

Mm-hmm.

AJ Stockwell (11:53)

Ultimately, it comes back to getting the balance sheet correct to really understand your profitability because, you know, if you're not using the correct costs, then your gross margins on your P &L are going to be incorrect. And an incorrect balance sheet inventory position is the signal for that.

Jon Blair (12:12)

Okay, so there's a couple things I wanna build or I wanna like, I wanna build on here. One is, one common thing I see is no inventory on the balance sheet at all. I did an audit last week and there was, inventory was zero. And at first I was freaking out because they had negative equity on the balance sheet and I was like, oh my gosh, these guys have negative equity. like, this is gonna be really hard to like tell them like, you guys, can you get equity capital? I started digging in further and I was like, wait, inventory is zero.

So luckily once we, once I got with them and we talked about the estimated inventories, like, you have positive equity once we add the inventory back, right? But what's happening is cash basis cost of goods sold. They're expensing to COGS the amount they purchase or pay for in purchases in a given month, not the amount that is ⁓ aligned with the revenue in that month. But then the other thing I see oftentimes, and I know you see this too, same inventory balance all year long. And then

AJ Stockwell (12:46)

Yeah.

Jon Blair (13:06)

Maybe there's an adjustment in December. Right. And, ⁓ what I, what I tend to find is going on there is that there's a CPA who does the books, closes the books at the end of the year for the tax return. No one's doing any inventory accounting really throughout, throughout the year. They're doing it kind of on a cash basis throughout the year. And then at the end of the year, the CPA gets a physical count and writes up or writes down inventory to tie to that. And they do technically get close ish to,

AJ Stockwell (13:30)

Right.

Jon Blair (13:34)

what they need to file a tax return. But the issue is like, you don't know what your margins are on a month to month basis. So you can't assess performance. You have to only look at basically a trailing 12 month view to assess performance. like, I don't know any Ecom brand that's scaling that can wait 12 months to see how they're actually doing, right? ⁓ The other thing I wanted to add is that, and I'm curious to get your thoughts on this or your experience with this. Sometimes it's,

AJ Stockwell (13:51)

Right.

Right.

Jon Blair (14:01)

Or it's oftentimes easier to get on-hand inventory snapshots monthly going back than it is to get in transit or prepaid inventory snapshots going back. Can you explain a little bit about why it's key to be able to discern the value of what's on hand versus the value that you've had to recognize on the books but has not received yet?

AJ Stockwell (14:24)

Yeah, so with inventory there's usually a few moving parts, kind of the different categories that you mentioned, and it can be really important to track, especially depending on when the vendor is going to be billing the inventory. Because if the vendor is, for example, if a brand is importing their products from Asia, the goods might be on the ocean.

for weeks and the vendor might furnish the invoice as soon as the freight is sent out. So that can kind of clutter up the view on the balance sheet because you might be posting that AP, entering that bill against inventory and then not tracking that inventory is actually in transit. And then if we just get a snapshot of counts, and values for what's in the warehouse and we don't know that some of what's already on the balance sheet is still in transit as of, you know, when that snapshot was taken, then there's a good chance that we're going to be incorrectly adjusting inventory if it comes to adjusting. So I always think of inventory in several buckets. So one is, you know, what is at the warehouse, ready to ship out.

Jon Blair (15:36)

Totally.

AJ Stockwell (15:41)

what's in transit the factory, what's prepaid, so like hasn't been shipped by the factory yet, isn't on the way yet, but you have already maybe put down a deposit. then another key item that I think a lot of people overlook is inventory that's coming back from customers in returns. Because from an accrual basis, especially if you're a brand that's able to resell,

Jon Blair (16:00)

Yeah

AJ Stockwell (16:07)

most returned product, then if you're going to be recognizing a refund to the customer on your P &L, you wanna be showing inventory, basically going back into inventory, so like a reduction of cost of goods that same period so that you're kind of matching that negative cost of goods with the refund.

Jon Blair (16:29)

Yeah, so I think the moral of the story is if you're listening to this right now, just know that you internally need to be able to track more than one bucket of inventory in order to get the accounting right. Like whoever's doing the accounting can't just know these things. Like when we start working with a brand, a lot of times we're educating them the first time why prepaid and in transit inventory needs to be tracked separately.

And one of the things that we end up having to do, even if we're not doing a cleanup project and we're just taking over the books, is we'll go back into their purchases ledger. And this is imperfect. I'm going to be honest because like we thought that this was going to cover everything. And then we found this like edge case where it didn't, but like we go back 12 months into all their inventory purchases, download them to Excel and work with the brand to try to back into the beginning balance of prepaid and in transit inventory to go say,

What have all this stuff that we've paid for or entered bills for over the last 12 months? Do we not have as of the last balance sheet date and in it's never perfect, but if we get close, it distorts the P & L a whole lot less. And then eventually we start tracking it probably going forward. But one time, like a year after working with a brand, we had this weird cogs adjustment and we're going back and auditing prepaid and in transit and the founder was like, ⁓ shoot, I forgot. We made prepayments for the stuff we got this month. Like.

AJ Stockwell (17:29)

Right.

Jon Blair (17:49)

two and a half years ago before you guys were even around and we forgot to tell you about it. And so like, you can't capture everything historically, but what, but if you can get, if you can get as close as possible, right. You're going to have a much better baseline of historical data. ⁓ I want to ask you next about, cause I think this is really important. There is a lot of firm, there are a lot of firms out there who like cleanup projects cause they're just like, Ooh,

AJ Stockwell (17:51)

Wow.

Right.

Jon Blair (18:15)

I'm just going to charge an insane amount of money and they're not, it's not always clear whether there's ROI or there's not, or why you should pay. I have this opinion that there's a time for a light cleanup project and there's a time for a heavy cleanup project. That's much more accurate and much more specific. Can you walk through your thoughts on like thinking about the ROI of investing in cleanup and like how to think about when a bigger project might be worthwhile versus a smaller project.

AJ Stockwell (18:44)

Yeah, so thinking from the perspective of a brand that's just operating normal business and isn't looking to raise debt or equity or, you know, even sell itself, something like that, from just a pure operations perspective, I would say it depends kind of on the stage that the company is in and how fast it's growing.

Jon Blair (19:10)

Mm.

AJ Stockwell (19:10)

as well as sort of the capital intensivity of ongoing operations. a company is relatively matured and not very large and isn't growing like crazy and has like an intuitive founder who's, you know, always been able to run the brand well, then maybe a light cleanup will do. You know, maybe they're looking to kind of refine.

the numbers and margins that they're able to look at to assess kind of their performance and their financial standing. So they want to tighten things up a bit. And that's almost the only time that I think like a really light cleanup is appropriate. Any other time, you know, if a company is rapidly scaling, they really need to know where they stand and how their performance is going. Because, you know you're talking about needing to invest additional money in inventory, maybe starting to spend a lot more on ad spend, building out the team, and you really need to understand where the company stands order to make those decisions. And then when you get into a company that is looking to take on money, whether it's debt or equity, then it's kind of non-negotiable to have the books really buttoned up.

Jon Blair (20:25)

Holy.

Yeah. And like, let's take a lender, example, lenders, just like AJ was saying at the beginning of, this discussion, they go straight to the balance sheet. Like they started the balance sheet and then they actually oftentimes don't even go to the P&L. They go to the cashflow statement to see if they're, but the cashflow statement will be wrong. If the balance sheet is not accurate. Right. And, and so

They need to assess two things, that you have the cash flow to service the debt, to make your payments, and that you have the balance sheet to collateralize the debt, right? And so, it's really hard to get a lender comfortable, especially if you're growing really fast and you need a significant amount of debt capital and you expect it to grow over time, you've gotta have sound financials ⁓ from an accrual standpoint. What are...

AJ Stockwell (21:01)

Right.

Jon Blair (21:15)

Some of the other, actually let me rephrase that. If there's a founder who's listening and they're like, Hey, I, this is intriguing. I think I have some of these issues. I think I want to get into a cleanup project. what are some of the things besides inventory, which you've already talked about that they need to be prepared to provide and what, what, do they need to be prepared to participate in a cleanup project?

AJ Stockwell (21:37)

Yeah, so the next sort of important things comes back to and transit. So, you know, those sales and along with sales in general is understanding different sales channels, you know, because a brand might have their direct to consumer business. They might also have a wholesale business. They might have brick and mortar. So getting around or getting arms around

those different channels and accurate reporting for those is kind of a must. And then that cash in transit is a little bit like a receivable. So I'd say the next things are sort of AR and AP are really crucial accounts on the balance sheet to have correct. You need to know how much you owe to your vendors.

And then again, this can also come back to the inventory balance because very often, you know, a lot of AP is related to inventory. So if that's not getting entered, your inventory is likely understated or, you know, wrong in all kinds of ways. And then from there, it's just sort of working down the balance sheet. So if there are any fixed assets that a company has, you know, having some records.

Jon Blair (22:41)

Yeah.

AJ Stockwell (22:53)

kind of for those. Sometimes that stuff can also come from the tax accountant, but then also understanding any prepaid expenses, accrued expenses, and loans and various debt instruments.

Jon Blair (23:06)

one thing I was thinking about as you were just talking to, cause I just, this is fresh in my mind, an audit I did last week, the brand had $0 of AP on their balance sheet every month for the last 24 months. So that immediately told me cash basis recognition of all expenses and purchases. Right. And that may not seem like a big deal, but there's something, there's an issue.

AJ Stockwell (23:25)

Yeah.

Jon Blair (23:30)

in addition to just that those expenses might be in the wrong month. That's an issue, but there's actually, I think, a bigger issue, which is with no AP on each of your balance sheet snapshots, you can't do a proper working capital analysis. Because you can look at cash in the bank. Here's the thing, let me do it like, you could have a million dollars of AP, right, and $500,000 in your bank account, and that's probably an issue, right?

AJ Stockwell (23:44)

Right.

Right.

Great.

Jon Blair (23:57)

You could have $500,000 in your bank account and actually in reality only $50,000 in AP and that $500,000 may be a healthy cash balance. You cannot tell, right, unless we can see AR, inventory and AP balances. Obviously your other current assets and current liabilities should be up to date as well, but like when I see, I see that actually quite often and that usually just means that the bookkeeper is just.

⁓ expensing things as they come through the bank feeds instead of entering bills or trying to accrue expenses in the month where that expense actually benefited the business economically. So that's another thing for people to watch out for. well, we're going to have to land the plane in a second here, but I think there's a lot of really practical stuff. What would you say? What are you, any final thoughts that you have for a founder who's listening to this and is interested in potentially embarking on a cleanup project?

AJ Stockwell (24:25)

Right.

Yeah, I would say hopefully if you took anything from this episode, it's that the balance sheet really is crucial. And, you know, as a business is kind of starting up and as a team of small and founder led, you can often sort of run based on the bank account balance and, you know, founders who literally look at online banking to kind of make decisions. But as a

business scales, it's crucial to have that balance sheet dialed in to really understand, you know, where you stand and how you've performed. So I would say if you're a founder listening to this and you go to your balance sheet and you're like, this bank balance doesn't make sense. Or I have a crazy balance in undeposited funds or like a payment clearing account or in transit or something like that. Or I don't see

inventory or the inventory's way out of whack. Things like that are a signal that it's probably time to start looking into a cleanup. I also think it's never kind of too early and this isn't like a sales pitch, but I just think that like the sooner a brand lays the foundation of having accurate books and accurate financial statements and then especially gets into the habit.

of reviewing them and understanding them, the better positioned you are for success.

Jon Blair (26:12)

Look, I can say with a lot of conviction, AJ is the best in the business at these cleanup projects. I put my money where my mouth is. Our firm has partnered with him on more than one of these projects. So if you are interested in learning more, definitely reach out to AJ. AJ, where can people find more information about you and Climb CFO?

AJ Stockwell (26:30)

Yeah, so you can go to climbcfo.com or email me directly at aj at climbcfo.com.

Jon Blair (26:37)

This is a fun one, man. I really appreciate you coming back on and I look forward to our next conversation.

AJ Stockwell (26:40)

Yeah, absolutely.

Yeah, thanks for having me back.

Jon Blair (26:44)

Don't forget, if you liked today's episode, please hit the subscribe button wherever you're listening and leave us a review. It helps us reach more people like you. Also, if you want more tips on scaling a profitable DTC brand, follow me, Jon Blair, on LinkedIn. And if you're interested in learning more about how Free to Grow CFO can help your brand increase profit and cash flows you scale, check us out at FreetogrowCFO.com.

Real DTC Stories: Scaling Chubbies to $100m+

Episode Summary

In this episode, Jon Blair interviews Jon-Mark Craddock, the owner and CEO of La Matera, discussing his journey from being the first employee at Chubbies to running his own e-commerce brand. They explore the challenges of scaling businesses, the importance of proactive supply chain management, and the decision-making process behind self-fulfillment versus outsourcing. Jon shares insights on demand planning, financing through SBA loans, and the lessons learned as a business owner. The conversation emphasizes the need for adaptability and strategic thinking in the ever-changing landscape of e-commerce.

What You’ll Learn

• Adaptability is key to surviving as a founder.

• Self-fulfillment can save money but requires more time and effort.

• The importance of proactive problem-solving in supply chain management.

• Building a lean team can lead to operational efficiency.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Jon-Mark Craddock- https://www.linkedin.com/in/jonmarkcraddock/

Free to Grow CFO - https://www.freetogrowcfo.com/

La Matera - https://lamaterashop.com/

Meet Jon-Mark Craddock

Jon-Mark Craddock is a seasoned ecommerce operator and the current owner and CEO of La Matera, a premium accessories brand known for its handcrafted belts that blend South American craftsmanship with timeless design.

With well over a decade of experience building and scaling consumer brands, Jon-Mark got his start as the first employee at Chubbies Shorts and later held key roles at Marine Layer and Tuckernuck—three names very much known in the DTC space.

Today, Jon-Mark leads La Matera with a focus on capital-efficient growth, operational excellence, and timeless brand storytelling. Under his leadership, the company has sharpened its supply chain, deepened its customer relationships, and expanded its product line—all while staying true to its roots in craftsmanship and authenticity.

He lives in the Texas Hill Country with his wife and two daughters, where he continues to build businesses rooted in craftsmanship, family, and entrepreneurial grit.

Transcript

~~~

00:00 Introduction to Jon Mark Craddock and His Journey

03:14 Scaling Challenges in E-Commerce

05:58 Proactive Supply Chain Management

09:06 Self-Fulfillment vs. 3PL: Making the Right Choice

12:05 Tech Tools for Fulfillment Operations

14:53 Demand and Replenishment Planning Insights

17:48 The Importance of Flexibility in Business Planning

20:42 Reflections on Lamatera and Future Goals

23:26 The Drive to Entrepreneurship

25:53 Financing the Business Purchase

36:52 Transitioning from Operator to Owner

42:03 Navigating Challenges as a Founder

43:44 Expanding Fulfillment Services

Jon Blair (00:00)

Hey everyone, welcome back to another episode of the Free to Grow CFO podcast, where we dive deep into conversations about scaling a profitable DTC brand. I'm your host, Jon Blair, founder of Free to Grow CFO. We are the go-to outsource finance and accounting firm for eight and nine figure DTC brands.

All right, today I'm joined by one of my fellow Texas Hill Country homies, Jon-Mark Craddock, JM, JM talking to JB, owner and CEO of La Matera What's happening, man?

JM (00:29)

Nothing much, glad to be chatting with you for sure. This is probably gonna be an easy conversation, because you're one of the bros.

Jon Blair (00:36)

Yeah, I know I'm gonna probably have to keep us on track more than find things to talk about. ⁓ Well, I'm stoked to chat. Like, Jon and I have like a really interesting background. We share a first name in many ways. I'm JB, he's JM. We're both, I guess we're both kind of officially the first employees at the respective e-comm brands that we...

JM (00:41)

Yeah. No, no. What I never said.

Jon Blair (01:02)

help scale, me at Guardian Bikes, you at Chubbies. have both since started other businesses. So I guess before we dive into kinda talking through the meat of the conversation, which will be around many of the lessons learned of kind of the multifaceted background that you have, tell everyone a little bit of your, just like your story, where you came from, how you got to Chubbies, and then where you're at today with the businesses that you run today.

JM (01:28)

Yeah, totally. Yeah, thanks again for having me, man. I appreciate am JM. was like John said, I was the first employee of Chubbies

We, the guys, were four founders of Chubbies and they started it back in 2011. And I came on as a intern summer of 2012. And that summer is the summer that we went viral. Like everything just kind of like went to the moon that summer. And during that time, I was handling all of our customer service. We were all doing everything during that time.

Jon Blair (02:01)

Yeah, yeah.

JM (02:02)

whatever had to be done was done. But whenever it went to the moon, the guys were like, hey, we don't want you to go. I'm originally from South Carolina and founders of Chubbies were Stanford grads and we started the company over in San Francisco. So they were like, yeah, we don't want you to go back to school. So I actually quit school, didn't go back, like, like had some type of conviction that this short shorts company was going to work out. And

Jon Blair (02:04)

You

Hahaha

JM (02:26)

10 years later, I definitely did. was great for sure. yeah, so I cut my teeth at Chubbies doing all things customer service, retail, real estate.

anything that needed to be done was done. I was there for almost 10 years. I then went to Marine Layer, built a bunch of stores and did the real estate game at Marine Layer Then went over to Tuckernuck who was having, it's a, know, behemoth ladies, e-commerce brand out of DC. They were having some operational complexities like everybody in COVID. And so I went over to help them out on the fulfillment and supply chain.

side. I was there for almost two years through COVID. I tell everybody it's my like MBA of like supply chain. Insane. 100%. Totally. It was like, it was insane. So, so that was an awesome experience. During that time, we were lucky enough to sell Chubbies. I parked up some cash and yeah, I used that a little bit of that money to buy La Matera and now we're in full on operating our own brand. It's pretty fun.

Jon Blair (03:10)

Yeah, no, PhD, PhD. I got a PhD in supply chain during COVID too.

Hell yeah. Dude, I actually am not joking you. When we were, you know, I was operating as COO and CFO of Guardian Bikes during COVID. And so my supply chain team, I had like a VP of product who was really involved in supply chain because we made everything in China. And so like those relationships and the manufacturing process was key. And then a VP of supply chain and then a couple operations managers. And everyone was so burned out from just like, we just had to get on calls whenever a call needed to be gotten on because

Just weird, like, can we, is this container gonna get rolled? Can we get on this truck? Can we get on this train? And the, it's funny you mentioned the MBA thing, because the way that I rallied the troops when they were like super tired was like, hey guys, you're getting this once in a lifetime opportunity to get a PhD in supply chain operations. Like, you're gonna learn more for however long this thing lasts for. You're gonna learn more in this period than you're probably ever gonna learn about supply chain. So that was how I kept.

That's how I rallied the troops, you know.

JM (04:32)

Yeah.

I couldn't agree more. had, I mean, endless crazy fires that we had to put out. probably the biggest one, the one that I was most helpful in is their 3PL was this kind of like mom and pop 3PL. They just couldn't handle the volume. They were growing at, I don't know, 150 % year over year at mega numbers. It was insane. And so they had something like two or three months of returns backed up, unprocessed in Gaylords.

It was just a mess. I was the guy to come in. I like, all right, we got to do something different. And I think it was 11 or 12 weeks, 60 full trucks later. We moved everything to Ohio just in time for...

Jon Blair (05:15)

my gosh.

JM (05:19)

peak launch first week of November. It was like insane. And it was COVID too. So I was ripping from Austin up to Ohio where our 3PL was. And I would have full planes by myself Monday morning to like, it was weird. Like it was just me and like maybe two other people on a full plane. Just like, yeah. Yeah. You got it. Yeah.

Jon Blair (05:36)

pilots were letting you fly, let fly the plane. Hey man, you want to come?

JM (05:41)

It was insane. It was like, was, was insane. So, but awesome experience. I mean, I love, I love all those folks so much to this day. They're, they're great. ⁓ they're great folks for sure.

Jon Blair (05:52)

So let's talk about something that I think is super real for so many brands that I encounter. You're scaling really fast, right, and we see a lot of brands like their supply chain or even their fulfillment network or process or provider, it just starts breaking. So like, with the experience that you have under your belt, just start going through some of the things that come to mind. Like a brand's like, hey, JM, I need some advice about what to do.

proactively so that my supply chain or fulfillment network doesn't break down. What are some of the first things that come to mind?

JM (06:23)

Yeah, I mean, I'm big on just jumping in and taking on the reins like immediately whenever I see a problem. Like I think that's my biggest thing is like, I don't really like to let things fester. Like you're just gonna cause more problems for yourself. And so think my biggest, you know, that I would say on that front is like, if you see a problem, yeah, like try to be partners, with a, you know, a 3PL or whatever it is, wherever the problem try to be good partners, go to them with a resolution, be like, all right, like you're going to have a month or two months to like, but we got to get this right. Like we got to right the ship but if you start seeing, seeing problems that they're just not being solved. think you have to trust your gut and just go with it like immediately.

and find the solution out of I think a good story personal experiences, whenever I bought La Matera, we were in a 3PL. We inherited a 3PL relationship. And I felt bad for him because I was going, it was this 3PL out of Salt Lake City and I was coming off of a beautiful 3PL operation with Tuckernuck and I went to them right out and I was like, unfortunately, this is

where height of my like, you know, experience is gonna come with this transition. And I was like, we got one month to write these SLAs and write everything. If not, I'm gonna fly my happy tail to Salt Lake City. I'm gonna pack my belts up in a U-Haul and I'm gonna drive it back to Austin. I'm gonna run my own warehouse. And I was like, and I don't think they really thought I was serious. yeah, like.

Jon Blair (07:46)

Yeah believed you, they didn't believe you. I would have believed you knowing you, I would have believed you.

JM (07:58)

is EGGLE.

100 % I don't think and sure enough like we got to the end of I think that was the end of September I had met with them like pretty much every other day They weren't they weren't righting the ship and I was like I can't I like I can't continue running something like this like right before q4 and so sure enough I flew to Salt Lake City. I got myself a u-haul. I packed the belts up myself drove back here We were down maybe a day and a half and we were ship clean You know two days later and just like completely awesome

operating which now we're sitting in our own fulfillment and warehouse over in Spicewood.

Jon Blair (08:35)

That's so awesome, man. Man, I have so many follow up questions on that. Let's actually segue, that's a nice segue into talking the decision. Now, obviously you yourself are very proficient at like warehousing fulfillment and operations. But like if you're talking, if the average brand founder who's using a 3PL is considering the decision of like self-fulfilling, right, versus keeping that outsourced.

What are some of the real things that they need to like consider before deciding to take that on?

JM (09:05)

I mean, what I will say is you will save money doing the fulfillment yourself, but you will not save time. And so like everything is a scale, right? And so I

Jon Blair (09:11)

Mmm.

JM (09:16)

I love having the control of our inventory and I love having it on hand something happens, Jon, you say, hey, I'm going to meet my father-in-law tomorrow night. I swing by and grab a belt, like a gift for him? I can just make that happen immediately. If all of our product is sitting in Salt Lake City, it's a little bit harder for me to do things like that. And so I would say

You would like a good a good percentage of gross revenue probably and you would know better than I do with all the brands that you see, but I would say probably in between like somewhere around 10 or 12 percent goes to fulfillment and parcel and shipping fees and all that kind of good I am I mean, I have my P &L for this year. Our shipping line is like five.

.75 percent like it is like it is super low. So you will save money. But like the trade off is you have more headache. You have people to manage. You have a physical space. You have like you are controlling your ins and you don't hit your own, like you don't set up a process and hit your own SLAs, then it's your fault. So like you can't just go to a 3PL and be like, hey, fix this because you're you know, you're you're you're the guy. So

Jon Blair (10:22)

for sure.

Yeah.

JM (10:29)

I think that's my biggest thing is like while yes, you will save money, you will definitely like have more things to deal with.

Jon Blair (10:37)

Well, and I think as a kind of more generalized framework or best practice to draw out from that, it's like what core competencies do you want to be managed in-house by your brand? It's not the same for every single brand, right? And honestly, part of it is what you should manage, and part of it is what you want to manage. Part of being an entrepreneur and starting a brand, right, or buying a brand is like, I want control over the journey. And it makes perfect sense for a guy like you

with your background and the areas of passion that you have, like, no, we're definitely gonna run our own warehouse, right? Like, there's no doubt about this, right? But someone who is more product-centric or marketing-centric in their core competencies and kind of like the early team that they built or the problems that they wanna solve, right? Like, then, yeah, considering outsourcing fulfillment could make a lot of sense. I'm curious to get your opinion on the keys to kind of like the tech, the WMS, like,

JM (11:09)

Yeah. Totally.

Jon Blair (11:32)

What are some of the things that a brand needs to think about when they're considering the right apps or applications to use to actually run the fulfillment operation?

JM (11:41)

Yeah, I mean, it really, like, I think it would go back, like...

You can spend any amount of money on everything, right? Like you can get really aggressive and it kind of goes back to like what your goals are like it like if you're if you're in a hyperscale business that you're like you're you're taking this to like 100 200 million in revenue like for god's sake give it to a 3PL that has experience with like hyperscaling, right? My goal. Yeah, my my goal with like My goal with lamatera is to grow it like I don't know a happy five to fifty

Jon Blair (12:05)

for sure.

Yeah

JM (12:14)

I'm done. I'm good on that. Like I'm good. We'll see. Like I have two young kids. So like we'll see if the juices get flowing. You know, I don't know.

Jon Blair (12:24)

Hahaha

JM (12:25)

Three or four years from now if I want to really go for it, but I think that's that's the first question It's like alright. What is my goal with this like are you trying to run slow? Build a lifestyle business or you taking it to the moon if you're taking it to the moon go 3PL We're out there's they're gonna be pros They're gonna get you there and you'll pay a little bit, but you'll get they'll get you there

Jon Blair (12:34)

Totally.

JM (12:46)

If you want to run a business like I do, which I want to be super lean and any dollar I save in La Matera is going to go back to me, ultimately, I think you could be pretty frugal. And so I think for our systems, have like ship station, like super easy ship station, obviously Shopify.

And that's essentially it. We use some back end kind of organization through Google Sheets and all that. But it really is not complex. Like it's not like it's not hard to kind of get, you know, your product in and ship it to your customer. And then, I mean, these days with with, you know, ShipStation in particular, and I'm sure any of these like little shipping apps.

They have their own rates and they're well negotiated. like, you know, bundle up all of their, you know, all their volume to, get the best rates as well. So I'm finding like I couldn't with our volume, I can't go to DHL like I could at Tuckernuck I can't go to DHL and be like, Hey, give me a 30 % discount. But ship station, like for a small brand, like, like us, like they did, they have a pretty well, like well negotiated rate that we just can kind of tap right into.

Jon Blair (13:41)

for sure.

Okay, so the next thing I wanna talk about is like demand and replenishment planning. This thing, this is, you know, I'm sure between like the hyper growth that you saw at like Chubbies and Tuckernuck and then also what you're seeing more stable growth at La Matera, you've kinda seen both sides of the spectrum, right? So let's start first on like the fast scaling side of things. And maybe, I don't know, like, I'm not sure if Chubbies was launching products, new products super frequently or not, but like, but yeah, yeah.

JM (14:17)

every week. Multiple times.

Jon Blair (14:19)

Okay, so you

JM (14:20)

Yeah.

Jon Blair (14:20)

got a fast scaling brand, you're launching new products. I wanna go through some of the best practices and the myths around like sound demand and replenishment planning in your opinion.

JM (14:30)

Yeah, I mean, I would be candid and say, like, we probably didn't do this great the majority of the time that I was at Chubbies. It was like the classic, like, we would over invest in inventory, we would have a shit ton at the end of the year that we'd have to liquidate. And then we would under invest. And it was this like massive pendulum all all the time. So.

Jon Blair (14:45)

Yeah.

JM (14:51)

Yeah, I would say we probably didn't do, well, we did a great job, obviously, but like, was the massive pendulum shift that was always happening.

And I was on the opposite side. I wasn't on the demand planning side or anything like that. And so in a hyperscale company is similar to the conversation we were just having with 3PLs is like, if you were going to the moon, hire the right people and hire gangsters in there and put them in their seat and let them do like, just let them cook. Like I, some of it, I remember some of these like kind of like big demand planning minis to this day. And there was one, there was one, there was a bunch

Jon Blair (15:12)

Yeah, for sure. Yeah.

JM (15:26)

a bunch of gangsters at Chubbies, but like there was one gal in particular who was over demand and I was like, I would just sit there and be like flabbergasted by how epic she was. I was like, this girl is a beast. Like I was just like, she was, she was a gangster. And so I think that it kind of like, it kind of goes into it. Now I'm at La Matera I handle demand myself and you know, basically like in a company like ours, we just spend the amount of money that we can. And

Jon Blair (15:37)

Hahaha

JM (15:55)

that is the like max we can do. And so like, that's a that's the that's the only thing like we have and I think we'll kind of go into this next probably good segues like we have an SBA like we bought the business with an SBA loan. And so every single month we have a SBA bill due and we got to pay that bill and money that's left over we can use for growth or whatever pay ourselves and do whatever we want with it. But I think that's where I'm at now on a like kind of smaller like, you know,

scale I would call it happy scale versus hyper scale we are we just buy the inventory that we can that's kind of like that's where we're at

Jon Blair (16:24)

Haha.

Ha

For sure.

Well, the reason why I wanna ask you this question and get like, I like asking this question to people who've experienced it firsthand, because I did, I oversaw demand planning for most of the time that I was at Guardian Bikes. And yeah, it's very imperfect and we were always wrong. And I've started to realize that it's not about, it should, the baseline, kind of math, you should root it in some sort of historical data. Cause if you don't, then it's literally just 100 % a guess. Right now, but I want to be clear. There is not a system, whether you're talking about a software system or a framework or or a mathematical system that will give you the perfect quantity to purchase. Right. It's yeah, please. I will pay for it with an SBA loan. ⁓

JM (17:01)

Ganger in the wind. Totally.

If you find that system, I will pay for it. Literally, 100%. 100%.

100%.

Jon Blair (17:24)

⁓

I wanna say this, because one thing I think is really important about this podcast is that we're candid, right? There's so much stuff in e-comm that's sensationalized, man. The next new AI app, frickin' the next marketing agency who's gonna crush it for you. And like the reality is, I actually think this is a universal truth in business, but like I'll speak to it in the e-comm.

Inventory based business context is that like you're making these inventory planning decisions just like all of the other decisions you're making with imperfect information, right? And whatever system you use, whether that system is manual or automated or software based, it's all to give you directional accuracy, right? And what's more important than anything is assessing how risky the bet is that you're placing, not scoring the

accuracy of it or assuming it's gonna be all that accurate because rule number one of forecasting is every forecast is wrong, right? But as I'm sure you've learned over the years from all of your experience and what we're starting to try to do more and more at Free to Grow CFO is like, look, we're not here to give you the right answer because we're gonna give you the wrong answer, but we're here to help you assess how risky this bet might be, right? And then you recalibrate the bet according to

the risk that you are personally willing to take that's in alignment with your goals and your guiding principles.

JM (18:48)

And I think it's about like a

regular recalibration too. Like I think that's where the success lies. It's like, yeah, you said whatever in January. Like, great. Like good luck nailing what your yearly goal is gonna be. ⁓

Jon Blair (18:51)

Totally.

Yeah

JM (19:02)

But like you just have things that happen. I mean, it seems like these these days, like every other day, some weird thing is happening that like shifts markets or like does something weird. Tariffs come and now tariffs are away. Now tariffs are back. Like you just have to like you just have to hold on and like just make the best call you can. But I agree that like you want your you want to set your direction like early. You want to have the like, you know, you want to have the framework. You want to have your thoughts.

Jon Blair (19:27)

Totally.

JM (19:30)

figured out and sit down and make sure you're making a thoughtful decision. But then the regular reassessment is like, think that's where the magic happens for sure.

Jon Blair (19:41)

Well, you know what I'm starting to find, man? Like more and more as I grow my own businesses and I also, you know, at Free to Grow we're helping, you know, dozens of brands at a time grow their businesses. Goal setting or any form of planning. Planning is really important, but not because it's going to create the exact desired outcome that you think it's going to. It never does. It's actually more about finding a planning or goal setting journey.

that you're willing to just be on for the rest of your life. And like you said, revisit it frequently. And I think I'm starting to learn the faster your business is growing, the more frequently you have to revisit it because the faster things are changing. The slower it's growing, you might be able to revisit it less frequently because the velocity with which things are changing and complexities being out of the business is much lower. I was listening, I can't even remember who it was. I was listening to someone's podcast a couple of months ago.

and he's like some sort of like a, you know, like an executive coach or something, but he's like, man, I'm like in my 50s now, and I'm starting to realize, I'm starting to tell people, like, I don't set goals anymore, I trial goals. And so what I'm saying is that like, I still define them, but I'm now, I hold them with like an open hand instead of a tight fist, because when I hold them with an open hand, I can say like, I can ask myself the question like,

is this still a good goal or is it not anymore? And I give myself the permission to revisit it through the lens of what I've learned since I originally set the goal. And when I say like I'm trialing it, I'm willing to change it, but I don't just change it for no reason. I change it for a good reason, right? And so anyways, that's just something that comes to mind as you're talking through that. I wanna talk next about La Matera. So you help scale several brands.

Starting with Chubbies ending, what was the last one before La Matera? Tuckernuck ?

JM (21:29)

Tuck her in up. Tuck her in

up. Yep.

Jon Blair (21:31)

You have an exit at Chubbies and you buy La Matera. So before we get into how you executed that, what was the drive in you personally that was like, wanna buy my own e-comm brand?

JM (21:45)

I even, I just consider myself kind of like unhireable. I'm just like not really a good, like I wanna be like.

Jon Blair (21:51)

Yeah

JM (21:54)

taking the reins and I like all of my managers to this day probably are like, thank God that guy just got at the head of a company because like he does not need. Yeah, because I would always I was a knucklehead. just wanted to like I wanted to make the calls. Right. And like and the bad came. I wanted to take the bad. If the good came, I wanted to take the good. And I think that's how I've been literally my entire life. And so it was was it was definitely the right move. mean, we like whenever I started, we got to

the end of peak 2022 at Tuckernuck and it was a crazy, crazy time. Like they were in insane growth and that's whenever I really knew I was like, all right, like it is time for me to step away. Like I, I, I, at that time I had a six month old at home. Like it didn't make exact sense if you were like, you know, apering it up. Um, but I knew it was, I knew it was time and we, we, uh, I let the, the gals at Tuckernuck know

towards the end of December after peak and basically like kind of phased out over the next like couple months hired my replacement did all that kind of good stuff in first week of March

hit, I left and La Matera popped up on a business brokerage site two weeks later. was like perfect timing, perfect situation. I knew the brand already. They followed me on Instagram randomly. It was like all pointing towards the right thing. But to get back to your question, it's like, I knew, I knew I wanted to get out there and build something or buy something. Like I was like for, I don't know, for two years prior to that, I was on all the brokerage sites. I was on all the things I was like trying to figure out. was playing around with.

with creating a work wear company. I was doing all kinds of things just to figure out my way out. Because I knew that's where I needed to be. I just knew in my heart.

Jon Blair (23:41)

So I wanna talk a little bit about how you kind of financed and executed the purchase. This is like really, really interesting. It's something that I'm personally interested some point as well. like, you know, I think there's, for me, when we think about like buying assets, right, with money, your own or other people's.

there's kind of three that are interesting to me. one is real estate and one is businesses. The third one, you primarily use your own money, is just like investing in the stock market, right? I think of the stock market as the kind of like the sum allocation of your money, just set it and forget it, right? And just like, I've got this 55 % in the S &P and whatever, 40 % in the NASDAQ or small caps and the rest in like an international index fund. So let's just set it and forget it. There's not much.

not much entrepreneur or like entrepreneurial about that. Then there's buying businesses, buying real estate. You chose to buy a business. Talk to me about how you guys, like how you financed that purchase.

JM (24:43)

Yeah,

yeah, mean, it was it was crazy. So when we got it, like we mentioned, we got an SBA loan. I'm a huge proponent of the SBA program for first time business buyers like it like, yeah, I had track record of like operating at companies, but I didn't have track record running one or buying one.

anything like that. And so that's the beauty. I think it's just the US and Japan are the only two like countries that have somewhat of a similar situation where you can like get an SBA or kind of government backed loan to purchase the business. So I think that's the that's the big way that we we purchased it. Obviously, I had a stack of cash from Chubbies that I threw in and then I had just buddies that like we let her sit on our cap table. And so we ended up I think we ended

up putting... oh man it's been my brain's not where it used to be I think we ended up putting something like 16 % down or something but you you basically put in between 10 and 20 % down and

It's an SBA backed loan. So you're working through a bank. But like the SBA has this crazy colonoscopy of a checklist that you have to go through. And it was crazy. It was like a three month like the bank comes at you and analyzes everything for your personal. They analyze all any investor that's touching it. They invest. They analyze the business like it's like it's it's crazy process. So you have to be you have to be a little bit like kind of, you know, fine with

Jon Blair (25:54)

Yeah ⁓

JM (26:15)

chaos to like jump into a SBA situation like that. But I find that like, love, I love the process of going through it. And like, I would, I would kind of, like I said, I left my full time job. So it was for that three months, like that was my full time job. Like I just sat there and I prided myself on answering any call from a banker, lawyer, like any of the cats that are in there, like within five

minutes. Like if somebody sent me an email at Saturday night, like they knew they were getting a response. Like it was like it was happening. And so that was the like process that we went through.

Jon Blair (26:52)

So here's

why the, I actually know a lot about this as well. I've never executed it myself, but I've done a number of SBA deals over the years. like, here's some of the advantages from a finance perspective of using an SBA loan to acquire a business. One, you can get a 10-year term loan, which if you were to get a loan that's not through SBA, typically those are five to seven year terms. And so what does that mean? It just means your payments are higher. So the likelihood,

that the business will cashflow after debt service is a lot lower on a five to seven year amortization schedule than a 10 year, right? The other thing is because it's backed by the SBA, it's generally the best cost of capital that you're gonna get from a lender to buy a business. The other, yeah, you're just not gonna get that buy in a business like, you know, for most people. And then the equity injection, you just have to be able to put 10 % down.

JM (27:34)

Yeah, think ours is prime plus two or something like that. It's like

Jon Blair (27:46)

Assuming, now keep in does need to build a cash flow. And so what Jon was just talking about is that like, and I actually think this is a huge advantage. If you're a first time business buyer, actually the SBA or the lender, whole underwriting is done besides the owners because there are certain criteria that all owners that own 20 % or more have

in order for the deal to be backed by the SBA. the business, basically the payback ability, right, is all based on the target company that's being acquired. And so you actually kind of have in your corner, you have the lender who's doing diligence on the target company on your behalf to confirm that this thing is gonna cash flow. Because actually if it's not gonna cash flow, either you have to put more down.

JM (28:26)

Totally.

Jon Blair (28:35)

to bring the loan amount and the payment down, payment amount down to get it to cash flow or they just won't finance the deal. So interestingly, it's kind of akin to buying real estate. Like I've had times when I'm doing real estate deals where the lender's like, hey, we can't do this deal because this thing's not gonna cash flow. And so I can either put more down and or try to negotiate the price down with the seller. Oftentimes you can get a little bit of both, but it's actually, I think a lot safer

of a way to purchase a business for your first time because you have this third party in the lender who's actually helping you do a lot of the diligence that you may or may not do a good job of otherwise on your own, right? totally. Or you don't, it doesn't get approved, right?

JM (29:14)

Totally. it makes you sit down and do it like you have to do it like you have a

Literally, you have a check. They have a list of 300 checked boxes that you have to do. And so I think that's like that's a perfect like otherwise you may like you may get too emotional and you're like, all right, like I just really want this business and I've been going at it for so long. And like you may make a bad deal. And especially for the first one, it just like forces you to really think about it, you know. But I think it and if we're talking about like SBA, sorry to cut you off. It's like.

Jon Blair (29:38)

Totally.

So.

No, no,

go again.

JM (29:47)

I in a spirit of like what we were talking about earlier about oversensationalizing it. Let's talk about the bad as well, because there is some annoyances like one, the PG. There's a personal guarantee like luckily in.

Jon Blair (29:54)

For sure, for sure.

And you can't, by the way, you

can't negotiate that out. That's actually the SBA SOP that the lender has to follow. That is not negotiable. I know that for a fact.

JM (30:08)

Totally.

Yeah.

think the one thing that got me a little bit more comfortable with it is, yeah, like if we go belly up, that would really suck. But in Texas, and probably other states, but in Texas, they can't take your house. at least my kids will have a house to live in if we belly up. But that's a big one. You gotta have major conviction in yourself and your ability to lead and run a good business and make it happen. So that's a big one. And then the next one is like,

Jon Blair (30:22)

I know.

For sure, for sure.

JM (30:37)

We were talking about the cash flow. Paying a monthly bill that is any kind of sizable bill, it just limits your cash to do anything with growth. And I'm like a opportunistic kind

I know, just like an ambitious person that I would like to grow La Matera 150 % year over year. But there's just like the cash is like goes to the SBA and then anything that's leftover you that's that you can put in the sandbox to play with. And so those two things are in my mind, just like something you really have to like take a look at and like keep in mind when going into a like a deal because if you yeah, they can look at the financials and you

and they can make sure the financials map and like the math maths but you still if you want cash grow any kind of amount you got to account for that SBA like payment every single month you know for that 10 year term.

Jon Blair (31:37)

Well, and that's why like it's really key. mean, and like, like we just said, you can't even get the deal approved by the lender. This isn't the case, but that's why this is a good strategy for a cash flowing business asset, right? Because the one of the rationales forward is that like after 10 years when it's paid off and you don't have that note payment anymore, if the business still cash flows, cash flows cranking at that point, right? And you, and you,

JM (32:03)

Yeah, and you deserve it. You deserve your distrust.

⁓

Jon Blair (32:05)

Well, and you

used it, you use mostly other people's money, right? So the, let's talk about like, kind of like the flip side. The flip side is don't use a loan and you end up raising all equity capital to purchase that business. Then the question is how much of the business do you own at that point, right? That's the trade off. And to be clear, neither one is good or bad, right? This really comes back to like, what are you trying to achieve, right? As the owner.

JM (32:21)

Yeah.

Jon Blair (32:32)

What are you trying to achieve? What are your goals? Kind of like you mentioned earlier, comes back to like, well, what are your goals? And if you, this may, may not be the right strategy for someone who wants to, you know, hyper scale. That's oftentimes why, that's one of the reasons why hyper scale is usually funded at the beginning by equity. Because the theory is financially, you're going to have a smaller percentage of the pie.

but you're gonna build a massive pie, right? And so that your slice is gonna be bigger than, but you have to deal with the complexity and the side effects of the second order consequences of being on a hyperscale journey. I, for one, I tend to side with guys like you for my own personal situation because I've been a part of hyperscale. I now have three little kids and I'm like, I only got so much mental.

JM (32:58)

Totally.

Jon Blair (33:21)

physical and emotional energy to hyperscale. And so there's some sort of a balance. how many years into owning La Matera are you?

JM (33:21)

Yeah.

We, June of 23, so we're two and three or four months, something like that. Yeah, it was June 22nd, 2023.

Jon Blair (33:38)

So what's been the major learning for you personally going from being an operator in someone else's business to being the primary operator in your own business?

JM (33:50)

I, I mean, there's just been so many, so, so many learnings. I don't even know where to start. I think, I think the, like, I mentioned this earlier just putting the gangsters in their seat and letting them cook that's one of, that's been one of my, my biggest learnings is like just having the right people doing the right things.

to have a headcount budget of a million dollars to have a really, really successful team doing exactly what they need to be doing and having a organization. And so I think that's probably my first thing is just like...

We're running a pretty lean ship over here whenever it comes to full-time work. It's literally just me my wife does does some stuff on the warehouse and in wholesale and then then we have pretty much all contractors doing like all the you know the twisting of the knobs and levers in the background and so like I think thing that I've learned over the last two years two and a half years whatever it's been is like

I've injected some buddies in there. I've injected recommendations from friends and all this kind of stuff. And like some of them have gone good. Some of them have gone fine. And I think the way that I'm trying to build this thing is super lean. And so I'm like, all right, I just found this new marketing squad that's handling all of my digital marketing. they are the exact right people that need to be in here doing this. Like they they have a great price and they are extremely efficient and they do the exact right thing.

You know and so like I think it I think that's our biggest learning kind of to date is like I have the right people doing the right things

Jon Blair (35:23)

for sure, man,

and it's key to have the right people for right now, but always be thinking about when you hit a certain whatever size, threshold, whatever you're like, this is probably what I'm going to need when I get there. But then when you get there, you'll also begin to have a much clearer view of what's starting to break, right? And so it's like, and I think the point I'm making is I think founders need to always be

thinking about what they will possibly do, but before making a decision on it. I oftentimes, I was talking with my wife about this recently, they're like, hey, there's a difference between saying, I know I need to do this eventually and acting on it. Or saying, if this happens, then I'll do this. If this happens, then I'll do this. I think sometimes we feel like we have to act on our kind of creative thinking, on our like what if scenarios, right?

And like, I've known things many times in businesses that I've helped scale to this point where I'm like, this is gonna break. I'm not gonna do anything about it right now, because it hasn't broken yet, but I'm gonna keep my eye on it, and I'm gonna keep researching what I'm probably going to do when this thing approaches breaking. And I think that's just important for...

JM (36:22)

Totally.

Yeah. I think you have to

like...

That's one of the things is like, you just have to make those hard cuts and hard decisions. Like you have to make them much faster than, and, and, and, you know, the risk, like the risk isn't there when you're working in a company, like it's somebody else's company. It's like, you know, if you, don't have to act so quick quickly. but yeah, you have to make the, the hard cuts quick, like you just, just get it over with, you know what mean? And I, and I think that's like, that's, that's what we're doing this year. last year.

Jon Blair (36:41)

Totally.

Totally.

JM (37:01)

We invested in a bunch of things. threw money expanding our production do it doing all kinds of like we bought a little belt brand and we did a bunch of stuff with our cash this year. I'm like, nah, there's that shit's weird out I'm holding on to cash and I'm like, I'm figuring out a way be be comfortable. So like we've had to have hard conversations this year, make cuts and really think the like that's literally been my entire

job all all year is just to be like all right tariffs happen supply chain weirdness is happening all this stuff is going on. There's softness and consumer like what how do we like right this ship and so like I may grow like at a smaller percentage on the net revenue this year but my op-ex is just like squeaky clean like it's all right like you you just get in that mode of like all right and then maybe next year things are hunky-dory

and you're like, all right, let's just take all that cash and put it back in OpEx and try to grow and keep on keeping on, you know? So I think you're just trying to do the best you can. That's like the moral of the story. And you just staying alive. That's like, that's your job as a founder. It's just stay alive, Yeah.

Jon Blair (38:03)

for sure.

for sure.

Dude, keep on keepin' on. I always like a quick little Joe Dirt ⁓ plug right there. Life's a garden, dig it, man. Keep on keepin' on. Well, okay, so unfortunately we're gonna have to land the plane here. I got three little kids I can hear screamin' outside that are waitin' for me to go make them dinner. But really quick, one last thing that we didn't get to.

JM (38:18)

Yeah.

Yeah, exactly right.

Jon Blair (38:35)

You guys, am I correct that like in addition to your own fulfillment, do you guys actually do fulfillment for a few other brands as well?

JM (38:42)

That's right. Yeah, we it's small operation. It was mostly just opportunistic after all of the tariff situation. So whenever all this stuff started bubbling in January, February, March, I'm a part of an online group called Ecommerce Fuel.

great group if anybody's looking for kind of like an online forum type situation. there were people just freaking out. I mean, luckily, all of our production is made like either in Argentina or the majority is up in like the Northeast. But there's a lot of folks who had 100 % in China or either like India or somewhere like that that just got totally worked. And so people were...

freaking out a little bit. And so I had extra space in our warehouse and I was like, I have a good operation going on here. So why not just kind of take on some, some brands and like do a little kind of like co-warehousing kind of like mini 3PL type situation. so yeah, we, have a couple brands in here that we, that we handle and just get their stuff out the door as well.

Jon Blair (39:42)

Awesome man, well where can people find more information about you or La Matera or even your warehousing and fulfillment business?

JM (39:48)

Yeah, I'm pretty much at lamatera.com. That's the easiest place to go. If anybody wants to get in touch with me, just shoot us an email over at hello @ lamaterashop.com and somebody will get in touch with me for sure. But I'm on all the things, LinkedIn, Twitter, all that kind of stuff. Just look for Jon-Mark Craddock and you'll find me.

Jon Blair (40:06)

Hell yeah, man. Well, this one was fun. feel like we only got to like less than half of what we could have talked about. We're gonna have to have you come back. ⁓

JM (40:10)

Classic. Yeah. I'm here. I'm here anytime. I also, think we should do like a carve off podcast of like, business owners with kids under five and how they are alive. Like we should just, we should just like interview people with like who's bought businesses and has a three year old. That would be hilarious .

Jon Blair (40:21)

Dude, yeah, now they are alive.

I mean, I am actually totally down. have this secret kind of plan that at some point, I don't know if it's while I'm doing Free to Grow, maybe at some point I'm not doing Free to Grow anymore, but it's this, ⁓ it's the dad yourpreneur podcast, the dad yourpreneur show. So maybe that's it. Maybe this is the sign that we got to start the dad yourpreneur show. ⁓ It is, yeah, damn it. And then you're to freaking, you're going to, you're,

JM (40:48)

Yeah, I love it. I'm in. ⁓ 100%.

dude yeah I'm buying the domain right now

Jon Blair (41:01)

You're going end up, you're going to end up price gouging me to buy it back. I

love it, man. Well, thanks for joining, dude. This was a really great conversation. And, ⁓ and I think I, I think I'm probably gonna have to have you back on again. And, ⁓ and, if we do start the entrepreneur podcast, that'll be a plug in the Free to Grow CFO podcast shortly here. But, yeah, thanks for joining dude and look forward to chatting again soon.

JM (41:21)

Likewise, man, appreciate you.

Jon Blair (41:23)

Don't forget, if you liked today's episode, please hit the subscribe button wherever you're listening and leave us a review. It helps us reach more people like you. Also, if you want more tips on scaling a profitable DTC brand, follow me, Jon Blair on LinkedIn. And if you're interested in learning more about how Free to Grow CFO can help your brand increase profit and cashflow as you scale, check us out at freetogrowcfo.com.

BONUS EPISODE: Ecom Scaling Show: Amazon Pitfalls, Scaling Past $10M on Shopify, and Attribution Challenges (Ep. 9)

Episode Summary

Welcome to the Ecom Scaling Show, brought to you by Free To Grow CFO and Aplo Group! Join hosts Jon Blair (Founder, Free to Grow CFO) and Dylan Byers (Co-founder, Aplo Group) as we dive into the crucial—yet often missing—link between marketing and finance in DTC e-commerce.

In this episode, Jon and Dylan dive into the complexities of measuring Amazon, ad spend performance across different sales channels, and combining all of it with your DTC strategy. They discuss the challenges of attribution, the importance of considering cross-channel effects, and the strategies for optimizing ad spend to maximize overall contribution margin. Key points include the necessity of having separate KPIs for each channel, the potential pitfalls of launching on Amazon, and how to ensure collaboration between different agencies managing various aspects of a brand’s online presence.

Key Takeaways

• Attribution is always imperfect, but it's essential to analyze it.

• Continuous scrutiny of ad spend can reveal wasteful expenditures.

• Effective merchandising strategies can help brands maintain a DTC focus while on Amazon.

Episode Links

Free To Grow CFO: https://freetogrowcfo.com/

Aplo Group: https://www.aplogroup.com/

Jon Blair on Linkedin:   / jonathon-albert-blair  

Dylan Byers on Linkedin:   / dylan-byers-046010149  

Transcript

~~~

00:00 Introduction and Setting the Scene
00:58 Challenges of Attribution in Multi-Channel Marketing
02:04 Importance of Cross-Channel Attribution
03:45 Amazon vs. DTC: Common Scenarios and Strategies
04:16 Financial Insights and Unit Economics
06:52 Measuring Performance Across Channels
09:10 Strategies for Amazon and DTC Integration
17:35 Merchandising Strategies for Amazon
22:20 Scaling Without Repeat Purchases
28:20 Collaboration Between Agencies
30:41 Conclusion and Final Thoughts

BONUS EPISODE: Ecom Scaling Show: Fixed Costs & Hiring Mistakes To Avoid as an E-Commerce Brand(Ep. 8)

Episode Summary

Welcome to the Ecom Scaling Show, brought to you by Free To Grow CFO and Aplo Group! Join hosts Jon Blair (Founder, Free to Grow CFO) and Dylan Byers (Co-founder, Aplo Group) as we dive into the crucial—yet often missing—link between marketing and finance in DTC e-commerce.

In this episode of the Ecom Scaling Show, we’re diving into the biggest mistakes brands make when approaching hiring and fixed costs. We delve into the necessary core competencies within a brand, and knowing when to hire internally or use external agencies. We’ll touch on the importance of having a robust hiring pipeline and managerial strategies to handle increased overhead costs effectively. Key topics include strategies for scaling business operations, prioritizing hires to achieve strategic goals or remove bottlenecks, and the debate over hiring individual contributors versus team leaders; we also explore the pros and cons of using marketing agencies versus in-house teams, particularly in areas like email marketing and ad buying. The conversation covers the critical role of strategic thinking in organizational growth, the trends in managerial roles with the advent of AI, and the need for redundancy to ensure business continuity.

Key Takeaways

• Hiring should align with strategic goals and bottlenecks.

• Leverage agency insights for better business strategies.

• The debate between in-house and agency hiring is nuanced.

Episode Links

Free To Grow CFO: https://freetogrowcfo.com/

Aplo Group: https://www.aplogroup.com/

Jon Blair on Linkedin:   / jonathon-albert-blair  

Dylan Byers on Linkedin:   / dylan-byers-046010149  

Transcript

~~~

00:00 Core Competencies and Redundancy in Hiring
00:17 Introduction to the E-comm Scaling Show
00:56 Discussing Org Structure and Hiring Strategies
01:24 OPEX and Financial Health of Brands
03:31 Strategic Guidelines for CFOs
07:32 OPEX Percentages and Efficiency
10:37 Scaling and Capacity Decisions
16:40 Leader vs. Individual Contributor Dilemma
21:01 Identifying Core Competencies and Leadership Gaps
25:33 The Case for Outsourcing Email Marketing
26:55 Ad Buying: In-House or Agency?
30:02 The Role of a Head of Marketing
39:26 Final Thoughts on Hiring Strategies

Scaling a Bootstrapped Brand - The Hulken Story

Episode Summary

In this episode, Jon Blair interviews Alex Schinasi, co-founder of Hulken, discussing her journey from software startups to scaling a bootstrapped e-commerce brand. They explore the unique challenges and strategies involved in building a consumer product, the importance of product development, and the decision-making process in a bootstrapped environment. Alex shares insights on marketing strategies, the significance of community engagement, and the balance between work and personal life as a business owner.

What You’ll Learn

• Product development should be prioritized before branding.

• Listening to customer feedback is key to product improvement.

• Defensibility in product design is essential for long-term success.

• Building a strong team with outsourced experts can drive growth.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Alex Schinasi- https://www.linkedin.com/in/alex-schinasi-16b6abb/

Free to Grow CFO - https://www.freetogrowcfo.com/

Meet Alex Schinasi

Alex Schinasi is an accomplished entrepreneur and co-founder of Hulken, Ivy, and Clay. Ivy, a software platform designed for home remodelling professionals, was successfully sold to Houzz in 2018, while Clay, a childcare software solution, was acquired by Kangarootime in 2024.

Known for her ability to create innovative, user-friendly solutions that blend technology with design, Alex has established herself as a leader in the entrepreneurial space. Her latest venture, Hulken, continues to reflect her passion for functional design and practical elegance. Hulken created a new category of products and has grown to mid 8-figures in less than 5 years, without outside funding while being profitable from day one.

Alex is also recognized for her dedication to empowering women in business and her strategic approach to growing brands in competitive markets. She is a mom of 3, married to her Israeli husband Yoni who runs Hulken alongside her.

Transcript

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00:00 Introduction to Alex Skenazi and Holken

03:04 The Journey from Software to E-commerce

06:04 The Unique Appeal of the Hulkin

09:08 Bootstrapping vs. VC Funding

11:57 Growth Marketing Strategies for Holken

14:52 Product Development and Defensibility

17:55 Decision-Making in a Bootstrapped Environment

21:01 Building a Team for Growth

23:45 Advice for Aspiring Brand Founders

26:47 Conclusion and Personal Insights

Jon Blair (00:00)

Hey everyone, welcome back to another episode of the Free to Grow CFO podcast where we dive deep into conversations about scaling a profitable DTC brand. I'm your host Jon Blair, founder of Free to Grow CFO. We are the go-to outsource finance and accounting firm for eight and nine figure DTC brands.

Alright, today I'm joined by co-founder of Hulken and beloved Free to Grow CFO client, Alex Schinasi Alex, welcome to the show.

Alex (00:25)

Thank you, Jon for having me. I'm so excited.

Jon Blair (00:28)

Yeah, well, so today we're gonna talk about scaling a bootstrapped brand, which you know very well. I actually follow the content that you put out on a regular basis about your story and your journey, which I think is really cool because I think a lot of, one of the things that I really wanna make sure we do on this show is expose what it's actually like to scale a brand, not the sensationalist version of, like sensationalist social media version.

Alex (00:47)

Okay.

Jon Blair (00:54)

of what it appears to look like, ⁓

Alex (00:56)

Yeah, yeah.

Social media, especially on platforms like LinkedIn, I feel like it's all about success stories and putting on milestones. And you know, you have every investor on the market kind of eyeing what you're doing. So it's a place to kind of brag a little bit. ⁓ But it does take a lot of hard work. And it doesn't have to be an overnight success, which is also a misconception that we get, especially in the VC backed world of CPG brands.

Jon Blair (01:11)

Totally.

totally agree and you've, you're not a first time founder, right? So you have been there before so to speak in terms of like growing and exiting a brand. So before we get into talking about the Hulken story, can you give the audience just a brief background about who you are and where you came from?

Alex (01:30)

Yep.

Yeah, of course. So I've always been in software and B2B SaaS for about 15 years. I was the founder of two software startups. The first one was B2B backend tool for the home remodeling space that I sold to another unicorn called Houzz in 2018, which was an amazing journey. stayed at Houzz for about three years, left their B2B offering at the company.

And following that, had another software startup called Clay that was in the early education space. And that one I ran for about three years before exiting last year to another software startup called Kangaroo Time. So I've always been a software gal. saw all...

what it's like to run a VC-backed business, to have your eyes on growth and on cost and do that whole spiel. And ⁓ in parallel, I was starting a side gig with my husband, Johnny, who you know, that started taking off in 2020 very slowly. It was very much a nights and weekend thing for me for fun.

And when I sold my last business last year, I decided to go full in because the success was what it was and I thought it was a great opportunity to try something new.

Jon Blair (02:48)

I love it, I love it. Side note, Johnny and I both have, we have something in common. We both were touring musicians. He was much more successful than I was in a more popular genre than the thrash metal band that I was playing in. I wanna get into that in a second, but before we do, you coming from, there's actually quite a few brands that Free to Grow CFO works with where it's headed up by a founder or co-founder.

Alex (02:56)

Right.

See?

Yeah.

Jon Blair (03:14)

who isn't a first time business founder, but his first time in e-comm, right? And so you...

Alex (03:16)

Yeah.

Yeah, because I see the opposite quite a bit, right? There's a lot of e-comm founders that then are like, screw that, I'm done with the consumer space, I'm done with hard products, I'm going into software. Like the scale is easier, you know, there's no inventory to manage. So I see a lot of these stories. So it's interesting that you see the reverse because it feels kind of lonely to be that software gal in e-comm.

Jon Blair (03:25)

Hahaha

So what's been, and you're going from software to e-comm consumer goods, what would you say is similar and what is different?

Alex (03:44)

it.

So yeah, it's interesting. So a lot of my day to day is similar to what I've always been doing, growing, scaling, digital marketing, conversion optimization, funnels. mean, it's a lot of the same lingo. All of my previous businesses have scaled through Meta as well. So it's kind of my bread and butter and what I'm very familiar with. So it's still within my comfort zone when it comes to growth and marketing. What's very different is obviously the entire ops side of things, the production cycle, then the iteration process is much more complicated. It's very hard for me as a software founder to think, okay, if I want to launch a new product, actually need to test it. I don't have a way to really iterate and test it before cycles and cycles of production. So things like that are a little bit frustrating. What is actually very refreshing is kind of the very simple

and ⁓ business model in many ways. know exactly our cogs and exactly our margins. We know exactly what we need to make money with profitable from day one. We don't have to reach for scale as much as we have to reach for profitability. So that's one aspect of it that I love. And the fact that it's very tangible and we see this love from the community on social media is just unlike anything I've experienced before. Like having a consumer product that people adore so much.

and share about so much to that extent is just unbelievable. Just so much fun.

Jon Blair (05:02)

Yeah.

Yeah, can they can they can take photos of it and videotape themselves using it right and post like their user experiences?

Alex (05:12)

Yeah, and it's prime

for that, right? The Hulken is, if you don't know, the Hulken is this shiny, bright, rolling tote bag on wheels. So it's really prone to be shot on social media. It's a product that people just find really fun. It's a little bit absurd almost and funny. And so for that, I think we're lucky because it means you can't ignore it. If someone walks with a Hulken down the streets of New York City, you're going to notice it. And I think

Jon Blair (05:25)

Totally.

I was just gonna say

As you know, my business partner, Jeff, he recently moved to the suburbs of New York, but he's been in New York City for a number of years. And I go out there a few times a year, and when you see a Hulken going down the street, everyone's like, what is that thing? And I mean, that's huge for ⁓ awareness and market. It's not something that, it's something that people are they're asking, like, what is that? it's a Hulken, right? And that's huge, because not every,

Alex (05:41)

Yeah.

Yeah.

Yeah.

Jon Blair (06:02)

physical product begs that kind of like response.

Alex (06:03)

Right, think, you

know, exactly, not only that, but I think of, you know, underwear brands or brands that you don't see, perfumes, lotion, things that you wouldn't see on someone necessarily that wouldn't have the same virality. You said is exactly right. It's a big shiny bag that you see rolling down the streets of New York City. It will turn heads. It will be creating questions. People will stop you on the streets.

to ask you what it is. And we invented an entirely new category of products. I mean there were no rolling tote bags. And it's interesting when it comes to CPG specifically, because when we talk to retailers, they don't know where to put us. Are we fashion? Are we travel? Are we storage? We're of a mix of all these things, because it is a product that was never there before.

Jon Blair (06:39)

for

Okay, so I'm curious, you have a VC-backed startup background or experience with your SaaS startups. Why bootstrapped for Hulken?

Alex (06:56)

I think we got lucky because of my family's background in packaging that we had the manufacturing piece figured out and funded from day one. So we are bootstrapped, but we also didn't need to raise any capital for our first batch of production. So I think that's really important to note. But I think what this highlights is that there are many ways to fund a business, right? We've seen other CPG brands partner manufacturers as a funding vehicle.

Jon Blair (07:13)

for

Alex (07:23)

And I think that's a great way to go about it. What I like about not having a VC right now is that we don't have the pressure of reaching certain targets within certain timeframes. I like that it's making us think a little bit more creatively when it comes to marketing, hiring. I mean, every step of the business, we just have to really think hard before spending any dollar. We have to think more creatively about creating content, about doing anything because we don't have the luxury

of endless capital to do these things. So I like that it's a little bit uncomfortable. It's actually a sweet spot that I personally love as a founder because I like the early stage hustle. I don't want to get to the point where, you know, we make so much money that we're not even thinking about how to crack that nut. So there's a lot of benefits of having a VC-backed business, one of which is investors, if you find the right investors, they're incredible and we had amazing VCs in the past and great relationships with each of them. I'm just really enjoying this right now. I'm enjoying the freedom. I'm enjoying being profit first in my mindset and not to say we will never raise capital because I think there might be a time and place at certain stage in the business. It's just not where we're at right now.

Jon Blair (08:33)

Okay, there's several things that I want to dive into from that. The first one is I actually personally understand how freeing can be to go from venture-backed to bootstrapped. That's my story at Guardian Bikes. We were venture-backed the entire way. And I think by necessity, based on what we were trying to do, we now have a factory in Indiana. We had to build a factory. We have our own warehouses. It's a huge undertaking. Definitely needed outside capital, right? ⁓

Alex (08:48)

Yeah.

Wow. Yeah. Yep.

Jon Blair (09:00)

But starting Free to Grow, CFO, when I started this, was like, we're going to be bootstrapped the whole way through as we scale. And there's actually, oddly enough, there's a lot of firms in our space that are taking VC investment right now ⁓ for various reasons. A lot of it is tech enablement. But what we found, or what I found about six months in was like, we also want to focus on working with bootstrapped.

Alex (09:12)

Yeah. Wow. Interesting.

Jon Blair (09:25)

brands because when we ourselves are a firm that has that same ethos and we're working with brands who have the bootstrap mindset, it's the constraints that get placed on your thinking that drive, it's just different conversations. You've been in the boardroom or at the leadership table with a VC backed brand and it's always like, what's the story? How do we get to the next milestone? How do we get to the next raise at the higher valuation?

Alex (09:26)

Okay.

Yeah.

Yeah.

Jon Blair (09:52)

And I'm not saying that's a good or a bad thing. I'm just saying now it's like, hey, what's the payback we're gonna get on investing these dollars and hiring this person or in buying this inventory or launching this product or scaling this ad campaign? So I'm curious, being that you guys came out at Bootstrapped from kind of day one, what was the first major growth marketing channel or channels that worked for you guys?

Alex (09:59)

Yeah.

Yeah,

so it's interesting what you said about the boardroom because I myself have to still detach myself from the mindset a little bit. I still have this hundred million milestone in my head from the VC back ruling that I've had all these years. Like I still want to get to that milestone as fast as possible. And it's just an interesting observation I did by myself. But in terms of growth channels, Hulken was kind of an accidental business, meaning I was not, you know, I was doing the marketing for it.

Jon Blair (10:28)

For sure.

Alex (10:41)

on my weekends. so initially it was very organic, much users sharing it on social media. We launched early 2020 and when COVID happened, one of our buyers, very early buyers, and they did very little meta advertising at the time, know, maybe one or $2,000 a month. And she actually was a writer for The Strategist.

and which was a huge milestone for any CPG brand to be mentioned on The Strategist. So a couple months in, we get this dedicated feature on the Strategist naming us as an alternative for these journey carts at the supermarket. So that was kind of like one big first viral moment for the brand when we saw that first spike on Shopify. And from there, we just really capitalized double down on UGC's

of user generated content, micro influencers, we realized that the product was getting a lot of attention from different niches, very specific niches on Instagram, like thrifters, interior designers, chefs, photographers, professional organizers. We came across so many crazy communities, like professional mermaids. Apparently there's a whole mermaid community that needs to transport wigs and tails and whatnot. So doubling down on these niches and

doing collabs with these micro influencers, I'm saying, you five to 10k followers, but highly engaged following was super instrumental to us because we became a must have for their business. And as such, you know, they were excited to share about it. And, you know, one, I would say 18 to 24 months into

launching Hulken, that's when we started investing a little bit more in Meta, and that's when we started seeing that true hockey stick growth. But it started with a lot of focus on the product, making the product incredible, and a lot of focus on these Instagram niches that were really powerful.

Jon Blair (12:23)

Yeah, okay, so here's what's interesting. Now having the benefit of, you know, grown Guardian bikes and then, you know, having run Free to grow CFO for four years, we've worked with, you know, 65, 70 brands. And what I'm starting to realize is that there's like this catch 22 with starting an e-comm brand, right? On the kind of positive side of things, it's really easy to bring a product to market, right?

and get a Shopify store set up or even an Amazon store. You can go source product from kind of wherever for the most part to get started. But the flip side of that and why it's catch 22 is that means that there's a low barrier to entry. There can be a lot of competition. And so what you tend to find is the e-comm sales channels getting flooded with brands where product wasn't such a priority on the front end.

It wasn't, and it wasn't seen necessarily as the driver of everything. It was like, Hey, let me just find something that I think people need and let me go start spending dollars on meta. And I've seen lots of brands get started and even get to a decent scale and profitability, but because they didn't really focus on nailing product on the front end and really building something defensible, the brand eventually dies or really start struggling out of nowhere. What, what, are some of the things that like,

Alex (13:28)

Yeah.

Mm.

Yep.

Jon Blair (13:42)

on the product side, the front end, you guys did to just really make sure you build a really great product that can give you some defensibility over time.

Alex (13:51)

Yeah, so it's really interesting you say that. It's what people ask me for the first two to three years. only team was a product development team. was, the factory like testing the product, making the wheels less noisy, making the strap a little bit longer. You know, making the experience of using a Hulken really optimal. And especially as we were getting popular with these professional nations.

Jon Blair (13:58)

Mm-hmm.

Alex (14:14)

we realized, okay, can't just be a grocery bag, right? It needs to be something super sturdy. It needs to ⁓ handle the streets of New York City as much as it can handle other types of streets. And so we really were hyper-focused on making an incredible product for the first two to three years. And by the way, we're continually expanding that too. We're continuously making it better as we speak.

But it much is at the center of everything we do is the bag, how it rolls, how is the experience, how is its durability. And I think that served us because we listened to customer feedback so intensively for the first few years that we became an essential for so many people. And then came the marketing and then came the virality and the flywheel that came with that.

Jon Blair (14:56)

Totally.

Yeah, no, I mean, I don't want, I want to make sure that the audience hears that, the sequencing, because I have seen this time and time again. Nailing the product is almost kind of like the tail that wags the dog. Now, let me be clear, it doesn't mean you don't have to be a good operator. When you take a really great product, right, and you marry it up with great operators, right, in all the major functions of the business,

that builds a great business, but you can't just have great operators with a mediocre product, right? That doesn't, I haven't seen that withstand the test of time for any brand who has done it that way. And it sounds, the other thing is being obsessed about your product continuously, right? Like people will see Guardian Bikes today, nine figure brand, factory, incredible product. We started that business in 2009 in business school, right?

Alex (15:35)

No, exactly.

Yeah, crazy.

Jon Blair (15:54)

I mean, that's 16 years ago and the original founder and CEO, Brian Riley, who's still with the business, he is so obsessed with the product, right? And has been for 16 years and will never stop trying to make it better. And that is just so key, you know?

Alex (16:03)

Yeah. How amazing. Yeah.

Yeah,

that is so true. you know, Johnny a little bit, but that's exactly his whole point because we're always, know, I think like a VC founder sometimes I'm like, okay, let's make this one more expensive. We're adding this bells and whistles. He's like, no, the core Hulken the Hulken that everybody loves needs to continuously improve and be better. So it's not like we're launching new skus trying to make more money. We're trying to improve the existing hero product because it is the one that everyone

loves and and raves about. So it's it's very much key to our ethos. It's key to our success and it's key to creating that flywheel of virality because it creates the best experience our users can have.

Jon Blair (16:49)

Okay, so being bootstrapped, what are some of the things that come to mind with how you guys make decisions on what to invest in when you have scarce capital dollars? There's product, there's team hires, there's marketing. How do you guys go about making those decisions?

Alex (17:08)

think we're the perfect example here. We kind of wait until we're barely, you know, head above water to make decisions. Like we're in this position now, we're really under so much pressure on the ops side that we're finally hiring a head of ops. So I think it takes growth until we realize we really just don't have the bandwidth anymore to then decide what we invested. We're also realizing that

Jon Blair (17:16)

Hahaha.

Alex (17:35)

We're starting to see a lot of copycats and dupes out there. So the power of our brand is super important more than ever. So in addition to obviously investing in the product development, which we do naturally, and that's, think, will always be the case, but we're also investing in brand marketing more so than we have in the past to kind of make sure Hulken becomes this legacy name that it needs to be in order to stand above the noise.

Jon Blair (17:56)

mean, the name itself is a great name. Who came up with it?

Alex (17:59)

My dad, so my dad invented the product. I don't know if you know the story, but he designed the product for his own use case. was, you know, shopping in Paris and wanted to have an easy way to roll his stuff home. And, and through that, he just came up with a very strong name. My mom is from Sweden and so Hulken means the Hulk in Swedish. And it's easy to say, easy to spell and pretty memorable.

Jon Blair (18:00)

The... Okay.

So good.

Okay, so you mentioned you're head of ops, but have there been any other key kind of team members, insourced or outsourced, that you guys have added along the way that have instrumental to helping you guys continue to scale?

Alex (18:38)

Yeah, mean, obviously, Free to Grow has been a addition to the team. We work with a ton of freelance teams and we really believe in scaling with outsourced teams. Actually, we have just a team of five internally currently and the rest is all external.

Jon Blair (18:51)

Amazing.

Alex (18:53)

And we love it because we have the best of the best. Like, at Free to Grow you're experts in what you do and having experts in finance. are also experts in ecom was instrumental to us and is key to us reaching the next stage of growth because it's not just about growing that understanding the business and understanding the nuances of what it is to run a CPG brand on all levels, including finance.

Jon Blair (19:15)

Yeah, you know, so like, let's see, when did we launch Guardian Bikes? I it was 2015 is when we launched the brand. We were working on our patented brake system for like six years before that. But again, product development before scaling, But 10 years ago, there were a lot of the DTC like darlings, right? Like the early mattress companies, Tuft & Needle and Casper. Where like you could...

Alex (19:24)

Hmm.

Yeah. Yeah. Yeah.

Jon Blair (19:40)

You know, it's interesting. We hired a bunch of people from Tuft and Needle at Guardian Bikes once they got acquired and kind of the early team started leaving. And what we learned that was really interesting is that they were able to scale the nine figures just on Google because people were already searching for mattresses, but no one was selling them, which is such a different game than creating a brand new product category where you got to do top of funnel, like get people aware of something that they were definitely not searching for before. Right. And so

Alex (19:44)

Mm.

Good.

my gosh. Yeah. Ugh. So different. Yeah.

Yeah.

Jon Blair (20:09)

The reason I'm calling that out is because those brands, was so cheap to scale. It wasn't even about meta being cheaper, though it was. It was that if you were the first brand or the first couple brands to bring a product to market on e-comm and people were already searching for that, you could just spend money on Google and soak up that traffic that was already there. And so the margins were so high, you had these massive teams. mean, like, ⁓ Tuft & Needle had like dozens and dozens of people.

Alex (20:14)

it.

Yeah.

Yeah, yeah. It's amazing. Yeah.

Jon Blair (20:37)

in-house full-time in a huge office in Phoenix really, really quickly. But the modern ecom brand is not set up like that. I mean, we work with several brands. We work with numerous brands who doing 20, 30, 50 million a year in revenue. And they have very small in-house teams, but they're leveraging the right freelancers and like kind of firms or service providers that are needed for the phase of growth that they're in. And I just want to

Alex (20:40)

Great day.

Yeah.

Yeah.

Jon Blair (21:05)

I wanna just say that to the audience because most of the brands we work with, that is their makeup and if they aren't when they come to us, it's one of the first things we tell them like, hey, this is not how it's done these days. I just, it's really important for people to understand that because I think that is going to continue to be the trend that's not gonna go away. Do you agree?

Alex (21:14)

Yeah.

Yeah.

I agree and I'm also wondering because the makeup of your client base is also primarily bootstrap businesses and I'm wondering if that has to do with it but also I am talking to VC backed businesses, CGP brands, maybe raise a little bit, not crazy amounts but raise a little bit to get going and then will have a small internal team and a team of freelancers essentially, agencies to support them along the way. mean as a founder it's incredible, you don't have to worry about the overhead and everything that comes with HR

in all that pressure, but also just that you have access to the best of the best. So you have access to every agency has expert in this and that and brings the kind of knowledge you wouldn't get in a single person as a higher your team. So we're a family, love them at all. And we think it definitely helps us scale.

Jon Blair (22:13)

So brand founders listening to this episode, right? And they're listening to you and your story aspirationally, right? Serial entrepreneur, you've founded several businesses, exited a couple of them, now you're scaling a bootstrap brand to eight figures and beyond. What?

would be one thing that you wanna leave that listener with from your story that you think would impart some helpful wisdom upon their journey.

Alex (22:39)

So I think definitely hyper-focus on the products early on. Before you think crazy about marketing, a lot of brands will start with branding. I mean, we didn't have a brand book until we were at 15 plus million in revenue. We didn't have, we just had a simple Shopify site. We only redid it last year when we're approaching 30 million revenue. So I think things like that, we for later, like understand that you have an amazing product, some defensibility, strong very early on.

Try to get some organic virality going and then amplify that with some ad dollars is the key to do it.

Jon Blair (23:12)

love that the sequencing that you just went through is key. Doing things in the wrong order is what kills a lot of brands. So, I always like to finish up with a personal question. And for you, this is a question that's kind of near and dear to my heart because I grew up in a household where mom and dad ran a business together. And still do to this day. And so, yeah, they're still married and they still run their business together. I'm trying to get them to retire now. But, you run a business with your husband.

Alex (23:31)

They do? Okay. Are they still married? That's the question. Okay, good.

Yeah. It's fun. Like I'm always wondering, is it going to be a problem one day? So far, it's amazing. We do such different parts of the business. I I handle growth and marketing. He's very heavily involved with ops and production. Sometimes we'll sit next to each other the whole day and not really engage with each other and still feels like we each have our own jobs in a way.

Jon Blair (23:40)

What's it like?

Alex (24:02)

So far it's been Sometimes of course when we go on date nights we talk about work but we love it so much. I think it'd be different if we're doing something that we hate it and then it would kind of come into our personal lives but this is so much fun. We have a brand that people love, we have a brand that's growing like crazy. It's exciting and so even if we have to talk about it at home we love it and our kids love it and they embrace it. They know that we work together and they love the product. They want to be involved already so it's a lot of fun.

Jon Blair (24:10)

for sure.

love it. Well, Alex, thank you so much for coming on, sharing your story, sharing some of your wisdom. The Free to Grow CFO team, we love working with you and we're really looking forward to helping you guys take the business to the next level. And just thank you for joining and yeah, I can't thank you enough.

Alex (24:46)

Thank you, Jon.

Jon Blair (24:48)

Don't forget, if you like today's episode, please hit the subscribe button wherever you're listening and leave us a review. It helps us reach more people like you. Also, if you want more tips on scaling a profitable DTC brand, follow me, Jon Blair, on LinkedIn. And if you're interested in learning more about how our CFOs and accountants can help your brand increase profit and cash flow as you scale, check us out at freetogrowcfo.com.

A Founder's True Story: Scaling and Selling a DTC Brand

Episode Summary

In this episode of The Free to Grow CFO Podcast, Jon Blair interviews Randall Thompson, co-founder of Dugout Mugs, who shares his journey from professional baseball to building a successful e-commerce brand. They discuss the challenges of scaling a business, the importance of understanding marketing and inventory management, and the role of faith in entrepreneurship. Randall reflects on the lessons learned during his journey, including the significance of hiring, risk management, and the emotional aspects of exiting a business.

What You’ll Learn

• Why over-ordering inventory is far more dangerous than stocking out

• The real impact of long lead times and overseas manufacturing on cash flow

• How to think about risk-adjusted bets instead of emotional growth decisions

• Why most marketers struggle without understanding unit economics and financial relationships

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Randall Thompson- https://www.linkedin.com/in/randall-thompson-rt-03466a6b/

Free to Grow CFO - https://www.freetogrowcfo.com/

Meet Randall Thompson

Randall Thompson is a former Toronto Blue Jays player, patented inventor, and founder of a three-time Inc. 5000 company—once ranked #30 among the fastest-growing U.S. manufacturers. His products have driven eight-figure sales in e-commerce and retail, including Dick’s Sporting Goods, Scheels, and MLB stadium shops, earning features in Entrepreneur and Forbes. In 2023, after selling his company, he set his sights on his next venture, fueled by a passion for innovation, team building, and go-to-market strategy.

Transcript

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00:00 The Journey of Dugout Mugs

03:06 From Idea to Execution

05:52 Navigating the Challenges of E-commerce

08:50 Marketing Strategies and Evolution

11:46 Understanding Numbers and Inventory Management

14:46 The Dilemma of Inventory Management

22:34 Navigating Risk in Business Growth

28:16 The Importance of Financial Awareness

33:45 The Role of Faith in Entrepreneurship

36:45 Surprises in the Exit Process

Jon Blair (00:00)

Hey everyone, welcome back to another episode of the Free to Grow CFO podcast, where we dive deep into conversations about scaling a profitable DTC brand. I'm your host, Jon Blair, founder of Free to Grow CFO. We are the go-to outsource finance and accounting firm for eight and nine figure DTC brands.

Alright, I'm stoked for today's conversation because I am joined by Randall Thompson, co-founder of Dugout Mugs. Randall, what's happening, man?

Randall Thompson (00:26)

Hey, what's up?

Jon Blair (00:27)

Appreciate you coming on. I'm excited for the topic today because you have a unique experience in scaling and successfully exiting a brand. There's a lot of brand founders that Free to Grow CFO works with that that's their aspiration, scaling and exiting a brand. And what I'm excited to hear today from you is what it's actually like, not like the rosy social media version.

Randall Thompson (00:33)

you

Jon Blair (00:53)

of what it's like scaling and brand, the real grit and persistence and faith that it took to do so. So before we dive into your story, can you give the audience just a quick background of who you are and where you came from?

Randall Thompson (01:06)

Yep. Born in Orlando, Florida. I grew up in Orlando, Florida.

played college baseball, played professional baseball, got released from professional baseball, kind of tinkered around with stuff and then ended up founding a company by the name of Dugout Mugs where we converted the barrel of a baseball bat into a drinking mug. 95 % of our sales were e-commerce. The lifetime of me being there before I left in 2023, we did about $60 million of sales and that was split between e-comm and major retailers like Dick's Sporting Goods and...

all the major league baseball team stores. yeah, so the end of 2023, and then I've kind of just been whatever that thing's called where you like, you don't do anything for a while and you kind of like try to discover yourself. There's a technical term for that. I don't know what it is, but that's what I'm on right now.

Jon Blair (01:58)

Well, okay, so take us back to the beginning. Where did the idea for dugout mugs come from and what were kind some of the first moves that you made to figure out like, is this a viable business option or not?

Randall Thompson (02:10)

The idea came from, I was in a dugout in 2014, I was coaching college baseball.

The hitting coach was cutting wooden baseball bats in half with a hand saw on the dugout. He was creating a training tool. There was a bunch of loose baseball bat barrels just sitting in the dugout. I examined it. Anybody that knows anything about baseball bats, there's a natural cupping that's at the top of a bat. And I just thought to myself, if that cupping continued to go down, could you drink from this?

you turn it into a mug? And so that was where the original idea came from. I didn't pursue it right away. Went into my back pocket maybe about a year later, started pursuing it. And quite honestly, I didn't know anything about anything. So I just thought that my life was in a place that I just wanted to do something creative. I wanted to own a business and this product seemed simple enough to, I could do it. And I didn't think about gross margins.

I didn't think about anything. I just said, I'm going to just bring this product to market and see what happens. And so I did that. And then it just so happened it was a success.

Jon Blair (03:10)

Okay, so that story is so common, man, in the space. know, my firm, I formerly was on the founding team of a brand called Guardian Bikes, started Free to Grow CFO after about seven years in the e-comm game. When we started Guardian Bikes, me and the other two guys on the founding team, we didn't know a lick about e-comm. We were, you know, on the early days of Shopify and Amazon and did some physical retail. And we're, you know, we're flying the... ⁓

We're building the plane as we're flying it, right? And so many founders that my firm, Free to Grow, works with, they start the business out of passion for the product. They're usually product guys, maybe they're marketing guys. There are some guys who come in who are like savvy e-comm marketers already and they're just looking for products to bring to market, right? But I would say the vast majority of founders that we work with, they have some passion around the particular product that they've developed and

They're figuring out e-comm for the first in their life as they're working on launching and scaling this brand. So you go from professional baseball player to e-comm brand founder. Talk me through a little bit of what that transition was like.

Randall Thompson (04:19)

It was difficult and it was difficult because I worked a couple full-time jobs to save up enough money to take that money to then funnel it into making an inventory purchase, sell those and then take the proceeds from that and then buy more and then sell more and then buy more and then sell more. But to get to like the first batch of a hundred mugs

It's crazy. It would...

I wish ChatGPT was around back then because I was asking all the wrong questions. All I needed in my life was a woodturner, you know? And I didn't know that. And for whatever reason, I couldn't get anybody to tell me that. But if somebody would have just said, hey man, go see a woodturner. They'll be able to prototype this. And then what ended up happening is I said, okay, in order to make a product like this, you need a billet. Who sells billets? And billets just a fancy

Jon Blair (04:51)

Hahaha

Randall Thompson (05:15)

he

wanted to say like a block of wood. And I was like, okay, so this company up in Maine sells billets. And I'm like, hey, do know somebody that could potentially make something like this for me? And they're like, yeah, this person could make it for me. So I kind of reverse engineered out of the materials. But what I put a period on this, but I think what I learned along the way is

taking your thought process and whenever you come across something that you don't know the answer to, just stick on that one question until you get an answer that you're satisfied with. So turn I don't knows into I gotta knows.

Jon Blair (05:47)

For sure,

I love that. That is the key in my experience to all innovation and learning, but honestly, innovation is honestly just a series of, it's just like compounding learning and getting different outcomes over time until you look back and go like, wow, we've really innovated, right? And a key component of this is like, you know what, Elon Musk talks a lot about like thinking from first principles. And a lot of that is like just asking why.

Why, why, why, how, should, is there any, what's the next question that I could possibly ask to break this down into a set of fundamental truths and then reverse engineer those fundamental truths to try to get to the outcome that you want, right? And that's why, one of the reasons why I'm personally so addicted to being an entrepreneur is because building a business is just one of those things where that part of your

Randall Thompson (06:24)

you

Jon Blair (06:38)

and your creativity, right? Just asking questions that you don't know the answer to and following that thread until you create something new or learn something new. It's just like, to me it's like the essence of like using your whole self as a human, right? And so I love that. What was the hardest thing for you, not formally having been an e-comm operator before you started Dugout Mugs, what would you cite as like the single

challenge or skill or thing that was the hardest for you to like pick up and kind of internalize as a founder.

Randall Thompson (07:10)

probably hiring was probably like one of the first hurdles for me to get over is, I'm a miser. Like, like, I love to save money. love, uh, thinking that I can just do everything. And I never really understood. This was probably in 20. My first employee was probably in 16.

And the idea that, and I was still doing customer service and my business partner was, we were splitting days. He would take one day, I'd take the next day. And he's like, Hey, we need to hire somebody to do customer service. And I'm thinking to myself, well, 3000 bucks.

And this is pre COVID obviously, because $3,000 to hire an employee now would seem crazy. But I'm like 3000 bucks. I'm like, I don't know. But then you start thinking about where can you allocate your time when you get yourself out of those weeds. But I would say that the first thing that was kind of a harder concept for me to understand is that essentially you could remove yourself from the business and kind of like the more weedish area. And you can put somebody that's maybe more

qualified for that to move yourself into an area in which you could get more leverage out of your time. And in the beginning, was hard for, that was something that was hard for me to grasp because I just wanted to save every penny that we made.

Jon Blair (08:24)

It's hard, man, that is literally the hardest, in my opinion, that's the hardest part about being a founder who starts something, you know, themself or with a co-founder or co-founders and then starts to scale and needs to multiply and actually build a business that operates without them. That's the hardest thing and I've actually found, like to take that a step further, I've found the hardest things to delegate, things that I'm still good at.

but at that point in the business's life cycle, I shouldn't be doing them anymore. I feel like it's easy to delegate stuff that you're not good at and you don't like and you're just like, I need to get this off my plate and it's so clear someone else can do this better than me, but some of the harder ones later on down the line in my experience are like, hey, I've already delegated away all the stuff I don't like and that I'm not good at. Now I've actually got some stuff that I'm good at and maybe like a little bit, but I'm no longer the one that should be doing them and those ones are really, really tough.

Randall Thompson (09:17)

Yeah, I can I can relate with that in a big way

Jon Blair (09:22)

So

what was like, what did the marketing playbook look like that worked for you guys? And I mean, I'm sure it evolved over time, but like, you know, I think obviously in this day and age of Ecom, marketing profitability is like, you know, the talk of the town, so to speak. What were some of the things that worked for you guys as you scaled from a marketing perspective?

Randall Thompson (09:44)

Well, think anybody that operated within e-commerce from a long enough time horizon kind of understands that there was pre-COVID and post-COVID. And you can't really have the same conversation about what worked in marketing and what didn't work in marketing when you're talking about pre-COVID and post-COVID. And then even in COVID, so pre-COVID, in COVID, post-COVID.

Jon Blair (09:57)

for

For sure.

Randall Thompson (10:04)

So I was fortunate enough that I was creating products that were our USP. So was like, we weren't really competing against anybody. And there wasn't any sort of secret sauce that had to go into what we were doing. We were relatively early to Facebook. I mean, not like crazy early, but relatively early with a unique product. And...

It was priced decently and I would say before 2020, all we really had to do was just share the product with anybody that was consuming anything on social media and especially in Q4 during gifting times. Just things just kind of converted and things just kind of worked. Of course you have all your fundamentals of like email flows and SMS probably didn't show up until I don't know 2019-ish.

But yeah, you have all your fundamentals. And then COVID showed whatever I just said, just put it on steroids. like, like, it like, it like really worked. And it wasn't until probably 2021 to

Jon Blair (10:53)

Yeah, for sure. I know. I know.

Randall Thompson (11:03)

when I actually sold that I feel like I didn't actually know what I was doing. And I think, I think, you know, there's that psychological thing that like, the more you know, the more you realize you don't know. Um, I don't think I really started learning what was working on the marketing side until I really had to figure out how to actually like make the marketing work. Um, so I would say in between 21 and 23, what

Jon Blair (11:14)

Mm-hmm.

Randall Thompson (11:28)

What was actually the single best marketing tactic that I had is actually understanding how all the numbers work within the business. And I think that's kind of like the missing ingredient for most marketers. Launching a Facebook ad and like diversifying your creative. I don't really believe that you should diversify your traffic sources until you get up to a much bigger number.

Really, would say like one of the biggest unlocks is just understanding the relationship that all your numbers have with each other.

Jon Blair (11:59)

Totally. Yeah, and I mean, I'll even take a step further. It's funny that you brought the discussion to this, because the next question, which we'll dive into in a second, but it was that I had prepared beforehand and not told you about, was did you ever feel like you knew what you were doing? Because, the reason why I'm saying that is because, I have been a part of a founding team, again, where we had a background, a formal background in school and business, but never scaled an Ecomm brand before and we were pre-COVID, during COVID and post-COVID went through that same evolution as you did. And it's funny that you mentioned the kind of 2021, 2021, I spent that entire year, even though was the CFO, spent that entire year with our VP of marketing, trying to figure out, like really try to understand how our acquisition and retention really worked.

Randall Thompson (12:49)

Yeah, what the hell is going

on?

Jon Blair (12:51)

You know, no, I'm not even joking. So

I had the exact same experience as you, but going a step further when you're talking about like how all your numbers work together for us, and I'd be curious to have you chime in on this as well. It's like for us, it's not just understanding the unit economics, like the margin, the economics of an order. It was also the cashflow side of things. Like, because you can technically turn, there's this kind of rule in finance that like you can afford to live on a lower margin.

right, per order or per unit, if you turn your inventory really fast. So like the higher your margin per order, the lower turns you can have on your inventory and vice versa. That's why grocery, like grocery, generally speaking, grocery retailers, super low margins, but they keep their inventory turns are like crazy fast. So it's actually not, you can't look at the cash, you can't look at the profit impact without looking at the cashflow impact. And when you have marketing sitting in the middle of that,

right, of like how much are we willing to pay in marketing dollars to turn a unit of inventory. You really have to understand all of those. Do you agree and like do you have anything to add to that?

Randall Thompson (13:57)

Yeah, so dugout mugs, it started out with the barrel of a baseball bat turned into a drinking mug. A wooden barrel of a baseball bat turned into a drinking mug. The supply chain to get it to us was super simple and we could turn it up really fast we could turn it down really fast and it didn't really hurt to do either of those.

And then we introduced a product where it was the metal barrel of a baseball bat turned into a drinking mug or like a tumbler. And we were ordering those from China and we had to get predictive on how much inventory we're going to, it was, it was a disaster. it changes, it changes everything. I'm like, I never want to do this ever again in my life.

Jon Blair (14:29)

Totally.

That changes everything, right? That changes everything.

Randall Thompson (14:37)

And so that's when you start to realize that the cash allocation to inventory, when you can turn it up really fast and turn it down. And especially when you're selling 95 % of your sales are online, you you're getting your cash quick. You're getting your cash back quick. The one thing I, I learned the hard way is just.

relying on the fork, relying on what was going on in our business in 2020 and 2021, making big bets on Chinese manufactured goods, and then just having a bunch of inventory sitting there and being like, okay, well, this isn't moving anywhere like we thought it was going to. And then, yeah, then you take another step out of it and you start saying, okay, do we liquidate this inventory? Do we kind of sit around and just wait for something to happen? Do we come up with offers? we come up with promotions? Do we go to retailers and slash?

it.

So yes, there's a whole other calculus and this is kind of the point I'm making is that you're sitting at in 2019 with a good product and you're just sharing it with people on social media and it's doing well and you're making great money and you think you just know stuff but then you just don't know anything you know.

Jon Blair (15:46)

For sure.

I've seen that story play out so many times. Okay, so I'm curious your take on this. Because I have a pretty strong opinion that I've formed over the years of seeing this exact dilemma again and again and again with the, you know, I think Free to Grow has probably worked with, we've worked with like over 65 or 70 brands over the years. And then plus my own experience at Guardian Bikes.

I'm starting to have like a pretty strong opinion about like whether I'd rather, if given the choice, would I rather stock out of inventory and figure out how to get inventory back in, like back in stock as quickly as I can or like place a big bet and order way too much and get stuck with it because I'm trying to like maximize sales or maximize margin dollars. You looking back, like what is your, what is your take post exit, right? On like, how a frayed brand should be to stock out versus the alternative of being in way too high of an inventory position.

Randall Thompson (16:42)

I've lived both pains and I think that the over overstock of inventory is a far greater pain and There's a longer tail on it and the end of that the end of that tail Turns into a spiral versus like when you when you under order the best thing I mean

Jon Blair (16:51)

that's a great point. That's a great point.

Randall Thompson (16:59)

Best case scenario is you just slow down your spin and you get more efficient and your profit goes up. You're not going to have nearly as much volume. But in 2020...

It was the opposite for us. We didn't realize the power of what was ahead of us. And we underordered, but it still created this unbelievable scenario of like we were in like the beginning of November and we're like, Hey, we got to slow down or we're going to be out of inventory in like 20 days. And then we're not going to even reap the benefits of the first 15 days of December.

So yeah, in my experience, looking back, I would always want to place more conservative bets. don't want to say safe bets, but more conservative bets.

Jon Blair (17:43)

For sure, well, the long tail that you just mentioned is a really important point, because I have helped numerous brands who got overstocked coming out of Q4, right size their inventory over time, and the long tail is a real thing. It takes 12 to 24 months, or at least in my experience, I've had inventory turnarounds take 12 to 24 months, and it's painful, and it's painful, it's slow, it...

keeps you from moving in other areas of your business, right? That you would like to move, it like kind of almost turns off the ability to innovate, because you're just worried tactically on getting inventory back to where it needs to be. And so the alternative, I mean look, let's be honest here, like we're humans, there's emotion involved in this, there's cognitive bias involved in like the fear of missing out, right? And the fear of lost sales. But as I've seen,

Randall Thompson (18:19)

That's right.

Jon Blair (18:36)

is I've been through numerous Q4s, if I multiply that across all the brands that I've served during Q4, it's dozens, right? And like, I would rather a brand run out of inventory than have an overstocked inventory position. Keep in mind, if you have a CFO or like someone sophisticated with finance that can help you think through the real risks, right?

There are ways to get creative with what kinds of capital you use if you structure it the right way, but the most risky bet that you could take is a huge bet with a big order size because you're trying to say get per unit cost down, right? Which usually means probably another country you're ordering from long lead times, you gotta get predictive like you said, but then if you finance that with short term debt, which so many of these brands do, that's like the riskiest combination, right? And so there are less risky

combinations to place bets. In fact, I think you and I were going back and forth on LinkedIn earlier today talking about like the concept of placing bets. I've been trying to talk a lot of my content about how scaling is really just a series of bets that you're placing because none of us have it all figured out. We don't know what's going to happen, but the key is factoring risk into the bets, right? So like, again, looking in hindsight, you scaled a brand, you went through

pre-COVID, during COVID, post-COVID, exited. When you think about like risk adjusted bets, what's some of the advice you have for a founder who's currently trying to scale their brand right now?

Randall Thompson (20:03)

Oh man,

Risk to me is not the same as risk to you. You know, I was highly allergic to debt. Never took on debt the whole time that we ran Dugout Mugs. We just funneled everything, all the profits back into what we were doing. And advice that I would give for people that are placing bets, you know,

I don't know if you can really, like, advice people to logic.

You can obviously, can look at the numbers and you can play a number out one way or the other way and then kind of meet in the middle of those two numbers. I was writing about this the other day that there's essentially a heartbeat to your business. There's some sort of pulse to your business. And when you're in it every day, you can kind of feel that pulse and you can kind of understand where the business is going. You can definitely use Historics.

I think that's what screwed everybody up during COVID. Everybody just kept relying on these historical that just like were not realistic. And you can rely on historic numbers. You can kind of look at trends within a 90 day window. You can even look at a trend on a month to month basis. You can look at it, back it up a year, back it up year, year over year over year. You can kind of just kind of see what the trend line is. But I think.

Jon Blair (20:50)

Totally.

Randall Thompson (21:12)

as much as there might be like mathematics that you can put into it, there's also just kind of a feel that you have to have kind of understanding where your business is going. And I think that's kind of rooted in logic. And I think it's kind of hard to just give, I guess, blanket advice to somebody that might not have that logic. I would say probably.

Probably, get yourself surrounded around, around people that kind of keep you grounded because it's really easy to drink the Kool-Aid whenever you feel like everything's going up to the right. And, the more you can stay grounded, the more you can kind of zoom out, zoom back in, zoom out, zoom further out, zoom back in, kind of really look at every angle, say here's best case scenario. Here's worst case scenario. Where's the middle and kind of just model a bunch of different things out. Have good conversations with people that.

Jon Blair (21:43)

Totally.

Randall Thompson (22:00)

understand

the pulse of the business, have conversations with people that don't understand the pulse but understand business, and just talk through it a bunch and then just in your gut, whatever feels right, just go with it and maybe just shave off like five or 10 % just in the opposite direction just to make yourself a little more safe and just go for it.

Jon Blair (22:22)

I think that's great advice, And to build on that from my perspective, I think it's a lie for people to think that there's like a perfect number or calculation or threshold for any decision. Doesn't matter if you're talking about profit, cash flow, marketing, whatever, right? It's more about understanding.

conceptual frameworks that can have, like there's, there's this finance, kind of content creator I listened to. works at Charles Schwab, like investments actually. And she just always talks about, look, directional trend of a given framework or is more important than where it's at. Like I will never attempt to forecast right. Where a KPI for the economy or a market is going to go, but the trend usually leads me in the right direction. like.

up or down direction is important, but then what are just some of the other indicators that indicate really where risk and reward might lie? But the reality is an entrepreneur makes decisions with incomplete information, always, right? And all the, I think you really, you gave good advice about like having the right people on your team, whatever, in your network, in your circle, whatever you want to call it, that can help you see conceptual frameworks that

you don't see as the founder, right? Because we all have blind spots. We all have strengths and weaknesses. like, so anyways, I think that's very practical advice, because that's the reality. one unique angle I think our firm is taking on finance, and I try to talk about this a lot, is that like, it's not about, like, I'm so, I'm actually tired of like CFO firms that are like, I will forecast what's gonna happen. No you won't. Rule number one of forecasting is every forecast is wrong.

Right? CFO does not exist to help you forecast what's going to happen. They help you understand the cause and effect relationship between if this is true on the input side, this would be true on the output side, and here's where the risk is lurking. Right? And if you can make the team aware of that, they can make imperfect but better decisions. I'm curious to get your thoughts. Like, where was finance and accounting

How important was that to you guys as you scaled? and what are some things that come to mind about the importance of finance and accounting as you're scaling a brand?

Randall Thompson (24:40)

Yeah, it became incredibly important as things were down sloping. You know, when everything is working, it kind of just works and you kind of just allow it to work. And then as things kind of go down, you kind of go, okay, I need to really understand this. Definitely from a daily snapshot. I think that's what changed the most as things kind of started to down slope is plugging your numbers into whatever tool it is you use to really understand on a day to day basis what's actually going on in your

business and then that kind of helps you with the heartbeat of your business and then that allows you to make decisions in real time of what makes the most sense. And I think, let me go a little bit higher level real fast on like placing bets. I think what...

The Kool-Aid that I drank when I started this business, when I started Dugout mugs, I was 25 and I was like, I'm going to sell this business for 50 million bucks. You know, and, and I looked back on that. Well, and I kind of operated with that mentality until I had my son and I slowed down for the first time in probably like eight years and I was just rocking him in the middle of the night. I'm like, what am I doing? And, uh, and I think, I think

the real conversation you should have with yourself on how much bets you should place is like, how much is enough? ⁓ then model for that. And so anything that I start next, I have the number in my head that I wanted to get to.

Jon Blair (25:56)

Hmm.

Randall Thompson (26:04)

And I know that like my life of $50 million is not going to be like, I'm not, uh, I'm not somebody that needs a yacht or, know, I don't need, I don't need these things. I kind of know where I want to go. I know what the number I want to, I want to get out of it. And I just want to structure things accordingly. And so when you don't owe debt to people and you don't have people that invested in your business and you don't have to do certain things, you can just say, here's my bet. And I know if I hit this and it's going to be relatively easy to hit it.

me and my family are gonna live a great life. And I think that's kind of the sweet spot of all this is place the bets up what you need or what it is you need, what number do you need, what number do you want and place those bets. But yes,

Jon Blair (26:50)

amazing.

Randall Thompson (26:52)

That's part of it. You're obviously familiar with four quadrant accounting. Just being able to move the numbers into each one of these quadrants and just understanding how each one of these numbers works together in order to get to the profit number that you need is like the thing in my mind.

Jon Blair (27:08)

love what you were just saying though about aligning your bets. And I would even say it another way, I'm big on the guiding principles of business. Personally, I'm a Christian, and part of the reason I started Free to Grow CFO was to be able to lean in more into building a business that does good in the world. And one place that I...

I thought to myself, like, where has God placed me that I can make the most positive impact? And like for now, it's finance for Ecom brand founders who are not finance savvy and focused, they're product guys, they're marketing guys, whatever, right? And so I can come make their life better, impact their life in a positive way. And if they scale, in fact, impact all the customers that that brand serves over time, right? And so the kind of aligning your

bets or your growth strategy or just like what your day to day looks like as an operator and entrepreneur with your why, with your purpose, with what you're actually trying to get out of life. That is actually truly what it's all about. It's funny you mention that because I don't talk a ton about exits, not because I don't want brands to figure out how to monetize their business, but because I think that's sensationalized.

in the business world and definitely in the e-comm world. And I don't want people to feel like they should sell their soul to try to get a big payout that might happen but might not happen, right? And instead, enjoy the journey. That's the reality is like we're on a journey here and like there's no guaranteed outcome for any of this. But at the end of the day, right, like life's gonna come to an end and we gotta have enjoyed the journey. And I think, I think,

business owners and entrepreneurs are uniquely positioned to make, to like create a really awesome journey for themselves and the other people that join the ride with them. So I actually, I actually wanna, I wanna talk about something really quick here that I see you talk about in your content a lot, is the, which is faith. I see you a lot say, keep your faith. And there's a lot of faith inherent in some of the kind of like,

advice and concepts you've brought up here that like, you don't really know the answer, you gotta keep the faith, I hear that in what you've been saying to me. Why is that so important to you? And what do you want the audience to hear about the faith of being an entrepreneur as they're scaling their businesses?

Randall Thompson (29:29)

I don't know if it's like just me, but I just know that like any time I've worried, shouldn't have worried. Ray Dalio says if you're worried, you don't have to worry. yeah, it's a good quote. But essentially, I don't know.

Jon Blair (29:43)

That's great.

Randall Thompson (29:47)

Everything's always just worked out the way that it needs to work out and you kind of need, you need that reminder.

when you feel like you're maybe underwater in a business or like you feel like everything's not going to work itself out and you kind of just need that daily reminder that it all works itself out. so, yeah, faith could be God-based. It could just be like, you just have faith that it's just going to, that everything's going to work itself out.

And if you don't have that, then you don't really have much. And for me, it goes faith and then fitness, so taking care of my body and my mind.

If you kind of live in this perpetual hamster wheel of just everything's going to kind of fall apart. So what would be the point of me taking care of my body? And then, you know, the next is family and you can just keep going on that if you just don't have this steadiness within you that no matter what's going on right now, whether bad or good, no matter what, it's going to be okay. If you don't have that steadiness within you, nothing else really matters in my mind.

Jon Blair (30:32)

for

Yeah man, I couldn't agree more. And furthermore, as an entrepreneur, you make so many decisions in... Well, you never make a decision with 100 % certainty. So every decision you're making is with some level of faith. I mentioned to you before I hit record that the book Think and Grow Rich, which is like a classic, I read it for the first time recently. This is why it's so fresh. I read it a couple months ago. And one of the...

One of the 12 core tenants that Napoleon Hill talks about in there of building wealth is actually faith. And he talks shortly thereafter about persistence. And the thing is you can't have persistence in anything without faith because you don't actually know while you're in the middle of it that it is working out. It doesn't always, it oftentimes doesn't feel like it's working out. You can usually only see it's working out in hindsight, right? And so what keeps you moving along the way

is faith, so I love that man. Look, I wanna ask you about one more question, and that's you decided to exit. What I want to hear from you is like, what was surprising about the exit process that you were not expecting, that you think would be helpful for our audience of e-comm brand founders to hear about?

Randall Thompson (31:58)

Like while in the process of selling or like post like coming out of it.

Jon Blair (32:03)

In any of it, yeah, yeah, I mean either man. Like what was surprising? What was something that you like thought it was gonna be a different way and you got there and you're like, man, I did not expect this.

Randall Thompson (32:08)

Yes.

Well, you know, I'm I was obsessed with my business and I'm saying that I'm very much a family man. I'm always there for my family. But hobbies now don't have any.

Friends not not really, you know, I loved my business. I love my family And I probably worked in my business ten hours a day Early mornings is what I love to do and then just kind of be done by by five in the afternoon And every once in a while check in on Saturdays and Sundays. It was just something that I love to do and You don't really realize how much? Passion and direction that gives you as somebody that

you know, sinks their life into something, you kind of get to the other side of it and you go, what the hell am I supposed to do now? And so you don't really realize that until it's like...

you're not doing it every day. So I would say that that's probably been the most interesting part of this process is, and people tell you that, a lot of people tell you that, if you sell for a relatively significant amount of money, you're gonna kind of look at it you're gonna go, okay, now what? And I'm 36, I sold it when I was 34.

So yeah, just a man needs a vision and a man needs to wake up and attack that vision every day. And I think ideally a man as he's attacking that vision, it provides for his family in a big way.

And I think all those components, if you can wake up, go after a big vision and that big vision provides for your family. I think it provides, it just gives you a whole, just a light inside of you that can't be replicated through, through much, not, can't really be replicated in my mind through pretty much anything. So, yeah, I would say that just having, not having that would probably be one of the weird parts of this process.

Jon Blair (34:02)

For sure, that makes sense, man. I know as a, know, having been in the e-comm brand space for, man, going on like 12 years now, it just starts to become ingrained in you being an entrepreneur and just what it takes, being an operator, you know, on a day-to-day basis. So I appreciate you sharing that, man. I gotta say, today's conversation was fantastic. A lot of just like real takes from you.

And that's honestly what I was hoping for, man, because I think scaling and exiting a brand, again, it's sensationalized out there in our world. And it's a great thing and congrats to you. And it's like such a cool story. But at the same time, we're all people, right? That are on a journey. And I love that that came out in this conversation. And I think you just like provided a lot of like real, like just real advice for people. So I appreciate you coming on, man.

It was great to have a chance to chat with you and look forward to hopefully being able to get to know you better as we continue to rant on each other's content. Before we land the plane here, I've been following your content. That's how we met was on LinkedIn. Where can people follow you LinkedIn or otherwise? How can people get in touch with you and follow your content?

Randall Thompson (35:13)

Yeah, it's just LinkedIn. Randall Thompson's my name and LinkedIn's the only place really.

Jon Blair (35:18)

Awesome. RT. Well, thanks, Randall. I appreciate you coming on, man.

Randall Thompson (35:21)

Yeah, thank you for having me.

Jon Blair (35:23)

Don't forget, if you liked today's episode, please hit the subscribe button wherever you're listening and leave us a review. It helps us reach more people like you. Also, if you want more tips on scaling a profitable DTC brand, follow me, Jon Blair on LinkedIn. And if you're interested in learning more about how Free To Grow CFO can help your brand increase profit and cashflow as you scale, check us out at freetogrowcfo.com.

Wealth Building and Tax Strategy for eComm Brand Founders

Episode Summary

In this episode of the Free to Grow CFO podcast, host Jon Blair speaks with Rolando and Raul Lopez of CFO Associates about the intersection of tax strategy and wealth building for e-commerce brand founders. They discuss the importance of proactive tax planning, the benefits of real estate investment, and the nuances of various retirement accounts. The conversation also covers entity structuring and key tax strategies that can help DTC brands maximize their profits and minimize their tax liabilities.

Key Takeaways

• Real estate can be a powerful tool for building wealth and reducing tax liabilities.

• Qualified real estate professionals can offset active income with losses from real estate.

• Proactive tax planning is essential for maximizing wealth.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Rolando Lopez- https://www.linkedin.com/in/rolandolopezcpa

Raul Lopez - https://www.linkedin.com/in/raul-lopez-764026a5/

Free to Grow CFO - https://www.freetogrowcfo.com/

Meet Raul Lopez

Raul Lopez is the Chief Financial Officer of his firm, where he oversees daily operations, client onboarding, compliance, financial management, HR, and employee development. With nearly a decade of experience in accounting, finance, and client advisory, Raul brings a deep understanding of both business operations and long-term wealth strategies.

In addition to his role as CFO, Raul is a licensed Florida real estate broker and has held his license since 2016. He is the Founder and Principal Broker of LPZ Realty, a brokerage firm dedicated to helping clients buy, sell, and invest in real estate using tax-advantaged strategies to grow and preserve wealth.

Meet Rolando Lopez

Rolando Lopez Founded CFO Associates 11 years ago to provide client accounting, tax and financial planning to Private Equity Firms, Closely Held Corporations, and Family Offices in the Real Estate, Hospitality, eCommerce, Technology and Healthcare industries. Helping them plan their future goals, exits, and how they will get there. By outsourcing accounting and back-office to clients his firm is able to improve financial reporting, receive better tax planning, and consolidate all of their financial questions and needs to one source and point of contact through their assets' lifecycle.

Rolando is a licensed CPA with advanced expertise in US GAAP, tax planning, transaction diligence, auditing, real estate accounting, and inventory accounting. I have worked with companies of various sizes including Fortune 500 Enterprises, but have found that my true passion is working with small and medium size investment organizations where in many instances the financial infrastructure can be strengthened to save and preserve owners and investor money.

Transcript

~~~

00:00 Introduction to CFO Associates and Their Mission

04:19 Wealth Building and Tax Strategy for E-commerce

12:50 Understanding Depreciation and Its Tax Advantages

19:33 Retirement Accounts and Their Benefits

26:25 Entity Structure Strategy: S-Corp vs. Sole Proprietor

30:21 Understanding Tax Strategies for LLCs

34:47 Entity Structuring and Its Importance

35:23 Maximizing Tax Benefits for E-commerce Brands

39:54 Navigating Cash vs. Accrual Accounting

40:12 The Dynamics of Family Business Partnerships

Jon Blair (00:00)

Hey everyone, welcome back to another episode of the Free to Grow CFO podcast where we dive deep into conversations about scaling a profitable DTC brand. I'm your host, Jon Blair, founder of Free to Grow CFO. We're the go-to outsourced finance and accounting firm for eight and nine figure DTC brands. And today I'm super stoked to have a duo on the show. I think you guys are actually only the second ever duo. Rolando and Raul Lopez, welcome to the show guys, what's happening?

Rolando Lopez, CPA (00:28)

Thank you, Jon. Thank you. Appreciate you having us.

Raul Lopez (00:28)

Thank Thank you for having us on.

Jon Blair (00:30)

Yeah man, okay so, brothers, right? And running CFO Associates. Who wants to jump in and just briefly introduce CFO Associates? What do you guys do?

Rolando Lopez, CPA (00:40)

Yeah, so we're a CFO and tax advisory firm. We have two offices, one in Tampa, Florida, one in Puerto Rico. We also know a program down there called Act 60, which is a big tax strategy for people. So, you know, me and Raul, as you mentioned, we're brothers. We were actually born in Havana, Cuba. So, you know, in hindsight, it's a privilege to be a CPA and run a CPA firm with my brother, ⁓ being in this country.

So we do have that perspective as accountants that we really do enjoy entrepreneurship overall. And Raul is also big in real estate as well.

Jon Blair (01:13)

Yeah, yeah, so Raul, you do a little bit on the broker side of real estate,

Raul Lopez (01:17)

Yeah, yeah.

So as Rolando mentioned, we help a lot of clients on the tax planning side, obviously on the control ship and accounting side as well. But I have my broker broker's license in Florida. And to be honest, we love helping clients. It's easy to digest the P &L and see, hey, you're renting here. Let's make sure we can get you into a building that you own and you can pay yourself rent. So we definitely like to see that and analyze that with all of our clients.

Thanks.

Jon Blair (01:46)

Yeah, so, okay, so elephant in the room, people are probably going like, wait a second, you're bringing other fractional CFOs onto the show, right? And like, so let me explain how we know each other and why this is actually gonna be a really great conversation. So we actually originally met through a mutual client in which CFO Associates was providing bookkeeping and tax advisory. And we provide ⁓ to this particular client CFO services.

Rolando Lopez, CPA (01:55)

Yeah.

Jon Blair (02:11)

⁓ obviously as you guys know, with our focus on DTC we go really deep into specific areas around like marketing and ad spend and some other things. But what we found, what I found is, ⁓ I get asked constantly actually probably more than any other, like, I think I get asked most frequently for one recommendations to ad agencies because of our focus in DTC and then two tax advisory. Right. And I, but I always get asked specifically.

about like a tax advisory firm or a firm that does tax advisory that understands e-comm, right? And I've searched high and low and had a lot of challenges with finding said firm, met Raul and Rolando, and we've kind of found this really great, you know, ⁓ ability to partner on getting people referred over to a tax firm.

CFO Associates, I know you guys do other things, like in part tax advisory, and they have an e-comm practice, right? So they work with lot of e-comm brand founders, which is super key. But then we kind of bonded on this second thing, like Raul was mentioning real estate investing. Something we've talked about on the podcast before is using your business to build wealth without putting all your kind of, putting all of your wealth in a potential exit.

Right, so what we're gonna talk about today is wealth building and tax strategy for e-comm brand founders. More specifically, the connection between tax strategy and wealth building strategy. Why is this important? Because the less you pay in taxes, the more money you can invest in building wealth faster. So before we dive in to this, can you guys just give a brief background on like,

Rolando Lopez, CPA (03:39)

Absolutely.

Jon Blair (03:54)

what your kind of perspective or passion is around wealth building plus tax advisory.

Rolando Lopez, CPA (04:00)

Absolutely, absolutely. know, part of wealth building tax planning has to be involved, right? And especially once you have a cash flowing business, the most important part is how do you keep the most in your pocket or reinvest it back in the business? The way that we look at a client is based on their assets in their specific business. In this case, you know, DTC clients that we're talking about today. What are the tax code and areas that you're able to leverage now out there in social media? You see a lot of people, you know, buy this, buy that.

Ultimately, what's really important is what are the assets and what are the low hanging fruit for that specific client that we're looking at. And what we like to do is, you know, on a quarterly basis is, you know, show them, Hey, year to date an example, Jon, when we work with you, right? We get your P&Ls from you guys. We say, year to date, you're here. This is how much you owe if you do nothing. However, there's these four or five things that are available to you based on the assets, based on the things that we've discussed and the goals that you have. And so that's how we kind of really customize the tax planning.

for that specific client because, you know, I tell people this, a lot of times when somebody comes for tax planning, it's not that their CPAs aren't bad, they're just not approaching it in this manner. And they're only touching base with them once, maybe twice a year when they reach out to them. We in our planning engagements, we schedule out four to five calls throughout the year. Whether, you know, we pull you into that, we pull the numbers, we calculate it for you and put it in front of you so you're aware. And that's ultimately what even leads to being able to strategize, right? Because without that,

Jon Blair (05:05)

Mm-hmm.

Totally.

Rolando Lopez, CPA (05:24)

then it's kind of, it makes it very difficult, you know, in hindsight when everybody comes at tax file.

Jon Blair (05:29)

Totally. It's

already done. You're like, man, I wish I knew the tax year is already over. And you're like, if we had talked earlier, right, what we could have done, right? And like, so being proactive is super key. I want to ask Raul, and then maybe I'll ask the same question to Rolando afterwards, but Raul, okay, this is like editorial, your opinion. We're talking about tax efficient investing strategies for e-comm brand founders to build wealth. Real estate, stocks, or something else if you had to choose one.

Rolando Lopez, CPA (05:34)

Exactly, exactly.

Raul Lopez (05:35)

Correct, yes.

Yeah, without a doubt, I'm gonna say real estate a little biased,

We've seen multiple of our clients build wealth this way. But also, you know, for DTC companies in general, if it's possible for you to buy a real estate building in the United States, as everyone I've seen this year, there's been a lot of variabilities from tariffs, you know, even cutting lead time. Right. If you have your own building in in the United States, you don't have to prepay for three to six months. You can keep that cash flow for ad spend or whatever you need.

while you're paying yourself rent as well, right? You're already paying rent to someone else if you have a brick and mortar, but if you can pay yourself rent while then creating that wealth and also being able to use depreciation, which is a non-cash expense, to lower your tax bill is definitely the number one way to go, in my opinion, specifically.

Rolando Lopez, CPA (06:47)

And Jon, because we have access to our clients' P&Ls, like this is a good example of where Raul, you know, a good case study, where he identified a PNL like that, and Raul, I'll let you explain it, you know, how that client ended up.

Raul Lopez (06:57)

Yeah,

yeah, absolutely. They were paying rent for literally 10 years. They've been paying rent to somebody else and I came to them and was like, hey, you guys are paying literally $14,000. You can buy yourself a million dollar building, pay less in rent and less of an expense to your business while also building wealth by owning an asset that's most likely gonna appreciate long term. So that's definitely a great case study that we saw.

Jon Blair (07:19)

sure.

Well, okay, so I wanna highlight something. hear a lot of, I have a lot of brands who've come to me over the years and been like, hey, should I go spend my money on this to lower my taxes? But I wanna bring up a key distinction that you made in your example, right? Which is, were you gonna spend money on that already? Or are you just looking for something random to spend money on, lower your taxes? Those are different things. And unfortunately, there are a lot of tax advisors out there

Rolando Lopez, CPA (07:44)

Exactly, exactly.

Jon Blair (07:51)

who are like, tell people to go buy things that aren't necessarily good investments. And they're like, it'll lower your taxes. where, in my opinion, generally speaking, where it's really advantageous is if you were gonna spend that money anyways, but you can structure it in a way that one, builds wealth, two, is tax advantage potentially in another way. And that's a perfect example, swapping out a lease expense for a mortgage payment, right? And amongst other things,

like appreciation plus the mortgage pay down, right? You're building equity, whereas you're never building any equity in a lease payment, right?

Rolando Lopez, CPA (08:24)

top of that.

Raul Lopez (08:27)

And you have exactly, you have other options too, right? You can leverage that building. If you need to take cash out, refile, you don't get tax on refinances, right? If you need to take that cash and put it into somewhere else, or if you are gonna sell your business long-term, you could always keep the building and always collect rental income on a business that you know is cash flowing and is gonna be able to pay you rent, right?

Rolando Lopez, CPA (08:41)

Exactly.

Jon Blair (08:42)

Totally.

Oh, so I know a

guy, check this out. This is like, he's a family friend. He's kind of bad ass. He ran this, he ran this, uh, roofing supply distributorship for a long time, for like 12, 13 years. And he opened up locations all around the country. He didn't, don't think he necessarily owned the real estate and all those, but he did own the yards where they were like bringing in all the materials and then distribute them. He sold the business for hundreds of millions of dollars.

But he did not sell the real estate and actually the, the acquirer rents it back from him still to this day. And so that's, I mean, as a, Yeah.

Rolando Lopez, CPA (09:15)

real estate. It's still getting checked.

That is the best position to be in. Yep, yep. And it's mailbox

Raul Lopez (09:20)

Yep.

Rolando Lopez, CPA (09:25)

money after your cash out, right? It's the best.

Jon Blair (09:27)

Exactly. Exactly. Well, okay. So

there's another thing I want to double click into that you just mentioned about the, ⁓ the ability to leverage, but change the leverage on the asset, the real estate asset over time. Cause this is, I think a big thing people missed. That's a distinguishing factor between, ⁓ investing in say index funds in the stock market and investing in real estate. This doesn't make one better than the other, but there's a key lever you don't have.

in investing in the stock market, right? Which is like, and this is kind of the game I'm playing with my personal real estate portfolios. Like I'm buying rental properties that even though interest rates are high, they've been in like the sevens, right? I'm finding deals that still generate some cashflow, right? But at some point when real estate, when I can refi those at maybe five and a half percent, I can pull out a good chunk of change actually. Those will still cashflow. Well, I can do one of two things.

I can either refi and just crank up the monthly cash flow, right? Which may get me closer to retiring. Or if I'm still in acquisition mode, right? Or I have other places where I could put that capital if I do a cash out refi, I can get that money out, like you said, tax free, right? That ability to adjust your leverage over time is a massive, wealth building tool that you don't have with stocks.

Rolando Lopez, CPA (10:51)

Exactly. Exactly. Well, and look, in the example that Raul gave to Jon, this person had been paying rent to your point. It was in their P &L. And I say this to people, the easiest way to be a vertical business, if you're paying rent, go buy the real estate you're paying rent in. You're effectively, you know, making the real estate part of that. And on the end, you have that leverage to say, hey, here's a triple net lease with the building and then sell the business. And now you're just collecting the rent like your buddy was doing. And we see that as well on our end. And it's a great strategy. And that's why it's...

Jon Blair (10:56)

Totally.

Totally.

Rolando Lopez, CPA (11:19)

If you're going to make an investment and leap into real estate, at least you should do it in a property that you can control, that you're operating and you're running your business out of. You understand it. And that derisks it a lot too, right, Jon? Because a lot of people, that is the fear, the fear of a lot of money up front for real estate. Well, then buy your own building. You're paying rent to somebody else. And so that's how we look at that.

Jon Blair (11:24)

Totally.

Totally, totally. I wanna ask

you, I wanna ask you a little bit more about depreciation, right? Cause that was another thing. That's another key. we talk, when I think about the tax efficiency, right? Of real estate, depreciation is definitely a key part of that. Can you just really quickly run through high level how that works and why it's tax advantageous? And then I do wanna go after that a little bit deeper into cost seg.

studies and you know accelerated depreciation but how does that work and why is it why is it tax advantaged?

Rolando Lopez, CPA (12:07)

So I'll talk in the context of commercial because that's what DTC would probably owner would buy, right? So commercial real estate is depreciated over 39 years. Now that means if you buy a building for a million, you don't expense a million this year. You take it and less the land. You got to allocate some to land. You divide it by 39 years. Now currently with the new updates to the tax code, you now have a hundred percent bonus depreciation, depreciation back all the way to 2029. So instead of depreciating over 39 years, you can do what you were mentioning. Jon's called us cost segregation.

which takes that same building and breaks them down to smaller asset components that accelerates the depreciation forward. Now all of this is a paper expense, right? You're not outlaying any more cash or any less cash. It's all a paper expense. And the beauty about real estate is even if you leverage to buy the property, meaning taking out debt, you still get the same amount of depreciation, right? And that's where the beauty of what I like to call phantom income,

⁓ occurs because in a scenario that Raul was explaining that person is now that client of ours now paying rent to her herself and her and her husband's building and then now that depreciation is offsetting that income, right? So rather than now, you know paying it to somebody else they're creating wealth and saving taxes at the same time.

Raul Lopez (13:17)

Right,

but also, you know, what Rolando is saying is, in layman's terms, right, let's say you make $100,000 in your bank account, you have $100,000 from your rental property. On your taxes though, you get to depreciate, for example, to make it easy, on this example, really, let's say your depreciation for that year is $100,000. Well, on your tax return, you netted $100,000, you have $100,000 in your bank account, but on your tax return, you're actually gonna show zero, no income that year.

Jon Blair (13:43)

zero.

Rolando Lopez, CPA (13:44)

That's

Raul Lopez (13:45)

⁓ That's the

Rolando Lopez, CPA (13:45)

the Fanta Income, right?

Jon Blair (13:45)

Well, yeah. And so, well, and what you're talking about with leverage, I'll explain this another way is let's say you're buying a million dollar building, but you only put 10 % down. So you, you outlaid a 100 K. You actually are going to be able to depreciate. Well, you got to back out land, but more than a 100 K the full value, right? Even though you use someone else's money to purchase it. And the beauty that, well, let's, let's actually, I want to ask you Raul about

Raul Lopez (13:46)

infantum income Rolando was talking about.

Jon Blair (14:12)

Let's say someone is an ecom brand founder, they're scaling, they're taking cash out in the form of distributions and they're buying rental real estate. Walk me through the example of how depreciation works with residential real estate if you're doing buy and hold and maybe there's positive cash flow, but tax, from a tax perspective, it's even better because of depreciation.

Raul Lopez (14:37)

and

what I guess to under for depreciation, you have to understand that it can only be offset other passive income as well. Right. Like you can't have a W2 job and then have that offset. So let's say you have five properties and one of them happens to be your DTC, you know, company's property. Well, if you're cash flowing a bunch in one property, you can depreciate. can do ⁓ bonus appreciation on a different property and you can offset. Basically, it all goes into one bucket. Right. Is what I'm getting at. So you can offset your other losses with your other rentals.

income with different properties that you may or may not have. But that's a key concept that people need to understand as well. You need to make sure that when you're doing this appreciation, it's only offsetting your passive income and not your active income on day-to-day operations for other businesses.

Rolando Lopez, CPA (15:21)

Unless you're a real estate professional,

Jon Blair (15:22)

What?

Rolando Lopez, CPA (15:23)

which is one strategy.

Jon Blair (15:23)

That's what I was gonna ask you about next. That's how I was gonna, so let's talk about that next. So actually Raul's got a sweet set up being, I mean, I don't know how your personal tax situation is, but I do know people who run a given business, but they're also a real estate professional and they're able to meet the qualifications to be what the IRS considers a qualified real estate professional. What does that do?

Raul Lopez (15:32)

you

Right, right, which is 750.

So that allows you that completely.

Ignore exactly what I said just two seconds ago, and it completely eliminates that because then, since you are real estate professional, any sort of real estate activity is now considered active, and it falls into now the same bucket. Same thing with short-term rentals, right? If you have an Airbnb and you rent it out on average of seven days or less, that's considered active income, and you can use that appreciation against your regular income as well.

Jon Blair (16:11)

So, to, to, this is not a strategy for that's for everybody, right? Because there are certain qualifications. What are the, what are the, the general criteria that must be met to be able to, to be considered a qualified real estate professional?

Raul Lopez (16:25)

You have to spend 750 hours in real estate and also more than 50 % of your time also has to be allocated to real estate activities throughout the year. So those are the two main points that you need to make sure that you follow with your CPA and make sure that you're tracking this on an annual basis. those two are the main points that make you a real estate professional in that year. Luckily, I'm a ⁓ broker, so I do spend that time throughout the year ⁓ on my personal

taxes per se.

Rolando Lopez, CPA (16:54)

Yeah,

and also one thing I want to clarify and I'm glad Raul said that just because your broker doesn't automatically make you and vice versa just because you're not a broker doesn't mean you're not also either, right? So those qualifications are really for everybody as long as they're spending it in a real estate trader business throughout the year. Unfortunately, a lot of business owners to your point, Jon, have a hard time kind of splitting away from their day to day business. So it makes it difficult. Raul does have that plus. It's funny as brothers.

Jon Blair (17:01)

Yeah.

Rolando Lopez, CPA (17:20)

Well, you we invest together even in our own building in the office and we did a cost seg on it. Raul gets a lot sweeter deal than I do ⁓ on our tax returns. He has a way lower effective rate than I do on our tax returns. But that's part of the power of being a real estate professional.

Jon Blair (17:27)

Yeah. Yeah.

Raul Lopez (17:33)

Another,

no, in another way, and if you're married, your spouse can be a real estate professional. And then since you married filing jointly, even if you have an active business or whatever it may be, you can still offset it because you're marrying filing jointly with your passive losses with your ordinary income.

Rolando Lopez, CPA (17:40)

Yep, exactly.

Jon Blair (17:51)

So that's my personal setup. My wife, that is what she primarily does, is run our real estate business. She doesn't have another W-2 job. And so that is our personal setup. And we're building a, we own, we close on our 10th door on Friday, so we're building a buy and hold, like long term rental, thank you. And you know, what really resonated with me and switched me from

Rolando Lopez, CPA (17:51)

Yep, and that's the workaround.

Raul Lopez (18:09)

Congrats.

Rolando Lopez, CPA (18:09)

Congrats, that's awesome.

Jon Blair (18:17)

focusing on stocks and we'll get into stocks next because I do want to ask you guys about a couple strategies there but I primarily had been following the called the Dave Ramsey plan like buy index funds mutual funds which is a great way to build wealth but it's different right on a number one you don't have the level you don't the depreciation component right to you don't have the ability to use debt

and leverage as a tool, right, which me being a finance guy, I understand debt financing at a deep level because I've raised so much for ecom brands that like, a light bulb went off when I was learning this and I was like, man, this is a, this leverage component is huge, huge wealth building tool, right? But then the other thing is the qualified real estate professional, if you can qualify for that legitimately and it can offset some of your active income, it is,

Rolando Lopez, CPA (18:54)

It is huge.

Jon Blair (19:06)

it has a huge tax impact. But here's what it comes down to. When I read Robert Kiyosaki's Rich Dad Poor Dad, which is what gets so many people investing in real estate, he talks about, find an asset class you like. And one of the reasons is, let's say it's real estate, because you want to find one that going and putting in the hours doesn't feel like work, you're just excited about being a real estate investor. And the more actively involved you are, the more likely you are to have the ability to potentially qualify to

to be a qualified real estate professional. so anyways, I've just found quite a, the other thing is too, and actually this is probably gonna segue right into us talking about investing in stocks through things like Solo 401K, SEP IRAs and whatnot. But like the other thing I realized is like, hey I know there are ways to take money early out of like these retirement accounts, but when I think about generally speaking, I gotta take that money out when I'm old and I wanna retire.

I want to retire earlier or I want the ability to retire earlier than that. And so a light bulb went off to like real estate is, it's good in my mind was an easier way to pull that early retirement off than, than, know, investing in these retirement accounts. But so let's segue to retirement accounts. I know there's things, there's solo 401ks, there's SEP IRAs. Anyways, who wants to hop in and like walk through the major, the most common kind of retirement accounts you guys are advising?

Rolando Lopez, CPA (20:02)

⁓ No.

Raul Lopez (20:02)

Yeah

Jon Blair (20:28)

e-comm brand founders on potentially using to invest in the stock market.

Rolando Lopez, CPA (20:31)

Yeah, and I could take that one. It all depends on the type of business, how many employees a person has. So that's the first thing, Jon, that I always like to ask our clients, right? Like, hey, how many employees do you have? How many would be eligible for it? And I say that because a Solo 401k, as the name already implies, it's only for a solopreneur or their spouse. So if it's just the husband and spouse, then that's good, or vice versa. So Solo 401k and same with the SEP IRA.

It's good when it's smaller business, one to two people. The problem with SEP IRA though is if enough employees and you have many that qualify for it, you then also have to contribute for them, right? So that can get expensive too. Now the solo 401k and SEP IRAs are the ones that have the best and highest amount that you could put into. So it is ideal when somebody has, you know, the ability to leverage those. And for the most part, those are the first two that we've pushed them into unless they otherwise can't.

from a compliance reason, right? So they have employees, because you can't discriminate and these other, you know, financial plan issues that pop up. But once you have employees, then really a Safe Harbor 401k is, you know, good for the company. Now, one thing that I explain to people is even if you have a Safe Harbor 401k for the employees and yourself, you still have that 70 grand a year that you can still do through other vehicles, right? So you can still do it through an IRA. You could even do still a SEP IRA if you have self-employment income.

⁓ Right? Because at that point you're not discriminating and only giving to yourself. You've already taken care of your employees through the 401k, the safe harbor. So those are the ones that we typically see the most. Another area that I actually really like to go, Jon, outside of retirement account is SSA accounts. Right? So that's pre-tax money that if you end up not having to utilize it for, it can convert into sort of a retirement account and grow as well. Right? So those are the first.

really vehicles that we see. There is additional more advanced strategies like a defined benefit plan. Typically, know, high earning individuals will use that. But at the same time, that also is very similar to the other plans where you have to contribute for all the employees. So that one is the one that has the most, that's like almost $275,000 a year you can put into it.

Jon Blair (22:33)

Got it.

Rolando Lopez, CPA (22:40)

but it can get expensive as well if it doesn't make sense. So typically it's the Solo 401k, the Sep IRA and the Safe Harbors that most of our clients stick to overall.

Jon Blair (22:50)

And is it, I know how the solo 401k works and the SEP IRA, but are all those that you went through, whatever you contribute in the current year is deductible in the current year, and then you pay taxes when you take it out later on at whatever tax rate you're at at that time, is that how those all work?

Rolando Lopez, CPA (23:06)

Correct.

Correct. They're all pre-tax, right? So all of those vehicles reduce your taxes now until you take it out in the future. Now the beauty of it, Jon, is you can actually pay it all the way to the extension time where you're filing. So really, you could pay for a solo 401k, assuming you made the calculation, for 2024 as of today, right? Deadline's not here yet for that. So you have until the next year to even contribute to some of these. So those are the few, I would say, tax strategies that are available after a year.

Jon Blair (23:17)

yeah.

Rolando Lopez, CPA (23:32)

⁓ in reality because you get a little bit more time to contribute the money.

Jon Blair (23:36)

I didn't realize you could go all the way to the extension. I thought that you could go... Got it. Okay, for the employer person only.

Rolando Lopez, CPA (23:41)

For the employer portion, for the employer portion, not the employee

portion, because the employee portion goes in your W-2 that has to stay within that year. But the employer portions and the profit sharing portions, you have all the way up to personal deadline extensions, actually.

Jon Blair (23:48)

Got it. Makes sense.

Okay, I love that, I love that. That's a good tidbit. Where does cash balance plan fit into all this? I've heard about that before from someone.

Rolando Lopez, CPA (24:03)

So back in the day, know, pension plans, that's what like a lot of corporations used to have. A defined benefit plan is effectively that same kind of system. It's a little mini pension plan for your company. Now it allows, you know, high earning physicians, lawyers, or DTC business owners, they can put a big chunk up to, you know, 200,000 plus into it. As long as you have a high W-2.

Jon Blair (24:10)

Okay.

Rolando Lopez, CPA (24:24)

But the problem with that program is that you also have to contribute it for a certain amount of years and you have to commit to it because it is a pension plan. And if you break it, if you break it, then the IRS taxes you on all the money that you you contributed to it. So that's the risk and you have to make sure that somebody has very good cash flow because if you commit to it, you got to see it to the end. Exactly, exactly.

Jon Blair (24:31)

Got it.

Got it. You gotta finish it. Got it.

Okay, so Raul, I've got a question for you, because you mentioned this before I hit record. Entity structure strategy. And I want to ask a very specific question, because I get asked this more frequently than anything else. we have a lot of brands that we work with that are like closely held, owned by just one founder or maybe a founder, maybe two founders, but it's not uncommon to have like a single member LLC that we work with, right, in terms of the ownership structure.

And I'm finding a lot of brands who don't realize they don't know the difference between being taxed as a sole proprietor, right? And being or taking the S Corp election and deciding to be taxed as an S Corp. Can you walk through this scenario and like what the major considerations and advantages or disadvantages are?

Raul Lopez (25:34)

Yeah, so, you know

An S-Corp is an LLC. It's just what the IRS is taxed as an S-Corporation, right? So an LLC could be a partnership, a sole proprietor, or an S-Corp, right? So what an S-Corp does is... Let me backtrack. Everyone in the United States needs to pay Social Security and Medicare, right? Whether it's on your W-2 or at year end on your tax return, you will pay Social Security and Medicare. That's just how the system works. So what an S-Corp does is basically you're gonna pay yourself a reasonable salary per the IRS.

a reasonable salary based on your income or sales that year. On that income, you will pay Social Security and Medicare. So you actually have to go to a payroll software or go manually and do it, which I don't recommend, but you get a payroll software and actually pay yourself payroll with payroll taxes taken out that you're paying the IRS. A lot of people get that confused when they come to us. It's like, I'll just send, I'll just wire money to my personal. It's like, no, you gotta actually pay the IRS the taxes, right? So on that small portion, you're paying Social Security.

Jon Blair (26:17)

Yeah.

Yeah.

Raul Lopez (26:33)

Medicare, which then shields you from paying Social Security and Medicare on all of the income you made that year, right? And obviously it's exactly a self-employment tax, which is Medicare and Social Security. if you, that's, you know, that's what everyone talks about, self-employment tax, but really it's the Social Security and Medicare. Now that is 7.65 % Social Security plus the Medicare.

Jon Blair (26:39)

which shows up as what self-employment tax, right? Is that what they call it? It's a self-employment

Raul Lopez (26:56)

on the employee portion, but the employer has to match that. So when you're your own owner, you're a boss and you're running your business, you have to pay that at end of the year. So you got to make sure that, you know, that combined. So when you multiply 7.65 % times two is 15.3%. So what people don't understand is that if you don't structure yourself this way, you're literally paying 15.3 % plus whatever income tax bracket you fall in that year on an annual basis. You're just going to eat that.

every year if you're not structured right as an S corporation.

Jon Blair (27:29)

Well, and

I don't want to get into the nuances of phase outs because I know that I'll confuse people, but like, but just as a simple example, right, that like if you are an LLC taxed as a sole proprietor, right, you don't take the S-corp election. Let's say your LLC makes $250,000 of effectively that flows through to your personal tax return. We'll move, we'll like put phase outs aside. You're effectively paying, you know, 15.3 % on that.

Raul Lopez (27:34)

Yeah.

Jon Blair (27:58)

250 K. If you, if you said took the S corp election and you deemed that a reasonable salary for your position is a hundred thousand dollars a year and you pay that on payroll, you pay the 15.3 % on the a hundred thousand, but you're not paying it on the other one And so it actually, if you do the math, even though which portion of it phases out at, um, is it the social security phase that, but, but that phases out at what, what's the amount for this year?

Rolando Lopez, CPA (28:18)

Social Security does. Social Security, Yeah. 160,

Raul Lopez (28:19)

Social Security, which is the bigger part of it actually. It changes

every year. It changes every year.

Rolando Lopez, CPA (28:25)

it's, mean, but it's around 160. Yeah, but yeah, it's indexed for inflation.

Jon Blair (28:28)

Yeah, so that phases out, but the 2 % and change for Medicare goes on for-

Rolando Lopez, CPA (28:33)

The Medicare everybody

Raul Lopez (28:33)

Yep.

Rolando Lopez, CPA (28:34)

plays, yeah,

Raul Lopez (28:34)

No matter what. Yep.

Rolando Lopez, CPA (28:35)

forever, if you're not a structure, yeah. So you'd be paying that 4%.

Jon Blair (28:36)

Yeah, so I mean, let's just say, for example,

let's say your LLC taxes the sole prior makes a million dollars, right? And like, you're gonna pay that 2. whatever percent forever, right? And so that's still, that can add up to a lot of money. And so like, it's really important to understand this. A lot of people get this wrong. And honestly, like go set up like Gusto or some easy payroll software, ADP. I mean, literally like you can set it up for 50 bucks a month.

Rolando Lopez, CPA (28:47)

on the whole thing.

Jon Blair (29:03)

and it does everything automatically, it's well, well worth it. Not to mention if you do, if you're set up, if you're able to do so, set up a solo 401k, you can do the employee portion of it through payroll as well. then, right, and so, exactly, so like, I highly recommend, this is like a little, this is a tax strategy that is like very simple to set up that I see a lot of brand founders just not consider that can.

Rolando Lopez, CPA (29:18)

Exactly, and then match.

Jon Blair (29:29)

save a ton of money.

Rolando Lopez, CPA (29:30)

Yeah, I mean, the first step of tax planning is entity structuring, Jon, right? Because to your point, if you're already set up in the wrong entity, you're just making more and more money, you're giving more and more away. And so it's important to make sure it's set up from the beginning as it should And typically, for the most S-Corp is the route for DTCs right? If you're an owner operator and you're working on S-Corp is the route, maybe because of the changes in code, perhaps,

Raul Lopez (29:31)

Absolutely.

Jon Blair (29:35)

Totally.

Totally.

Rolando Lopez, CPA (29:56)

a C Corp, if you're somebody who's building brands and exiting them, there's a new part of the code, well not a new part, it's been part of the code, but section 1202 now is really even better because if you grow a brand for, and then sell it within three years, 50 % of your gain is exempt. If you hold it for four years, 75 % is exempt. If you hold it for five years, 100 % is exempt. It is crazy, it's a new...

Jon Blair (29:59)

Totally.

crazy.

Rolando Lopez, CPA (30:19)

It's updated, the Section 1202, Qualified Small Business Stock, has been updated because it's always been around and it's been a five-year hold. However, it's been made much simpler now from a timeline of hold and also it went from a company that is 50 million can now be 75 million. So as long as you're below 75 million in assets when this exit happens, up to 10 million per shareholder of gain is exempt. Which, I mean, that's...

Jon Blair (30:44)

That's huge.

Rolando Lopez, CPA (30:45)

It's huge. It's huge, especially with people that are really, really good in the DTC space at building the brand and starting from scratch. Right. You have people like that that are just extremely good at it. And I think that's an area too, that historically hasn't been looked at much by DTC and even small business owners alike. and they would qualify as long as they're buying their own product and inventory and it's their brand, they will qualify for, for qualified small business stock. ⁓

Jon Blair (31:00)

Totally.

Raul Lopez (31:09)

Yeah, as long as there is a C-Corp from inception as well.

Rolando Lopez, CPA (31:12)

Yes,

they would have to be a C Corp from inception. So that's why, you know, the structuring of things, Jon, from day one, depending on the intent, right? Typically, if you're going to be running the company, S Corp all the way. If you tell me, hey, I'm trying to build this brand and exit in a couple of years, hey, we should consider that section 1202, right? That's why.

Jon Blair (31:27)

And use like

outside capital. I think what, let me break this down to like conceptual. What you're basically saying is when you're thinking about entity structure, you should be thinking about who's capitalizing the business. Because generally speaking, institutional money, they don't like S-corps. C-corps don't have a flow through. They don't want flow through, right? And you're probably not expecting.

Rolando Lopez, CPA (31:30)

true.

Jon Blair (31:52)

You're expecting to take capital, capitalize the business, keep most of it in the business the whole time, right? Until you exit. And so you're not talking about like, like the S-corp closely held, just extracting distributions all the time, right? That may or may not make any sense because of the double taxation. Now, so who, where are you getting capital from? How are you distributing capital or are you even distributing capital as you continue to scale? And then what's the exit plan?

Rolando Lopez, CPA (31:58)

Exactly.

Jon Blair (32:17)

And you gotta think about all those things to make the right decision for entity structuring, right? And so it's not just one dimensional, it's multi-dimensional. Okay, so I wanna ask you guys really quick here. What is, if you could choose like the top one or two tax strategies for ecom brand founders that we haven't already talked about. We've talked about real estate and retirement plans and stuff, but like what are some of the other top one or two strategies that are your go-to?

Rolando Lopez, CPA (32:20)

Absolutely.

Jon Blair (32:44)

or that you oftentimes see are available to e-comm brand founders.

Rolando Lopez, CPA (32:49)

So I would say the lowest hanging fruit, and it goes in line with what we believe as far as how you should allocate your capital, which is backing your business, is really the whole cash to accrual component under Section 471, right? So if you're below $30 million on average in revenue for the last three years, you're considered a small business taxpayer, believe it or not, even a $20 million, $30 million business. And you can take this election of Section 471 that basically allows you to expense your purchases and materials.

upfront when you buy it and actually purchase the product. So what we like to have, and we've done this with some of our clients, neutral clients, Jon, right, is take a look at Q1 of next year. And again, we're not about buying nonsense. Look at Q1 next year, prepay for your product, ⁓ prepay for marketing, prepay for insurance, right? What are things that you're going to already consume that you can now deduct in this year being cash-based as taxpayer?

and reduce your taxes, so you're just keeping more money in your pocket, right, for the same stuff you're gonna acquire here in the next few months. So that's, to me, that is the lowest hanging fruit based on the size of the DTC. Once you get past 30 million, unfortunately, that's not available, but for any brand between zero to 30 million, that's something that they should look at and consider. The other area now that we see too is R &D, you know,

For the last couple of years, R &D was kind of messed up by the prior changes, but now it's back to being able to be expense and get the credit ⁓ immediately. Up until this year with Trump's new changes, we had to then amortize the cost over five years. So ⁓ where I see it in the DTC space is if people are formulating their own brands, creating their own product, right? They have their own molds, whatever the nature of that manufacturing or production is, some of that

Jon Blair (34:12)

Mm.

Got it.

Rolando Lopez, CPA (34:34)

will qualify for R &D. So it's an area that we're also talking to our clients to really understand what they're doing, right? Because R &D is specific of there's certain things that are qualified research expenses, there's certain things that are not. But you have to talk through with a client, a business owner, to really kind of dive in. And we do that during tax planning to see if there's any available juice to squeeze out of that. And then the section 12.1.1 too.

Raul Lopez (34:55)

Yeah, that's a huge change.

That's a huge change because like Rolando said, you're, you're amortizing that. You're literally paying someone let's call it a hundred thousand dollars, but you would only be able to deduct that on your tax return. You know, a portion of that rather than, Hey, I literally just, this money went out my door. It's like the opposite of what we talk about, phantom income with real estate. It's like, you're literally, you're literally having an expense that you can't fully expense.

Jon Blair (35:09)

Mm.

Rolando Lopez, CPA (35:09)

20th.

Jon Blair (35:12)

Yeah, for sure. For sure.

Raul Lopez (35:18)

that went out the door because of that amortization. it really is a big change and definitely something that DTC brand owners should pay attention to.

Jon Blair (35:26)

I love that. And on the cash basis tax filing too, if you are not putting deferring or if you're not hanging up inventory on the balance sheet, let's just say you're carrying a million dollars of inventory, you're like, you are basically recognizing all of that. Like you're not having to defer that to the balance sheet and pay taxes on it for the period that you're holding that asset, right? Like, so I mean, that's another interesting advantage. Last question is,

Rolando Lopez, CPA (35:43)

Correct. Correct.

Jon Blair (35:54)

What we get this all the time and you and I have you we've already talked about this, you know offline but like there's this misconception out there that like if you're doing cash basis tax books you have to do cash basis books for internal management and I think I believe that it's because a lot of the small mom and pop shop CPA firms that are doing the bookkeeping and doing and they're just like a tax shop they don't they tell their clients that because they don't want to keep two sets of books they just want to keep

like cash tax books, but like is that is that allowed to keep accrual books internally and keep cash books for or I mean convert them to cash for tax return purposes?

Rolando Lopez, CPA (36:33)

So the way that the IRS looks at it is if you only keep accrual books internally, then no, it's not allowed. But if you keep cash-based books and can maintain them in concurrency with a tax return, you can. And to your point, Jon, if you want to analyze on a separate set of books or being able to do it off the same trial balance, then you can. But the IRS does want you to keep your books at least in the same method that you're filing with. So you could do it and also keep it in an accrual manner.

You can't just only keep a cruel and then file tax or cash basis, right? So that's the caveat with that overall.

Jon Blair (37:09)

For sure, yes. So we have several clients where we effectively end up keeping both because we have the ability to switch back and forth between the two, right? And so within the software that we use. I don't know how that's done in other softwares outside of QuickBooks, but like in QuickBooks, we can keep the books on a cash basis and an accrual basis simultaneously and effectively analyze them most of the time on an accrual basis. Okay, so

There's a ton more that we could talk about, we're already going over. So I gotta land the plane here. I'm gonna ask you guys a, I'm gonna ask Raul, I always like to end with a fun personal question. So Raul, here we go. What's it like running a business with your brother?

Raul Lopez (37:51)

It is it's honestly we talk about it all the time we get that question all the time too. It's I wouldn't want to be in business with someone other than a family member or my brother in this case because I

I have his full trust, he has my full trust. Yeah, of course, some days you're gonna get into it, but I'd rather get into it with someone that I fully trust with my whole heart than some random person, you know? So, being in business with my brother, it's definitely more rewarding than anything, on top of the fact that he's my older brother, so I look up to him. So, he's been my role model. Being in business with him is by far the best decision I've made, and I've been doing it since I grew college so I'm very grateful for that.

Jon Blair (38:31)

I grew up in a household where my parents ran a business together. So like I come from a family business in the household. I always loved it. Actually the only other duo I've had on the show was a husband and wife combo that ran a business together. yeah. ⁓

Rolando Lopez, CPA (38:37)

gosh, there.

Good for them, good for them. That's

Raul Lopez (38:47)

Yep.

Rolando Lopez, CPA (38:48)

even harder, I'll tell you that. I'll tell you that. That might be even harder than this.

Raul Lopez (38:50)

Yeah, it's definitely harder.

Jon Blair (38:50)

For sure, for sure. I grew up with it,

I definitely know. Rolando, where can people find more information about you guys and CFO Associates?

Rolando Lopez, CPA (39:02)

Yeah, so on our website, thecfoassociates.com, you can schedule a call with us. We are happy to do free consultations, especially for tax advisory services, to kind of just understand what people are getting. And then we explain to them our method of tax planning, which is a lot more proactive and handholding through the strategies in order to actually execute them rather than just talk about them. And so on our website, you can share our emails too Jon. ⁓

We'll be happy to schedule a call.

Jon Blair (39:29)

right now, mean, you guys have been our go-to when people ask us for tax advisory from a firm who understands e-comm and we're excited to keep growing our mutual client base with you guys. And yeah, I mean, we'll probably have to have you come on for round two, because we only got to about half the stuff I wanted to talk about. I appreciate you guys coming on, looking forward to continuing to work with you guys and collaborate. And yeah, appreciate you being here, man.

Rolando Lopez, CPA (39:45)

Yeah, happy to.

Raul Lopez (39:48)

I'd love to.

Thank you, Jon. Appreciate it,

Rolando Lopez, CPA (39:57)

Yeah, likewise, Jon. I appreciate

you taking the time and inviting us. And actually, I have a call with your team on Wednesday regarding one of our mutual clients. we'll keep helping each other out here.

Jon Blair (40:05)

Yep, looking forward to it. All right, guys.

Raul Lopez (40:07)

Thanks so much, Jon.

Rolando Lopez, CPA (40:08)

Take it easy, Jon. Have a good one.

Jon Blair (40:09)

Alright,

Don't forget, if you liked today's episode, please hit the subscribe button wherever you're listening and leave us a review. It helps us reach more people like you. Also, if you want more tips on scaling a profitable DTC brand, follow me, Jon Blair on LinkedIn. And if you're interested in learning more about how Free To Grow CFO can help your brand increase profit and cashflow as you scale, check us out at freetogrowcfo.com.

BONUS EPISODE: Ecom Scaling Show: How To Plan & Budget For Growth In DTC (Ep. 7)

Episode Summary

Welcome to the Ecom Scaling Show, brought to you by Free To Grow CFO and Aplo Group! Join hosts Jon Blair (Founder, Free to Grow CFO) and Dylan Byers (Co-founder, Aplo Group) as we dive into the crucial—yet often missing—link between marketing and finance in DTC e-commerce.

In this episode, Jon and Dylan delve into the intricacies of growth planning over a multi-year timeframe, emphasizing the importance of strategy, capacity planning, and financial liquidity. We discuss the challenges of scaling, the significance of product development, and the considerations for channel expansion, including Amazon and international markets. The conversation also highlights the need for careful financial management, particularly regarding retained earnings and distributions, to support sustainable growth.

Key Takeaways

• Strategic decisions today impact future growth potential.

• Financing growth involves balancing retained earnings and distributions.

• Product development should focus on risk-adjusted returns.

Episode Links

Free To Grow CFO: https://freetogrowcfo.com/

Aplo Group: https://www.aplogroup.com/

Jon Blair on Linkedin:   / jonathon-albert-blair  

Dylan Byers on Linkedin:   / dylan-byers-046010149  

Transcript

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00:00 Strategic Foundations for Growth Planning
03:43 Capacity Planning and Financial Considerations
06:45 Navigating Diminishing Returns and Scaling Strategies
10:03 Product Development and Risk Management
12:51 Channel Expansion: Amazon and Retail Strategies
16:05 International Market Opportunities
18:57 Financing Growth: Retained Earnings vs. Distributions
21:56 Final Thoughts on Multi-Year Planning